What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-05 compared with 2023-03-08 · 6 added, 461 removed, 13 unchanged (97% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Class A Common Stock is listed on the NYSE under the ticker symbol “SMRT.”

FWAA's Class A Common Stock was listed on Nasdaq under the ticker symbol "FWAA" prior to the Business Combination.

Our Class A Common Stock is listed on the NYSE under the ticker symbol “SMRT.” FWAA's Class A Common Stock was listed on Nasdaq under the ticker symbol "FWAA" prior to the Business Combination.

Holders of Record

6 unchanged sentences

The following shall not be deemed incorporated by reference into any of our other filings under the Exchange Act or the Securities Act.

The graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the Standard & Poor’s 500 Index, the Russell 2000 Index and the De-SPAC ETF (NYSE:DSPC) which tracks the performance of The De-SPAC Index (DESPACTR on Bloomberg), an equally weighted portfolio of 25 of the largest de-SPACs on a rolling 12-month basis.

The chart assumes $100 was invested on January 3, 2022, in the Class A common stock of SmartRent Inc., the S&P 500 Index, the Russell 2000 Index and the De-SPAC ETF, and assumes the reinvestment of any dividends.

The graph below compares the cumulative total stockholder return on our Class A Common Stock with the cumulative total return on the Standard & Poor’s 500 Index and the Russell 2000 Index.

The chart assumes $100 was invested on February 9, 2021, in the Class A Common Stock of SmartRent Inc., the S&P 500 Index, and the Russell 2000 Index, and assumes the reinvestment of any dividends.

The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A Common Stock.

The information under “Stock Performance Graphs and Cumulative Total Return”

is not deemed to be “soliciting material”

or “filed”

with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any filing of the Company under the Securities Act, or the Exchange Act, whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in those filings.

The information under “Stock Performance Graphs and Cumulative Total Return” is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any filing of the Company under the Securities Act, or the Exchange Act, whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in those filings.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders.

Unregistered Sales of Equity Securities

Issuer Purchases of Equity Securities

INTENTIONALLY OMITTED

Management’s Discussion and Analysis of Fi nancial Condition and Results of Operations

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 in Item 8 of this Report.

We are an enterprise real estate technology company that provides a comprehensive management platform 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 a Hub Device, we integrate our proprietary enterprise software with third-party smart devices and other technology interfaces.

We use an open-architecture, brand-agnostic approach that allows owners, operators, and residents to manage their smart home systems through a single connected interface.

Our 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 that provides customers with training, installation, and support services.

Our SightPlan acquisition in March 2022 advanced our product roadmap and augmented our cloud-based SaaS solutions for current and prospective customers.

We believe SmartRent is the category leader in the enterprise smart home solutions industry.

As of December 31, 2022, we had 547,196 Units Deployed, 851,815 Committed Units, and 501 customers, including many of the top multifamily residential owners in the U.S.

As of that date, our customers owned an aggregate of approximately 6.7 million units.

This represents approximately 15% of the U.S.

market for institutionally owned multifamily rental units and single-family rental homes.

In addition to multifamily residential owners, our customers include some of the leading homebuilders, single-family rental homeowners, and iBuyers in the U.S.

Key Factors Affecting Our Performance

We believe that our success is dependent on many factors, including those further discussed below.

Our 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 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.

Active Supply Chain Management

We are focused on successfully navigating unprecedented global supply chain disruptions.

Specifically, increased demand for electronics as a result of the COVID-19 pandemic, the U.S.

trade relations with China and certain other factors have led to a global shortage of semiconductors, including Z‑wave chips, which are a central component of our Hub Devices.

Due to this shortage, we have experienced Hub Device production delays, which have occasionally affected our ability to meet scheduled installations and facilitate customer upgrades to our higher-margin Hub Devices.

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 2023.

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 through 2023.

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.

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 the Building Access Control, Video Intercom, WiFi, Parking, and Work Order 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.

Both SmartRent 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.

The Business Combination

On August 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.

to “SmartRent, Inc.”

and changed our trading symbol and exchange listing from “FWAA”

on Nasdaq to “SMRT”

The Business Combination is accounted for as a reverse capitalization in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

Under the guidance in the Financial Accounting Standards Board Accounting Standards Update (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 successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC.

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 immediately prior to the Business Combination) of approximately $444.6 million, which includes approximately $155.0 million in proceeds from a concurrent private placement to certain investors who subscribed for an aggregate of 15,500,000 shares of Class A common stock, offset by additional transaction costs for the Business Combination.

Transaction costs incurred in connection with the Business Combination were approximately $56.0 million, including $12.1 million which represents deferred underwriter fees from the FWAA IPO.

Comparability of Financial Information

Our results of operations and financial position may not be comparable to historical results as a result of the Business Combination.

Basis of Presentation

The consolidated financial statements and accompanying notes included elsewhere in this report are prepared in accordance with GAAP.

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:

(i) they might not accurately predict our future GAAP financial results, (ii) we might not realize all or any part of the anticipated value reflected in Units Booked and (iii) 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.

Units Deployed and New Units Deployed

We define Units Deployed as the aggregate number of Hub Devices that have been installed (including customer self-installations) as of a stated measurement date.

We define New Units Deployed as the aggregate number of Hub Devices 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 207,711, 167,743, and 83,293 New Units Deployed during the years December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, 2021, and 2020 we had an aggregate of 547,196, 339,485 and 155,105 Units Deployed, respectively.

We define Units Booked as the aggregate number of Hub Device 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.

For the years December 31, 2022, 2021 and 2020, there were 282,512, 219,901, and 112,555 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, warranty provisions for battery deficiencies, asset impairment, loss on extinguishment of debt, change in fair value of derivatives, unrealized gains and losses in currency exchange rates, 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 reconciliations of these measures.

Annual Recurring Revenue

We define Annual Recurring Revenue (“ARR”) as the annualized value of our recurring SaaS revenue earned in the current quarter.

We monitor our ARR to assess the general health and trajectory of our hosted services business.

Our ARR was approximately $32.3 million, $10.6 million and $4.9 million as of December 31, 2022, 2021 and 2020, respectively.

Components of Results of Operations

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 generally consist of a Hub Device, door-locks, thermostats, sensors, and light switches.

These hardware devices provide 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 hardware device is shipped to the customer.

Certain Hub Devices do not function independently without the subscription, and therefore, the revenue is recognized in hosted services revenue.

The Company generally provides a one-year warranty period on hardware devices that are delivered and installed.

The cost of the warranty is recorded as a component of cost of hardware revenue.

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.

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 primarily consist of 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 ranging from one month to ten 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 certain Hub Devices, which only function with the subscription to our proprietary software applications and related hosting services.

We consider those devices and hosting services subscription as a single performance obligation, and therefore we defer the recognition of revenue for those devices that are sold with application subscriptions.

The estimated average in-service life of those devices is four years.

When a Hub Device without independent functionality 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.

Cost of hardware revenue consists primarily of direct costs of proprietary products, Hub Devices, 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, the U.S.

administration imposed significant changes to U.S.

trade policy with respect to China.

Tariffs have subjected certain SmartRent products manufactured overseas to additional import duties.

The amount of the import tariff has changed numerous times based on action by the U.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 certain Hub Devices 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.

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, 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 technological feasibility is achieved, 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 the SEC 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 of foreign subsidiaries.

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 the U.S.

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 deferred U.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.

Results of Operations for the Years Ended December 31, 2022, 2021 and 2020

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.

Years Ended December 31,

2022 vs 2021 Change

2021 vs 2020 Change

(dollars in thousands)

Professional services

Hosted services

Total revenue

Cost of revenue

Professional services

Hosted services

Total cost of revenue

Operating expense

Research and development

Sales and marketing

General and administrative

Total operating expenses

Loss from operations

Other income (expense)

Interest income (expense)

Other income (expense), net

Loss before income taxes

Income tax (expense) benefit

Comparison of the years ended December 31, 2022 and 2021

Years Ended December 31,

(dollars in thousands)

Professional services

Hosted services

Total revenue

Total revenue increased by $57.2 million, or 52%, to $167.8 million for the year ended December 31, 2022, from $110.6 million for the year ended December 31, 2021.

The increase in revenue resulted primarily from an increase in New Units Deployed during 2022 compared to 2021, an increased number of cumulative active subscriptions for our hosted services during 2022 compared to 2021, and our acquisition of SightPlan in March 2022.

Our revenue is primarily driven by New Units Deployed and the aggregate number of Units Deployed.

We had 207,711 New Units Deployed during the year ended December 31, 2022, compared to 167,743 New Units Deployed during the same period in 2021, an increase of 39,968 New Units Deployed, or 24%.

The aggregate number of Units Deployed was 547,196 at December 31, 2022, compared to 339,485 at December 31, 2021.

Hardware revenue increased by $17.7 million, or 25%, to $87.4 million for the year ended December 31, 2022, from $69.6 million for the year ended December 31, 2021.

This increase in hardware revenue resulted from a 4% increase in units shipped and an Average Revenue per Unit ("ARPU") increase of 21% to $436.49 for the 2022 period from $361.02 for the 2021 period.

We define hardware ARPU as total hardware revenue for a given period divided by number of Hub Devices shipped in the same period.

Professional services revenue increased by $9.6 million, or 42%, to $32.3 million for the year ended December 31, 2022, from $22.7 million for the year ended December 31, 2021.The increase was primarily attributable to an increase of 24% in New Units Deployed and an ARPU increase of 15% from the year ended December 31, 2021.

We define professional services ARPU as total professional services revenue divided by Units Deployed in a period.

Hosted services revenue increased by $29.9 million, or 163%, to $48.1 million for the year ended December 31, 2022, from $18.3 million for the year ended December 31, 2021.

Of the $48.1 million revenue in 2022, $20.3 million is related to hub amortization and $27.8 million is related to SaaS revenue.

Revenue increased from hub amortization and SaaS by $10.0 million and $19.9 million, respectively, from the year ended December 31, 2021 to the year ended December 31, 2022.

The increase from both components of hosted services revenue resulted primarily from the increased aggregate number of Units Deployed from 339,485 units at December 31, 2021 to 547,196 units at December 31, 2022 and an increase in SaaS ARPU of 93% to $5.32 for the year ended December 31, 2022 from $2.76 for the year ended December 31, 2021.

Approximately $9.9 million of the 2022 increase in SaaS resulted from contributions from iQuue and SightPlan.

Excluding contributions from iQuue and SightPlan, SaaS ARPU was $3.42 for the year ended December 31, 2022.

We define SaaS ARPU as total SaaS revenue for a given period divided by the average aggregate Units Deployed in the same 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 are a subset of Committed Units.

We had 282,512 and 219,901 Units Booked during the years December 31, 2022 and 2021, respectively.

We define Committed Units as the aggregate number of Hub Device (i) units that are subject to binding orders from customers together with (ii) units that existing customers who are parties to a SmartRent 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 measure and evaluate Committed Units to assess the general health and trajectory of our business operations and growth.

As of December 31, 2022 and 2021, SmartRent had 851,815 and 742,429 Committed Units, respectively.

Cost of Revenue

Years Ended December 31,

(dollars in thousands)

Cost of revenue

Professional services

Hosted services

Total cost of revenue

Total cost of revenue increased by $45.8 million, or 38%, to $166.5 million for the year ended December 31, 2022, from $120.7 million for the year ended December 31, 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.

Hardware cost of revenue increased by $12.8 million, or 18%, to $83.3 million for the year ended December 31, 2022, from $70.4 million for the year ended December 31, 2021.

This increase in hardware cost of revenue was primarily attributable to approximately $16.7 million resulting from greater sales volumes and an increase of approximately $2.5 million for direct personnel-related costs for the year ended December 31, 2022.

This was partially offset by a decrease in warranty costs of $7.5 million primarily related to a warranty provision for battery deficiencies recorded during the year ended December 31, 2021.

Professional services cost of revenue increased by $21.4 million, or 56%, to $59.5 million for the year ended December 31, 2022, from $38.2 million for the year ended December 31, 2021.

The increase in professional services cost of revenue is primarily attributable to approximately $11.6 million resulting from an increase in New Units Deployed and related services provided, including third-party direct labor costs.

Personnel-related costs, and related travel costs, increased by $8.6 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 $11.6 million, or 96%, to $23.6 million for the year ended December 31, 2022, from $12.1 million for the year ended December 31, 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

Years Ended December 31,

(dollars in thousands)

Research and development

Sales and marketing

General and administrative

Research and development expenses increased by $7.9 million, or 36%, to $29.4 million for the year ended December 31, 2022, from $21.6 million for the year ended December 31, 2021, resulting primarily from an increase of approximately $6.9 million of personnel-related expenses, as we increased our research and development staff, and an increase in stock-based compensation of $1.3 million.

Sales and marketing expenses increased by $6.9 million, or 49%, to $20.9 million for the year ended December 31, 2022, from $14.0 million for the year ended December 31, 2021, resulting primarily from approximately $5.0 million of increased personnel-related expenses as we increased the size of our sales and marketing staff and an increase of $0.8 million in business applications and software.

We had 282,512 and 219,901 Units Booked during the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022, general and administrative expenses increased by $29.3 million, or 113%, to $55.3 million from $26.0 million for the year ended December 31, 2021, resulting primarily from increases of approximately $10.3 million in personnel-related expenses, asset impairment of $4.4 million related to a prepaid license agreement and a loan receivable, stock-based compensation of $4.2 million, business insurance of $3.6 million, primarily related to Directors and Officers insurance, and $2.8 million of intangible asset amortization.

Other Income (Expenses)

Years Ended December 31,

(dollars in thousands)

Interest income (expense), net

Other income (expense), net

Interest income, net increased by $2.2 million, or 882%, to $1.9 million for the year ended December 31, 2022, from $(0.2) million for the year ended December 31, 2021.

The increase in net interest income is primarily attributable to interest earned on interest-bearing cash balances which were higher for the year ended December 31, 2022 as compared to corresponding period in 2021 due to higher interest rates.

Other income, net increased by $0.5 million, or 982%, to $0.6 million for the year ended December 31, 2022, from $0.1 million of other income, net for the year ended December 31, 2021, primarily due to higher interest income for the year ended December 31, 2022 as compared to the corresponding period in 2021 and foreign currency adjustments.

Years Ended December 31,

(dollars in thousands)

Loss before income taxes

Income tax (expense) benefit

We provided a full valuation allowance on our net U.S.

federal and state deferred tax assets at December 31, 2022, and December 31, 2021.

As of December 31, 2022, we had $205.8 million of U.S.

federal and $188.3 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 the expected realization of deferred tax liabilities from the SightPlan and iQuue acquisitions.

We do not currently expect the Inflation Reduction Act to have a material impact on our financial results, including on our annual estimated effective tax rate.

Comparison of the years ended December 31, 2021 and 2020

For comparison of the fiscal years ended December 31, 2021 and 2020, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended December 31, 2021 filed with the SEC on March 5, 2022, under the subheading "Comparison of the years ended December 31, 2021 and 2020".

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.

We define Adjusted EBITDA as EBITDA reduced by stock-based compensation expense, non-employee warrant expense, warranty provisions for battery deficiencies, asset impairment, loss on extinguishment of debt, change in fair value of derivatives, unrealized gains and losses in currency exchange rates, non-recurring expenses in connection with acquisitions and other expenses caused by non-recurring, or unusual, events that are not indicative of our ongoing business.

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.

Years Ended December 31,

(amounts in thousands)

Interest (income) expense, net

Provision for income taxes

Depreciation and amortization

Stock-based compensation

Non-employee warrant expense

Compensation expense in connection with acquisitions

Other non-recurring acquisition expenses

Asset impairment

Loss on extinguishment of debt

Loss on change in exchange rates

Loss on warranty provision

Adjusted EBITDA

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2022, we had cash and cash equivalents of $210.4 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 convertible SmartRent preferred stock, the net proceeds received as a result of the Business Combination, and payments collected from sales to our customers.

Debt Issuances

Following the maturity of our Revolving Facility (as defined below) in December 2021, we entered into a $75.0 million senior secured revolving credit facility with a five-year term (the "Senior Revolving Facility" ) .

Interest rates for draws upon 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 the CME Group Benchmark Administration Limited (CBA) plus 0.10%, subject to a floor of 0.00%, plus an applicable margin.

For ABR Loans, the interest rate is based upon the highest of (i) the Prime Rate, (ii) the Federal Funds Effective Rate plus 0.50%, or (iii) 3.25%, plus an applicable margin.

As of December 31, 2022, the applicable margins for SOFR Loans and ABR Loans under the Senior Revolving Facility were 1.75% 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.

In February 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 the February 2020 Convertible Note accrued at the coupon rate, compounded annually.

The February 2020 Convertible Note was converted in March 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.

In August 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 in December 2021 and a $5.0 million term loan (the “Term Loan Facility”), which was to mature in November 2023.

In December 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 ended December 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, and May 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 ended December 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 and March 2021, Legacy SmartRent issued approximately 3.4 million 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 $250.9 million as of December 31, 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 - Years Ended December 31, 2022, 2021 and 2020

The following table summarizes our cash flows for the periods presented:

Years Ended December 31,

(dollars in thousands)

Net cash (used in) provided by

Operating activities

Investing activities

Financing activities

Operating Activities

For the year ended December 31, 2022, our operating activities used $81.0 million in cash resulting primarily from our net loss of $96.3 million and $8.1 million used in changes in our operating assets and liabilities, partially offset by $23.4 million provided by non-cash expenses.

Changes in our operating assets and liabilities primarily resulted from a $42.8 million increase in inventory, $15.9 million increase in accounts receivable, and $9.9 million increase in deferred cost of revenue, partially offset by a $43.7 million increase in deferred revenue, a $12.4 million increase in accounts payable, and a $3.2 million increase in accrued expenses and other liabilities.

Non-cash expenses consisted primarily of stock-based compensation of $13.7 million, compensation expense related to acquisitions of $5.0 million, $4.4 million of asset impairment, and depreciation and amortization of $4.3 million, partially offset by a deferred tax benefit of $5.7 million resulting from the SightPlan acquisition.

For the year ended December 31, 2021, our operating activities used $70.4 million in cash resulting primarily from our net loss of $72.0 million, which was partially offset by $18.0 million of non-cash expenses consisting primarily of $8.1 million for stock-based compensation and $7.6 million for the provision for warranty expenses.

For the year ended December 31, 2021, we used $16.4 million net cash from changes in our operating assets and liabilities resulting primarily from increases of $24.0 million in accounts receivable, $15.8 million in inventory, $11.3 million in prepaid expenses and other assets, and $9.3 million in deferred cost of revenue.

These uses were partially offset by an increase of $38.9 million in deferred revenue and an increase of $3.8 million in accounts payable.

For the year ended December 31, 2020, our operating activities used $28.5 million in cash resulting primarily from our net loss of $37.1 million, which was partially offset by $11.3 million of non-cash expenses consisting primarily of $3.4 million of non-cash compensation expense related to the Zenith Highpoint Inc.

("Zenith") acquisition, provision for warranty expenses of $3.4 million, and stock-based compensation of $1.8 million.

For the year ended December 31, 2020, we used net cash of $2.7 million from changes in our operating assets and liabilities resulting primarily from an increase of $13.5 million in accounts receivable, an $11.1 million increase in inventory, an $8.6 million increase in deferred cost of revenue, and $3.2 million decrease in accrued expenses and other liabilities.

This was partially offset by a $32.8 million increase in deferred revenue and $1.0 million decrease in prepaid expenses and other assets.

Investing Activities

For the year ended December 31, 2022, we used $130.8 million of cash for investing activities, resulting primarily from $129.7 million used for the SightPlan acquisition, net of cash acquired.

For the year ended December 31, 2021, we used $9.4 million of cash for investing activities, resulting primarily due to $5.9 million used for the iQuue acquisition, net of cash acquired.

For the year ended December 31, 2020, we used $2.7 million of cash for investing activities, primarily related to the Zenith acquisition, net of cash acquired.

Financing Activities

For the year ended December 31, 2022, our financing activities used $2.8 million of cash primarily for taxes paid related to net share settlements of stock-based compensation awards.

For the year ended December 31, 2021, our financing activities provided $473.9 million of cash consisting primarily of net proceeds from the consummation of the Business Combination in the amount of $444.6 million and convertible preferred stock issued of $34.8 million, net of expenses.

The proceeds were partially offset by paying off the balance of the Term Loan Facility.

For the year ended December 31, 2020, our financing activities provided $48.2 million of cash consisting primarily of convertible preferred stock issued of $57.4 million, offset by net payments on the Revolving Facility of $4.8 million, and payments on the note payable related to the Zenith acquisition of $4.3 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2022.

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 certain Hub Devices combine 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.

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 the American 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;

the market performance of comparable publicly-traded companies;

and global capital market conditions.

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 August 2021.

Emerging Growth Company Status

Section 102(b)(1) of 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 the SEC 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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity