Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial 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. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” and other parts of this Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
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Overview
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 can lower operating costs, increase revenues, mitigate operational friction and protect assets for owners and operators, while providing a differentiated, elevated living experience for residents.
Through a Hub Device, we enable the integration of our platform with third-party smart devices, our own hardware 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 WiFi. We also have a professional services team that provides customers with training, installation, and support services. Our SightPlan acquisition advanced our product roadmap and augmented our cloud-based SaaS solutions for current and prospective customers.
SmartRent is positioned to be a category leader in the enterprise smart home solutions industry. As of December 31, 2023, we had 719,691 Units Deployed and 593 customers, including many of the largest multifamily residential owners in the United States. As of that date, our customers owned an aggregate of approximately 7.0 million units. This represents approximately 16% of the United States 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 United States.
Our Business Model
We generate revenue primarily from sales of smart home systems which enable property owners and property managers to have visibility and control over assets, while providing all-in-one home control offerings for residents. Currently, the majority of our revenue is generated 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. We also generate professional services revenue from installing smart home hardware devices and from monthly subscription revenue earned from the fees collected from customers to provide access to one or more of our software applications ("Hosted Services") including access controls, asset monitoring, WiFi, and related services. Subscription arrangements have contractual terms ranging from one month to eight years; the majority of our recurring revenue contracts range from one month to one year and our average recurring revenue contract term is 1.6 years.
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), and 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 continue to experience improvements in the challenges related to the global supply chain. In prior periods, the increased demand for electronics as a result of the COVID-19 pandemic, U.S. trade relations with China and certain other factors in recent periods led to a global shortage of semiconductors, including Z‑wave chips, which are a central component of our Hub Devices. Due to this shortage in prior periods, we experienced Hub Device production delays, which affected our ability to meet scheduled installations and facilitate customer upgrades to our higher-margin Hub Devices. We also experienced shortages and shipment delays related to components for Access Control and made-to-order specialty locks.
The incremental improvements in the global supply chain are evidenced by our reduction of backlogged Units Deployed for Access Control and made-to-order locks. We believe that this positive trend will continue into next year.
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, and integrate with third-party products and services, mobile applications and other new offerings.
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New Products, Features and Functionality
We are evolving our business into a more diverse platform with new products, features and functionality that enhance the value of our smart home operating system. We have introduced a number of SaaS product enhancements and features, including Answer Automation and Work Management solutions, that streamline property management operations. We have also introduced Community WiFi, which provides communities with a private, device-dedicated WiFi network to power Hub Devices and other in-home smart devices, and Smart Package Room, which is a smart package management solution that transforms package visibility, reduces labor demands, optimizes storage space and enhances resident satisfaction. Our Smart Operations Solutions enhance 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. We 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. 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.
Category Adoption and Market Growth
Our future growth depends in part on the continued consumer adoption of hardware and software products which improve the 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. I” to “SmartRent, Inc.” and changed our trading symbol and exchange listing from “FWAA” on Nasdaq to “SMRT” on the NYSE. The Business Combination is accounted for as a reverse capitalization in accordance with accounting principles generally accepted in the United States of America (“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.
Key Operating and Financial 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.
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Units Deployed, New Units Deployed and Units Shipped
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 utilize the Units Deployed metric to assess the health of our business and measure the trajectory of our growth. We define New Units Deployed as the aggregate number of Hub Devices that were installed (including customer self-installations) during a stated measurement period. Although our revenue is primarily driven by New Units Deployed and the aggregate number of Units Deployed, due to the expansion of our products and services that don't require a Hub Device, the correlation between New Units Deployed and revenue is not as strong as it was historically. Although the correlation has decreased, New Units Deployed is still an indicator of our ability to acquire new customers and expand our relationships with our current customers. As of December 31, 2023, 2022 and 2021, we had an aggregate of 719,691, 547,196, and 339,485 Units Deployed, respectively. We had 172,495, 207,711, and 167,743 New Units Deployed during the years ended December 31, 2023, 2022 and 2021, respectively.
We define Units Shipped as the aggregate number of Hub Devices that have been shipped from warehouse locations during a stated measurement period. We had 226,722, 200,169, and 192,867 Units shipped during the years ended December 31, 2023, 2022 and 2021, respectively.
Units Booked
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 ended December 31, 2023, 2022 and 2021 there were 173,195, 282,512, and 219,901 Units Booked, respectively.
Annual Recurring Revenue
We believe that ARR is a key metric to measure our business performance as it is driven by our ability to acquire new customers and to maintain and expand our relationships with existing customers. 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 $46.2 million, $32.3 million, and $10.6 million as of December 31, 2023, 2022 and 2021 respectively.
Average Revenue per Unit
We use Average Revenue per Unit ("ARPU") to assess the growth and health of the overall business and believe that ARPU reflects our ability to acquire, retain, engage and monetize our customers, and thereby drive revenue.
We define Hardware ARPU as total hardware revenue during a given period divided by the total units shipped during the same period. For the years ended December 31, 2023, 2022 and 2021, Hardware ARPU was $605.15, $436.49 and $361.02, respectively.
We define Professional Services ARPU as total professional services revenue during a given period divided by the total New Units Deployed during the same period. For the years ended December 31, 2023, 2022 and 2021, Professional Services ARPU was $205.65, $155.51 and $135.52, respectively.
We define SaaS ARPU as total SaaS revenue during a given period divided by the average aggregate Units Deployed in the same period. For the years ended December 31, 2023, 2022 and 2021, SaaS ARPU was $5.40, $5.32 and $2.76, respectively.
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
We define EBITDA as net income or loss computed in accordance with GAAP before the following items: interest income/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, non-recurring warranty provisions, asset impairment, loss on extinguishment of debt, non-recurring expenses in connection with acquisitions, severance charges, and other expenses caused by non-recurring or unusual events that are not indicative of our ongoing business. 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.
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Components of Results of Operations
Revenue
We generate revenue primarily from sales of systems that consist of hardware devices, professional installation services and Hosted Services enabling property owners and property managers to have visibility and control over assets, while providing all-in-one home control offerings for residents. We record revenue as earned when control of these products and services is transferred to the customer in an amount that reflects the consideration we expect to collect for those products and services. The table below summarizes our revenue by solution.
For the years ended December 31,
2023
2022
(dollars in thousands)
SmartRent Solutions
Hardware
Professional Services
Hosted Services
Total 2023
Hardware
Professional Services
Hosted Services
Total 2022
Smart Communities Solutions
Smart Apartments
$
130,894
$
30,546
$
49,696
$
211,135
$
82,799
$
30,419
$
37,605
$
150,823
Access Control
3,607
3,527
912
8,047
3,440
1,799
316
5,555
Community WiFi
395
996
688
2,078
179
44
257
480
Other
2,305
404
1,534
4,243
954
39
1,537
2,529
Smart Operations Solutions
-
-
11,334
11,334
-
-
8,433
8,433
Total Revenue
$
137,201
$
35,473
$
64,164
$
236,838
$
87,372
$
32,301
$
48,148
$
167,821
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 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. 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 eight years and include recurring fixed plan subscription fees. The majority of our recurring revenue contracts range from one month to one year and our average recurring revenue contract term is 1.6 years. 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.
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We sell certain Hub Devices, which only function with the subscription to our 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 the cost of revenue to increase in absolute dollars in future periods. We record any change to cost of job performance and job conditions in the period during which the revision is identified.
Hardware
Cost of hardware revenue consists primarily of direct costs of 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 an increase in cost of hardware revenue 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 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.
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. In future periods, we expect the cost of Hosted Services revenue to increase in absolute dollars 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 activities. 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 believe our research and development costs will 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 - in particular as we enhance our WiFi offering.
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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. Our sales and marketing expenses may increase over time as we hire additional sales and marketing personnel, increase our marketing activities, grow our 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, information technology costs, and expenses incurred 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 may also increase the size of our general and administrative staff in order to support the growth of our business but at a rate that is lower than the corresponding increase in total revenue.
Other Income/Expenses
Other income/expenses consist primarily of interest income, net 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. dollar. If we continue to expand 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 federal, state, and international taxes offset by a change in the valuation allowance. 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.
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Results of Operations for the Years Ended December 31, 2023, 2022 and 2021
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.
For comparison of the fiscal years ended December 31, 2022 and 2021, 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, 2022 filed with the SEC on March 8, 2023, under the subheading "Comparison of the years ended December 31, 2022 and 2021".
Years ended December 31,
2023 vs 2022 Change
2022 vs 2021 Change
2023
2022
2021
$
%
$
%
(dollars in thousands)
Revenue
Hardware
$
137,201
$
87,372
$
69,629
$
49,829
57
%
$
17,743
25
%
Professional services
35,473
32,301
22,732
3,172
10
%
9,569
42
%
Hosted services
64,164
48,148
18,276
16,016
33
%
29,872
163
%
Total revenue
236,838
167,821
110,637
69,017
41
%
57,184
52
%
Cost of revenue
Hardware
108,780
83,289
70,448
25,491
31
%
12,841
18
%
Professional services
55,495
59,547
38,189
(4,052
)
(7
)%
21,358
56
%
Hosted services
23,034
23,637
12,073
(603
)
(3
)%
11,564
96
%
Total cost of revenue
187,309
166,473
120,710
20,836
13
%
45,763
38
%
Operating expense
Research and development
28,805
29,422
21,572
(617
)
(2
)%
7,850
36
%
Sales and marketing
19,209
20,872
14,017
(1,663
)
(8
)%
6,855
49
%
General and administrative
44,674
55,305
25,990
(10,631
)
(19
)%
29,315
113
%
Total operating expenses
92,688
105,599
61,579
(12,911
)
(12
)%
44,020
71
%
Loss from operations
(43,159
)
(104,251
)
(71,652
)
61,092
(59
)%
(32,599
)
45
%
Other income (expense)
Interest income (expense), net
8,580
1,946
(249
)
6,634
341
%
2,195
882
%
Other (expense) income, net
(116
)
595
55
(711
)
(119
)%
540
982
%
Loss before income taxes
(34,695
)
(101,710
)
(71,846
)
67,015
66
%
(29,864
)
(42
)%
Income tax (benefit) expense
(108
)
(5,388
)
115
5,280
98
%
(5,503
)
(4785
)%
Net Loss
$
(34,587
)
$
(96,322
)
$
(71,961
)
$
61,735
64
%
$
(24,361
)
(34
)%
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Comparison of the Years ended December 31, 2023 and 2022
Revenue
Years ended December 31,
Change
Change
2023
2022
$
%
(dollars in thousands)
Revenue
Hardware
$
137,201
$
87,372
$
49,829
57
%
Professional services
35,473
32,301
3,172
10
%
Hosted services
64,164
48,148
16,016
33
%
Total revenue
$
236,838
$
167,821
$
69,017
41
%
Total revenue increased by $69.0 million, or 41%, to $236.8 million for the year ended December 31, 2023, from $167.8 million for the year ended December 31, 2022. Of the $69.0 million increase, $60.3 million was driven by our Smart Apartments solution. The increase in revenue resulted primarily from a 39% increase in Hardware ARPU, increased hardware revenue related to shipping distinct Hub Devices in the current year, a 13% increase in units shipped, a 32% increase in the number of cumulative active subscriptions for our Hosted Services during 2023 compared to 2022, and the realization of additional revenue from our Smart Operations solutions. Below is a table of our revenue drivers.
Years ended December 31,
Change
2023
2022
%
Hardware
Hardware units shipped
226,722
200,169
13
%
Hardware ARPU
$
605.15
$
436.49
39
%
Professional Services
New units deployed
172,495
207,711
(17
)%
Professional services ARPU
$
205.65
$
155.51
32
%
Hosted Services
Units deployed
719,691
547,196
32
%
Average aggregate units deployed
633,444
443,341
43
%
Non-distinct hub amortization ARPU
$
3.04
$
3.83
(21
)%
SaaS ARPU
$
5.40
$
5.32
2
%
Bookings
Units booked
173,195
282,512
(39
)%
Bookings (in thousands)
$
158,453
$
242,957
(35
)%
Units booked SaaS ARPU
$
8.32
$
4.60
81
%
Hardware revenue increased by $49.8 million, or 57%, to approximately $137.2 million for the year ended December 31, 2023, from $87.4 million for the year ended December 31, 2022. This increase in hardware revenue was driven by our Smart Communities Solutions and resulted from a 13% increase in units shipped to 226,722 for the year ended December 31, 2023 from 200,169 for the year ended December 31, 2022, and an ARPU increase of 39% to $605.15 for the 2023 period from $436.49 for the 2022 period. The increase in ARPU is primarily driven by hardware revenue recognized on the shipment of Hub Devices with features that function independently from its software subscription (“distinct Hub Devices") during the year ended December 31, 2023. During the year ended December 31, 2022, exclusively Hub Devices which only functioned with a subscription to its software (“non-distinct Hub Devices") were shipped, and thus, no hardware revenue was recognized for these devices. See Note 2, "Significant Accounting Policies" - Revenue Recognition for more information on revenue recognition related to Hub Devices.
Professional services revenue increased by $3.2 million, or 10%, to $35.5 million for the year ended December 31, 2023, from $32.3 million for the year ended December 31, 2022. Of the $3.2 million increase, $1.7 million and $1.0 million was driven by our Access Control and Community WiFi solutions, respectively. Professional services ARPU increased by 32% to $205.65 for the year ended December 31, 2023 from $155.51 for the year ended December 31, 2022. New Units Deployed decreased by 17% to 172,495 units for the year ended December 31, 2023 from 207,711 units for the year ended December 31, 2022.
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Hosted Services revenue increased by $16.0 million, or 33%, to approximately $64.1 million for the year ended December 31, 2023, from $48.1 million for the year ended December 31, 2022. Of the $64.1 million revenue in 2023, $23.0 million is related to hub amortization and $41.1 million is related to SaaS revenue. Revenue increased from hub amortization and SaaS by $2.7 million and $13.3 million, respectively, from the year ended December 31, 2022 to the year ended December 31, 2023. The increase from both components of Hosted Services revenue resulted primarily from a 32% increase in the aggregate number of Units Deployed, primarily of our Smart Apartment solution, from 547,196 units at December 31, 2022 to 719,691 units at December 31, 2023 and an increase in SaaS ARPU of 2% to $5.40 for the year ended December 31, 2023 from $5.32 for the year ended December 31, 2022. Approximately $2.9 million of the 2023 increase in SaaS was contributed from our Smart Operations Solutions.
Additionally, our Hosted Services growth is driven by our ability to retain our customers and minimize Customer Churn. Customer Churn is defined as the total number of units previously deployed during the period at a given property where a customer has cancelled all product subscriptions. We have not experienced Customer Churn in our Smart Apartment solution since inception. We have received cancellations on our stand-alone Self-Guided Tour solution, which is considered Customer Churn when it is the only SmartRent product at the given location prior to cancellation. Including these Self-Guided Tour cancellations, our Customer Churn rate for our Smart Communities Solutions is 0.02% for the year ended December 31, 2023 compared to 0.01% for the year ended December 31, 2022. Our Customer Churn rate is calculated by dividing the Customer Churn on our Smart Communities Solutions by our aggregate Units Deployed for a given period.
With respect to our SaaS subscriptions, our Net Revenue Retention was 105% for the year ended December 31, 2023. We calculate our Net Revenue Retention as of the end of a given period by dividing monthly recurring revenue ("MRR") at the end of the period (excluding MRR from properties deployed during the current period) by MRR for the same period in the prior year. Net Revenue Retention includes any reductions in revenue caused by cancellations or downgrades, offset by additions to revenue from price increases on existing products, additions of new products at existing properties and subscription upgrades. We calculate non-distinct hub amortization ARPU as total revenue contribution from non-distinct hub amortization during a given period divided by the average aggregate Units Deployed in the same period.
Bookings represent the contract value of hardware, professional services, and the first year of ARR for binding orders executed during a stated measurement period. We calculate Units Booked SaaS ARPU as the first year ARR for binding orders executed during the stated measurement period divided by the total Units Booked in the same period.
We don’t expect to deploy any more non-distinct Hub Devices, thus, the revenue contribution from hub amortization should decrease in future periods until the non-distinct Hub Devices are fully amortized. The table below shows the expected revenue contribution from hub amortization.
For the years ended December 31,
2024
2025
2026
2027
(dollars in thousands)
Revenue contribution from hub amortization
Q1
$
5,295
$
4,700
$
2,196
$
156
Q2
5,161
4,530
1,454
54
Q3
5,106
3,556
884
19
Q4
4,897
2,834
413
3
Total
$
20,459
$
15,620
$
4,947
$
232
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. We had 173,195 and 282,512 Units Booked during the years ended December 31, 2023 and 2022, respectively.
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Cost of Revenue
Years ended December 31,
Change
Change
2023
2022
$
%
(dollars in thousands)
Cost of revenue
Hardware
$
108,780
$
83,289
$
25,491
31
%
Professional services
55,495
59,547
(4,052
)
(7
)%
Hosted services
23,034
23,637
(603
)
(3
)%
Total cost of revenue
$
187,309
$
166,473
$
20,836
13
%
Total cost of revenue increased by $20.8 million, or 13%, to $187.3 million for the year ended December 31, 2023, from $166.5 million for the year ended December 31, 2022. The increase in cost of revenue resulted primarily from a 13% increase in units shipped of our Smart Apartment solution hardware devices and the shipment of distinct Hub Devices in the current period.
Hardware cost of revenue increased by $25.5 million, or 31%, to $108.8 million for the year ended December 31, 2023, from $83.3 million for the year ended December 31, 2022. This increase in hardware cost of revenue was primarily attributable to approximately $26.4 million of additional cost resulting from greater sales volumes and the shipment of distinct Hub Devices during the year ended December 31, 2023, partially offset by reductions to other costs of revenue attributable to improved processes and efficiencies.
Professional services cost of revenue decreased by $4.1 million, or 7%, to $55.5 million for the year ended December 31, 2023, from $59.6 million for the year ended December 31, 2022. The decrease in professional services cost of revenue is primarily attributable to a decrease in personnel-related costs, and related travel, of $7.1 million. This was partially offset by an increase of approximately $3.8 million resulting from an increase in third-party direct labor costs. This year we have invested in technology initiatives to allow our teams to be more efficient and furthered our collaboration with third-party partners to augment our professional services. As a result, we believe that we have transformed our professional services to a more variable cost model that will improve efficiency in future periods.
Hosted Services cost of revenue decreased by $0.6 million to $23.0 million for the year ended December 31, 2023, from $23.6 million for the year ended December 31, 2022. The decrease resulted from the decrease in personnel related costs, partially offset by 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,
Change
Change
2023
2022
$
%
(dollars in thousands)
Research and development
$
28,805
$
29,422
$
(617
)
(2
)%
Sales and marketing
19,209
20,872
(1,663
)
(8
)%
General and administrative
44,674
55,305
(10,631
)
(19
)%
Research and development expenses decreased by $0.6 million, or 2%, to $28.8 million for the year ended December 31, 2023, from $29.4 million for the year ended December 31, 2022, resulting primarily from a decrease of approximately $0.5 million of personnel-related expenses recorded during the year ended December 31, 2023. We believe our research and development costs will 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 – in particular, as we enhance our WiFi offering.
Sales and marketing expenses decreased by $1.7 million, or 8%, to $19.2 million for the year ended December 31, 2023 from $20.9 million for the year ended December 31, 2022, resulting primarily from a decrease of approximately $0.8 million in stock-based compensation, and $0.5 million in conference and trade show expenses.
For the year ended December 31, 2023, general and administrative expenses decreased by $10.6 million, or 19%, to $44.7 million, from $55.3 million for the year ended December 31, 2022, resulting primarily from a $4.4 million asset impairment related to a prepaid license agreement during the year ended December 31, 2022. Additionally, business insurance and third-party consulting expenses decreased by $2.3 million and $2.0 million, respectively.
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Other Income
Years ended December 31,
Change
Change
2023
2022
$
%
(dollars in thousands)
Interest income, net
$
8,580
$
1,946
$
6,634
341
%
Other (expense) income, net
(116
)
595
(711
)
(119
)%
Interest income, net increased by $6.6 million to approximately $8.5 million for the year ended December 31, 2023, from $1.9 million for the year ended December 31, 2022. The increase in net interest income for both periods is primarily attributable to interest earned on interest-bearing cash balances.
Other (expense) income, net decreased by $0.7 million, or 119%, to $(0.1) million for the year ended December 31, 2023, from $0.6 million for the year ended December 31, 2022. The decrease in both periods is primarily due to foreign currency adjustments.
Income Taxes
Years ended December 31,
Change
Change
2023
2022
$
%
(dollars in thousands)
Loss before income taxes
$
(34,695
)
$
(101,710
)
$
67,015
66
%
Income tax benefit
(108
)
(5,388
)
5,280
98
%
We provided a full valuation allowance on our net U.S. federal and state deferred tax assets at December 31, 2023, and December 31, 2022. As of December 31, 2023, we had U.S. federal net operating losses of $3.7 million that begin to expire in 2032 and $200.9 million which will be carried forward indefinitely. As of December 31, 2023, we had $193.4 million of state net operating loss carryforwards that expire on varying dates. The income tax benefit is related to the federal, state, and international taxes offset by a change in the valuation allowance. The Company also has $0.1 million of R&D credits available that expire in 2039.
On August 16, 2022, the Inflation Reduction Act ("IRA") (H.R. 5376) was signed into law in the United States. The IRA implements a 15% minimum tax on financial statement income of certain large corporations and a 1% excise tax on stock repurchases, among other things. While we continue to evaluate the IRA, we do not believe it will have a material effect on our audited financial statements, including on our effective tax rate or on our liquidity.
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 income/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, non-recurring warranty provisions, asset impairment, loss on extinguishment of debt, non-recurring expenses in connection with acquisitions, severance charges, 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.
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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.
For the years ended December 31,
2023
2022
2021
(dollars in thousands)
Net loss
$
(34,587
)
$
(96,322
)
$
(71,961
)
Interest (income) expense, net
(8,580
)
(1,946
)
249
Income tax (benefit) expense
(108
)
(5,388
)
115
Depreciation and amortization
5,533
4,262
463
EBITDA
(37,742
)
(99,394
)
(71,134
)
Stock-based compensation
13,271
13,716
8,131
Non-employee warrant expense
(193
)
289
931
Compensation expense in connection with acquisitions
2,010
5,042
-
Asset impairment
-
4,441
-
Severance charges
1,070
-
-
Other acquisition expenses
651
1,197
-
Loss on extinguishment of debt
-
-
27
Non-recurring warranty provision
1,746
-
6,430
Adjusted EBITDA
$
(19,187
)
$
(74,709
)
$
(55,615
)
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2023, we had cash and cash equivalents of $215.2 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 received as a result of the Business Combination, and payments collected from sales to our customers.
ADI Global Distribution Agreement
On August 3, 2023, we entered into the Agreement with ADI, pursuant to which, ADI will serve as our non-exclusive hardware fulfillment partner throughout the United States, Canada, and Puerto Rico. In connection with the Agreement, the Company has agreed to transfer certain of its inventory to ADI, to fulfill our sales in exchange for cash. No revenue is recognized when inventory is transferred to ADI. We believe the Agreement will result in a net positive cash flow impact in future periods.
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, 2023, 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.
Legacy SmartRent Preferred Stock Issuances
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.
50
We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of $285.5 million as of December 31, 2023. 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.
Stock Repurchase Program
In March 2024, our Board of Directors authorized a stock repurchase program pursuant to which we may repurchase up to $50 million of our Class A common stock. Repurchases under the program may be made from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate us to acquire any particular amount of our Class A common stock and may be suspended at any time at our discretion. The timing and number of shares repurchased will depend on a variety of factors, including the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors.
To date, we have not made any repurchases under our stock repurchase program, and $50 million remains available for future repurchases.
Cash Flow Summary - Years Ended December 31, 2023, 2022 and 2021
The following table summarizes our cash flows for the periods presented:
Years ended December 31,
2023
2022
2021
(dollars in thousands)
Net cash provided by (used in)
Operating activities
$
5,981
$
(77,833
)
$
(70,376
)
Investing activities
(6,023
)
(133,993
)
(9,373
)
Financing activities
(1,905
)
(2,801
)
473,926
Operating Activities
For the year ended December 31, 2023, our operating activities resulted in net proceeds of $6.0 million in cash resulting primarily from $27.8 million provided by non-cash expenses and $12.8 million provided by changes in our operating assets and liabilities, partially offset by our net loss of $34.6 million. Non-cash expenses consisted primarily of stock-based compensation of $13.3 million, depreciation and amortization of $5.5 million, compensation expense related to acquisitions of $2.1 million, and provision for excess and obsolete inventory of $2.5 million. Changes in our operating assets and liabilities primarily resulted from a $31.7 million decrease in inventory and a $13.0 million decrease in deferred cost of revenue, partially offset by a $16.8 million decrease in deferred revenue and an $11.0 million decrease in accrued expenses and other liabilities. While the Agreement with ADI did not have a cash flow impact during the year ended December 31, 2023, we believe the Agreement will have a positive impact on cash flow in future periods.
For the year ended December 31, 2022, our operating activities used $77.8 million in cash resulting primarily from our net loss of $96.3 million and $4.9 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
51
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.
Investing Activities
For the year ended December 31, 2023, we used $6.0 million of cash for investing activities, resulting primarily from cash paid of $3.6 million for capitalized internal-use software development costs and $2.3 million cash paid for investment in non-affiliate.
For the year ended December 31, 2022, we used $134.0 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.
Financing Activities
For the year ended December 31, 2023, our financing activities used $1.9 million of cash, resulting primarily from $1.7 million used for earnout payments related to the iQuue acquisition.
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.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2023.
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
52
customer use of our 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.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") exempts “emerging growth companies” as defined in Section 2(A) of the Securities Act of 1933, as amended, from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” and have elected to take advantage of the benefits of this extended transition period.
We will use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. The extended transition period exemptions afforded by our emerging growth company status may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company
53
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 first fiscal year following the fifth anniversary of the initial public offering by FWAA (the "FWAA IPO"), which closed on February 9, 2021, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 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