SmartRent, Inc. 2026 Q2 Earnings Call

Thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell, and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which are available on the investor relations section of our website. I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q.

We undertake no obligation to provide updates regarding forward-looking statements made during this call. We recommend that all investors review these reports thoroughly before taking a financial position in SmartRent. Unless otherwise noted, all comparisons discussed on today's call refer to the second quarter of 2026, compared with the second quarter of 2025. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with a reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the investor relations section of our website. With that, I will turn the call over to Frank.

Good morning, everyone. Thank you for joining us. Today I'm going to discuss the more significant operational and financial highlights from the quarter from my point of view. Daryl will conclude our prepared remarks with a more detailed discussion of our Q2 financial results. By almost every measure, SmartRent delivered strong progress in the second quarter as we continue to stay laser-focused on realizing the full benefits outlined in our Vision 2028 strategic plan. As you may recall, Vision 2028 focuses on 2 priorities. First, accelerating growth by expanding our competitive moat, and second, increasing profitability levels through a leverageable operating model. These priorities are anchored by 5 pillars. First, growing our installed base at a double-digit compound rate. Second, scaling a world-class go-to-market organization. Third, infusing our platform with data, analytics, and AI. Fourth, simplifying our hardware architecture while investing in next-generation capabilities.

Fifth and finally, strengthening our internal operating rigor to drive sustainable profit and free cash flow. I believe our second quarter results clearly demonstrate the value creation opportunities inherent in our growing market leadership and aggressive execution of Vision 2028. I will now take a couple of minutes to summarize key proof points highlighted in our second quarter results. First, we accelerated revenue and bookings growth attributable to our best-in-class IoT, access control, and self-guided tour solutions. Our core revenues grew 14%, marking our highest quarterly growth rate in over two years. This double-digit growth builds on our progress from the fourth quarter of 2025, when core revenues grew 12%. SaaS revenues in Q2 grew 13% and now represent more than 40% of total revenue.

ARR increased year-over-year from $57 million to $65 million, reflecting continued expansion of our IoT footprint and increased demand for our highly regarded access control and self-guided tour offerings. In the second quarter, we expanded our installed IoT footprint by 10% to nearly 930,000 units. On a trailing 12-month basis, units booked accelerated from 80,000 in the second quarter of last year to over 112,000 this quarter, which is a 40% increase. Given the significant acceleration of units booked over the last 12 months, I believe we're in a strong position to exceed 1 million units installed during the first half of next year. The scaling of our installed base beyond 1 million units should create a new inflection point for our business from both a growth and a profitability standpoint.

In addition to expanding our unit footprint, we are also investing in our data and analytics solutions, which leverage our network of millions of connected devices through investments such as the planned launch of the SmartRent Innovation Center and our recently announced strategic collaborations with Hexaware and Databricks. As we look forward, we will continue to actively pursue opportunities to expand our footprint and our solutions that drive measurable returns for our customers. A key example is our upcoming launch of a dedicated data and analytics practice. With millions of connected devices across our network, I believe SmartRent is uniquely positioned to translate real-time data into actionable insights, which will power ROI for our customers across such areas as energy efficiency, water conservation, and risk management. To power this practice, we are anchoring our tech stack on industry-leading platform, including Databricks, as a core component of our technology layer.

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

Higher revenues, including increased SaaS contributions, as well as our focus on operational rigor, is fueling our rapid progress. Q2 was our third consecutive quarter of positive adjusted EBITDA. As Darryl will discuss in more detail in a few minutes, we continue to maintain a fortress balance sheet that provides significant financial flexibility to fund our Vision 2028 priorities. During the second quarter, we deployed a portion of our cash war chest to repurchase 1.5% of our outstanding shares. We also recently expanded our share repurchase authorization to $25 million to support future repurchases as warranted. I believe the second quarter provides many clear proof points of our progress, both strategically and operationally. Over the last several quarters, we have demonstrated our ability to deliver accelerating growth as well as expanding margins and profitability while maintaining significant capital reserves.

As the trusted partner to over 600 multi and single-family rental owners and operators, SmartRent is the clear, proven choice for any owner or operator that is looking to adopt and reap the benefits of smart home technology. In conclusion, I want to thank our employees for driving rapid and positive progress against our Vision 2028 priorities and pillars, and our shareholders for their continued support. I will now turn the floor over to Darryl.

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

Units booked totaled more than 48,000 in the quarter, and as Frank mentioned, on a trailing 12-month basis, units booked increased 40% to approximately 112,000 units. Bookings for individual quarters can be non-linear. We have a long sales cycle, and the timing of customer decisions and orders doesn't always align with our reporting periods. As a result, we're increasingly focused on trailing 12 months units booked, which we believe provides a more meaningful view of underlying customer demand and the progress we're making in executing our go-to-market strategy. We're becoming a full-cycle, hardware-enabled technology company. As our platform continues to expand and our installed base matures, the composition of our bookings naturally evolves. Historically, units deployed has been our primary revenue driver. However, hardware refreshes, subscription renewals, and adoption of additional solutions such as access control and self-guided touring are becoming increasingly meaningful to our business.

Different solutions carry different equipment and installation requirements and ARPU characteristics. All of these factors result in variability in both bookings and ARPU. For example, second quarter bookings were more heavily weighted towards IoT solutions, which led to a lower ARPU. As our business evolves beyond primarily new IoT deployments to supporting customers throughout the life cycle of their communities, we expect the mix of bookings to continue to fluctuate. I believe viewed together, continued core revenue growth, accelerating trailing 12-month bookings, and expanding ARR provide three complementary indicators that demand for our platform remains healthy and that the underlying fundamentals of the business continue to strengthen. Total gross margin expanded to 41% in the second quarter, up 760 basis points. SaaS gross margin expanded to 75%, up from 70% a year ago, as a result of ARPU growth and continued cost discipline.

Professional services gross margin improved dramatically to 21%, compared with a negative 44%, reflecting continued operational improvements. Hardware gross margin was 13% compared to 15%, primarily reflecting changes in mix. Operating expenses were $23 million in the second quarter, down 7% from $24 million, reflecting the continued benefit of our productivity initiatives. Net loss was $6 million, an improvement of $5 million, or 48%. Adjusted EBITDA was $700,000, our third consecutive quarter of positive adjusted EBITDA. We ended the quarter with $93 million in cash, no debt, and an undrawn $75 million credit facility. We repurchased about 3 million shares, or approximately 1.5% of shares outstanding at an aggregate cost of $3 million during the quarter. Subsequent to quarter end, our board expanded our share repurchase plan with an authorization to repurchase up to $25 million.