Hi. Good morning, everyone. My name is Lucy Wang . I'm part of the JP Morgan team, and I have the pleasure here with the SmartRent team, who is founder and Chief Executive Officer Lucas Haldeman. SmartRent is an enterprise tech company that provides smart home operating systems for the residential property managers and owners. As you know, they went public last year. Lucas, thanks for joining us. Maybe before we dive into business, could you give us a little bit about your background, having held senior positions prior to this, at various, you know, property management companies, and what led you to form SmartRent and the solutions that you provide?
Yeah. Well, thanks for having me, and thanks, everyone, for joining. Yeah, I won't bore you too long with my background. I come from the operations side of multifamily and single family rental real estate. I actually think that helped. I like to say we're sort of frustrated operators. We're looking for a tech solution that didn't exist. That's what motivated us to go start this business is we knew the solution was needed by the industry, but all the sort of competitive set, our competitive set to SmartRent weren't building it in the right way. For three years, I tried to convince someone else to go start SmartRent or build the right product.
When I realized no one was gonna do it, I just had to do it myself.
Awesome. Could you talk a little bit about kinda what is the overall industry landscape today, and how have you created a powerful moat, and essentially what differentiates us?
Yeah. I think when you look at this business, what SmartRent has created is it's, there's not a lot of IP, there's not a lot of patents, but there's a lot of business process, a lot of know-how and a lot of time that then creates a competitive moat. Just to be able to go, you know, we did 51,000 new units in Q1 that we installed. To go do that, the effort, the manpower needed to do that is incredible. That's a moat in and of itself. The deep integrations we have with other software, it's not impossible to replicate, but it takes a lot of time. Really what even today that the competitive set that we see doesn't come from the industry.
Like I said, my background is in the industry. They still don't totally understand what they're trying to build. That's its own competitive moat. Actually coming from the operations side is I know exactly what is needed because I was the customer. I was looking for that company.
Yeah. You know, I think we hear a lot about digital transformation in every industry. I mean, I guess in real estate, it's also the same. How have you seen that trend sort of as a tailwind through your business and, you know, as you guys continue to tackle the opportunity?
Yeah, I think we'll. You know, I keep saying we'll look back on COVID. It's still going on, right? We're year-t hree. At the beginning of COVID, what we saw was the beginnings of this digital transformation like I've never seen in real estate. Real estate always lags. It's never a forward-leading industry in technology. It's always a lagging industry, and it needs a catalyst. You know, COVID became that catalyst to say, we can't keep doing business the same way. We have to change. We're still enjoying those tailwinds. You know, it comes with some supply chain pressures and other issues. Long term, we're seeing this incredible transformation towards technology, not just in smart homes, and certainly in smart homes, but across the whole stack where we really had.
You know, it's amazing to me if you think about in this day and age, there's still a majority of apartments that don't accept rent online. Like, where else would you not be able to pay with a card or with your debit card? Like, it's incredible to think about that. Like, you wouldn't go to a British Airways and be like, they're like, "Oh, we don't take cards. Can you write us a check?
Mm-hmm.
That's the rental industry. That's the industry that we're transforming. I think we're seeing this sort of new dawn. Part of it has to do with the age of the operator that in terms of we're seeing a cycling out of some of the older operators and younger people are coming into this industry and just saying, "This is broken. This is a broken industry, and we solve it with tech." It's an exciting time to be in proptech.
Absolutely. You know, SmartRent's very fortunate to have very strong relationships with the majority of the leading owners and professional managers in the space. How are you thinking about sort of continuing to grow through expansions of your network, especially on the, I would say, middle or smaller market operators?
Yeah. I think, you know, today we have 290 customers, and if you even look two years ago, that was less than 50 customers. We've already started to move into that space, into what we call the long tail of real estate. We started with the largest owner-operators for two reasons. One is they're great to have on your side, right? That they'll make a big commitment. When you have a UDR and an Aimco and an Essex and an MAA saying, "We're gonna get behind you and we really believe in this," that's great, but it's also great marketing. As we go into that long tail, that's the marketing tool that our sales team uses to say, "Hey, these the largest operators have chosen this.
They've done underwriting, they've done vetting, they did the pilots. It becomes that sales cycle, speeds up that sales cycle. You're seeing that happen. We have over 30 reps now out in the market selling. We added 44 new customers in Q1 alone. You're actually seeing that come to fruition. That's the exciting part because if you look at the top 20 owners, it's great that we have 15 owners of those top 20 owners. That's a great statistic.
Mm-hmm.
That's about 1.5 million units out of 28 million units. Really, the game that's ahead is that long tail.
Right.
We're well-positioned to go harvest that.
Usually when you land with these operators, is it kinda like system-wide rollout, or how does it work? Maybe talk a little bit about the managed land opportunity.
Yeah. It is a great land and expand business that we have. You know, we have five core products. Any one of those can be a landing point. We can say, "Let us just come do the common area, or let us do your apartments, or let us do one , you know, Wi-Fi." Once we're in there, it's like, well, now let's broaden out. I love that piece of the business as well. You're seeing that start to come to fruition. We just closed an acquisition of a company called SightPlan in March. That's another five products. 39 of our current customers already use that product out of the 290 customers. You're seeing these great synergies, which is.
The other sort of macro issue we're seeing in multifamily is there's this vendor fatigue. I had it as a CPO. It's just, hey, you know, I can only manage so many relationships. We're benefiting from that of saying, "Hey, we're competent. We do a great job. We show up on time. We get it done. We're we fulfill what we say we're gonna do," which turns out is rare in this industry.
Mm.
That gives you the ability to continue to expand the product and grow that ARPU. If you see an ARPU of, you know, $5-$7, you can see that growing to $10, $15, $20 over time, with additional products and additional enhancements.
Yeah. You know, we obviously have different parts of our revenue. You know, as you think about, you know, servicing some of these operators, right? I mean, our sort of the training and some of the workflow processes that you mentioned are very important. How strategic is the kind of services fees and how you think about that play into the whole sort of driving the opportunity forward?
Yeah, I think having a large field services team, it's a big investment that we made, and we started out making that investment from day one. We knew that it was gonna be vital to getting implementation done. As former operators, we knew you can't just send a box of smart home stuff to a property expecting it to happen. We knew that we needed to have that high touch point of training and that there's budget for it. You know, the owners are willing to pay for it, but they need that to actually get the ROI. That without that, you don't actually harvest that ROI. You can make the investment, but you don't reap the benefit because if it doesn't get implemented correctly, people don't use it, you don't get the updates.
For us, having that field services team is a core piece of our business. You know, we have over 200 people out in the field on our payroll, you know, managing these implementations. That's a real key differentiator. None of our competitors have done that. And I think that's part of why we've been able to scale so quickly, because the implementation goes so well.
Mm-hmm. Part of what I thought is differentiating for SmartRent is, you know, our software solution, right? Our software can work with, you know, other third party, you know, certain devices that they have. Maybe give us a little bit about just how you think about the software solutions in the future for that side of the company.
Yeah. I think one of our founding principles was to have a very open architecture. We believe that the next wave of technology is about being open, things working together. You know, one of the examples I like is Sonos. If you use Sonos, you can control your speakers. It also integrates with Spotify. It integrates with Android. It integrates with Apple Music. That's sort of the model going forward, which is you need to have flexibility, you need to have options. For us, a key component of that business is integrating with software that's already being used. It could be single sign on so that, you know, when an employee is terminated, no longer have access to the smart apartments. It could be the property management software that's already being used.
That's where, when we acquired SightPlan, we're already integrated with this company. That's a great example of seeing this open architecture to say, we know a lot about this company because they've already been integrated with them. That's what really makes it work seamlessly, is doing the hard work upfront to do the integrations. Much easier to create a standalone product, to create an island, tech island, just have it be nice to just use my system, log into my system. It's harder to say, "No, we're actually gonna go figure out the wiring behind the scenes and hook it all up and make it work together." And that's what we've done.
Would you say that that's a sort of key competitive differentiation for us? How do you see the competitive landscape?
I think it is a key competitive differentiation. We have a competitor that's owned by a property management software company, and we have deeper integrations with that software company than the company that owns it. It's one of those that say. Again, this is one of the moats that I was talking about. It's not impossible to replicate. People can go do the integrations, but it takes time, and you have to know what you're integrating with. We still see today a competitor set that hasn't gone and done that hard work. That's where when you go and sit down with an operator, that's their number one question is, does it work with what I'm already using?
Because we've all, on the operations side, been burned by incredible tech that doesn't fit into our tech stack. It's been. That incredible tech that doesn't fit in is worthless. It could be the greatest product ever, but it doesn't work with the software I'm already using, and I don't get any of the benefit. You know, I hate kind of saying this publicly, but it is. People can go replicate this. It's not magical. It's not proprietary. They haven't, and we're enjoying that time. It's a years long process to go do that. You know, if you decided today.
Yeah.
which some of our competitors have, "Hey, we're gonna go do this," you know, it takes years. It takes years to go get this done.
Yeah. Maybe just to dig a little bit deeper on that, just given, you know, seems like we have a really, sort of a first mover advantage, if you will, right? From a relationship with the property management companies, as well as just the investments we've made to kind of automate some of the workflow and the software investments that we've made. Can you talk a little bit more about just R&D and kind of the focus around there? What do you see just main area of focus, if you will, for 2022 and 2023?
Yeah. I think the R&D side, we're continuing to expand the product set, continuing to enhance the product set, to bring new products to market. You know, real estate has the first mover advantage that is so severe. The cost of being second almost means you don't even get in the game. I don't think people outside of real estate quite fathom that or say that, but we've actually seen competitors, well-capitalized tech companies leave the industry because they've realized it's too expensive. The acquisition cost is too expensive. The cost of being second is so punitive. We are. You're exactly right. We're reaping the benefits of being that first mover, getting the first key to scale. We weren't the first company to come with this product.
We're the first company to come with a holistic product that integrated, and that's what created this first mover advantage. The first mover isn't being the first to have the idea, but we're the first to gain scale.
Right.
In real estate, that's the key. We're first to gain scale, and you see it through not only multifamily, but in commercial real estate and even in residential real estate. The first mover advantage is unlike any other industry, and we are reaping the rewards of that. That allows us to then invest in R&D and continue to invest. We have this embedded customer base that's, you know, they're pushing us for more products. It's great to say the demand is there. We just have to build the products.
Yeah. Shifting gear a little bit, just from an expansion perspective, can you talk a little bit about, you know, opportunities in Canada, the U.K., Western Europe? Obviously, I think we have enough jam and opportunities domestically.
Yeah.
I think investors always like to learn a little bit about just the plan internationally.
Yeah. As you mentioned, we're already in Canada and in the U.K. We set up operations there several years ago, and it is a slow-moving industry. Even with the tailwinds of COVID, it's still a slow-moving industry. For us, it's about, you know, getting into markets early, and they won't sort of bear fruit this year or probably even next, but that's long-term is a really interesting growth strategy. The product we created is not a solution just domestically, it's a solution globally, and we look to go harvest that. Yeah, I think Canada, U.K., look at Australia, New Zealand, they're sort of other English-speaking countries are pretty easy to get into.
We've had great conversations in parts of Asia and parts of the Middle East as well. I think those conversations are happening. Those initiatives are ongoing, and they're exciting. To your point, we are primarily focused on harvesting the 5.1 million units that our current customers own here in the U.S.
Will your relationships with the domestic real estate operators have any kind of leverage for you as you know, expand overseas?
Yeah, absolutely. We have several owners that we work with here in the U.S. who have global portfolios. That's another easy way to expand is to say, "Hey, you use us in Portland. Why not use us in Dublin?" That's. I love that piece of the business as well. For us, it's about kind of like we did the U.S. We find the largest, you know, most sophisticated operators, get the commitment from them to roll out, and then we can stand up a business I think that will sell the long tail. You'll see the same thing domestically that we did domestically, you'll see internationally.
Yeah. You know, I think we're growing pretty fast, right? Most recent quarter growth was 95%, you know, revenue growth. Obviously very impressive. Maybe investors will always ask, why not, why can't you grow faster? Because 95% is really fast, but I'm sure you can. Say it another way is, what are some of the challenges that sometimes when people don't adopt our product? Like, what is the sort of bottleneck?
Yeah, I mean, we're in a pretty fortunate position where if we can get an owner to complete a pilot, we've never had an owner complete a pilot who hasn't gone on to roll out their portfolio. For us, it's really about getting over that initial hurdle. It's not so much because we know the product works. I mean, we know you're gonna love it. We have hundreds of testimonials of people saying that residents love it, owners love it, property managers love it, leasing agents. That hurdle, what we really are up against is just inertia.
Mm-hmm.
When you look at the multifamily industry, we've had years of, you know, extending revenue, you know, increasing our rents and low vacancy, high occupancy. For us, it's all about just try it at a property, try it at two properties, get over that first hurdle, and then once that domino falls, the rest tumble right behind it. That's a great position to be in. It's good to say. Our sales team is about selling pilots. You know, a lot of people in multifamily bristle at the word pilot. Every multifamily owner wants to do a pilot. If I own 100 properties, it's actually pretty natural to say, "Well, why would I do it at 100 properties?
I could do it at one and see if I like it.
Mm-hmm.
Right? This one isn't so different from the others. We actually embrace that. We are counter to that and say, "We want you to do a pilot. I want you to verify what I'm saying is true. I want you to adopt it and internally have that in your now, your internal DNA of your company. You say, 'We really believe in this product. We're gonna roll it out.'" That's what we're out pushing.
Makes sense. When you sell to these potential customers strategically, is there a difference between sort of selling the whole solution and give them the hardware and they obviously do the five-year contract on the software? Or you know, is it, you know, some of them may have existing devices or hardware that they're already using. How do you think about that just from a go-to-market standpoint?
Yeah.
Is it one way or the other that you want them to go?
You'd be amazed at how few operators have existing hardware. Part of our founding philosophy is we're hardware agnostic, so we work lots of hardware. If you called us and said, "Hey, we put in this lock three years ago." We'd say, "Great. We can use that. Leave it there." I'm shocked. You know, that was a big piece of the founding of the company, was we're going to work with all these different. I'm shocked at how few times we have that conversation. Most people say, "I don't have anything smart." You know, I've got a thermostat from 30 years ago when this was built. We don't have any devices. Yeah, it is fair to say yes. If you have existing hardware, our answer is always let's try to leave it there.
You've spent the money. We don't want you to have to spend it again. What's been sort of surprising for me personally is that how few times we have that conversation.
Yeah. It's almost like brand new opportunity to really digitally transform.
Yeah. It's sometimes I feel like we're in like a time machine, like we're back 20 years ago. It's like, 'cause all this tech isn't new. I mean, think about when you first heard about a Nest thermostat. Like that wasn't last year, right? Like you've heard about it, but like in real estate, no one's been talking about it. So none of this is cutting edge brand new technology. It's just making it, what the key was making it useful in an enterprise solution. That's what we did, is to say, as an owner operator, buying a Nest was just an expense. You got no benefit. So why would you buy it? No one buys something if it's just, "I get no benefit, but I can spend more money." No one wants to do that.
We actually made that smart tech useful through the enterprise control.
Right. Is cost ever a factor for these sort of adoption? You know, also I think the company's last quarter earnings, you know, we were able to talk about the price increase and just the leverage that we have and, I mean, that's just for the value add that the solutions provide. Maybe you could just talk a little bit about that.
Yeah, I think upfront cost is always a concern for any business, right? No one makes huge decisions lightly, and it is a big capital expense. The thing I love about multifamily is you do have budget for it. Every multifamily company has budget to make capital improvements. It's not saying, do you have budget? Do you not have budget? It's can I show you the ROI? Can I unlock that budget? It is true because not every business has budget for improvements. In our business they had just, "This would be great, but I can't do it." For us, it's about not getting in.
Then on the software side, I think we have a lot of tailwinds around pricing power, which is once we're in and established, and we've seen this through other software vendors in the industry, that you're able to take nice price increases going forward. The cost of switching is high enough that you tend not to do it if you compare some price increases. We're also looking at, you know, we listen to as many earnings calls as the public does too. We listen to every
Since closing our transaction with Fifth Wall, we had two acquisitions, SightPlan and iQuue, as well as a number of sort of product launches. What is the company's M&A strategy as you go forward?
I think for us we have a pretty high hurdle rate for M&A. There's a lot of opportunity out there and a lot of deals we've passed on. iQuue and SightPlan were two that really checked every box in terms of we're looking for deals that are accretive day one. You know, we're not looking to take on a lot more burn. That in and of itself is sort of a pretty big hurdle for a lot of companies. Then with the sort of macro pullback from growth for us it becomes a pretty interesting time. There's a lot of deals coming our way that are interesting. I would say mostly we're focused on integrating SightPlan and integrating iQuue. A lot of the iQuue integration is already done.
We have a team that's done a lot of M&A in the past at other companies, and we understand that the easy part is to do the acquisition. The hard part is to do the integration. To really get the synergies and really get the value out, you have to do the hard part. That's really our focus. We're always looking, we're always open to opportunities, but mostly we're focused on integrating what we have.
Makes sense. Maybe, you know, I think a lot of companies who are, you know, attending the conference are thinking about, you know, now we're transitioning towards the other side of COVID, right? Hopefully. What are some of the, I would say maybe it's, lessons learned or, and, you know, kind of shifts as you go forward, you know, now that, you know, we're on the other side of that.
Well, yeah, I think the great thing for us is it was a digital transformation. What we've seen in some other industries is COVID was sort of a spike. You know, if you look at food delivery, look at other aspects, like sort of an unnatural spike. The digital transformation in real estate is sticky. It's not a spike. It's not a point in time. I think it comes down to it's because it's a slow-moving industry, so it's a big decision to move that way. People move back. What we're actually seeing is we made a lot of progress through COVID with getting owners to think differently about how they're operating their portfolio.
Now the worry, well, now we're back to having to be leasing agents if I need on site, but owners are more, "We've already gotten used to a new reality. We're not going back to that." For us, the sort of spike to digital transformation that we saw throughout a lot of industries, I think is gonna be more durable and more sticky in real estate.
That's good to hear. I think the company has, you know, addressed sort of the supply chain challenges that we've had right over the past couple quarters. What is the latest there? You know, how have you guys sort of prepared the company to, you know, on a go-forward basis?
Yeah, I think, you know, we are still in a macroeconomic environment of incredibly tight supply. We've been fortunate that we've been able to perform in spite of that and continue to, you know, like I said earlier, 51,000 leases since Q1. There's still, you know, part of being hardware agnostic and open hardware and being from the beginning. You know, every day is interesting. We've addressed that by. And this is. It's not like we had this idea. Every company is doing this, but we essentially went from 6,000 sq ft of warehouse in the U.S. to 65,000 sq ft.
That's how we're all gonna change our ways, is whether you're a mattress company or a smart home company to say, "Well, domestic, I'm gonna have a lot more on hand. Then I'll be able to weather supply shocks more easily going forward." We were able to weather it, but it was sort of, you know. There's a lot of gray hair to get through it. We will never have that again, you know. I think a lot of manufacturers are doing the same thing. I don't think that's unique.
Yeah. Makes sense. Maybe, you know, talk a little bit about, you know, we recognize that the opportunity in front of you is pretty massive with your existing customers. In the near term, do you have any plans to expand into other real estate sectors? Just longer term, how you think about the opportunity set?
Yeah. I think yes is the answer. We're looking at it. I think we publicly announced we're moving into student housing. It sort of depends on how you define different sectors. Like, so student housing, military housing, senior housing. I also think, you know, like some of the products that we've brought to market are a natural fit for commercial real estate, and a lot of our owners own both multifamily and office product. You'll see that as sort of a natural expansion point. For us, it's looking at how we can kind of organically grow that, and continue to move into other verticals. Our whole balance though is, you know, again, there's 20 million existing apartments in the U.S. Like that TAM in and of itself is plenty big.
At the same time, it's like, well, if you've got a customer who owns 10,000 units and 2 million sq ft of office, why would we not service them with smart products? It's that balancing act that we're always trying to be mindful of is don't sacrifice the near-term organic opportunity.
Yeah.
Also keep your eye on the long-term expansion.
Very good. Maybe last question from me, and then I'll open it up for the audience for anyone who has questions. With the additions of some of the new customer offerings, how do you think about longer term margin profile for the business? Obviously, we have a very strong software part of the business that's, you know, a different growth margin. As we continue to move forward and I think the company guided, we're gonna be in a quarter EBITDA positive for 2023. So pretty impressive sort of move towards profitability.
Our focus. One of the nice things about being hypergrowth on the software side is you do have that nice high margin software recurring revenue business. The hardware and professional services side, not as attractive from a growth margin perspective, but that will help us get to profitability. That balancing act between the hardware and the professional services and then the high growth margin of the software is where we look to continue to expand. I think you'll see even in our Q1 filing and our Q2, a lot more detail on SightPlan. You'll see nice margin expansion on the SaaS side of the business. That is for us, that's the exciting part, is really bringing software solutions that create new experiences in multifamily.
That's what excites us. That high margin recurring revenue is also exciting. We look to continue to build on those. If you look at the hardware and professional services, it's another kind of gate, it's another kind of moat. It's something that we like those businesses, but we're more excited by the SaaS business.
Makes sense. Any questions in the audience? No.
Just wondering about how new to your company is the competitive environment. Who do you see as potential players coming up? Or does moat just keep continuing to expand as you entrench with your customers and grab that last five of the top customers?
Yeah. That's our focus. I think there's competitors out there, but they tend to be more regional or more point solutions. That was the problem I experienced as an operator, was I don't wanna have five vendors to have one smart apartment. Like, you know, that doesn't make sense. We're still seeing that where it's like our competitors, if you sort of did the Venn diagrams, like they have some overlap, but there's not complete overlap. I know, you know, some of them are public and have said publicly, "We're gonna go build what SmartRent has built," but they haven't built it yet. I kinda feel like the way we think about it internally is we know people are coming for us. We have this first mover advantage. We're ahead.
We're picking up an outsized share of the business, 15 out of the top 20, as you alluded to, yes, the next five are on the radar. We will have those viable competitors. This is a massive TAM. There will be competitors, but every day we wake up and say, "If we can put another name on the board, we get farther ahead." You know, we have essentially zero churn in this business, so once they're on our platform, they're there for forever, basically. Every day we sign up more, we feel like we're getting farther ahead.
Just to mention.
Anything regarding LATAM?
Yeah, absolutely, Kevin. That's really through our partnerships with U.S.-based owners as well. We're looking at parts of Central and South America, also looking at some stuff in Mexico City that we've been invited to. Yeah, absolutely. I mean, for us, we're sort of opportunistic in where we go, what we wanna find is great operating partners, and that we can partner with and go into a market. Yeah, and we already have, you know, we have bilingual support and bilingual app, and so there's just some natural synergy there as well. It's a key part of our focus.
One in the back. If you could just wait for the mic, that would be great. Waiting. Here. Oh, sorry.
I was sort of surprised to hear that you already have international operations. I would expect there to be a lot of regulatory differences or, like, kind of, idiosyncrasies to different countries or regions. Can you talk a little bit about that, and to the extent that there's certain regions that are easier to move into than others? Then, sort of on the topic of moving down the pyramid into smaller type companies, or owners, are those profiles the same in terms of you mentioned the high degree of services and implementation. Are they still as attractive in terms of profitability as a customer base or will they get, you know, incrementally less attractive than the existing customers?
Yeah, it's great. I'll start with the second piece first and then go to the international. On the second piece, as we go down into the long tail, they're actually more profitable. We have actually disclosed some of that to show that in some of our filings, is that you have less pricing pressure. You know, if you own 7,000 units, you don't have as much pricing power as if you own 100,000. While we started with the largest owners for a variety of reasons that we talked about, as we go into that long tail, it actually, you see increased profitability. Really, if you think about the average apartment community is 250 units, that's how we're out implementing.
It doesn't matter if you own 100 of those or you own five of those, you know, the economics are the same for that community. For us to get a higher price for that just is right to the bottom line. On the international side, there are absolutely regulatory issues. There's compliance issues. Like, to go to Canada, you have to be IC certified. So there's hurdles that you have to go through to do that. We did Canada, we did the U.K. because we had the opportunity.
We had owners who said, "If you come and go through these hurdles, we'll give you units." That's how, you know, we do have, you know, internally, I can tell you there's markets that you won't see us go to because it's just too complex. It's just too much and too many regulations. There's other markets that are pretty near-term and pretty easy to do. You know, Latin America, Central America, South America are on the radar. Those tend to be easier and less complex than even some of those in Europe. Where you might, you know. It's not necessarily you might naturally think here's the progression. It's not always as natural as it seems because of what you alluded to.
There's regulatory and compliance attention.
Any other questions? If not, thank you, Lucas.
Thanks, Lucy.
Really appreciate it.
Thank you all for coming. It was a lot of fun.