Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. I would like to welcome everyone to the SmartRent, Inc. third quarter 2022 earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you, and I will now turn the conference over to Annalise Lasater, Vice President of Investor Relations. You may begin.
Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Annalise Lasater, Vice President of Investor Relations for SmartRent. I'm joined today by Lucas Haldeman, Chairman and CEO, and Hiroshi Okamoto, Chief Financial Officer. They will be taking you through our results for the third quarter of 2022, as well as guidance for the remainder of the year. After today's market close, we issued an earnings release and filed our 10-Q for September 30, 2022, both of which are available on the investor relations section of our website, smartrent.com. Before I turn the call over to Lucas, I would like to remind everyone that the discussion today may contain 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 our annual report on Form 10-K, quarterly report on Form 10-Q, and current report on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors view these reports thoroughly before taking a financial position in SmartRent. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with a reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We'd also like to point out that we've added a third quarter earnings deck supplemental that illustrates our results, which is available on the webcast portion of this call, as well as the investor tab on our website.
With that, let me turn the call over to Lucas to review our results.
Thank you, Annalise. Good afternoon, everyone, and thank you for joining our third quarter earnings call. My remarks today will cover three primary areas, our strong execution and results during the third quarter, our confidence that SmartRent has the right strategy to continue growing in the current macro environment, and an update on our ability to procure hardware. Turning now to our financial highlights for the third quarter. We delivered $47.5 million in total revenue and deployed over 53,000 units, with both results faring better than the guidance we communicated last quarter. The demand environment remains robust, which, combined with our strategy and execution, led to our record revenue for the quarter. This top-line strength, in turn, helped us improve our Adjusted EBITDA by over $2 million compared to the prior quarter.
Our business is evolving favorably toward higher-margin sources of revenue, as demonstrated by our $8 million in SaaS revenue. All of our primary SaaS measures, ARR of $31.8 million and ARPU of $3.50, continue to grow. SaaS revenue is close to four times what it was last year, demonstrating our success in increasing price and cross-selling additional products. I'll take a moment to highlight the significant milestone we reached as a company last month. We have now deployed over 500,000 units in apartment and single-family homes with SmartRent Technologies. According to available data, that's more units deployed than all of our peers combined. This accomplishment speaks to our scalability, the power of our approach, and having the right strategy in place.
Our committed units pipeline remains robust, and we have reached an all-time high in committed units, with over 800,000 units expected to come onto the platform in the next two years. In addition to the high-visibility pipeline, our current customers own or operate more than 6.5 million units. Because of where SmartRent operates within the real estate ecosystem, we believe we are well-positioned amidst the current macro backdrop based on several factors. We have strong relationships with the top multifamily owners and operators, and demand is stronger than ever. The high ROI our platform delivers to customers provides an ongoing incentive to roll out our technology, and our Smart Home platform and property operations software directly enable owners and operators to be able to centralize operations and overcome labor shortages.
I'm pleased to report that during the quarter we saw general easing in the supply chain constraints and an incremental improvement in our ability to procure hardware. We anticipate it'll take more time for the system to fully normalize, but we are generally encouraged with what we are seeing. We now have fewer constrained product lines overall, and we have begun receiving some supply for nearly all SKUs. I would now like to turn the call over to our CFO, Hiroshi Okamoto, who will take you through the details of our financial performance of this quarter and provide an update to our 2022 full year guidance. Hiroshi.
Thank you, Lucas. I will begin by recapping our financial results for the third quarter of 2022. Please note that unless otherwise specified, all of the third quarter growth figures cited in my remarks today are quarter-over-quarter or sequential comparisons. I'll now move on to the key financial highlights. In the third quarter of 2022, we delivered another record quarter with total revenue of $47.5 million.
Up 12% from $42.4 million in the second quarter. Of the three revenue streams driving this double-digit growth, the two biggest, hardware and hosted services, grew at 28% and 8% respectively. Professional services decreased 18% due to lower unit deployments during the quarter, caused by lingering supply chain constraints largely outside of our control. As the opportunity to upsell and cross-sell ancillary products grows, the business is becoming less dependent on new unit growth alone. This is evidenced by 19% sequential growth in ARPU per shipped unit of hardware from $441- $525. Drilling further into hosted services, SaaS revenue in the quarter increased 4% to approximately $8 million from $7.6 million in the second quarter of 2022.
Average organic SaaS ARPU across all 500,000+ deployed units increased 6.3% from $3.29- $3.50. I'll note that this KPI will generally continue to trend upward as new higher price deployments are added to the mix. We are also on track to achieve $10 million SaaS revenue contribution from SightPlan this year, as we expected. Total gross margin improved incrementally from 2.3%-2.5% in the previous quarter due to improved unit economics and further scaling of the business. This is the third consecutive quarter of improved gross margins, and we believe that the company, barring unforeseen events, will remain in the black in terms of positive gross margins going forward.
In terms of our revenue streams, hardware gross margins turned positive from -0.3% to 4.7%, while hosted services improved from 48.7%- 51.2%. As expected, professional services were muted versus last quarter, impacted by lower unit volumes in Q3. Total operating expenses were essentially flat on a dollar basis, totaling $27.8 million, compared to $28 million in Q2, but includes a one-time asset impairment charge of $2.4 million we booked in the current quarter. However, even with the impairment, as a percentage of revenue, operating expenses declined from 66%- 58.6%. This can be attributable to improved operating efficiency, gaining economies of scale, and practicing financial discipline. Net loss for the quarter was $26 million, compared to $25.6 million in the previous quarter.
Adjusted EBITDA loss, however, improved by more than $2 million versus the prior quarter to $17.6 million. Adjusted EBITDA has now improved by more than $5 million compared to the first quarter of 2022, and we believe this general trajectory is sustainable, providing a sight line into a path to quarterly profitability in 2023. We ended the quarter with approximately $128.2 million of deferred revenue on our balance sheet, up 2% from $125.4 million in the previous quarter, and we expect to recognize 49% of the deferred revenue within the next twelve months. As of September 30, 2022, the company had approximately $217.4 million of cash, no outstanding debt, and full access to a $75 million revolving line of credit.
Our liquidity position provides us with sufficient capital to advance our organic growth plans, as well as support any non-organic growth initiatives we choose to pursue. Turning to our outlook, we have been pleased with our solid execution carrying into fourth quarter. We are narrowing our previous 2022 full year guidance for revenues and unit deployments toward the high end of the range. Our updated guidance for revenue is $165 million-$180 million, up from $155 million-$180 million previously. We reaffirm adjusted EBITDA in the range of -$75 million to -$70 million, although we now believe it is more likely we will land toward the lower end of that range.
Finally, our updated guidance for units deployed is 200,000-220,000 units, up from 190,000-220,000 units previously. We are committed to reaching positive adjusted EBITDA on an intra-quarter basis next year. We believe that we do not need to sacrifice growth in order to do so. Our path to profitability and our long-term growth potential remain on track. I will now pass the call back to Lucas for closing remarks before we open the call to questions. Lucas?
Thanks, Hiroshi. Our strong execution in the third quarter, including reaching the 500,000 deployed unit milestone, record revenue, and double-digit adjusted EBITDA growth, would not have been possible without the incredible hard work and dedication from our team. I'd also like to thank our customers for their partnership and trust, and our shareholders for their continued support. Thanks again to everyone for joining our call today. We look forward to seeing some of you over the next several weeks as we attend investor conferences. Operator, please open the line for questions.
Thank you. I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad, and we will pause for just a moment to compile the Q&A roster. We will take our first question from Tom White with D.A. Davidson. Your line is open.
Great. Thanks for taking my question. Two if I could. Just one, curious if you could share an update on kind of the competitive front. Just curious whether you guys feel like, you know, there might be any kind of market share shifts going on, you know, relative to your competitors that may or may not be impacted by kind of macro pressures or inflation, you know, more than you. Then two, maybe Lucas, just talk a little bit just about the general resilience of your business you think should we be entering into kind of a sustained recessionary environment. Just any color there. Thanks.
Thanks, Tom. I think on the competitive front, not really. We haven't really seen anything change. I think we still are enjoying being in pole position and seeing our demand continue to grow. All of the competitors out there, if you add up all the units they've deployed, it's fewer than we've deployed ourselves. So I think we feel pretty good about where we are. On the resiliency of the business, I think it's an interesting question. As we look forward, you know, I'm not convinced if we are or not going into a recession. I'm not gonna opine on that today.
I will say why I think our business is resilient is that, the foundation of what we're providing to owners and operators is lowering their costs and lowering the number of people they need to employ to manage their properties. When you look at the theme that we're seeing, centralization or what some owners are contemplating of where they're trying to do more with fewer resources, our platform really dovetails into that and enables them to actually do that. The other thing I'd point to is that, you know, the bulk of our business is retrofitting existing apartments, and so we're not subject to some of those macro headwinds. We see a slowdown in building or delays in construction that we were seeing earlier.
That doesn't have a major impact on our business.
Thank you.
Thanks, Tom.
We will take our next question from Erik Woodring with Morgan Stanley. Your line is open.
Hey, guys. Thanks for taking my question. Nice to see a good quarter here from you guys. You know, maybe my first question, Lucas, you made some pretty kind of positive comments on demand. You know, you called it robust. You said demand is stronger than ever. I'm just curious if there's any way you can help frame for us, you know, without some of the supply constraints that you've been facing, if there's a way to think about either for the quarter or for the year, how many units you could have deployed, i.e., you know, what kind of how much supply is actually holding you guys back? Then I have a follow-up. Thanks.
Yeah, Erik, thanks for the question. I mean, the only thing that's really been holding us back is supply. We've seen our labor rates go up, but we have the ability to source labor. This really is a direct correlation to supply chain that's been affecting the entire world. You know, I don't know, as I said in the call, we feel like we're seeing some easing there and positive steps forward, so we're feeling good about that. The way that I look at it is the record backlog of the committed units is really the proxy to demand that I look at. Crossing 800,000, and it's a total now of over 1.3 million deployed and committed, those numbers continue to grow.
We're hearing from a lot of owners, you know, anecdotally, they wanna be doing more and moving forward.
Okay. That's really helpful. Thanks. Then, you know, maybe to that point again, you know, supply chain has been a challenge. I'd love it if you could maybe just double-click and talk about maybe in a little bit more detail in terms of where it stands today. You know, I know there were challenges on the access control side. Just any efforts you've taken to diversify or anything that you could just help us see with a little bit more confidence in terms of the supply chain improvements, just a little more detail than you maybe provided in your prepared remarks. That's it for me. Thanks so much.
Thanks. Yeah, sure. A little bit more detail. I think probably the best way to characterize it is we have POs out for thousands of orders, and we're getting hundreds delivered. So we're not out of the woods, but we're going in the right direction. This time last quarter, the last time we were on this call, we were getting no supply. So I think we're feeling like it's starting to open up, and seeing stuff come in. So without going into the sort of specific SKUs, it does remain the same issues we were having with the supply chain are with the same SKUs. So we're still the semi-custom locks and the access control boards, that remains.
It's starting to ease and move the right way, and we're feeling good about it.
All right. I appreciate that. Thanks, Lucas.
Thanks, Erik.
As a reminder, it is star one if you would like to ask a question. We will take our next question from Brian Ruttenbur with Imperial Capital. Your line is open.
Yes. Thank you very much. Good quarter. First question is on cash burn. It looks like, you know, inventories were up. Can you talk about your cash burn in the quarter of roughly $46 million as I do the back of the envelope, and then what your cash burn is, or projected to be in the fourth quarter?
Yeah. Brian, this is Hiroshi. Let me just jump in here. Cash burn for the quarter was about $46 million, and that is considerably higher than it was last quarter. Last quarter, we were very fortunate to have good collections. This quarter, we actually ended up with accounts receivable higher by about $20 million compared to the previous quarter. The cash burn looks high. You know, kind of averaging out over the past three quarters, we're probably in the high 20 millions.
Okay. Can you talk about what you anticipate for fourth quarter?
I think for the fourth quarter, we should be kind of at the lower part of the $20 million. I think I just want to also just emphasize that we feel very comfortable with our cash position.
Great. As a follow-up, can you give us any kind of glimpse into 2023, directionally, where you're looking at in terms of revenue or adjusted EBITDA or even reaffirm your last guidance of breaking even? Anything that you can give us in terms of forward looking?
Yeah. Let me just take that. In terms of b ecome intra-quarter for positive in 2023. We do reaffirm that we believe that is the case. In terms of revenues, adjusted EBITDA, we're still kind of putting together our model right now and we will provide guidance, I think, probably earlier 2023.
Okay. Thank you.
We will take our next question from Ryan Tomasello with KBW. Your line is open.
Hi, this is Nikhil filling in for Ryan. Thanks for taking our questions. Our first question is, last quarter you kind of noted countercyclical offsets at Title365 from default business and home equity. Can you say what the current mix of Title revenues are between these countercyclical products, refinance, purchase, and how those have performed in the quarter? Just, like, looking out to next year, any color you can provide on expected Title365 performance and in particular margins where you think there's still excess capacity to take out the offset, the volume decline basically.
Nikhil, I think we're having some audio issue. The question was quite choppy and we couldn't understand.
Okay, let me repeat. Is this better?
Yeah.
Okay. What I was asking was last quarter you kind of noted countercyclical offsets at Title365 from default business and home equity. Can you say what the current mix of Title365 revenues are between these countercyclical products, refinance, purchase, and how those have performed in the quarter?
I'm not sure that question is aimed for us. We're not in the title nor mortgage business.
I'm sorry. Just give me one second. There seems to be some sort of a mix-up. I can get back to you later on this. Yeah.
Okay. Thank you. Thank you.
We will take our next question from Brett Knoblauch with Cantor Fitzgerald. Your line is open.
Hi, guys. Thanks for taking the question. On the SaaS revenue breakdown on the chart and presentation, kind of have a decline in revenue from acquisitions for this quarter relative to last quarter. Any color as to why that is?
Thanks, Brett. Let me just take that one. You know, I think we should have probably footnoted this, but it really has to do with kind of the classification that we made between acquisition and organic. By the beginning of this quarter, we had fully integrated iQuue, and we considered that as part of our SmartRent organic revenue, whereas in the previous quarter it was part of the acquisition. If you divide it up, the acquisition part looks like it's reduced, but in total it had increased by 4%.
Got it. I guess the SightPlan revenues this quarter increased sequentially versus last quarter.
It's about even. It's pretty much as we expected, but pretty flat quarter-over-quarter.
Then maybe on SightPlan going into next year, how do you know, kind of expect it to add $10 million in SaaS revenue this year? How should we expect that to develop in 2023? Should we still expect growth from that? You know, kind of flat quarter-over-quarter growth, is that something that we should expect going forward from that business?
Yeah. Brett, let me give you a little color. I think maybe just an overall SightPlan update on, kind of give you a sense of what we're thinking about. I think we've considered it fully integrated in terms of the teams are there, and we're just starting to really arm our entire sales force the ability to sell the entire suite of products. I think we feel good about, you know, it'll continue to contribute revenue and continue to grow. You know, not making any guidance for 2023 on this call, but overall feeling very good about the acquisition and where we're headed.
Perfect. Understood. Thanks, guys.
Thanks.
We will take our next question from Jason Weaver with Compass Point LLC. Your line is open.
Hi, guys. Thanks for taking the question, and, congrats on the quarter. It's great to see some of these issues that have plagued this year to be abating a bit. I just wanted to touch on the professional services business. If the hardware availability weren't an issue today, how should I think about the sort of break-even gross profitability point for professional services in terms of unit deployments, what that might look like? What would you say your sort of maximum capacity for that unit to deploy per quarter looks like today?
Yeah. Jason, thanks for the question. I think, certainly in Professional Services, as we've talked about in prior calls, you know, we have a fixed cost. We have a large installation team. It's part of a benchmark of our White Glove implementation, and it is subjected to some fluctuations in gross profit based on the number of installs that we complete. That's the difference why it's down, more negative than what it was the previous quarter. I think, you know, we haven't stress tested, so it's somewhat theoretical, but we think the max per order with this current team is around 75,000. As we continue to see the supply chain ease, we'll continue to grow that team in order to increase capacity.
Does that answer the question?
Yes. That, that's actually helpful. Thank you.
We'll take our next question from Ryan Tomasello with KBW. Your line is open.
Hi, this is Nikhil. Sorry, apologies about the mix-up. Too many earnings today. Yeah, coming back to our question. Do you expect the addition of new access control panel supplier to alter your hardware margins at all, or should we think of that as net neutral? Kind of more broadly, based on the visibility you have today, can you say how much of an improvement you think is achievable in gross margins for hardware and professional services next year?
Right. Yeah, that one I can answer. Thank you, Nikhil. I think it would be net neutral in terms of additional suppliers or additional products coming in. There's not a huge difference in cost between the components. It's really what we're fighting is the availability, so that's part of the question. In terms of where margins are going, I think you're gonna continue to see them expand and improve in hardware and also in professional services. I think you know, it was good to get the hardware back into the positive gross margin territory this quarter, and I think you'll see professional services will take longer to get to that point.
Again, as we start to try to increase the number of units we do in a quarter, we'll actually have to increase the cost to bring on people as we get them trained and up to speed. There's a couple different headwinds on the Professional Services margin going forward, but I think you'll see both will continue to improve, as will the Hosted Services margin.
Got it. Thank you. Just as a follow-up, can you also provide an update on SightPlan, run rate revenues, and growth profile?
Yeah. I can reiterate it, the question that I think Jason or Brett asked. Yeah, I think we're incredibly excited about how we've integrated SightPlan and where we're going with that product set. I mentioned in the first question as well that the entire multifamily industry, there's a major trend around podding and centralization. What podding is is where we would have two or three properties served by one set of employees. You wouldn't have a property manager at each property, service technician at each property. You would be able to have labor efficiencies by utilizing nearby properties. Really, without SightPlan or SmartRent in place, you can't do either of those things.
The complementary nature of the products is just incredible, and we're seeing a lot of positive response with the owners that are rolling out both.
Got it. Thank you.
Ladies and gentlemen, this concludes our question and answer session today. I will now turn the call back to Mr. Lucas Haldeman for closing remarks.
Thanks, Abby. Thanks everyone for joining, and look forward to seeing some of you in the coming weeks at various investor conferences. Thank you all for tuning in, and talk to you soon.
Ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.