SmartRent (SMRT) Q3 2026 earnings review
SmartRent's hardware sales jump, but its software revenue slips
SmartRent, which sells smart-home hardware and management software to apartment landlords, grew equipment sales and profit margins while its software subscriptions and unit installations slowed. Core revenue rose 24% on higher demand for keyless entry gear, lifting gross margin by 15 percentage points to 41% and generating $3 million in operating cash. Chief executive Frank Martell reinstated numeric quarterly targets that point to 23% core revenue growth in the fourth quarter by our math.
| Core revenue (ex legacy hub runoff) | $40.7M +24% from a year ago |
|---|---|
| Gross margin | 41.2% +14.7 percentage points from a year ago |
| Annual recurring software revenue (ARR) | $62.9M +11% from a year ago, down from $64.5M last quarter |
| Q4 Core revenue outlook | First numeric plan +20% to +25% growth from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because high-margin hardware shipments replaced low-margin installation work as the growth driver, giving management confidence to restore numeric targets after nearly two years. Two cautions stand out: annual recurring software revenue fell by $1.6 million from the second quarter despite more installed units, and net new apartment installations dropped for a fifth straight quarter to 12,490 by our math.
The question now is whether the 80,000 units ordered over the last two quarters will turn into apartment installations and growing software revenue, or whether lower prices and churn will keep software lagging hardware. If installations rebound above 19,000 per quarter and software revenue per unit stabilizes, the company will cross 1 million units by mid-2027 with expanding recurring profit. The third-quarter filing's retention numbers and fourth-quarter installations will tell.
🐂 Bull Case
Hardware Sales Drove the Quarter and Return of Outlook
SmartRent sells smart-home hardware and property management software to apartment landlords. Because total revenue still includes fading "non-cash revenue from hubs shipped up to four years ago", the company tracks Core Revenue, which strips out that accounting runoff. Core Revenue jumped 24.1% from a year ago to $40.7 million, and management issued its first numeric quarterly outlook in nearly two years.
Unlike in the second quarter, when low-margin installation services carried the growth, equipment orders drove the third quarter. Finance chief Daryl Stemm pointed to "expanding adoption of our Access Control and Self-Guided Tour solutions, alongside strong demand for equipment upgrades and refreshes".
- Hardware revenue: $18.5 million, up 60.7% from a year ago
- Access Control revenue (keyless building entry): $4.7 million, up 171%, including $2.5 million in hardware
- Units Booked (binding orders for new smart hubs): 32,030 in the quarter by our math, up 45.1% from a year ago, lifting the 12-month total by 44% to 122,510
- Hardware Upgrade Units (replacement devices in existing apartments): 51,569 over 12 months, up 27%
This matters because the second-quarter order jump was not a one-off. Landlords are buying entry systems and replacement gear even while they build fewer new buildings, and the company's new fourth-quarter plan calls for 20% to 25% Core Revenue growth.
What to watch: fourth-quarter Core Revenue against the $40.6 million to $42.2 million range implied by the outlook. A figure near the top of that range would confirm that the 32,030 third-quarter unit orders are shipping within the same year.
Hardware Turnaround Lifted Gross Margin by 15 Points
SmartRent has expanded its gross margin for four straight quarters as it recovers from last year's restructuring. In the third quarter, total gross margin rose 14.7 percentage points from a year ago to 41.2%. Total cost of revenue — the direct cost of making hardware, running software, and installing gear — fell by 14.7 percentage points of revenue, from 73.6% a year ago to 58.8%.
Hardware carried the improvement, swinging from a negative 20.2% gross margin a year ago (when the company wrote off $1.8 million of inventory) to a positive 26.2% margin on higher shipment prices and volumes. Software subscriptions also reached a 74.6% gross margin. Meanwhile, general and administrative overhead rose 9.0 percentage points of revenue to 25.9% because a $2.5 million legal accrual reversal flattered the year-ago quarter; excluding that one-off, total operating expenses grew 15.0% to fund "the expansion of our sales organization and investments in technology and AI-related capabilities".
Even with that added spending, Adjusted EBITDA (operating profit before depreciation, stock pay, and one-offs) reached $1.1 million, up $4.0 million from a year ago. Unlike last quarter, when $0.7 million of Adjusted EBITDA relied on a $1.4 million legal add-back, this quarter's profit required zero legal adjustments.
What to watch: hardware gross margin in the fourth-quarter report. Holding above 20% would show that higher device profitability comes from Access Control product mix rather than a single quarter's shipments.
Operating Cash Turned Positive on Lower Receivables
After burning $6.2 million of operating cash in the first half of 2026, SmartRent generated $2.9 million of cash from operations in the third quarter. After subtracting $2.4 million of capital spending and software development costs by our math, the company produced about $0.5 million of positive free cash flow, compared with a $3.2 million outflow in the third quarter of 2025.
Narrower operating losses and customer collections drove the swing, allowing the company to repurchase 2.5 million shares for $3.4 million while ending September with $89.2 million in cash and no debt. However, year-to-date operating cash flow remains negative $3.4 million (and free cash flow is negative $8.7 million by our math), so the company still has not repeated its earlier goal of full-year positive cash flow.
What to watch: fourth-quarter operating cash flow in the full-year report. It needs to exceed $3.4 million to bring full-year operating cash flow above zero.
🐻 Bear Case
Software Revenue Shrank From Last Quarter
Chief executive Frank Martell said "our third quarter results, the Company’s strongest quarterly financial and operational results in over two years, provide a clear proof point". Yet SmartRent's core software subscription business went backward from the second quarter.
Annual Recurring Revenue (ARR), which the company calculates as quarterly software subscription revenue multiplied by four, dropped from $64.5 million in the second quarter to $62.9 million in the third. That means quarterly SaaS (software-as-a-service) subscription revenue fell 2.5% from last quarter, from $16.1 million to $15.7 million, even though the company had 12,490 more active units installed at the end of September than in June.
- Annual Recurring Revenue (ARR): $62.9 million, up 11% from a year ago but down $1.6 million from the second quarter
- SaaS ARPU (monthly software revenue per installed unit): $5.75 over 12 months, down from $5.84 in the second quarter
- Units Booked SaaS ARPU (monthly software price on newly ordered units): $7.09 over 12 months, down 18% from $8.66 a year ago
- 12-month Bookings dollar value: up 29% to $144.0 million, trailing the 44% rise in unit orders
This matters because the long-term bull case rests on high-margin software compounding as the installed base grows. Instead, newly booked units carry lower software prices than a year ago, and existing units generated less software revenue per apartment than in the spring.
What to watch: quarterly SaaS ARPU and Property Net Revenue Retention (software revenue kept from existing properties) in the third-quarter 10-Q filing. A retention reading below last quarter's 99% would confirm that customer cancellations or downgrades outweighed price increases on renewals.
Unit Installations Slowed for a Fifth Straight Quarter
SmartRent reiterated its goal of "surpassing one million installed units during the first half of 2027" under its Vision 2028 plan, which targets more than 1.2 million units by the end of 2028. Total Units Deployed (installed smart hubs with an active subscription) reached 941,977 at the end of September, up 8% from a year ago.
However, the flow of net new installations slowed for a fifth straight quarter. By our math, the installed base grew by only 12,490 net units in the third quarter — down from 18,243 in the second quarter and down 43.9% from 22,274 a year ago. Subtracting the prior three quarters from the 12-month total of 73,363 New Units Deployed shows that gross new installations fell to 13,044 in the third quarter, while professional services installation revenue declined 8.0% from a year ago to $6.5 million.
The slowdown means the second quarter's 48,254 booked units have not yet turned into apartment installations. By our math, crossing 1 million units by mid-2027 now requires averaging 19,341 net additions per quarter over the next three quarters — 55% above the third-quarter pace.
What to watch: New Units Deployed in the third-quarter 10-Q and fourth-quarter report. Net additions need to rebound above 19,000 per quarter to hit the mid-2027 target on time.
Risks this quarter didn't answer
Several standing business, legal, and balance-sheet questions are only disclosed in the quarterly 10-Q filing or on the conference call, so the earnings release provided no reading on them.
- Property Net Revenue Retention and churn: only trailing 12-month ARPU appeared in the release; the 10-Q will show whether property retention recovered from 99% and what caused the sequential dip in software revenue.
- Customer concentration: one customer accounted for 21% of second-quarter revenue; the 10-Q footnote will show whether third-quarter hardware growth depended on a single landlord.
- Credit facility maturity and covenants: the undrawn $75 million revolving credit facility expires in December 2026 and had an unmet minimum-cash covenant last quarter; renewal terms await the 10-Q.
- Tenant-privacy litigation: the non-GAAP table recorded zero legal expense add-backs in the third quarter, down from $1.4 million in the second, but case status awaits the 10-Q legal footnote.
- Data and analytics partnerships: the release mentioned investments in AI-related capabilities, but gave no update on the Databricks and Hexaware partnerships or the planned Innovation Center.
💲 Other KPIs
Both working-capital lines shrank again, releasing cash. Accounts receivable (unpaid customer bills) fell to $33.6 million, down 35.6% from a year ago and down $13.8 million since December even as revenue rose. Inventory dropped 25.3% from a year ago to $21.0 million, bringing nine-month cash generated from receivables and inventory to $18.2 million.
Deferred revenue — cash collected upfront for hardware and software that is recognized as revenue over time — fell 35.2% from a year ago and declined $1.6 million from the second quarter. The drop reflects the scheduled runoff of legacy smart-hub amortization ($0.9 million in the third quarter vs $3.4 million a year ago), which ends next year.
Share count fell 0.8% from the second quarter's 192.4 million as SmartRent bought back 2.5 million shares for $3.4 million (about $1.36 per share), matching the second quarter's $3.4 million spend. Compared with a year ago, average shares are still up 1.4% because employee stock compensation outweighed earlier buybacks.
🔮 Guidance
Raised from a qualitative statement to a specific range. The plan calls for 22.5% growth at the middle of the range, which by our math equals $40.5 million to $42.2 million (midpoint $41.4 million) against $33.8 million in the fourth quarter of 2025. That keeps growth near the third quarter's 24.1% pace and puts second-half Core Revenue at $82.1 million, well above the $77.3 million first-half level.
Raised to a numeric range. At the 17.5% middle of the range, the outlook points to $41.9 million to $43.8 million of fourth-quarter revenue (midpoint $42.9 million) by our math, accelerating from 14.8% growth in the third quarter. The gap between Total Revenue and Core Revenue growth narrows in the fourth quarter because legacy hub amortization drops to about $0.4 million.
Raised to a numeric range. Because Adjusted EBITDA was $214 thousand in the fourth quarter of 2025, the 450% to 650% range implies $1.18 million to $1.61 million in the fourth quarter (midpoint $1.39 million) by our math. That steps up from $1.06 million in the third quarter and brings implied full-year Adjusted EBITDA to $3.54 million, delivering the full-year profitability goal.
❓ Key Questions
Why did software subscription revenue fall from the second quarter?
Annual Recurring Revenue dropped from $64.5 million in the second quarter to $62.9 million in the third even though active installed units rose by 12,490. Management did not explain whether customer churn, downgrades, or one-time billing adjustments caused the sequential drop.
When will the 80,000 units booked since March be installed?
SmartRent booked 48,254 units in the second quarter and about 32,030 in the third by our math, yet third-quarter net installations fell to a multi-year low of 12,490. Investors need to know what is delaying installations and whether fourth-quarter deployments will exceed 19,000.
Why is software pricing on newly booked units down 18%?
Trailing 12-month Units Booked SaaS ARPU held at $7.09, down 18% from $8.66 a year ago. Management has not explained whether smaller property packages, volume discounts, or product mix are pulling down the recurring software value of new orders.
Has the company renewed its $75 million credit facility?
The undrawn $75 million revolving credit facility matures in December 2026, and in the second quarter the company did not meet its minimum-cash sub-covenant. The release noted the facility remains undrawn, but gave no update on a maturity extension.