Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 condensed consolidated financial statements and related notes included herein and the consolidated financial statements and notes thereto for the year ended December 31, 2025 contained in our Annual Report on Form 10-K filed with the SEC.

This discussion may contain forward-looking statements based upon our current expectations that involve risks and uncertainties. Please refer to the section titled "Cautionary Note Regarding Forward-Looking Statements."

Overview

We are a market-leading building intelligence provider delivering innovative data, technology and workflow solutions for the rental housing industry. Our suite of products and services, which includes cloud-based SaaS solutions, many of which are enabled by smart building hardware, 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 centrally connected devices ("Hub Devices"), which integrate our enterprise software with third party smart devices, 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 Smart Communities Solutions include software and devices that power (i) smart apartments and homes, (ii) access control for buildings, common areas, and rental units, and (iii) other solutions such as asset protection and monitoring and self-guided tours. Our Smart Operations Solutions include work order management, the automation of leasing and resident call handling, audit management, and the automation of the inspection process. We also have a professional services team that provides customers with training, installation, and support services.

SmartRent is a category leader in the enterprise smart home solutions industry. As of September 30, 2026, we had 941,977 Units Deployed (as defined below) and approximately 600 customers who either have an active subscription or have purchased any SmartRent product in the past twelve months, including many of the largest multifamily residential owners in the United States. As of September 30, 2026, we believe our customers owned an aggregate of more than 7.0 million rental units. This represents approximately 15% 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 single-family rental homeowners, homebuilders, and iBuyers in the United States.

Our Business Model

We generate revenue primarily from sales of smart home systems that enable property owners and property managers to have visibility and control over assets, while providing all-in-one home control offerings for residents. Our revenue is primarily generated from: (1) the direct sale to our customers of hosted services from subscription fees collected from customers to provide Hosted Services including access controls, asset monitoring, and related services; (2) the sale and delivery of smart home devices, which generally consist of a Hub Device, door-locks, thermostats, sensors, and light switches; and (3) installation and implementation of smart home devices that enable our Hosted Services. Subscription arrangements have contractual terms ranging from one month to ten years and the weighted average length of our recurring revenue contracts is 3.8 years.

Key Factors Affecting Our Performance

We believe that our success is dependent on many factors, including those discussed below. Our operating results and cash flows are influenced by our ability to execute our Vision 2028 strategy, which is designed to extend our market leadership while creating long-term value for our stakeholders. Vision 2028 is centered on two strategic priorities: (1) accelerating growth by reinforcing our competitive moat and (2) expanding our path to profitability through a more leverageable operating model. These priorities are operationalized through five strategic pillars: (i) growing our installed footprint, (ii) scaling a world-class go-to-market organization, (iii) unifying our platform through deeper use of data, analytics and artificial intelligence, (iv) simplifying our hardware architecture while expanding software offerings, and (v) strengthening operating rigor through scalable internal processes. Our ability to successfully execute against these strategic initiatives is expected to be a significant driver of our future operating performance. At the same time, execution of these initiatives presents challenges and risks that we must successfully address in order to operate our business.

Active Supply Chain Management

We continue to experience changes 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 more 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 systems and made-to-order specialty locks and volatility in costs related to changes in tariffs.

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.

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.

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. Our Smart Operations Solutions enhance our overall platform offering and customer value proposition by providing a comprehensive one-stop, integrated 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 third-party partner integrations, resulting in a multi-functional platform that enhances property management workflow efficiencies, empowers team productivity, elevates resident interactions, and improves resident living experiences. In connection with our strategic Vision 2028 objectives, we are investing in platform unification with deeper use of data, analytics and AI, and to simplify our hardware architecture while expanding software offerings.

Category Adoption and Market Growth

Our future growth depends in part on the continued consumer adoption of software and hardware 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 prior years, we have experienced headwinds to adoption of our Smart Communities Solutions as certain customers deferred capital expenditures, driven by broader macroeconomic conditions, which resulted in a decrease in Units Shipped and New Units Deployed. In addition, changes in our executive leadership and the structure of our sales organization have impacted sales and overall volumes. Sales of our Smart Operations Solutions have also been negatively impacted by those same factors as well as by increased competition from companies that offer maintenance solutions such as (i) a stand-alone offering or (ii) part of a broader product offering.

Recent Developments

In the first quarter of 2026, we introduced Vision 2028, a focused three-year strategy that outlines how we believe we will extend our market leadership and create long-term value for our stakeholders. Our priorities are (1) accelerating growth by reinforcing our competitive moat and (2) expanding our path to profitability through a more leverageable operating model. These two priorities are operationalized via the following strategic pillars: (i) grow our installed footprint, (ii) scale a world-class go-to-market organization, (iii) unify our platform with deeper use of data, analytics and AI, (iv) simplify hardware architecture while expanding software offerings, and (v) strengthen operating rigor through scalable internal processes.

Basis of Presentation

The condensed consolidated financial statements and accompanying notes included elsewhere in this Report are prepared in accordance with GAAP.

Key Metrics

We regularly monitor a number of operating metrics in order to evaluate our operating performance, identify trends affecting our business, formulate business plans, measure our progress and make strategic decisions. Our key metrics are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. The numbers that we use to calculate our key metrics are based on internal data. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring such information. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. We have a long sales cycle, and the timing of customer decisions and orders does not always align with our reporting periods. As a result, we are increasingly focused on trailing twelve-month metrics, which we believe provides a more meaningful view of underlying customer demand and the progress we are making in executing our go-to-market strategy.

Units Deployed and New Units Deployed

We define Units Deployed as the aggregate number of Hub Devices that have been installed (including customer self-installations) and have an active subscription 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) and resulted in a new active subscription during a stated measurement period. Although our revenue is primarily driven by New Units Deployed and the number of Units Deployed, due to the expansion of our products and services that do not require a Hub Device, and Hub Device upgrades that do not result in net new active subscriptions, 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 September 30, 2026 and 2025, we had an aggregate of 941,977 and 870,230 Units Deployed, respectively. For the trailing twelve months ended September 30, 2026 and 2025, we had 73,363 and 84,285 New Units Deployed, respectively.

Hardware Upgrade Units

We define Hardware Upgrade Units as the aggregate number of existing Units Deployed which had new hardware installed by SmartRent during a stated measurement period excluding any new hardware installed as warranty replacements. We use Hardware Upgrade Units to monitor demand for new or upgraded hardware and related installation services from our existing customers' Units Deployed. We believe this metric provides useful information regarding demand for and activity related to hardware and professional services within our existing installed base, which has become an increasing contributor to our hardware and professional services revenue as our installed base has matured. For the trailing twelve months ended September 30, 2026 and 2025, we installed 51,569 and 40,766 Hardware Upgrade Units, respectively.

Units Shipped

We define Units Shipped as the aggregate number of Hub Devices that have been shipped to customers during a stated measurement period. Units Shipped is used to assess the trajectory of our growth and is an indicator of our ability to acquire new customers, expand our relationships with our current customers and to replace previously Units Deployed. Therefore, we caution that Units Shipped also includes Hub Devices for upgrades and out of warranty replacements and may not be an indicator of New Units Deployed in future periods. For the trailing twelve months ended September 30, 2026 and 2025, we had 107,423 and 114,197 Units Shipped, respectively.

Units Booked

We define Units Booked as the aggregate number of Hub Device units subject to binding orders executed during a stated measurement period that are expected to result in a New Unit Deployed. We utilize the concept of Units Booked to measure the 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 trailing twelve months ended September 30, 2026 and 2025, there were 122,510 and 85,250 Units Booked, respectively. For the trailing twelve months ended September 30, 2026 and 2025, ARR related to Units Booked was $10,417 and $8,855, respectively.

Bookings

We define Bookings as the contract value of hardware, professional services, and the first year of ARR for binding orders executed during a stated measurement period, including renewals and upgrades. We utilize Bookings to measure revenue expected to be earned in future periods from orders contracted during the current period. For the trailing twelve months ended September 30, 2026 and 2025, Bookings were $143,981 and $111,576, respectively.

SaaS Revenue

We define SaaS Revenue as subscription revenue from fees paid by customers for access to one or more of SmartRent's software applications, including access controls, asset monitoring and related services. We believe that SaaS Revenue growth demonstrates our ability to acquire new customers and to maintain and expand our relationships with existing customers. More specifically, we monitor our SaaS Revenue to assess the general health and trajectory of our Hosted Services business. Arrangements with customers do not provide the customer with the right to take possession of SmartRent's software at any time. Customers are granted continuous access to the services over the contractual period. As of September 30, 2026, approximately 32% of our ARR had prepaid payment terms. We believe that our customer base is inherently sticky, especially with our Smart Communities Solutions customers, given the barriers to entry associated with rolling out an integrated enterprise solution across a portfolio of rental units. For the trailing twelve months ended September 30, 2026 and 2025, we generated SaaS Revenue of $62.5 million and $56.0 million, respectively.

Annual Recurring Revenue

We define ARR as the annualized value of our SaaS Revenue earned in the current quarter, which we calculate by taking the total amount of SaaS Revenue in the current quarter and multiplying that amount by four. We believe that ARR growth demonstrates our ability to acquire new customers and to maintain and expand our relationships with existing customers. More specifically, we monitor our ARR to assess the general health and trajectory of our Hosted Services business. As of September 30, 2026 and 2025, ARR was approximately $62.9 million and approximately $56.9 million, respectively.

Hardware Average Revenue per Unit ("ARPU"), Professional Services ARPU, SaaS ARPU, and Units Booked SaaS ARPU

We define Hardware ARPU as total hardware revenue during a given period divided by the total Units Shipped during the same period. Hardware ARPU is used to evaluate the effectiveness of our hardware pricing and assess our ability to market and sell our hardware offerings. For the trailing twelve months ended September 30, 2026 and 2025, Hardware ARPU was $558 and $489, respectively.

We define Professional Services ARPU as total professional services revenue during a given period divided by the total New Units Deployed, excluding customer self-installations, during the same period. Professional Services ARPU is used to assess our ability to effectively price our installation services. For the trailing twelve months ended September 30, 2026 and 2025, Professional Services ARPU was $469 and $426, respectively.

We define SaaS ARPU as total SaaS Revenue during a given period divided by the average aggregate Units Deployed in the same period divided by the number of months in the period. Average aggregate Units Deployed is calculated as the Units Deployed as of the current period plus the Units Deployed as of the previous period divided by two. SaaS ARPU is used to evaluate the effectiveness of our SaaS pricing and assess our ability to market and sell our various software solutions. For the trailing twelve months ended September 30, 2026 and 2025, SaaS ARPU was $5.75 and $5.63, respectively.

We define Units Booked SaaS ARPU as the first year ARR for binding orders with Units Booked executed during the stated measurement period divided by the total Units Booked in the same period divided by the number of months in the period. Units Booked SaaS ARPU is used to evaluate the effectiveness of our SaaS pricing and assess our ability to market and sell our various software solutions for orders executed during the period. For the trailing twelve months ended September 30, 2026 and 2025, Units Booked SaaS ARPU was $7.09 and $8.66, respectively.

Customer Churn

We define Customer Churn as cancelled Units Deployed during the measurement period divided by Units Deployed as of the beginning of the measurement period. Cancelled Units Deployed are the previous Units Deployed that have been cancelled during the same measurement period in which a customer cancels all product subscriptions. Our Hosted Services growth is driven, in part, by our ability to retain our customers and minimize Customer Churn. For the trailing twelve months ended September 30, 2026 and 2025, our Customer Churn for our Smart Communities Solutions was 0.09% and 0.15%, respectively.

Property Net Revenue Retention

We define Property Net Revenue Retention as SaaS Revenue at the end of the current period related to properties which had SaaS Revenue at the end of the same period in the prior year, divided by SaaS Revenue at the end of the same period in the prior year for those same properties. Property Net Revenue Retention includes additions to revenue from price increases on existing products, additions of new products at existing properties and transfers of ownership, offset by any reductions in revenue caused by cancellations or downgrades. Property Net Revenue Retention was 93% as of September 30, 2026 compared to 104% as of September 30, 2025.

Customer Net Revenue Retention

We define Customer Net Revenue Retention as SaaS Revenue at the end of the current period related to customers which had SaaS Revenue at the end of the same period in the prior year, divided by SaaS Revenue at the end of the same period in the prior year for those same customers. A customer with SaaS Revenue is defined as an entity that has an active subscription during the stated period. Customer Net Revenue Retention includes additions to revenue from transfers of ownership, price increases on existing products and additions of new products at existing properties, offset by any reductions in revenue caused by cancellations or downgrades. Customer Net Revenue Retention was 100% as of September 30, 2026 compared to 113% as of September 30, 2025.

The table below summarizes our key metrics.

(1) ARPU metrics may vary based on the scope and mix of activity during the period.

(2) Units Deployed is presented as of the last day of the applicable period; all other metrics are presented for the applicable trailing twelve-month period.

Beginning with this Report, we present our key metrics on a trailing twelve-month basis rather than for the quarterly and year-to-date periods presented in our prior Quarterly Reports on Form 10-Q. As our business has evolved, we have continued to evaluate how best to present our key metrics to provide meaningful insight into our operating performance. The timing, scope and mix of bookings and deployments can result in variability in our key metrics from quarter to quarter. Given the length of our sales cycle and variability in the timing of customer decisions and orders, we believe a trailing twelve-month presentation provides a more meaningful basis for evaluating trends in our business. We have presented our key metrics for the trailing twelve months ended September 30, 2025 on the same basis as the current-period TTM metrics. Key metrics for prior quarterly and year-to-date periods are available in our previously filed Quarterly Reports on Form 10-Q.

To facilitate comparability and provide additional context regarding the transition to a TTM presentation, the following table presents supplemental historical key metrics.

(1) ARPU metrics may vary significantly based on scope and mix during the period.

(2) Units Deployed is presented as of the last date of the applicable period.

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.

(1) During the first quarter of 2026, we revised the presentation of the above table by aggregating Community WiFi revenue in Other as revenue from our Community WiFi solution is becoming less significant. The revised presentation has been applied retrospectively for the comparative periods ended September 30, 2025. For the three months ended September 30, 2026 and 2025, total revenue attributable to Community WiFi was $47 and $450, respectively. For the three months ended September 30, 2025, revenue attributable to Community WiFi was $94 related to Hardware, $164 related to Professional Services and $192 related to Hosted Services. For the nine months ended September 30, 2026 and 2025, total revenue attributable to Community WiFi was $499 and $1,168, respectively. For the nine months ended September 30, 2025, revenue attributable to Community WiFi was $151 related to Hardware, $423 related to Professional Services and $594 related to Hosted Services.

(2) For the three months ended September 30, 2026 and 2025, Hosted services revenue for our Smart Communities Solutions included hub amortization revenue of $877 and $3,424, respectively. For the nine months ended September 30, 2026 and 2025, Hosted services revenue for our Smart Communities Solutions included hub amortization revenue of $4,383 and $12,701, respectively.

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 previous versions of our Hub Devices do not function independently without the subscription, and therefore, the revenue for those Hub Devices 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

We generate hosted services revenue from (1) the direct sale to our customers of hosted services from subscription fees collected from customers to provide access to one or more of our software applications including access controls, asset monitoring and related services ("Hosted Services") and (2) the amortization of non-distinct Hub Devices. These subscription arrangements have contractual terms ranging from one month to ten years and include recurring fixed plan subscription fees. The weighted average length of our recurring revenue contracts is 3.8 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.

We sold 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. We do not expect to deploy any more non-distinct Hub Devices.

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 commensurate with increases in the volume of our business. 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 commensurate with increases in the volume of our business. Hardware revenue margins may vary in future periods due to a number of factors including changes to the cost of the goods and services detailed above, changes to the product mix and tariffs.

Tariffs imposed by the U.S. government have subjected certain SmartRent products manufactured overseas to volatility of import duties. The amount of the import tariff has changed numerous times based on various geopolitical factors including actions by the U.S. government. Future changes in trade policy may increase our cost of hardware revenue and reduce our hardware revenue margins. We continue to monitor and evaluate changes in policy impacting global trade, including tariff regulations.

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. We expect an increase in cost of professional services revenue in absolute dollars in future periods commensurate with increases in the volume of our business. Professional services revenue margins may vary in future periods due to a number of factors including changes to the cost of the services detailed above and changes to the product mix.

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 and security 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.

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. We believe our sales and marketing expenses may increase over time as we hire additional sales and marketing personnel, increase our lead generation 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, legal settlements, 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 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.

Impairment Charge

Impairment charge consists of goodwill impairment. See Note 2 - Significant Accounting Policies for more information.

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 will increase.

Provision for Income Taxes

The income tax benefit on the Condensed Consolidated Statement of Operations and Comprehensive Loss is primarily related to current year foreign losses offset by foreign and state taxes. We established a full valuation allowance for net deferred U.S. federal and state tax assets, including U.S. net operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of the U.S. federal and state deferred tax assets will be realized in future periods if we report U.S. taxable income. We believe that we have established an adequate allowance for 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.

Results of Operations for the Three and Nine Months Ended September 30, 2026 and 2025

The results of operations presented below should be reviewed together with the condensed 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.

Comparison of the three and nine months ended September 30, 2026 and 2025

Revenue

Total revenue increased by $5.4 million, or 15%, to $41.6 million for the three months ended September 30, 2026, from $36.2 million for the three months ended September 30, 2025. The increase was primarily driven by a 53% increase in Units Shipped to 30,705 for the three months ended September 30, 2026 from 20,047 for the three months ended September 30, 2025. Hosted Services revenue from hub amortization decreased by approximately $2.6 million and revenue from SaaS increased by $1.5 million from the three months ended September 30, 2025 to the three months ended September 30, 2026.

Total revenue increased by approximately $4.2 million, or 4%, to $120.1 million for the nine months ended September 30, 2026, from $115.9 million for the nine months ended September 30, 2025. The increase was primarily driven by an 18% increase in Professional Services ARPU to $490 for the nine months ended September 30, 2026 from $416 for the nine months ended September 30, 2025 primarily driven by an increase of $2.9 million related to the installation of hub upgrades and $2.0 million related to the installation of access control solutions. Hosted Services revenue from hub amortization decreased by approximately $8.3 million partially offset by an increase in Hosted Services revenue from SaaS of $4.7 million from the nine months ended September 30, 2025 to the nine months ended September 30, 2026. Further, Hardware ARPU increased by 8% to $543 for the nine months ended September 30, 2026 from $505 for the nine months ended September 30, 2025.

Hardware revenue increased by $7.0 million, or 61%, to $18.5 million for the three months ended September 30, 2026, from $11.5 million for the three months ended September 30, 2025. This increase in hardware revenue was primarily driven by a 53% increase in Units Shipped to 30,705 for the three months ended September 30, 2026 from 20,047 for the three months ended September 30, 2025. Further, hardware revenue related to access control solutions increased by $1.8 million and Hardware ARPU increased by 5% to $602 for the three months ended September 30, 2026 from $574 for the three months ended September 30, 2025.

Hardware revenue increased by $2.0 million, or 4%, to $47.5 million for the nine months ended September 30, 2026, from $45.5 million for the nine months ended September 30, 2025. This increase in hardware revenue was primarily driven by a $1.7 million increase in hardware revenue related to access control solutions and an 8% increase in Hardware ARPU to $543 for the nine months ended September 30, 2026 from $505 for the nine months ended September 30, 2025.

Professional services revenue decreased by approximately $0.5 million, or 8%, to $6.5 million for the three months ended September 30, 2026, from $7.0 million for the three months ended September 30, 2025. The decrease in professional services revenue was primarily driven by a 42% decrease in New Units Deployed, to 13,044 during the three months ended September 30, 2026 from 22,644 for the three months ended September 30, 2025. This was partially offset by a $0.9 million increase in professional services revenue related to access control solutions and a 17% increase in Professional Services ARPU to $525 for the three months ended September 30, 2026 from $449 for the three months ended September 30, 2025.

Professional services revenue increased by approximately $5.8 million, or 39%, to $21.1 million for the nine months ended September 30, 2026, from $15.3 million for the nine months ended September 30, 2025. The increase in professional services revenue was primarily driven by an 18% increase in Professional Services ARPU to $490 for the nine months ended September 30, 2026 from $416 for the nine months ended September 30, 2025 largely due to an increase of $2.9 million related to the installation of hub upgrades and $2.0 million related to the installation of access control solutions.

Hosted Services revenue decreased by approximately $1.1 million, or 6%, to $16.6 million for the three months ended September 30, 2026, from $17.7 million for the three months ended September 30, 2025. Of the $16.6 million revenue in 2026, $15.7 million is related to SaaS Revenue and $0.9 million is related to hub amortization. Revenue from hub amortization decreased by $2.6 million and revenue from SaaS increased by $1.5 million, or 11%, from the three months ended September 30, 2025 to the three months ended September 30, 2026. The increase of SaaS Revenue resulted primarily from an 8% increase in the aggregate number of Units Deployed from 870,230 units at September 30, 2025 to 941,977 units at September 30, 2026.

Hosted Services revenue decreased by approximately $3.6 million, or 7%, to $51.5 million for the nine months ended September 30, 2026, from $55.1 million for the nine months ended September 30, 2025. Of the $51.5 million revenue in 2026, $47.1 million is related to SaaS Revenue and $4.4 million is related to hub amortization. Revenue from hub amortization decreased by approximately $8.3 million and revenue from SaaS increased by $4.7 million, or 11%, from the nine months ended September 30, 2025 to the nine months ended September 30, 2026. The increase of SaaS Revenue resulted primarily from an 8% increase in the aggregate number of Units Deployed from 870,230 units at September 30, 2025 to 941,977 units at September 30, 2026.

We do not expect to deploy any more non-distinct Hub Devices, thus, the revenue contribution from hub amortization should continue to decrease in future periods until the non-distinct Hub Devices are fully amortized. As noted above, revenue from hub amortization decreased by approximately $8.3 million from the nine months ended September 30, 2025 to the nine months ended September 30, 2026. During the remainder of 2026, hub amortization is expected to further decrease by $2.3 million compared to the same periods in 2025. The table below shows the expected revenue contribution from hub amortization.

(1) Q1, Q2 and Q3 2026 are actual.

Cost of Revenue

Total cost of revenue decreased by $2.2 million, or 8%, to $24.5 million for the three months ended September 30, 2026, from approximately $26.7 million for the three months ended September 30, 2025. The decrease in cost of revenue resulted primarily from a $1.3 million decrease in hub amortization, and a 42% decrease in New Units Deployed. Notably, the total cost of revenue decreased in the period while total revenue increased driven by changes such as cost reductions executed in the second half of 2025, improved unit economics derived from more diligent purchasing and inventory management, and other factors that are disclosed below.

Total cost of revenue decreased by $8.4 million, or 11%, to $71.6 million for the nine months ended September 30, 2026, from approximately $80.0 million for the nine months ended September 30, 2025. The decrease in cost of revenue resulted primarily from a $4.0 million decrease in hub amortization and a $2.9 million decrease in inventory obsolescence. Notably, the total cost of revenue decreased in the period while total revenue increased driven by changes such as cost reductions executed in the second half of 2025, improved unit economics derived from more diligent purchasing and inventory management, and other factors that are disclosed below.

Hardware cost of revenue decreased by $0.2 million, or 1%, to $13.6 million for the three months ended September 30, 2026, from $13.8 million for the three months ended September 30, 2025. This decrease in hardware cost of revenue was primarily attributable to a $2.6 million decrease in inventory obsolescence and a $0.9 million tariff recovery recorded in Q3-2026 with no counterpart in Q3-2025. The decreases were partially offset by a 53% increase in Units Shipped.

Hardware cost of revenue decreased by approximately $2.6 million, or 6%, to $38.1 million for the nine months ended September 30, 2026, from $40.7 million for the nine months ended September 30, 2025. This decrease in hardware cost of revenue was primarily attributable to a $2.9 million decrease in inventory obsolescence.

Professional services cost of revenue decreased by $0.5 million, or 8%, to $6.3 million for the three months ended September 30, 2026, from $6.8 million for the three months ended September 30, 2025. The decrease is primarily attributable to a decrease of $0.5 million in fixed, personnel-related costs resulting from actions executed in the second half of 2025.

Professional services cost of revenue decreased by $1.3 million, or 6%, to $19.0 million for the nine months ended September 30, 2026, from $20.3 million for the nine months ended September 30, 2025. The decrease in professional services cost of revenue is primarily attributable to a decrease of $3.1 million in fixed, personnel-related costs resulting from actions executed in the second half of 2025, partially offset by an increase of $2.4 million in third-party direct labor costs.

Hosted Services cost of revenue decreased by approximately $1.5 million, or 24%, to $4.5 million for the three months ended September 30, 2026, from $6.0 million for the three months ended September 30, 2025. The decrease resulted primarily from a $1.3 million decrease in hub amortization expense.

Hosted Services cost of revenue decreased by approximately $4.6 million, or 24%, to $14.5 million for the nine months ended September 30, 2026, from $19.1 million for the nine months ended September 30, 2025. The decrease resulted primarily from a $4.0 million decrease in hub amortization expense.

Operating Expenses

Research and development expenses decreased by $0.7 million, or 11%, to $5.5 million for the three months ended September 30, 2026, from approximately $6.2 million for the three months ended September 30, 2025, primarily related to a decrease of $1.0 million in personnel-related expenses. We believe our research and development expenses will increase in future periods in connection with expenses required to execute Vision 2028.

Research and development expenses decreased by $3.7 million, or 18%, to $17.2 million for the nine months ended September 30, 2026, from $20.9 million for the nine months ended September 30, 2025, primarily related to a decrease of $4.1 million in personnel-related expenses.

Sales and marketing expenses increased by $1.3 million, or 31%, to $5.7 million for the three months ended September 30, 2026 from $4.4 million for the three months ended September 30, 2025, resulting primarily from an increase of $0.5 million in personnel-related expenses. We believe our sales and marketing expenses will increase in future periods as we continue to invest in building a scalable sales organization in connection with fulfilling the objectives of Vision 2028.

Sales and marketing expenses decreased by approximately $0.1 million, or 1%, to $15.4 million for the nine months ended September 30, 2026 from $15.5 million for the nine months ended September 30, 2025, resulting primarily from a decrease of $1.6 million in third-party marketing expenses, partially offset by a $0.4 million increase in personnel-related expenses and a $0.4 million increase in travel expenses.

General and administrative expenses increased by $4.7 million, or 76%, to $10.8 million for the three months ended September 30, 2026 from $6.1 million for the three months ended September 30, 2025. This was primarily driven by a $2.6 million net legal accrual reversal during the three months ended September 30, 2025 which had no 2026 counterpart and a $1.4 million increase in personnel-related expenses.

General and administrative expenses decreased by $2.3 million, or 7%, to $32.2 million for the nine months ended September 30, 2026 from $34.5 million for the nine months ended September 30, 2025. This was primarily driven by a $6.0 million decrease in legal matters partially offset by a $2.5 million increase in personnel-related expenses.

Goodwill Impairment Charge

During the three months ended March 31, 2025, we identified certain indicators of impairment, which resulted in a goodwill impairment charge of $24.9 million. No such charges were recorded during the remainder of 2025 or during the three or nine months ended September 30, 2026. See Note 2 - Significant Accounting Policies for additional information.

Other Income

Interest income decreased by $0.2 million to $0.8 million for the three months ended September 30, 2026, from $1.0 million for the three months ended September 30, 2025. The decrease in interest income is primarily attributable to a lower cash balance on which we are earning interest, and a decrease in interest rates.

Interest income decreased by $0.9 million to $2.5 million for the nine months ended September 30, 2026, from $3.4 million for the nine months ended September 30, 2025. The decrease in interest income is primarily attributable to a lower cash balance on which we are earning interest, and a decrease in interest rates.

Interest expense was flat at $0.1 million for the three months ended September 30, 2026 and 2025.

Interest expense was flat at $0.3 million for the nine months ended September 30, 2026 and 2025.

Other expense, net was flat at less than $0.1 million for the three months ended September 30, 2026 and 2025.

Other expense, net decreased by $0.1 million to $(0.2) million for the nine months ended September 30, 2026, from $(0.3) million for the nine months ended September 30, 2025. The decrease in other expense, net is primarily attributable to changes in foreign exchange rates.

Income Taxes

We provided a full valuation allowance on our net U.S. federal and state deferred tax assets on September 30, 2026 and 2025.

As of December 31, 2025, we had gross net operating losses of $252.9 million and $246.0 million for federal and state income tax return purposes, respectively. Federal net operating losses can be carried forward indefinitely, while state net operating losses will expire between 2032 and 2045. We also have $0.1 million of R&D credits available that expire in 2039.

The income tax benefit is related to foreign losses offset by foreign and state taxes.

Non-GAAP Financial Measures

To supplement the condensed 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 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 (loss) computed in accordance with GAAP before interest income, net, income tax expense (benefit) and depreciation and amortization.

We define Adjusted EBITDA as EBITDA before expenses related to certain legal matters, stock-based compensation, goodwill impairment, certain inventory write-offs, non-recurring warranty provisions, other acquisition expenses, 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 (loss). EBITDA and Adjusted EBITDA are not used as measures of our liquidity and should not be considered alternatives to net income (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.

(1) Refer to Note 2 "Significant Accounting Policies."

(2) During the three months ended September 30, 2026 other non-operating expenses includes restructuring costs of $267 and capitalized software implementation amortization of $174. During the three months ended September 30, 2025 other non-operating expenses includes severance expense of $771 and capitalized software implementation amortization of $145. During the nine months ended September 30, 2026 other non-operating expenses includes capitalized software implementation amortization of $471, restructuring costs of $267 and capitalized software impairment of $208. During the nine months ended September 30, 2025 other non-operating expenses includes severance expense of $2,187 and capitalized software implementation amortization of $434.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2026, we had cash and cash equivalents of $89.2 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 with SmartRent.com, Inc., and payments collected from sales to our customers.

Debt Issuances

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 we elect 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 September 30, 2026, 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 our assets and guaranteed by each of our material domestic subsidiaries.

We believe that our current cash, cash equivalents, available borrowing capacity under the Senior Revolving Facility, and cash raised in the business combination with SmartRent.com, Inc. will be sufficient to fund our operations for at least the next 12 months beyond the issuance date of this Report. The Senior Revolving Facility matures in December 2026. We are evaluating alternatives with respect to our borrowing arrangements in connection with that maturity. 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, the Board authorized a stock repurchase program pursuant to which we may repurchase up to $50.0 million of our Class A common stock. In July 2026, the Board approved the termination of this stock repurchase program which had $13.4 million available for repurchase as of June 30, 2026 and authorized a new stock repurchase program pursuant to which we may repurchase up to $25.0 million of our outstanding Class A common stock. The new authorization replaced the prior repurchase program in its entirety.

Repurchases under the new 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 new 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.

During the three months ended September 30, 2026, we repurchased 2.5 million shares of our Class A common stock under the stock repurchase program at an average price of approximately $1.37 per share for a total of $3.4 million. During the nine months ended September 30, 2026, we repurchased 5.3 million shares of our Class A common stock under the stock repurchase programs at an average price of approximately $1.29 per share for a total of $6.8 million. As of September 30, 2026, approximately $21.6 million remained available for stock repurchases pursuant to the new stock repurchase program.

During the nine months ended September 30, 2025, we repurchased 5.1 million shares of our Class A common stock under the stock repurchase program at an average price of approximately $0.96 per share for a total of $4.9 million. There were no such purchases during the three months ended September 30, 2025.

Cash Flow Summary - Nine Months Ended September 30, 2026 and 2025

The following table summarizes our cash flows for the periods presented.

Operating Activities

For the nine months ended September 30, 2026, our operating activities used $3.4 million in cash resulting primarily from our net loss of $14.0 million and $6.7 million used in changes in our operating assets and liabilities, partially offset by $17.3 million provided by non-cash expenses. Changes in our operating assets and liabilities primarily resulted from a $17.9 million decrease in deferred revenue, and a $7.8 million increase in prepaid expenses and other assets, partially offset by a $13.5 million decrease in accounts receivable and a $4.7 million decrease in inventory. Non-cash expenses consisted primarily of $9.5 million of stock compensation and $6.7 million of depreciation and amortization.

For the nine months ended September 30, 2025, our operating activities used $29.2 million in cash resulting primarily from our net loss of $57.3 million and $14.7 million used in changes in our operating assets and liabilities, partially offset by approximately $42.8 million provided by non-cash expenses. Changes in our operating assets and liabilities primarily resulted from a $28.9 million decrease in deferred revenue, partially offset by a $7.9 million decrease in accounts receivable and a $7.1 million decrease in deferred cost of revenue. Non-cash expenses consisted primarily of a $24.9 million goodwill impairment - refer to Note 2 Significant Accounting Policies, $7.1 million of stock compensation and $6.2 million of depreciation and amortization.

Investing Activities

For the nine months ended September 30, 2026, we used $5.3 million of cash for investing activities, primarily related to cash paid of $4.9 million for capitalized software development costs.

For the nine months ended September 30, 2025, we used $6.9 million of cash for investing activities, primarily related to cash paid of $3.6 million for the purchase of property and equipment and $3.4 million for capitalized internal-use software development costs.

Financing Activities

For the nine months ended September 30, 2026, our financing activities used $7.0 million of cash, resulting primarily from $6.8 million used for repurchases of Class A common stock.

For the nine months ended September 30, 2025, our financing activities used $7.0 million of cash, resulting primarily from $4.9 million used for repurchases of Class A common stock and $1.5 million used for earnout payments related to the 2021 iQuue acquisition.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2026.

Critical Accounting Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed 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 check or automated clearing house payments, and payment terms are determined by individual contracts and range from due upon receipt to net 30 days. When payment terms are significantly extended or differ from general terms, we evaluate the existence of a significant financing component in the contract and recognizes any related financing receivable within other assets in the condensed consolidated balance sheet. 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 we transfer 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 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 our 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.

Goodwill

Goodwill represents the excess of cost over net assets of our completed business combinations. We test for potential impairment of goodwill on an annual basis as of September 30 to determine if the carrying value is less than the fair value. We conduct additional tests between annual tests if there are indications of potential goodwill impairment. During the three months ended March 31, 2025, we experienced a sustained decline in stock price, resulting in a significant decrease in market capitalization. As a result, we conducted an interim impairment test utilizing the qualitative approach and determined that impairment was more likely than not. As a result, we then performed an interim quantitative impairment test which resulted in an indication of impairment.

The fair value of the reporting unit used in this impairment test was determined using a combination of an income approach and market-based approach. The mix between the two approaches requires significant judgment. As a result of these tests, we recorded a goodwill impairment charge of $24.9 million during the three months ended March 31, 2025.

The significant assumptions used in determining the fair value of the reporting unit under the income approach primarily relate to the revenue growth rate, forecasted EBITDA, and the discount rate used in the discounted cash flow model. The market approach is based on our market capitalization as of the measurement date, adjusted for a control premium. The significant assumptions used in the market approach primarily relate to the selected control premium.

To the extent that inputs and assumptions used in the analysis change, such as an increased discount rate, updated cash flow projections, or decreases to guideline companies' multiples, additional impairment charges may be recorded in the future. In addition, a further decrease in our common stock share price and market capitalization or significant changes to the Company's long-term forecast could be an indicator of a decrease in the fair value of our equity.

As noted above, the estimates and assumptions regarding expected future cash flows, discount rates, and revenue and EBITDA multiples require considerable judgment and are based on market conditions, financial forecasts, industry trends, and historical experience. These estimates have inherent uncertainties as they may be based on varying assumptions which could lead to materially different results. Our goodwill balance was $92.3 million as of September 30, 2026 and December 31, 2025.

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, restricted stock units ("RSUs") and performance stock units ("PSUs") 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.

The grant date fair value is also utilized with respect to RSUs which vest based on performance and time based service conditions. For RSUs with a performance condition as well as a time-based service condition, compensation expense is recognized over the service period based on the number of awards that the Company believes is probable to vest.

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 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 last day of the fiscal year following the fifth anniversary of the initial public offering by FWAA, our predecessor entity, which closed on February 9, 2021, (b) the last day of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (c) the last day 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. Based on the fifth anniversary of the initial public offering of our predecessor entity, we expect to cease to be an emerging growth company on December 31, 2026.

Recent Accounting Pronouncements

See Note 2 Significant Accounting Policies - Recent Accounting Guidance for more information.