First Quarter 2022
Latch, Inc. (NASDAQ: LTCH) (“Latch” or the “Company”), maker of LatchOS, the full-building enterprise software-as-a-service (SaaS) platform, today reported financial results for the three months ended March 31, 2022.
“Demand for Latch-enabled spaces continues to grow among multifamily real estate owners, operators, and developers, and is reflected in our strong first quarter performance,” said Luke Schoenfelder, Latch Co-Founder, CEO, and Chairman of the Board of Directors. “As our company has matured, we have honed our strategy to create powerful experiences for all stakeholders through Latch’s intuitive software and sought-after partnerships. We are pleased with our progress on these initiatives, and after 88% year-over-year growth in software revenue in the first quarter, we are raising software revenue guidance for the year. In addition, to better reflect our momentum, we are publicly introducing two important metrics: Spaces and ARR, which have each grown over 100% year-over-year. Looking ahead, I am confident that our focused approach will continue to pave the way to make even more spaces better places to live, work, and visit."
Key Business Metrics and Select Financial Metrics
Financial Outlook
Latch is providing guidance for the second quarter of 2022 and updating guidance for the full year 2022 as follows:
Quarterly Conference Call
Latch will host a conference call today at 5:00 p.m. Eastern Time to review the Company’s financial results for the quarter ended March 31, 2022. To access the conference call, dial (833) 562-0132 for the U.S. or Canada, or (661) 567-1107 for callers outside the U.S. or Canada, with Conference ID: 9874409. The webcast will be available live, and a recording will be archived and accessible, on the Investor Relations section of Latch’s website at https://investors.latch.com.
Additional Information
Latch’s condensed consolidated financial statements are included for reference at the end of this release. For additional information regarding Latch’s first quarter 2022 financial results that management believes to be useful for investors, please refer to the presentation posted on the Investor Relations section of Latch’s website at https://investors.latch.com.
About Latch, Inc.
Latch makes spaces better places to live, work, and visit through a system of software, devices, and services. For more information, please visit https://www.latch.com.
Key Business Metrics
Latch reviews key business metrics to measure its performance, identify trends affecting its business, formulate business plans, and make strategic decisions that will impact the future operating results of the Company. For definitions of our key business metrics, see our most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). Increases or decreases in the Company’s key business metrics may not correspond with increases or decreases in its revenue.
The limitations these key business metrics have as an analytical tool include: (1) they might not accurately predict the Company’s future financial results and (2) other companies, including companies in Latch’s industry, may calculate key business metrics or similarly titled measures differently, which reduces their usefulness as comparative measures.
To better align our key business metrics with our internal priorities and business plans for 2022 and beyond, we are reporting new key business metrics beginning with the three months ended March 31, 2022, including Annual Recurring Revenue (“ARR”) and “Spaces.” Rather than focusing on our prior bookings-related metrics that represented future target deliveries, we are now focusing on the near-term execution and delivery of software and the scale of our active platform. Accordingly, we have also adjusted our internal sales compensation structure to discontinue compensating our sales teams on bookings-related metrics beginning in the second quarter of 2022. We are continuing to report total revenue (GAAP) and net loss (GAAP) as key business metrics, and we are also reporting software revenue (GAAP) as an additional key business metric.
Brief descriptions of these new key business metrics are provided below.
We use ARR to measure the recurring cash we expect to collect from our customers. ARR is defined as the annualized value of our active software contracts. A contract is considered active if a signed contract is in effect as of the end of the period. The contract value represents the cash value to Latch, net of promotional, term, and any other discounts. ARR is calculated as the total contract value divided by the contract term in months, multiplied by twelve. We believe ARR provides useful information to investors because it measures the health and growth of our software business.
We use Spaces to measure the quantity of units with active software contracts in buildings that generate ARR. Units represent apartments, other dwelling units or commercial spaces in a building. We believe Spaces provides useful information to investors by indicating the size of the opportunity to grow total revenue by increasing additional hardware, software and services revenue generated by each Space.
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with generally accepted accounting principles (“GAAP”) and to provide investors with additional information regarding our financial results, we have presented in this press release Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies.
We define Adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, provision for income taxes, restructuring, one-time litigation expenses, loss on extinguishment of debt, gain or loss on change in fair value of derivative instruments, warrant liabilities and trading securities, and our transaction related expenses. The most directly comparable GAAP measure is net loss. We monitor, and have presented in this press release, Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our operating performance, to establish budgets, and to develop operational goals for managing our business. In particular, we believe excluding the impact of these expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we include in net loss. Accordingly, we believe Adjusted EBITDA provides useful information to investors, analysts and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance.
Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net loss, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. In addition, the expenses and other items that we exclude in our calculations of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results.
In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA as a tool for comparison.
Latch has not reconciled its Adjusted EBITDA guidance metrics to GAAP net earnings or loss because certain of the reconciling items cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.
The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.
| Three Months Ended March 31, | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Net loss | $ | (44,231 | ) | $ | (38,101 | ) | ||
| Depreciation and amortization | 1,506 | 653 | ||||||
| Interest expense, net(1) | 864 | 3,318 | ||||||
| Provision for income taxes | 17 | — | ||||||
| Change in fair value of derivative liabilities | — | 3,597 | ||||||
| Change in fair value of warrant liability | (6,267 | ) | — | |||||
| Change in fair value of trading securities | (1,000 | ) | — | |||||
| Transaction-related costs(2) | 538 | 2,148 | ||||||
| Litigation costs(3) | 40 | — | ||||||
| Stock-based compensation(4) | 11,718 | 14,493 | ||||||
| Adjusted EBITDA | $ | (36,815 | ) | $ | (13,892 | ) | ||
(1) As a result of significant discounts provided to our customers on our longer-term software contracts paid upfront, the Company has determined that there is a significant financing component related to the time value of money and has therefore broken out the interest component and recorded it as a component of interest income (expense), net on the condensed consolidated statements of operations and comprehensive loss. The interest expense is recorded using the effective interest method, which has higher interest expense at inception and declines over time to match the underlying economics of the transaction where the outstanding principal balance decreases over time. Interest expense associated with the significant financing component included in interest (income) expense, net was $1.1 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively.
(2) Transaction costs related to the business combination. These costs are included within sales and marketing and general and administrative within the condensed consolidated statements of operations and comprehensive loss.
(3) Legal and settlement fees incurred in connection with non-ordinary course litigation and other disputes. These costs are included within general and administrative within the condensed consolidated statements of operations and comprehensive loss.
(4) Stock-based compensation expense associated with equity compensation plans including $11.3 million during the three months ended March 31, 2022 related to RSUs granted since August 2021 and $13.8 million related to the secondary purchase transaction during the three months ended March 31, 2021.
FORWARD-LOOKING STATEMENTS
This release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding adoption of Latch’s technology and products. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "would," "will continue," "will likely result," and similar expressions. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Forward-looking information includes, but is not limited to, statements regarding: the Company’s future products, performance, and operations, and the related benefits to shareholders, customers, and residents; and the Company’s strategy. Many factors could cause actual future events to differ materially from the forward-looking statements in this document, including Latch’s ability to implement business plans and changes and developments in the industry in which Latch competes. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties described in the "Risk Factors" section of our Annual Report on Form 10-K filed with the SEC on March 1, 2022, and other documents filed by Latch from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and the Company assumes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law, including the securities laws of the United States and the rules and regulations of the SEC. The Company does not give any assurance that it will achieve its expectations.
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Latch, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| As of March 31, 2022 (unaudited) | As of December 31, 2021 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 90,959 | $ | 124,782 | |||
| Available-for-sale securities - current | 172,993 | 158,973 | |||||
| Accounts receivable, net | 28,967 | 25,642 | |||||
| Inventories, net | 18,996 | 11,615 | |||||
| Prepaid expenses and other current assets | 12,047 | 11,606 | |||||
| Total current assets | 323,962 | 332,618 | |||||
| Property and equipment, net | 2,755 | 2,039 | |||||
| Available-for-sale securities - non-current | 71,058 | 102,878 | |||||
| Internally developed software, net | 14,411 | 12,475 | |||||
| Other non-current assets | 2,929 | 2,294 | |||||
| Total assets | $ | 415,115 | $ | 452,304 | |||
| Liabilities and Stockholders’ Equity (Deficit) | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 5,757 | $ | 6,229 | |||
| Accrued expenses | 24,687 | 24,184 | |||||
| Deferred revenue - current | 7,211 | 6,016 | |||||
| Other current liabilities | 2,935 | 4,342 | |||||
| Total current liabilities | 40,590 | 40,771 | |||||
| Deferred revenue - non-current | 28,484 | 24,190 | |||||
| Warrant liability | 3,520 | 9,787 | |||||
| Other non current liabilities | 178 | — | |||||
| Total liabilities | 72,772 | 74,748 | |||||
| Commitments and contingencies (see Note 11) | |||||||
| Stockholders’ equity (deficit) | |||||||
| Common stock - $0.0001 par value, 1,000,000,000 shares authorized; 142,237,954 and 141,592,388 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively(1) | 32 | 25 | |||||
| Additional paid-in capital | 718,305 | 706,713 | |||||
| Accumulated other comprehensive loss | (2,292 | ) | (676 | ) | |||
| Accumulated deficit | (373,702 | ) | (328,506 | ) | |||
| Total stockholders’ equity (deficit) | 342,343 | 377,556 | |||||
| Total liabilities and stockholders’ equity (deficit) | $ | 415,115 | $ | 452,304 | |||
(1) Shares issued and outstanding as of March 31, 2022 and December 31, 2021 exclude 738,000 shares subject to vesting requirements.
Latch, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)
(in thousands, except share and per share amounts)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| Hardware | $ | 9,055 | $ | 5,014 | ||||
| Software | 3,039 | 1,615 | ||||||
| Services | 1,561 | — | ||||||
| Total revenue | 13,655 | 6,629 | ||||||
| Cost of revenue(1)(2): | ||||||||
| Hardware | 10,992 | 6,028 | ||||||
| Software | 323 | 134 | ||||||
| Services | 1,718 | — | ||||||
| Total cost of revenue | 13,033 | 6,162 | ||||||
| Operating expenses: | ||||||||
| Research and development(2) | 18,257 | 9,615 | ||||||
| Sales and marketing(2) | 17,296 | 3,750 | ||||||
| General and administrative(2) | 14,178 | 17,696 | ||||||
| Depreciation and amortization | 1,506 | 653 | ||||||
| Total operating expenses | 51,237 | 31,714 | ||||||
| Loss from operations | (50,615 | ) | (31,247 | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of warrant liability | 6,267 | — | ||||||
| Change in fair value of trading securities | 1,000 | — | ||||||
| Interest expense, net | (864 | ) | (3,318 | ) | ||||
| Other expense | (2 | ) | (3,536 | ) | ||||
| Total other income (expense), net | 6,401 | (6,854 | ) | |||||
| Loss before income taxes | (44,214 | ) | (38,101 | ) | ||||
| Provision for income taxes | 17 | — | ||||||
| Net loss | $ | (44,231 | ) | $ | (38,101 | ) | ||
| Other comprehensive loss | ||||||||
| Unrealized loss on available-for-sale securities | (1,618 | ) | — | |||||
| Foreign currency translation adjustment | 2 | (7 | ) | |||||
| Comprehensive loss | $ | (45,847 | ) | $ | (38,108 | ) | ||
| Net loss per common share | ||||||||
| Basic and diluted net loss per common share | $ | (0.31 | ) | $ | (3.65 | ) | ||
| Weighted average shares outstanding | ||||||||
| Basic and diluted | 141,970,190 | 10,438,778 | ||||||
| (1) Exclusive of depreciation and amortization shown in operating expenses below. | ||||||||
| (2) Stock-based compensation expense included in cost of revenue and operating expenses is as follows: | ||||||||
| Cost of revenue | $ | 272 | $ | 14 | ||||
| Research and development | 4,501 | 3,999 | ||||||
| Sales and marketing | 2,322 | 161 | ||||||
| General and administrative | 4,623 | 10,319 | ||||||
| Total stock-based compensation | $ | 11,718 | $ | 14,493 | ||||
Latch, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
| Three Months Ended March 31, | |||||||
| 2022 | 2021 | ||||||
| Operating activities | |||||||
| Net loss | $ | (44,231 | ) | $ | (38,101 | ) | |
| Adjustments to reconcile net loss to net cash used by operating activities | |||||||
| Depreciation and amortization | 1,506 | 653 | |||||
| Non-cash interest expense | 994 | 1,934 | |||||
| Change in fair value of derivative liabilities | — | 3,597 | |||||
| Change in fair value of warrant liability | (6,267 | ) | — | ||||
| Change in fair value of trading securities | (1,000 | ) | — | ||||
| Provision for excess and obsolete inventory | 665 | 9 | |||||
| Allowance (reversal) for doubtful accounts | (50 | ) | 171 | ||||
| Stock-based compensation | 11,718 | 14,493 | |||||
| Changes in assets and liabilities | |||||||
| Accounts receivable | (4,241 | ) | (1,108 | ) | |||
| Inventories | (8,046 | ) | 537 | ||||
| Prepaid expenses and other current assets | 811 | (2,424 | ) | ||||
| Other non-current assets | (713 | ) | (53 | ) | |||
| Accounts payable | (471 | ) | 1,732 | ||||
| Accrued expenses | 199 | 1,331 | |||||
| Other current liabilities | (344 | ) | — | ||||
| Other non-current liabilities | 178 | 620 | |||||
| Deferred revenue | 5,489 | 2,279 | |||||
| Net cash used in operating activities | (43,803 | ) | (14,330 | ) | |||
| Investing activities | |||||||
| Purchase of available-for-sale securities | (24,367 | ) | — | ||||
| Proceeds from maturities of available-for-sale securities | 39,587 | — | |||||
| Purchase of trading securities | (250 | ) | — | ||||
| Purchase of property and equipment | (736 | ) | (290 | ) | |||
| Development of internal software | (2,069 | ) | (1,446 | ) | |||
| Net cash provided by (used in) investing activities | 12,165 | (1,736 | ) | ||||
| Financing activities | |||||||
| Proceeds from issuance of common stock | 180 | 2,035 | |||||
| Payments for tax withholding on net settlement of equity awards | (1,293 | ) | — | ||||
| Proceeds from revolving credit facility | 1,345 | 53 | |||||
| Repayment of revolving credit facility | (2,409 | ) | — | ||||
| Net cash (used in) provided by financing activities | (2,177 | ) | 2,088 | ||||
| Effect of exchange rate on cash | (8 | ) | (9 | ) | |||
| Net change in cash and cash equivalents | (33,823 | ) | (13,987 | ) | |||
| Cash and cash equivalents | |||||||
| Beginning of period | 124,782 | 60,529 | |||||
| End of period | $ | 90,959 | $ | 46,542 | |||
| Supplemental disclosure of non-cash investing and financing activities | |||||||
| Capitalization of stock-based compensation to internally developed software | $ | 1,019 | $ | 21 | |||
| Capitalization of transaction costs | $ | — | $ | 3,412 | |||
| Accrued issuance costs | $ | 25 | $ | — | |||
| Accrued fixed assets | $ | 251 | $ | 67 | |||
| Receivable from option exercises | $ | — | $ | 781 | |||
| Last Trade: | US$0.54 |
| Daily Change: | -0.28 -34.45 |
| Daily Volume: | 8,891 |
| Market Cap: | US$94.150M |
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