Latch, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the last first quarter 2021 financial results conference call. At this time, all participants are on a listen-only mode. After this week's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star then the one key on your touchtone telephone. If you recall all the resistance, please press star then zero. I would now like to hand the conference over to your speaker host today, Mark Griffin. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining us today to review Latch's first quarter 2021 financial results. With me on the call today are Luke Schoenfelder, Chief Executive Officer, Co-Founder and Chairman of the Board of Directors, and Garth Mitchell, Chief Financial Officer. After prepared marks, we will open up the call for question and answer session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather subject to a variety of risks and uncertainties. Our actual results could differ materially from these expectations reflected in any forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For discussion of material risks and other important factors that could affect our actual results, please refer to the risk factors section in our SEC filings available on the SEC's EDGAR system and our website, as well as the risks and other important factors discussed in today's results. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the investor relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Chief Executive Officer Luke Schoenfelder. Luke?

Thanks, Mark. And I'd like to start by thanking all of you for joining us today on our first earnings call as a public company. Latch recently closed our SPAC transaction with TS Innovation Acquisitions Corp., and we are now a listed public company with our common stock and warrants trading on NASDAQ. We are excited about becoming a public company and credit this important milestone to our team members, our customers, and our partners for making this possible. I've never been more confident in the business we're building and know that this moment will drive continued growth, benefiting our customers, employees, and shareholders. We're also pleased to share our results for the first quarter. In Q1, our total bookings grew 89% year-over-year to $71.7 million, and our revenue grew 143% year-over-year to $6.6 million. This growth reflects robust market demand for our products and shows early signs of post-pandemic recovery. In addition, our attach rates of non-access LatchOS software modules grew to 81% in Q1, up from 44% in Q4 of 20, giving us confidence that our robust 2021 product roadmap and release schedule will drive high adoption and sustained average revenue per home unit growth throughout the year. Garth, our CFO, will talk to Q1 results in more detail shortly. As this is our first earnings call, we thought it would be helpful to provide a brief overview of Latch's history, value proposition, market opportunity, and business model, in addition to providing details on the drivers behind recent performance. I co-founded Latch in 2014 with Brian Jones, Dhruva Rajendra, and Thomas Meyerhofer with the mission of making buildings better spaces to live, work, and visit. Together, we built an executive team with decades of experience at some of the world's best companies, including Apple, Salesforce, and IDEO. At our core, we're a product company, and more than half of our employees work in R&D roles today. In the beginning, we started by solving the access problem at apartment buildings. We created products that work for each door in an apartment building, from building entrances to apartment doors, elevators, parking garages, gyms, and just about everything in between. Once installed, users can use their smartphone, NFC card, door code, or Apple Watch to unlock each door and share access right from their phone. These products help define the smart access category for multifamily buildings and serve as the foundation for our early growth. From there, we expanded to delivery and guest management, making sure that our products enabled more efficient and seamless deliveries and guest reception through our Latch Intercom, Latch Camera, and Latch Delivery Assistant products. The pandemic accelerated growth in e-commerce, making package delivery management an important and costly pain point for building operators. We worked with partners like UPS to increase operational efficiency while also providing a better experience for residents and buildings, too. After that, we saw an opportunity to extend the enterprise device management capabilities that we use to manage our own devices to also manage third-party products, and we built relationships with companies like Google Nest, Honeywell, Ecobee, and others. Now, LatchOS manages each of these third-party devices for building managers, and the Latch app enables residents to control each of their devices from our app. From there, we saw the need to bring enterprise connectivity solutions to apartment buildings, and we built LTE into our Latch Intercom and Latch Hub to enable us to bring connectivity right to the edge, which means our products don't require infrastructure, wiring, or full-building Wi-Fi in order to function. With this foundation of products in place, we've created a resident experience where the average Latch app user interacts with our app 4.6 times per day, setting the stage for the introduction of new experiences over time. This has the effect of expanding our market opportunity to encompass resident spending. In keeping with our focus on helping people create better spaces to live, work, and visit, you can expect to see a suite of services and experiences sold directly to the residents of Latch buildings as we believe we can make their entire rental experience easier and more efficient. And we can do all this via the incredible engagement we get for free via our own app. That's the power of the integrated full building experience LatchOS delivers. Our average building customer today installs Latch and partner devices across the whole building, pays Latch between $7 and $12 per apartment per month for the features that they need, and then onboard their staff and residents. Our building customers sign a LatchOS software contract to provide the capabilities that they need at their building, and such contracts have an average length of more than six years. After only a few years in the market, Latch consistently delivers strong sales and growth as we continue to drive ever broader market adoption of our products. In fact, more than one in 10 new apartments in the US are now built with Latch. In addition, seven of the 10 National Multifamily Housing Council top developers are currently Latch customers. There is compelling opportunity for further growth supported by four important pillars. First, the market for an apartment building operating system is massive. Second, LatchOS is defining the full building operating system category. Third, there is significant white space for rapid growth. And fourth, since our inception in 2014, we have demonstrated strong customer traction and unit economics, which Garth, our CFO, will discuss shortly. Starting with the massive market opportunity, there are an estimated 47 million rental homes in the United States alone, which last conserved through our LatchOS ecosystem. U.S. residential rental owners and operators alone represent an approximately $54 billion total annual market for the previously described LATCHOS modules. In Europe, there are an estimated 93 million apartments, which add an incremental $90 billion annual market opportunity. That's a total addressable market of $144 billion. In May, we announced the expansion of LatchOS, our full building operating SaaS platform, into the commercial office space with the launch of LatchOS for commercial office and Latch Visitor Express, two products specifically tailored to commercial office buildings, which will further the company's addressable market. We define the full building operating system category. Our LatchOS software platform combines our own devices, partner devices, and services to create a complete system for each building and stakeholder. To get started, building owners and operators choose the LatchOS capabilities that they need, select the devices they'd like to install at their building, and we handle the rest. It's taken us seven years to develop this ecosystem, and we're excited by the capabilities that we provide to our customers, residents, and service providers. The way we sell our products is also unique, as we have direct relationships with our customers and become, essentially, the trusted technology advisor for many of our customers. While traditionally it has taken a number of disparate, largely disconnected vendors to replicate the capabilities of LashOS, we're able to consolidate all those capabilities into a single system. Our product roadmap is directly informed by this collaboration with our customers as we evolve to meet their needs and provide a singular experience that makes life better for everyone at a building. With an installation timeline that can range from 6 to 18 months, depending on the construction schedule, we typically improve our products and add new features between the time of the initial sale and the time of install. Just like a smartphone or a smart car, we believe our products will only improve as time goes on, as our software updates keep adapting to our customers' needs throughout their multi-year software contracts. Building owners and operators buy LatchOS because it helps drive net operating income through increased revenue and reduced expenses. We estimate that building owners and operators using the LatchOS system may see revenue increases of up to $200 to $500 per apartment per year due to premium positioning, lower turnover, faster leasing times, increased rent, fees, and other ancillary monetization opportunities. Moreover, we estimate that building owners and operators using the LATCH OS system makes the operational expenses reduced by up to $100 to $300 per apartment per year due to decreasing lockout incident responses and increasing efficiencies in resident onboarding and offboarding, delivery management, and more. And LATCH has significant white space for rapid growth. and we'll be strategic about how we approach these new opportunities. As we look to the near term for Latch, there are several key growth drivers in North America. We are focused on growing the number of units on our LatchOS platform by increasing sales with new customers and expanding within our existing customer portfolios. We're also determined to expand average revenue per home unit by adding and expanding our LatchOS modules for enterprise customers and capturing additional digital services spending from residents. One of the key benefits of going public is that it's given us the resources to expand into new markets and verticals faster. Our partnership with Fishman Spire will be essential in our announced expansion into the commercial office market, and we're excited to work with other existing customers and partners to expand our business into Europe as well. So to close out, I'd like to walk through some exciting product updates. The last C2, the company's new smart access device launched during the quarter, booked over 20,000 units in sales and was a contributing driver of Total Booking's outperformance. The Latch C2 is competitively positioned to address the retrofit market due to its low cost, long battery life, and limited infrastructure needs. Latch deployed NFC unlock functionality on Android across its product portfolio, building on the company's industry-leading variety of unlock options. This initiative served to amplify the value of Latch's full technology stack of hardware, firmware, and software, adding new features that contribute immediate value to both building owners and residents while simultaneously deepening technology integrations with Google. Latch deepened its status as a trusted technology partner with Avalon Bay by developing a self-service touring experience that allows prospective residents to visit Conso Twinbrook, its newest development concept, in a safe, contactless manner. In May, Latch announced the expansion of its full-building enterprise SaaS platform into the commercial office space with the launch of LatchOS for commercial office, Latch Visitor Express, and LatchID, three product offerings specifically tailored to commercial office buildings, which should greatly expand the company's addressable markets. Latch has always been a product company, and we're committed more than ever to continuing to deliver for each stakeholder in our ecosystem. We have a strong foundation of products and services, deep customer relationships, and a team that is dedicated to pushing the Latch experience forward in every way that we can. As we continue to add to the depth and breadth of LatchOS, continue to innovate with new products, and continue expanding to new markets, Latch's next chapter is going to be something really special. We hope you'll follow our journey. With that, let me turn it over to the call to Garth Mitchell, our CFO. Garth?

Thanks, Luke. It's great to connect with both our existing and prospective stockholders in our first call as a public company. Q1 was a record quarter for the company on many fronts, and I'm excited to share these results in addition to providing an update on our Q2 and fiscal year 2021 guidance. Before diving into our financial results, I wanted to first review the important aspects of our business and revenue model considering that some of you may be new to the Latch story. Since our launch in summer 2017, we have not lost a single customer, leading to 100% gross dollar retention, and we have demonstrated our ability to sell deeper into our customers' portfolios over time. This, plus our low single-digit current penetration into existing customer portfolios, gives us confidence that we can drive sustainable same-customer expansion for the foreseeable future. Our go-to-market model and long software contract lengths drive remarkable sales and marketing efficiency as measured by our lifetime customer value to customer acquisition cost ratio, or LTV to CAC. We've previously stated that our 2020 LTV to CAC was 6.8x or 4x factoring in hardware losses. Our strong new product attach rates in the first quarter of 2021 drove meaningful LTV expansion above a stable customer acquisition cost. Note that LTV to CAC does not take into account account up-sales or renewals, leaving room for expansion in the initial LTV. When we win a new account and the customer begins to deploy LATCH across their portfolio, we see significant LTV to CAC expansion, as sales and marketing costs are typically lower on up-selling and cross-selling activity. Furthermore, scale efficiencies in next-generation access products improve hardware profitability, effectively reducing customer acquisition costs. Going forward, this is a lever we can pull to increase profitability, or we can strategically pass along these savings to key customers in order to accelerate top line growth. Equally important, Latch is very compelling upfront unit economics. On average, software contracts are over six years in length, and 97% of our customers elect to prepay their full contract value on day one, which creates highly attractive upfront cash profitability. Before diving into our Q1 results, I thought it might be helpful to walk through revenue recognition and to give some color on the seasonality we see in the business. We view total bookings as the primary measure of Latch's sales philosophy and LatchOS customer adoption. Total bookings represent signed letters of intent with customers to purchase Latch hardware and software, not reflecting term or promotional discounts, with a target delivery date no later than 24 months following letter of intent signature. Total bookings are a combination of the hardware revenue commitment and the software revenue commitment over the total life of the software agreement. The hardware revenue commitment is recognized net of promotional discounts as hardware revenue at the time of shipment. Software revenue is recognized net of promotional discounts over the course of the contract starting from software contract signature through contract end. And thus, there is a greater lag between software bookings and the recognition of software revenue. than with hardware bookings and hardware revenue. The average delivery timeline ranges from six to 18 months. Retrofit deals tend to fall on the shorter end of the scale, while new construction deals, deals with larger customers, or larger portfolio-wide deals tend to fall on the longer end of the scale due to increased construction timelines and complexity. As deployment timelines are complex and can depend on construction schedules and activity, we do experience some seasonality in our business. Most notably, delivery volumes in Q1 and Q4 can be lighter than Q2 and Q3 due to seasonality and construction, particularly in colder climate areas and slowdowns due to end of year holidays. Our business was also impacted by COVID-19 as restrictions placed on the residential multifamily construction market drove delays in unit deliveries in the first half of 2020. Beginning in the second half of 2020, These restrictions began to be lifted and construction sites started to open, resulting in accelerating revenue growth in the second half of 2020. Historical 2020 quarterly results are detailed in the appendix of our earnings presentation. Finally, as we continue to scale our business, we expect to see some evenness in the distribution of our total bookings due to the impact of large deals with an outsized impact on our quarterly total bookings cadence. In the second quarter of 2020, we had a very large portfolio-wide deal that led to the stronger-than-usual seasonal performance. Such unevenness may make it difficult to compare some quarters year over year. Now let me turn to our first quarter results. For the first quarter, total bookings were $71.7 million, up 89% year over year. Growth in cumulative booked home units also accelerated, with a total of 369,000 units, up 109% year over year. Finally, booked ARR grew to $38.9 million, up 120% year-over-year. As discussed earlier, total bookings represent signed letters of intent with customers to purchase Latch hardware and software with a target delivery date no longer than 24 months following letter of intent signature. Cumulative booked home units represents the total number of apartment units or similar dwellings installed or committed to be installed with Latch products. Booked ARR is defined as the cumulative value of annual recurring revenue from last software subscriptions that are under a signed letter of intent. Sales and marketing spend did not increase in the quarter, and the accelerating growth across all booked metrics is reflective of increased product category adoption and strong demand for our latest product offerings. And we are extremely excited to use the proceeds from this business combination to grow sales capacity to meet this accelerating growth in customer demand. We saw attach rates of non-access LatchOS software modules grow to 81% in Q1, a 37 percentage point increase on attach rates of 44% in Q4 2020. This increase demonstrates robust customer demand for incremental LatchOS modules as they become available. The higher attach rates led to rapid LTV expansion in the first quarter over similar customer acquisition costs. The high patch rates of multiple LatchOS modules underpins our planned increase in investments in R&D, which will accelerate the time to market of several new modules. We expect these modules will drive higher customer ROIs and pull forward LTV expansion. Now turning to revenue. We are very excited to announce revenues of $6.6 million in the quarter, up 143% year-over-year. This again demonstrates the strong customer demand for our products, and the continued reopening of construction sites as the pandemic subsides in certain markets. Our software margin was 92% for the first quarter, staying flat compared to 92% in the first quarter of 2020. We believe these margins continue to demonstrate the strength of Latch's business deploying best-in-class software products with iconic integrated hardware devices. Over time, we expect software revenues will increase as a percentage of our revenue mix, which is a key driver for long-term operating margin expansion. Our hardware margin was negative 20% for the first quarter, a significant improvement compared to negative 58% in the first quarter of 2020. Q120 hardware margins were negatively impacted by tariffs and a large one-time inventory write-off. The remaining improvement was largely driven by scale efficiencies and more cost-effective next-generation access products. While we expect long-term improvement in hardware margins, the unprecedented global supply chain shortages for electronics components could present short-term volatility in our hardware costs. We are prioritizing meeting customer demand and are extremely proud of our supply chain team's agility and focus on doing so. We continue to have confidence in our team's ability to remain agile and meet customer demand and will remain focused on making economic trade-offs between revenues and hardware margins where necessary. We will continue to closely monitor the situation and highlight any potential impact beyond Q2. Operating expenses net of stock-based compensation were $17.2 million in Q1, up 15% year-over-year compared to 143% year-over-year increase in revenue. Both the first quarters of Q1 2021 and 2020 were a loss of $13.9 million. Net loss was $38.1 million and net loss per diluted share was $3.27, based on 11.6 million weighted average shares outstanding as of the end of Q1. The gap between adjusted EBITDA and net loss was driven by an increase in non-operating and non-recurring items, including a $13.8 million non-recurring stock-based compensation and warrant expense related to a secondary purchase transaction during the quarter, a $3.6 million unfavorable charge in the fair value of the derivative liability primarily related to the company's convertible notes, a $3.3 million increase in interest expense primarily related to the company's convertible notes, and $2.1 million of SPAC transaction costs. Turning now to our balance sheet, as of March 31st, we had cash and cash equivalents of $46.5 million, compared with $60.5 million as of December 31st, 2020. This excludes the $453 million in cash proceeds, net of fees and expenses funded in conjunction with the closing of the business combination with TS Innovation Acquisition Corporation. At the end of the first quarter, we had debt of $62.8 million. Now let me turn to guidance. For the second quarter, we expect total bookings in the range of 82 million to $87 million. We expect revenue in the range of 9 million to $10 million. We expect our adjusted EBITDA to be in the range of negative 17 million to negative $20 million. For the full year 2021, we expect total bookings in the range of 290 million to $325 million. We expect revenue in the range of 47 million to $51 million. We expect adjusted EBITDA to be in the range of negative $75 million to negative $95 million. In summary, we are very pleased with our performance this quarter and look forward to building a track record of consistent performance as we move ahead. With the massive market opportunity ahead of us and a strong market leadership position, we believe the company is extremely well positioned to drive sustainable, long-term, healthy growth. With that, we'll now open up the call for questions. Operator?

As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rod Hall from Goldman Sachs. Your line is now open.

Yeah, hey, guys. Thanks for taking the question and doing the call. I wanted to start off maybe with just a big picture question on the business, and I had a question on the numbers, too. One of the things that we found as we've studied other technologies and adoption of them in these kinds of markets is that owners sometimes, if you have an existing building, they're reluctant to put new technology in because it costs them money. And I know you've talked about this adding revenue, maybe $200 to $500 per apartment. I just wonder if you could kind of tell us what you've encountered out there When you talk to owners, I know, you know, if they're retrofitting a building, they're building a new building, it makes total sense they would do this. But what about people that have preexisting apartment buildings? You know, how has the reception been to the technology there? And then I've got that follow-up for you.

Yeah, absolutely, Rod. Thanks so much for the question. Yeah, so we focus, you know, our efforts on the entirety of the market. And what we see is that – huge portion of the sort of market turns over every year as it changes hands every 10 years or gets renovated every 10 years. And so for us, the market that we look at on an in-year basis is new units that are being built and then units that are being renovated or are changing hands and repositioned in market. And so if you think about the 47 million rental home units in the United States and you think that those might change hands or need to be renovated every 10 years, that could be a way of thinking about in-year TAMs. But for us, the market is so large that, you know, we're really focused on serving the entirety of the market, but we see both new construction and that structural renovation market being, you know, areas where we've seen a lot of activity over the, you know, the life of the company. Okay.

Just to add one thing there. Our products serve new construction environments and retrofit environments equally well. Our sales teams are organized to focus on serving individual customers and selling both new construction projects that they have in their portfolios and existing buildings. So for us, there's very little distinction necessarily between the retrofit market and the new construction market. We just focused on serving our customers' needs and selling deeper into their portfolios as they've had opportunities to actually generate ROI from Latch's products.

Okay, that's great. I wanted to just slip one in here. We've been attending the WWDC at Apple this week, and I noticed that they've moved to keys, residential keys, as one of the things that's going to come out in the new OSs next year, or later this fall, actually. I just wonder, I know you guys have this ability to unlock an apartment with a smartphone already. Does what Apple's announced, have an impact on the user experience for your products? Or does it streamline it in any way? How does that affect your business?

It's just another way that a user can open their space. For us, it has... an exciting opportunity to deepen the ways that we work both with Apple, but also are able to serve users flexibly from working on the Apple Watch, to working on the iPhone, to working on Android. This is just another working with NFC cards, working with door codes. This is just another way for a user to express their latch ID. And so we look at Latch ID as really being the core way that a user is able to move through all of their Latch environments, and this is just another way to express that Latch ID credential, which we're excited about. You know, we announced we're bringing Latch ID to Apple Wallet as part of this initiative, and it was announced during the keynote, as you noted, Rob.

Yeah, yeah, we did see that. And then just on the numbers, we noticed the unit numbers to kind of track the ones you've released anyway. It looks like 41,000, 48,000, 40,000, 64,000. I just wondered, maybe Garth, you could address this, but is there a normal seasonality flow to these unit ads that you guys tend to see, or should we expect to see kind of a relatively random distribution of ads depending on how projects are completing? Can you kind of help us understand how those unit ads will tend to flow over quarters? Thanks.

Yeah, that's a good question, Rod. Delivery volumes in Q1 and Q4 tend to be relatively lighter than Q2 and Q3 due to construction seasonality and colder climate zones and slowdowns due to end-of-year holidays. We had last year a really big portfolio-wide deal in the second quarter of 2020, which led to a little bit of unseasonally strong strength in that quarter. But going forward, we expect to see a similar seasonality to what I just described.

Okay, great. Well, thanks a lot, guys. Appreciate the call again.

Thank you. Our next question comes from the line of Mark Chappelle from Benchmark. Your line is now open.

Hey, guys. Thanks for taking my questions, and congratulations on your first earnings report as a public company. Luke, first question for you. It's clear your business is accelerating from last spring, and at a high level, maybe you can just give us a sense of the type of customer conversations that you're having today compared to what they were like, say, a year ago.

Yeah, thanks so much, Mark. I think the biggest thing that we've seen is just an acceleration of demand. I think with many businesses, they've seen the pandemic sort of pull the future forward. I think Toby at Shopify mentioned that they saw 2020 look more like their projections for 2030. And I think what we've seen in our enterprise customer base is is the reality that technology is going to be required to manage their assets going forward. And they always knew that that was going to be a thing at some point. And I think the pandemic and the need to manage things remotely in a contactless way just accelerated that realization in the industry. And I think that's been one of the big drivers of the accelerating growth that we've seen. I think we've also made really smart product decisions. If you look at our focus on delivery and guest management, these were things that we've been big believers in for a long time. And again, the acceleration of e-commerce volume with another pandemic side effect and it doesn't seem like it's going anywhere. And our ability to provide those solutions that solve these problems for our customers to make sure every delivery can get into a building has been highly valuable in the market, and our customers are really recognizing it in this unique time of technology adoption acceleration.

Great. Thank you. And then with respect to your non-access modules, what non-access modules are you seeing the most interest in so far?

Yeah, we haven't broken out the exact attach rate, but what I'll say is that, you know, going back to sort of my last comment about e-commerce volume, our delivery and guest management products anchored by our intercom and our latch delivery assistant. So our intercom, think the call box at the front of a building, just updated and really smart with the ability to call your phone anywhere you are so you can let a delivery in. But more importantly, in buildings that have also opted for latch delivery assistants, the call from the delivery person will actually be routed to an operator that can open the door on the resident's behalf. So if I got a call right now for a delivery to my building, I probably can't pick up, but the latch delivery assistant can, making sure that every delivery gets in That is a huge asset for buildings that don't have full-time staff. And so when we think about the holistic offering, that ability to always get deliveries in in this moment of accelerated e-commerce and delivery volume has been really valuable. But we've also seen exciting adoption on the smart home side. People are spending more time at home and are thinking about it more. Our partnership with Google Nest generated a lot of press in the fall, and, you know, we're very excited about, you know, pushing for it on all the modules, but that's just a little flavor of kind of how our customers are perceiving them right now.

Great, thanks. And then finally here on your commercial office opportunity, which is relatively new, with respect to the three office pilots that you have going on in New York, where are you in that process? Are they just getting started? You know, are the buildings – Have they been retrofitted with smart locks yet or are they in that process?

Yeah, Mark, great question. So I think just to contextualize the announcement a little bit more, we actually announced three products as part of our announcement about a month ago. And so the product that is being piloted at those three large properties, Brookfield Place, Empire State Building, and Rockefeller Center, is Latcher Visitor Express. Latch Visitor Express allows someone in the absolute largest office building to be able to show up as a guest and with their Latch ID, skip straight to the turnstile or the elevator without being stuck in that 10-minute queue at the front desk. So that's Latch Visitor Express. That will be piloted at a number of leading properties in 2021 in New York. However, we also announced Latch OS for commercial offices, which is our holistic suite of products. going to the long tail of commercial offices, not just the largest buildings, and those installs are beginning now. So we're very excited about the expanded TAM that this presents and really the ability for us to use Latch ID, which was our third announcement, again, about three weeks ago, to serve as that trusted identity platform to provide single sign-on experiences in physical space. And to give a little bit more meat to that, if I live in a Latch building and I have my Latch account for that, and then I work at a Latch building, it's the same account. And then if I visit another Latch building, it's the same account, which means that you have this persistent identity that just gives you that convenience everywhere that you go. So those were the announcements from a few weeks ago, Mark.

Yeah, very helpful. Thank you. That's all for me.

Thank you. Our next question comes from the line of Joe Verunk from Bayard. Your line is now open.

Great. Hi, everyone. I wanted to ask about the retrofit opportunity a bit more. And, Garth, you said retrofits typically fall on kind of the accelerated spectrum between getting the initial commitment and then converting on a delivery and revenue rack. I thought it was interesting with the C2 product to book 20,000 units and to deliver 8,000 units within the scope of one quarter. that seems even quicker than kind of the normal timeline latch has discussed. So I guess a few questions, you know, one is, is that right? And then two, is that a reflection of anything that's changing? You know, are the products getting engineered a bit differently to accelerate potential adoption? Is it customer demand that's driving this? Just what are your thoughts on that?

Yeah. So what I can speak to that, Garth, and feel free to chime in, but, um, What we've seen is we recognize the need to have the best possible product for retrofits. And so to get a lock nerd here just for a second, if you've ever had that experience when you're trying to close a door and you have to turn the key and sort of jiggle the door to get the door to lock, that happens all the time because the door frame and the door are settled over time and become misaligned. With traditional electronic locks, if that door is not aligned, the lock cannot lock properly and cannot operate properly. And that's been a big problem with the adoption of electronic locks historically. So what we did starting about two years ago was we said, how could we solve this problem in a new way? And so we came up with a patented clutching mechanism that allows us to get around that problem and provide this really universal retrofit solution that has extremely long battery life, extremely robust performance. And that has really, really resonated with our customers, particularly those who are retrofitting older assets. So the idea that you don't have to worry about mechanical issues, you don't have to worry about having any Internet connectivity at the building, and you get something that just works right out of the box, that's been a really powerful tool in our arsenal as we've continued to court retrofit customers. Does that answer your question, Jeff?

Yeah, it does. And maybe to the second question, and this is going to be on competitive landscape, but today there's a lot of nuance and variety to smart building technology for multifamily. So it seems like you have... single-product companies, be it intercom or access, smart devices. You have software providers that are hardware agnostic, and then you have the crop of more vertically integrated, kind of the latch approach. Maybe you can just walk through how you arrived, why you arrived at your particular business model, and how you're seeing that be advantageous as this category kind of gains more interest, more adoption behind it.

Yeah, absolutely. I mean, I think it's really simple. We just looked at this and said, we want to serve this market. What are the problems that our customers care about? And what are the things that we need to think about in designing our products? And for our customers, uptime and fault tolerance are everything. So, for example, in a latch building, the Internet can go down at the property because we don't require Internet. The power can be out at the property because we don't require power. And your phone cannot have cell reception because and the user can still get into their unit, right? And that sort of fault tolerance and uptime is what our customers really, really value because we've thought holistically about how this entire thing would work so that they're able to make sure that their residents have an incredible experience. You can only do that when you have the ability to solve problems in the entire product stack from hardware, software, to firmware. You can't do that when you just have arm's-length software integrations. And for us, we've been open from the beginning. Our philosophy is to be open to every partner that can provide the uptime and reliability that our customers need, but we can only do that with the best companies who are able to provide that experience. So Google, Apple, Honeywell, RealPage, Entrata, Those are the companies that our customers rely on, just like Lash, to have that critical infrastructure behind their properties so we can't compromise on uptime and on reliability. And so we believe that this integrated approach that provides that uptime and reliability is going to continue to be the winning strategy in the market. It's much harder than just doing one piece or one disparate thing here or there, but it is the winning strategy over the long term and has been why we've been able to be so successful with the largest developers and operators in the country.

Great. I will leave it there. Thank you.

Thank you. Our next question comes from the line of Dylan Becker from William Blair. Your line is now open.

Hey, you've actually got Steven Sheldon on here. So first, I guess, congrats on getting the process completed here. Wanted to ask a little bit more on the expansion into the office category. I guess, what type of investments will still be needed on both go-to-market side and to tailor the product and pricing structure, I guess, even more for the office sector? And then, I guess, what are you kind of targeting in terms of traction on the office side if we thought about the next, you know, three to five years?

Thank you, Steven. Yeah, so as we think about the product, it's really the core product is the same. And that was one of the big advantages in owning the kind of product ecosystem that we do, is that it allows us to scale into new verticals and new areas quickly. And so what we're excited about with Commercial Office is to break effectively our same software modules, our same partners, our same devices, into this market. Now, we will also want to add new features, new partners, et cetera, to make sure that we're solving our customers' needs because it's not 100% overlap, but it is very similar. As we talk about go-to-market, it is also very similar in terms of the way that things go to market. So the installation capabilities, the direct relationships with real estate owners, those things are often the same. We often also have relationships where with some of the country's largest commercial office owners because they also happen to be large multifamily owners and operators. And so we're excited about that. I think where we will make increased investment is on dedicated sales resources that can take our existing account-based selling motion and relationships and really tailor it to go deeper inside target organizations to serve the commercial office needs that they may have. So that will be an area of additional investment. In terms of how we think about pricing, we look at it just like we did with LatchOS, and we're not a single-point solution. We're an integrated product offering that encompasses visitor management, package management, access experiences, smart home integrations, And all of those capabilities together are not something that we've really seen before in this market. So we're very excited about our ability to price competitively, price to win, but take market share relatively quickly given the strength and robustness that we've demonstrated on the multifamily side. And of course, do you want to speak any more to how we're thinking about this over the longer term financially?

Sure. Yeah, I mean, we believe we can take these products to market using the same operating expense investments that we contemplated in the analyst day materials you can find on our investor relations website. But just like any other business or investment decision, to the extent that we see accelerated adoption by customers, we'll obviously invest to meet that demand. But though we haven't included meaningful revenue expansion from commercial office in our projections, we have included the necessary investments to bring them to market.

Great, that's helpful. And then I wanted to ask about, I guess, the cadence of the international expansion opportunity here into regions like Europe. Would the plan be to kind of do this, you know, concurrently with, you know, especially since you have such an early, you know, early and penetrating the U.S. market, I guess, are you able to, is the plan here to push both, you know, both regions, I guess, forward adoption, you know, as I think about the near term, or would you do that concurrently?

Yeah, so the way that we think about it is we take a very methodical approach to these markets in serving our customers. And I think what's interesting is that we have many of the same customers in the U.S., in Canada, and in Europe. And so as we think about that highest-level organizational relationship, they want a unified technology strategy. And so for us, it's important for us in meeting our customers' needs to meet them in the markets where they have the biggest problems. And there's an increasing demand for our products internationally. And so I think we'll be opportunistic, but really focused on how do we serve our customers in the best way going forward. And the contemplated materials from our analyst day really allow us to make the investments needed to pursue those expansion opportunities as they come up. And we're excited about them.

Great. Thank you.

Thank you. Our next question comes from the line of Jason Salino from KeyBank Capital. Your line is now open.

Hey, guys. Thanks for taking my questions, and I'm looking forward to my questions. So it's nice to hear about the expansion on the commercial side, but any update on opportunities for single-family companies? Maybe can you speak to where that is in terms of priority?

Yeah, Jason. It's a market that we definitely serve today. The market is – the single-family market is changing rapidly. I think what we're seeing is that there is an increasing institutionalization in that market. And what's great about that is that our account-based selling motion helps us really serve those more institutional operators. But the reality and the data is kind of shifting, but the institutional owners really control a very small single-digit percentage of the overall market, whereas in multifamily, the large institutional owners control about 60% of the market. So for us, with our account-based selling motion, we've seen some early success there. But what we're most excited about is as we expand our sort of self-serve offering, working through channel partners and other things in the future, we think that the long tail of the market, the 90-plus percent of the market in FFR, single-family rental, is really ours for the taking because there is not an off-the-shelf solution that seemingly will work as well as our products will. So I think, you know, we're being – we're very excited about it. We're working with some of the larger institutional folks to understand their needs. But we also think the opportunity there is going to be in the long tail for quite a significant period of time, given how nascent the growth on the institutional investor base in that segment is.

Okay, great. And then maybe one more from me. When we think about the full rental market right now, how do the customer demand trends look, you know, across different parts of the country and then how does it maybe differ, compare, contrast between the new construction versus maybe some of the retrofits? Thank you.

Yeah, Jason, fantastic question. We really have seen broad-based growth geographically and in new construction and in retrofit, which I know is sort of an unsatisfying answer, but we're active in over 35 states. And for us, we've really just seen once people are using the product, they get it and they want to expand. I can't say that we've seen any city-specific or region-specific or asset-type-specific adoption. It's really been broad-based, and we expect that to continue going forward.

Yeah, Jason, just to add something there, what we have seen is that as customers have had an opportunity to see Latch actually live in their buildings, they've started to come to us, like we mentioned earlier, to talk to us about expanding their deployments to the entire portfolio and which naturally leads to a higher existing and retrofit opportunity mix. So that's really, really exciting activity that we expect to really continue and drive sustained growth for the business going forward. But again, like Luke mentioned, from new construction opportunities in which we really can offer the only sort of fully differentiated deployment process for and retrofit opportunities as customers deploy us deeper into their portfolios. Great.

Thanks for the call.

Thank you. Our next question comes from the line of Ben Sherland from Cantor Fitzgerald. Your line is now open.

Hey, guys. Thanks for taking my question. I wanted to follow up on the international opportunity. It sounds like you have some existing partnerships that might provide some low-hanging fruit once you enter these markets. Is this factored into your longer-term projections that you provided during the analyst day? And maybe a follow-up if I can.

Yeah, absolutely, Ben. We have accounted for modest growth in the European market in our projections given on analyst day. I wouldn't say any of them are contingent on any specific relationship or any specific partnership, but we do have existing relationships and partnerships that will help us get in and active in Europe early. And we'll definitely rely on those early on to just make sure that we understand any regional differences, customer preferences, resident preferences before we go super wide. But we have built in a sort of modest expectations around expanding into Europe in the analyst materials area.

Okay, great. That's helpful. And then as a follow-up, thinking about the consumer monetization opportunity, you disclosed that a user opens the app somewhere between four and five times a day. Can you provide any color on the duration of these visits and maybe how this is trended as you've rolled out additional modules that might drive more engagement versus just the smart access module?

Yeah, we haven't broken out sort of specific utilization metrics yet, but what I will say is that it has trended up over time, and we're very excited to see as we release more modules that our engagement goes up, and we're very optimistic and, again, very excited to be seeing the level of engagement that we are, and we think that provides a very unique you know, almost unprecedented opportunity to really become this interface for space that will allow residents to interact with their space in a way that we really haven't seen before. And I think that's the opportunity we see on the resident side is to really create this one-stop shop for how someone thinks about their space and controlling all of the things that go in, that go out, the services, the features, and really being that central dashboard for how people think about the space that they're renting. And we haven't really seen anybody else come close to that, and we think it's a very unique opportunity that we have to execute on.

Okay, great. Thanks so much. I look forward to hearing more about it.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.