Matterport, Inc.

spatial data library has rapidly expanded to 33 billion square feet of physical space managed as customers are capturing larger spaces than ever with our Pro3 camera. Businesses of all sizes continue to embrace our digital twin platform across the vertical markets we serve. Increasingly, they are achieving significant productivity gains by employing Matterport software for facilities management, space planning and utilization, by reducing the need for on-site travel and promoting efficient digital collaboration. This widespread adoption has propelled our subscription revenue to a record $20.9 million in Q2, at the high end of our guidance range for the quarter. Our continued growth in revenue and our focus on operating efficiency has resulted in another quarter of strong outperformance on the bottom line, with net loss per share of 7 cents, more than a 40% improvement from a year ago. Moreover, our strategic partnerships continue to drive pipeline, connect us to large industry ecosystems, open new distribution channels, and help us enhance our platform's functionality for customers. Our unmatched digital twin platform equips customers with crucial tools for managing and marketing their properties and facilities. By harnessing our extensive spatial data library, We expect our new AI solutions will generate breakthrough customer value and bolster our subscription revenue per account. More on that in a moment. In Q2 and early Q3, we implemented strategic changes across the organization to bolster execution of our company plan and fast track profitability. These changes included a significant modernization of our subscription and pricing structure to enable us to more effectively capture SaaS revenue while providing our customers with more value and flexibility. Next, we introduced Genesys, a company-wide initiative to focus our AI efforts and push Matterport further to the forefront of the digital transformation of the built world. And in July, we announced a restructuring to accelerate our path to profitability while creating a leaner and faster moving organization. Each of these important steps accrue to our long-term strategy, which I've discussed previously and I would like to elaborate on further. In the quarter, we rolled out updated subscription plans and pricing designed to unlock more value and provide better flexibility for our customers. Since we first introduced our subscription plans for Matterport Digital Twins in 2019, our customer base has experienced enormous growth to encompass diverse industries that use our platform in new and exciting ways. This has fueled rapid evolution of our cloud-based technology platform and expanded the functionality of every digital twin created retroactively. To keep pace, we announced new subscription plans that offer increased flexibility and encourage customers to grow their use of our digital twins while utilizing the rich features and functionality we continuously add to our technology platform. We've carefully updated our plans so customers can find the right subscriptions that fit their needs and budget. As a result of these updates, prices have increased across our standard subscription plans by approximately 7% to 11%. Feedback from customers following this update in May have been very encouraging, and we expect the pricing changes to begin to have a positive impact on subscription revenue over the coming months and carry into 2024. Turning to technology, we have steadily expanded our AI first strategy with Cortex AI and Property Intelligence, leveraging our proprietary data set, the world's largest library of digitized physical space. Last quarter, we talked about Property Intelligence, our newest capability that documents and provides insights about the truth of the space as it exists today. such as providing automatic measurements or assessing the condition of a space or type of material. This fully automated offering generates powerful property insights to enable clients to easily manage their properties online and discover new operational efficiencies. It eliminates the need for multiple site visits and automates previously lengthy or manual workflows, enabling our customers to make better decisions more quickly from anywhere in the world. Property intelligence is the first product offering on our datafication roadmap and is currently being piloted with select customers. We expect to announce general availability later this year. In June, we shared a first look at Genesis, an exciting new initiative that will combine property intelligence with generative AI and our spatial data library to offer a unique AI solution to the built world. Genesis will leverage our 33 billion square feet of digitized space to create one of the most powerful spatial computing platforms in the world for homeowners and property managers alike. Genesis is designed to automate interior design, space planning, property management, and so much more for the spaces in which we live, work, and play. We plan to integrate Genesis across our digital twin platform with our first preview release expected by the end of the year. This defines a new generation of intelligent digital twins that harness AI to better understand and describe a space as it exists today and envision how a space could look and operate in the future. Matterport is the only digital twin platform that can deliver a breakthrough of this magnitude, thanks to our decade-long expertise in artificial intelligence and our market-leading 3D spatial data library. Next up is efficiency. As mentioned, we accelerated our profitability timeline and enhanced efficiency through a workforce reorganization and reduction. Though recent, these changes have already improved our focus, execution speed, and our aim to fast track our operational cashflow profitability to 2024, a year ahead of our previous plan. As highlighted by our Q2 results, our core business remains strong and our diverse end markets are demonstrating the resilience of our business model in a challenging real estate market. While challenging and especially difficult for those impacted by these actions, the decisive steps we've taken underscore our commitment and dedication to achieving profitability and fostering growth through any market conditions. Before I hand it over to JD Fay to discuss our financials, I'd like to spend a few minutes updating you on the state of the industry and the incredible impact of our partnerships that are driving revenue growth and expanding our customer base. Over the past few quarters, we've discussed important integrations with Amazon's AWS IoT TwinMaker, which enables enterprise customers to seamlessly connect data into our digital twins. Our relationship with AWS is a significant validation of the value our digital twin platform brings to our shared customers. like John Deere and Invista. Amazon is also a valued channel partner and drives a significant volume of our hardware sale. In fact, this summer's Amazon Prime Day promotion set a single-day record for Matterport camera sales for Axis Pro 2 and our newest camera in the lineup, Pro 3. Our long-standing trusted relationship with Amazon, a global leader in cloud services and e-commerce, continues to create valuable opportunities for our business and our customers. Matterport's strategic partnerships with leading enterprise software providers like AWS, Autodesk, PTC, Procore, and many others are kicking into high gear, generating a strong pipeline exiting the second quarter. This expands our presence in larger ecosystems, creating new distribution paths for our solutions, while improving our platform's versatility and value for users, fueling our subscription revenue growth. Our strategic integrations offer customers easy connections to top-tier software, apps, and services, simplifying workflows and reducing duplicate tasks. These integrations automate data syncing, saving time, and enabling a focus on creative rather than administrative tasks. In the AEC industry, for instance, Our integration with Building Information Modeling Software, or BIM, helps streamline renovations and facilities management by connecting real-world conditions with design processes. The technology landscape is fast-changing, and Matterport stays nimble by integrating with mission-critical software and platforms. This strategy keeps us attuned to the industry trends and transforms how customers use spatial data across various sectors and applications. We're also expanding our global reach by partnering with major distributors like CompuSolutiones in Latin America and Equinox Technologies in the Middle East, Africa, and Asia Pacific. Mexico's industrial market boasts over 900 million square feet of building space, with construction reaching a 2022 peak of 43 million square feet, while real estate projects in the Gulf Cooperation Council countries amount to $1.4 trillion this year. These vast regions present immense opportunities for us. Our new distributors will supply enterprises and small to medium-sized businesses with Matterport's top-tier digital twin platform and Pro3 and Pro2 cameras, enhancing their global operational efficiency. Recently, we also extended our long-term relationship with Idealista, Southern Europe's largest online real estate platform through a multi-year agreement. A strong testament to our partnership and commitment to keeping the European real estate industry moving forward amidst challenging property market conditions worldwide. As we know, the U.S. residential real estate market is experiencing lower than typical existing home sales volume. Existing home sales were lower by 18% in the second quarter. on a seasonally adjusted annual basis. Despite this, Matterport has continued to show strength, with nearly 660,000 new digital twins on our platform in the quarter, a majority of which are related to residential real estate. Our new digital pro all-in-one content marketing package continues to be well received as well, with over 100% sequential growth from the last quarter when it was launched. Moreover, Real estate brokerages and agents are increasingly convinced of the value of using Matterport with their listings. 74% of real estate agents report that they win more listings when they offer Matterport digital twins, which is important in today's market of low inventory and heightened agent competition for those listings. Matterport's precision digital twins increase engagement with potential buyers, boosting online interactions by 300%. Two separate studies found that homes sell up to 31% faster with a Matterport digital twin in the listing. We anticipate that AI tools like property intelligence will introduce new subscription revenue opportunities in real estate and other sectors such as construction and facilities management. These tools enable customers to gain insights from data attained from current or future imagined Matterport digital twins. Finally, Should inflation and interest rates begin to improve, U.S. existing home sales volume is expected to increase by 17% next year. And we're well-placed to drive rapid growth in this market with all of our innovative new offerings in the lineup. I would now like to turn it over to J.D. Fay to discuss our financial performance for the second quarter and the outlook for Q3 and the full year 2023. Thank you, R.J.

For the second quarter, we delivered 39% total revenue growth year over year, reaching $39.6 million, which was at the high end of our guidance range. The strength in our revenue was across subscription, services, and product categories, with subscription and services revenue both achieving new records in the quarter. Subscription revenue rose to $20.9 million in the quarter, which was up 13% from the year-ago period, also at the high end of our guidance range. In addition, our annual recurring revenue grew to $83.5 million. We saw growth in both enterprise and small to medium business customers and in all three of our geographic operating regions with double-digit growth in Europe, the Middle East, and Asia. Of our record 827,000 subscribers at the end of the second quarter, we had 758,000 free subscribers and 69,000 paid subscribers. free subscribers grew by 37% and paid subscribers grew by 11% compared to the year-ago period. These growth rates were roughly equal to the average of our growth rates over the past year. Our net dollar expansion rate was 100% in Q2. The net dollar expansion rate for SMB customers grew sequentially, while the enterprise cohort was impacted by a large contract with a public sector customer that was completed in the quarter. Absent this impact, the net dollar expansion rate for the quarter would have been flat sequentially at 103%. Approximately 50% of our subscription revenue is derived from non-real estate customers. We continue to see strong double-digit growth in markets like construction, travel and hospitality, facilities management, and insurance, balanced with modest growth in real estate. Services revenue for the second quarter was $10.7 million, a new record and more than double in the year-ago period. Customers continue to embrace capture services where we perform the capture and onboarding of digital twins into subscription accounts for the customer. In addition, we saw continued adoption of our add-on services, including our BIM and floor plan offerings, our TruePlan offering for insurance adjusting, as well as growth in our digital property marketing solutions. Our product revenue was $8 million in the second quarter, up 58% from the year-ago period. This was primarily driven by continued demand for our new Pro3 camera. Moving on to gross margin, our total gross margin for the second quarter was 47% compared to 48% in the year-ago period. Our subscription gross margin was 75%, up from 72% in the year-ago period. This increase was the result of efficiency-related investments that we made over the past year relating to customer support and the processing and hosting of customer data on our cloud platform, which we are now realizing. Product gross margin was 2% in the second quarter, up from negative 37% in the year-ago period. The improvement was primarily the result of the resolution of the supply chain challenges that we experienced last year. Product gross margin would have been 14% without additions to our E&O reserve we recorded in the quarter. We expect that product gross margin will improve to the mid-teens for the balance of 2023. Turning to operating expenses, research and development was $10.6 million, down 20% from the year-ago period. This change in R&D resulted from rigorous evaluation and reduction of spending towards offerings that we expect will yield the highest returns, reflecting our commitment to operate more efficiently as we continue to drive innovation in our technology platform. SG&A expenses for Q2 were $31.9 million. down 10% from the year-ago period. This reduction in spending was primarily related to lower sales and marketing expenses as we instill further efficiency and discipline across our operations. The result is a second quarter non-GAAP net loss of $21.5 million and non-GAAP loss per share of 7 cents, one cent above the midpoint of our guidance range. This is a 42% improvement in bottom line performance from the year ago quarter. I'm very pleased with the significant progress on the bottom line as we are actively driving the company to achieve profitability. Our weighted average share count was 298 million shares. Moving on to the balance sheet, we ended the quarter with $446 million in cash and investments, down just 2% from the prior quarter, and we remain debt-free. Our cash used in operations improved to $12.4 million in the second quarter, which is a 62% improvement from the year-ago period. Annualizing our Q2 run rate would allow for nearly a decade of operations. But we are not stopping there. We are driving further improvements to achieve profitability in 2024. Today, we are introducing financial guidance for the third quarter and providing our current view of full year 2023 financial guidance. We remain on track to deliver another record year for the company as we grow the top line and improve profitability metrics. Strong customer adoption outside of real estate and our increasing focus on profitability has resulted in an improving outlook for non-GAAP net loss per share for both the third quarter and full year of 2023. With respect to our restructuring initiative, we expect to incur charges of $4 to $5 million on a GAAP basis, with a majority of these charges incurred in the third and fourth quarters. Importantly, this initiative pulls our operating cash flow breakeven targets forward by one year to 2024. Our subscription revenue remains healthy, and our expectations for growth for this line item are unchanged. We continue to experience strong demand in vertical markets including construction, travel and hospitality, facilities management, and insurance. We are also demonstrating that we can grow in residential real estate. We expect, however, continuing softness in the U.S. residential real estate market generally through the remainder of this year, modestly impacting our estimates for product and services revenue. Accordingly, for the third quarter, we expect total revenue to be in the range of $38 to $40 million, and subscription revenue to be in the range of $21.8 to $22 million. This represents 15% annual growth at the midpoint of the range for subscription revenue. We expect the balance of revenue to be split roughly evenly between the services and product revenue lines. We anticipate third quarter non-GAAP loss per share to be in the range of $0.05 to $0.07. We have also tightened our full year 2023 total revenue range, which is now $155 to $159 million. We have tightened our expectations for full year 2023 subscription revenue to be in the range of $85 to $86 million. This represents 16% annual growth at the midpoint of the range for subscription revenue. For the full year of 2023, we expect a 24 to 28 cent non-GAAP loss per share. This represents an improvement of 3 cents at the midpoint compared to the guidance we articulated last quarter and a 37% improvement from 2022. We have taken specific and measurable actions to sharpen our strategic focus and accelerate our path to profitability. We have dramatically improved our cash flow from operations, and there is more to come. At the same time, we will continue to execute on our plan to grow revenue by helping customers increase productivity, reduce their costs, and get work done faster and more efficiently with more valuable Matterport solutions centered around AI-driven data insights and digital twins for the built world. Now, I would like to turn the call back over to RJ.

Thanks, JD. Our robust Q2 results reflect the rising demand for our innovative digital twin platform solution, counteracting the challenges in the residential and commercial real estate markets. From small businesses to Fortune 1000 companies, our platform is crucial for delivering cost savings, and enhancing operational efficiency and productivity. The digital transformation of the built world is unfolding now, with Matterport providing instant ROI by automating some of the costliest and least efficient on-location management tasks. The responsive operational changes we recently enacted at Matterport, though challenging, affirm our commitment to fostering a sustainable business centered on long-term growth and profitability. Matterport has proven to be an indispensable tool to help drive real estate even when the markets are down. Our continued growth in this economic climate will further boost our market leadership as the markets stabilize and start to improve. Today, our enterprise growth is brisk, and Matterport is capitalizing on the momentum by doubling down on innovation for growth with powerful AI-driven technologies like Cortex and Genesys. We're working hard to fully harness the power of our 33 billion square feet of spatial data through datafication. And I have immense faith in our team and our technology to deliver on the enormous potential of the $327 trillion built world. Thank you for joining us today.