Latch Inc.
11/05/2025 | Press release | Distributed by Public on 11/05/2025 14:09
Quarterly Report for Quarter Ending September 30, 2024 (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 the related notes of Latch, Inc. and its subsidiaries included elsewhere in this Form 10-Q. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section captioned "Risk Factors" in the 2024 Annual Report, which we expect to file concurrently with, or promptly after, the filing of this Form 10-Q, actual results may differ materially from those anticipated in these forward-looking statements. Unless the context otherwise requires, references in this subsection to "we," "our," "Latch," "DOOR" and the "Company" refer to the business and operations of (i) Latch Systems, Inc. (formerly known as Latch, Inc.) and its consolidated subsidiaries prior to the 2021 merger by and among Latch, Inc. (formerly known as TS Innovation Acquisitions Corp. ("TSIA")), Latch Systems, Inc. (formerly known as Latch, Inc.) and a wholly-owned subsidiary of TSIA (the "Business Combination") and (ii) Latch, Inc. and its consolidated subsidiaries following the consummation of the Business Combination.
Overview
Latch is a technology company delivering an integrated ecosystem of hardware, software and services designed to enhance operations and experiences within buildings, primarily serving the multifamily rental market. In August 2025, we rebranded as DOOR, although our legal name remains Latch, Inc.
Our core offering is built around a proprietary, cloud-based software-as-a-service ("SaaS") platform (the "DOOR Platform"), which powers and manages our suite of smart access control devices (including locks, readers and intercoms) and smart home devices and integrates with other connected devices within a building.
We provide solutions that streamline building management for property owners and operators, offer modern convenience and security for residents and simplify interactions for visitors and service providers. While our foundation remains smart access control, we are actively expanding the DOOR Platform and our device integrations to encompass broader smart home solutions, managing devices such as sensors, thermostats and lighting. This ongoing expansion leverages our established platform to create more connected and efficient buildings as we lay the groundwork for a building intelligence platform, automating and streamlining building operations, including work order management and automation, property maintenance and unit inspections and repairs.
Our customers, which include real estate developers, builders, owners and property managers in the United States and Canada, typically purchase our hardware devices (directly or indirectly through our channel partner network) and directly license our SaaS platform. Residents interact with the DOOR Platform through the DOOR mobile application and its predecessor Latch mobile application (together, the "DOOR App"). Through the DOOR App, residents access common areas and unlock residential doors, provide guest access, manage smart home devices and book services.
Our professional services offerings are integral to ensuring successful deployment of the DOOR Platform and ongoing support for our customers and their residents. This includes connecting our multifamily property customers with our partners for installation of Latch and third-party smart access and smart home hardware, ensuring that solutions are implemented efficiently and correctly.
Complementing our multifamily installation capabilities, our HelloTech business, as defined and described below, provides a scalable, nationwide network of skilled independent technicians. HelloTech connects these service providers with residents and property managers seeking a wide range of on-demand technical services, such as TV mounting and smart home device installation and set-up, as well as broader home services, such as furniture assembly, handyman services and home cleaning.
Additionally, we offer a comprehensive property management service in and around Boston, Massachusetts.
We operate in one operating and reporting segment.
Investigation and Restatement
During the three months ended June 30, 2022, the audit committee (the "Audit Committee") of the Company's board of directors (the "Board") commenced an investigation (the "Investigation") of certain of the Company's key performance indicators and revenue recognition practices, including the accounting treatment, financial reporting and internal controls related thereto. Following the Investigation, the Company completed a comprehensive review of its previously issued financial statements (the "Financial Statement Review"). The Company identified errors related to, among other items:
(i) revenue recognition on hardware and software sales, (ii) revenue recognition and billing on software licenses, (iii) recognition of various expenses and (iv) errors in certain key performance indicators, including "bookings" and related metrics. As a result of the Investigation and Financial Statement Review, the Company restated certain of its financial statements (the "Restatement") in its Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report").
Business Update
On June 21, 2024, the Company and LS HT Merger Sub, Inc., a wholly-owned subsidiary of the Company ("HT Merger Sub"), entered into an Agreement and Plan of Merger with HelloTech, Inc. ("HelloTech"). On July 1, 2024, HT Merger Sub merged with and into HelloTech, with HelloTech continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the "HelloTech Merger").
HelloTech is a service platform delivering on-demand, last-mile installation, setup and connected device support. The HelloTech platform, in combination with the technology Latch acquired in the HDW Acquisition, is expected to serve as the foundation for DOOR Services, bringing full-service amenities to multifamily buildings by enabling residents to efficiently share and book service providers, such as dog walkers, house cleaners, and tech support.
As consideration for the HelloTech Merger, the Company (i) as further specified below, assumed HelloTech's outstanding borrowings under its existing term loan of approximately $6.9 million as of July 1, 2024 (the "Prior Loan") with Customers Bank and (ii) paid $0.3 million of HelloTech's merger-related expenses. HelloTech's stockholders and other equity holders (including option holders, warrant holders and holders of simple agreements for future equity) did not receive any consideration in connection with the HelloTech Merger.
On July 15, 2024, the Company, Latch Systems, Inc., a wholly-owned subsidiary of the Company ("Latch Systems"), and HelloTech (collectively with the Company and Latch Systems, the "Borrowers") entered into an Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Customers Bank.
Pursuant to the Loan Agreement, Customers Bank issued the Borrowers a term loan in the principal amount of $6.0 million (the "New Loan"). The Loan Agreement, which amended and restated the terms of the Prior Loan, did not result in the Borrowers receiving any additional loan proceeds. Interest is payable on the New Loan at a rate equal to the greater of (a) the prime rate published in The Wall Street Journal or (b) 6.0%. The New Loan matures on July 15, 2029 (the "Maturity Date").
The Borrowers were required to pay interest on the New Loan monthly until January 15, 2025. Thereafter, the Borrowers are required to pay equal monthly installments of principal plus accrued interest until the Maturity Date. There is no penalty for prepayment of the New Loan.
Pursuant to the Loan Agreement, the Borrowers have granted Customers Bank security interests in substantially all of the Borrowers' assets, other than intellectual property. HelloTech is required to maintain an operating account with Customers Bank with a sufficient balance to support monthly payments. Additionally, the Borrowers are collectively required to maintain a liquidity ratio of at least 4.00, tested monthly, which is calculated as the quotient of unrestricted cash and cash equivalents of the Company and its subsidiaries (subject to certain limitations with respect to cash of foreign subsidiaries), divided by all outstanding indebtedness owed to Customers Bank.
Key Business Metrics
We are presenting software revenue (prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP")), total revenue (GAAP), net loss (GAAP) and Adjusted EBITDA (non-GAAP) as key business metrics, as we believe each of those metrics is important in measuring our performance, identifying trends affecting our business, formulating business plans and making strategic decisions that will impact our future operational results.
Our key business metrics are as follows for the periods presented (in thousands):
| Three months ended September 30, | ||||||||||||||||||||||||||
| 2024 | 2023 |
$ Change
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GAAP Measures:
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| Software revenue | $ | 5,077 | $ | 4,660 | $ | 417 | 8.9 | % | ||||||||||||||||||
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Total revenue
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$ | 14,943 | $ | 9,673 | $ | 5,270 | 54.5 | % | ||||||||||||||||||
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Net loss
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$ | (17,056) | $ | (27,278) | $ | 10,222 | (37.5 | %) | ||||||||||||||||||
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Non-GAAP Measure:
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Adjusted EBITDA
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$ | (12,409) | $ | (13,444) | $ | 1,035 | (7.7 | %) | ||||||||||||||||||
| Nine months ended September 30, | ||||||||||||||||||||||||||
| 2024 | 2023 |
$ Change
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% Change
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GAAP Measures:
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| Software revenue | $ | 15,136 | $ | 13,046 | $ | 2,090 | 16.0 | % | ||||||||||||||||||
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Total revenue
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$ | 39,916 | $ | 31,001 | $ | 8,915 | 28.8 | % | ||||||||||||||||||
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Net loss
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$ | (47,630) | $ | (91,078) | $ | 43,448 | (47.7 | %) | ||||||||||||||||||
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Non-GAAP Measure:
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Adjusted EBITDA
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$ | (29,710) | $ | (58,000) | $ | 28,290 | (48.8 | %) | ||||||||||||||||||
Adjusted EBITDA
To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this Form 10-Q 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 the following items, if applicable: (i) depreciation and amortization expense, (ii) net interest income or expense, (iii) provision for income taxes, (iv) change in fair value of warrant liability, trading securities, or derivative instruments, (v) restructuring costs, (vi) transaction-related costs, (vii) net impairment of intangible assets, (viii) non-ordinary course legal fees and settlement reserves, (ix) stock-based compensation expense and (x) gain or loss on extinguishment of debt. The most directly comparable GAAP measure is net loss. We believe excluding the impact of these items in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. We monitor, and have presented in this Form 10-Q, Adjusted EBITDA because it is a key measure used by our management and Board to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. 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. The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Net loss | $ | (17,056) | $ | (27,278) | $ | (47,630) | $ | (91,078) | ||||||||||||||||||
| Depreciation and amortization | 1,805 | 1,856 | 5,515 | 5,375 | ||||||||||||||||||||||
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Interest income, net(1)
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(405) | (808) | (1,372) | (1,620) | ||||||||||||||||||||||
| Provision for income taxes | - | - | 4 | 11 | ||||||||||||||||||||||
| Change in fair value of warrant liability | 61 | (553) | 62 | (218) | ||||||||||||||||||||||
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Restructuring costs(2)
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715 | 5,163 | 780 | 5,660 | ||||||||||||||||||||||
| Transaction-related costs | - | - | - | 1 | ||||||||||||||||||||||
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Non-ordinary course legal fees and settlement reserves(3)
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698 | 673 | 7,170 | 8,086 | ||||||||||||||||||||||
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Stock-based compensation expense(4)
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1,773 | 7,503 | 5,761 | 15,783 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | (12,409) | $ | (13,444) | $ | (29,710) | $ | (58,000) | ||||||||||||||||||
(1)As a result of significant discounts provided to our customers on certain long-term software contracts paid in advance, 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, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Interest income, net includes interest expense associated with the significant financing component $0.8 million and $2.7 million for the three and nine months ended September 30, 2024, respectively, and $1.1 million and $3.6 million for the three and nine months ended September 30, 2023, respectively.
(2)The Company does not anticipate incurring any restructuring costs during the year ending December 31, 2025. See Note 18.Restructuring, in Part I, Item 1. "Financial Statements."
(3)For 2024, the amounts primarily represent legal fees related to securities and derivative litigation and the SEC's investigation into issues related to the Company's key performance indicators and revenue recognition practices (the "SEC Investigation"). While the Company is involved in various litigation and legal disputes in the ordinary course of its business, the Company believes the non-ordinary course legal fees and settlement reserves included in our calculation of Adjusted EBITDA do not represent normal operating expenses. See Note 12. Commitments and Contingencies, in Part I, Item 1. "Financial Statements." These costs are included within general and administrative on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.
(4)See Note 15.Stock-Based Compensation, in Part I, Item 1. "Financial Statements."
Components of Results of Operations
Revenue
Hardware Revenue. We generate hardware revenue primarily from the sale of our portfolio of devices for our smart access and smart home solutions. We sell hardware to customers, which include real estate developers, builders, building owners and property managers, directly or through our channel partners, who act as intermediaries, installers or wholesalers. The Company recognizes hardware revenue when there is evidence a contract exists and control has been transferred to the customer. The Company provides warranties that its hardware will be substantially free from defects in materials and workmanship, generally for a period of one or two years for electronic components depending on the hardware product, and five years for mechanical components. The Company determines in its sole discretion whether to replace or refund warrantable devices.
Software Revenue. We generate software revenue primarily through the license of our SaaS over our cloud-based platform on a subscription-based arrangement. Subscription fees vary depending on the features selected by customers. SaaS arrangements generally have term lengths between one and ten years. The SaaS provided by the Company are considered stand-ready performance obligations where customers benefit from the services evenly throughout the service period. Revenue is recognized ratably over the subscription period beginning when or as control of the promised services is transferred to the customer.
Professional Services Revenue. We generate professional services revenue in three primary ways: (i) by facilitating project-based hardware installation and activation services for enterprise customers, (ii) through fees generated by technology and home services performed for residents and consumers, and (iii) through property management services performed by DPM for its multifamily building customers.
We facilitate hardware installation and activation services to select customers. The revenues associated with these services are recognized over time based on a percentage of installation performed and completed and represent a transfer of services to a customer under contract.
Through our HelloTech platform, a network of independent contractors provides in-home technology services such as installation, repair, troubleshooting and technical support. Orders placed through the HelloTech platform are recognized as revenue as services are completed over time. We also offer a subscription service through the HelloTech platform that includes discounted home services and other technical support such as 24/7 online support, home technology checkups, and antivirus and password manager software support. Subscription revenues are recognized ratably over the subscription period.
DPM's property management activities include operating DPM customers' buildings, which involves maintenance and repair, construction supervision, leasing and administrative services. Property management service revenues are recognized ratably over the service period.
Cost of Revenue
Cost of hardware revenue consists primarily of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging costs, warranty costs, assembly costs and warehousing costs, as well as other non-inventoriable costs, including personnel-related expenses associated with supply chain logistics and direct deployment and outsourced labor costs. We expect hardware cost of revenue to move in-line with our hardware revenue. Our hardware costs have been and may continue to be impacted by any supply chain constraints, shipping cost volatility and changes in import tariffs.
Cost of software revenue consists primarily of outsourced hosting costs, other outsourced cloud-based service costs and personnel-related expenses associated with monitoring and managing outsourced hosting service providers.
Cost of professional services revenue consists primarily of (i) third-party installation labor costs and parts and materials associated with deployment of our hardware, (ii) labor costs associated with HelloTech independent technicians and credit card fees, and (iii) costs related to third-party property service providers.
Cost of revenue excludes depreciation and amortization shown in operating expenses.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, general and administrative and depreciation and amortization expenses. As part of a July 2023 reduction in force (the "July 2023 RIF"), we reduced headcount, resulting in the forfeiture of equity grants and the associated recognition of negative stock-based compensation expense. We have not granted any RSUs since the suspension of our registration statement on Form S-8 under the Securities Act (the "S-8 Registration Statement") on August 10, 2022. However, we expect to resume granting RSUs pursuant to the S-8 Registration Statement once we are current in our SEC filings. Any such grants will increase the Company's stock-based compensation expense.
R&D Expenses. R&D expenses consist primarily of personnel and related expenses for our employees working on our product, design and engineering teams, including salaries, bonuses, benefits, payroll taxes, travel and stock-based compensation. Also included are non-personnel costs such as amounts paid to our third-party contract manufacturers for tooling, engineering and prototype costs of our hardware products, fees paid to third-party consultants, R&D supplies and rent.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of personnel and related expenses for our employees working on our sales, customer success, deployment and marketing teams, including salaries, bonuses, benefits, payroll taxes, travel, commissions and stock-based compensation. Also included are non-personnel costs such as marketing activities (trade shows and events, conferences and digital advertising), professional fees, rent and customer support.
General and Administrative Expenses. General and administrative expenses consist primarily of personnel and related expenses for our executive, legal, human resources, finance and IT functions, including salaries, bonuses, benefits, payroll
taxes, travel and stock-based compensation. Additional expenses included in this category are non-personnel costs such as legal fees, rent, professional fees, audit fees, bad debt expense and insurance costs.
Depreciation and Amortization Expenses. Depreciation and amortization expenses consist primarily of depreciation expenses related to investments in property and equipment and internally-developed capitalized software.
Other Income, Net
Other income, net consists of interest expense associated with the significant financing component of our longer-term software contracts, interest expense associated with our debt financing arrangements, interest income on highly liquid short-term investments, gain or loss on extinguishment of debt and gain or loss on change in fair value of derivative liabilities, warrant liabilities and trading securities.
Interest income, net is summarized as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
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Interest income
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$ | 1,327 | $ | 2,523 | $ | 4,950 | $ | 5,804 | ||||||||||||||||||
| Interest expense | (922) | (1,715) | (3,578) | (4,184) | ||||||||||||||||||||||
| Interest income, net | $ | 405 | $ | 808 | $ | 1,372 | $ | 1,620 | ||||||||||||||||||
Income Taxes
The provision for income taxes consists primarily of income taxes related to foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized.
Results of Operations
The following tables and accompanying information set forth our historical operating results for the periods indicated. The period-to-period comparison of operating results is not necessarily indicative of results for future periods.
Comparison of three months ended September 30, 2024 and September 30, 2023
| Three months ended September 30, | ||||||||||||||||||||||||||
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(in thousands, except share and per share data)
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2024 | 2023 |
$ Change
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% Change
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| Revenue | ||||||||||||||||||||||||||
| Hardware | $ | 3,611 | $ | 3,215 | $ | 396 | 12.3 | % | ||||||||||||||||||
| Software | 5,077 | 4,660 | 417 | 8.9 | % | |||||||||||||||||||||
| Professional services | 6,255 | 1,798 | 4,457 | 247.9 | % | |||||||||||||||||||||
| Total revenue | 14,943 | 9,673 | 5,270 | 54.5 | % | |||||||||||||||||||||
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Cost of revenue(1)
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| Hardware | 3,537 | 1,393 | 2,144 | 153.9 | % | |||||||||||||||||||||
| Software | 519 | 546 | (27) | (4.9 | %) | |||||||||||||||||||||
| Professional services | 4,812 | 1,640 | 3,172 | 193.4 | % | |||||||||||||||||||||
| Total cost of revenue | 8,868 | 3,579 | 5,289 | 147.8 | % | |||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Research and development | 4,875 | 10,236 | (5,361) | (52.4 | %) | |||||||||||||||||||||
| Sales and marketing | 3,954 | 3,819 | 135 | 3.5 | % | |||||||||||||||||||||
| General and administrative | 12,827 | 18,791 | (5,964) | (31.7 | %) | |||||||||||||||||||||
| Depreciation and amortization | 1,805 | 1,856 | (51) | (2.7 | %) | |||||||||||||||||||||
| Total operating expenses | 23,461 | 34,702 | (11,241) | (32.4 | %) | |||||||||||||||||||||
| Loss from operations | (17,386) | (28,608) | 11,222 | 39.2 | % | |||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Change in fair value of warrant liability | (61) | 553 | (614) | (111.0 | %) | |||||||||||||||||||||
| Interest income, net | 405 | 808 | (403) | 49.9 | % | |||||||||||||||||||||
| Other (expense), net | (14) | (31) | 17 | 54.8 | % | |||||||||||||||||||||
| Total other income, net | 330 | 1,330 | (1,000) | (75.2 | %) | |||||||||||||||||||||
| Loss before income taxes | (17,056) | (27,278) | 10,222 | 37.5 | % | |||||||||||||||||||||
| Provision for income taxes | - | - | - | N.M. | ||||||||||||||||||||||
| Net loss | $ | (17,056) | $ | (27,278) | $ | 10,222 | 37.5 | % | ||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | 13 | 238 | (225) | (94.5 | %) | |||||||||||||||||||||
| Foreign currency translation adjustment | (9) | - | (9) | N.M. | ||||||||||||||||||||||
| Comprehensive loss | $ | (17,052) | $ | (27,040) | $ | 9,988 | 36.9 | % | ||||||||||||||||||
| Net loss per common share: | ||||||||||||||||||||||||||
| Basic and diluted net loss per common share | $ | (0.11) | $ | (0.18) | $ | 0.07 | 38.9 | % | ||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic and diluted | 156,386,470 | 154,328,606 | ||||||||||||||||||||||||
(1)Exclusive of depreciation and amortization shown in operating expenses below.
N.M.: Not meaningful
Revenue
Revenue increased by $5.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was driven by (i) a $4.5 million increase in professional services revenue, (ii) a $0.4 million increase in software revenue and (iii) a $0.4 million increase in hardware revenue. The increase in professional services revenue was attributable to (a) $4.1 million of revenue from HelloTech and (b) $0.8 millionof revenuefrom DPM, both of which were new sources of revenue in 2024, partially offset by (c) lower direct deployments of $0.5 million. The increase in software revenue reflects the continued growth in subscriptions as a result of increases in delivered hardware units. The increase in hardware revenue was driven by an increase in hardware shipments in 2024 compared to 2023, partially offset by the impact of the Restatement, which shifted a higher level of revenue from previous periods into 2023 compared to 2024.
Cost of Revenue
Cost of revenue increased by $5.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was driven by a $3.2 million increase in professional services costs and a $2.1 million increase in hardware costs. The increase inprofessional services costs was attributable to (i) $2.7 millionfrom HelloTech and (ii) $0.5 millionfrom DPM. The increase in hardware costs wasdriven by (i) $1.3 million increase in expense for excess and obsolete reserves and(ii) $0.7 million increase in hardware cost of revenue driven by an increase in hardware shipments, partially offset by the impact of the Restatement, which shifted a higher level of costs from previous periods into 2023 compared to 2024.
Research and Development Expenses
Research and development expenses decreased by $5.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to (i) a $2.7 million decrease in restructuring costs, (ii) a $1.8 million decrease in personnel-related expenses, comprised of $1.2 million of decreased stock-based compensation expense and $0.6 million of decreased compensation expense, (iii) a $0.4 million decrease in software license expense and (iv) a $0.3 million decrease in other research and development expense.
Sales and Marketing Expenses
Sales and marketing expenses increased by $0.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The slight increase was primarily due to (i) a $0.9 million increase in personnel-related expenses and (ii) a $0.5 million increase in marketing expenses. These increases were mostly offset by a (i) $1.2 million decrease in restructuring costs and (ii) $0.3 million decrease in software license expense.
General and Administrative Expenses
General and administrative expenses decreased by $6.0 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to (i) a $4.7 million decrease in personnel-related expenses comprised of (a) $4.3 million of decreased stock-based compensation expense and (b) $0.4 million of decreased compensation expense, (ii) a $1.6 million decrease in professional fees due to (a) a decrease of $1.2 million related to outsourced management and (b) a decrease of $0.7 million related to the Investigation and the Restatement, partially offset by (c) an increase in audit fees of $0.3 million, and (iii) a $0.4 million decrease in restructuring costs. These decreases were partially offset by (i) $0.2 million increase of insurance expense and (ii) $0.1 million increase in litigation expense.
Depreciation and Amortization Expenses
Depreciation and amortization expenses decreased by $0.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to the decreased amortization of capitalized internally-developed software.
Total Other Income, Net
Total other income, net decreased by $1.0 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to a $0.6 million unfavorable change in the fair value of the private placement warrants liability and a $0.4 million decrease in interest income, net related to higher interest rates.
Comparison of nine months ended September 30, 2024 and September 30, 2023
| Nine months ended September 30, | ||||||||||||||||||||||||||
| (in thousands, except share and per share data) | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| Hardware | $ | 13,837 | $ | 12,823 | $ | 1,014 | 7.9 | % | ||||||||||||||||||
| Software | 15,136 | 13,046 | 2,090 | 16.0 | % | |||||||||||||||||||||
| Professional services | 10,943 | 5,132 | 5,811 | 113.2 | % | |||||||||||||||||||||
| Total revenue | 39,916 | 31,001 | 8,915 | 28.8 | % | |||||||||||||||||||||
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Cost of revenue(1)
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| Hardware | 10,914 | 17,363 | (6,449) | (37.1) | % | |||||||||||||||||||||
| Software | 1,449 | 1,489 | (40) | (2.7) | % | |||||||||||||||||||||
| Professional services | 9,092 | 4,646 | 4,446 | 95.7 | % | |||||||||||||||||||||
| Total cost of revenue | 21,455 | 23,498 | (2,043) | (8.7) | % | |||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Research and development | 12,016 | 27,959 | (15,943) | (57.0) | % | |||||||||||||||||||||
| Sales and marketing | 8,705 | 12,753 | (4,048) | (31.7) | % | |||||||||||||||||||||
| General and administrative | 41,402 | 54,502 | (13,100) | (24.0) | % | |||||||||||||||||||||
| Depreciation and amortization | 5,515 | 5,375 | 140 | 2.6 | % | |||||||||||||||||||||
| Total operating expenses | 67,638 | 100,589 | (32,951) | (32.8) | % | |||||||||||||||||||||
| Loss from operations | (49,177) | (93,086) | 43,909 | 47.2 | % | |||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Change in fair value of warrant liability | (62) | 218 | (280) | (128.4) | % | |||||||||||||||||||||
| Interest income, net | 1,372 | 1,620 | (248) | 15.3 | % | |||||||||||||||||||||
|
Other income, net
|
239 | 181 | 58 | (32.0) | % | |||||||||||||||||||||
| Total other income, net | 1,549 | 2,019 | (470) | (23.3) | % | |||||||||||||||||||||
| Loss before income taxes | (47,628) | (91,067) | 43,439 | 47.7 | % | |||||||||||||||||||||
| Provision for income taxes | 2 | 11 | (9) | (81.8) | % | |||||||||||||||||||||
| Net loss | $ | (47,630) | $ | (91,078) | $ | 43,448 | 47.7 | % | ||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||
|
Unrealized (loss) gain on available-for-sale securities
|
(31) | 1,386 | (1,417) | 102.2 | % | |||||||||||||||||||||
| Foreign currency translation adjustment | (7) | - | (7) | N.M. | ||||||||||||||||||||||
| Comprehensive loss | $ | (47,668) | $ | (89,692) | $ | 42,024 | 46.9 | % | ||||||||||||||||||
| Net loss per common share: | ||||||||||||||||||||||||||
| Basic and diluted net loss per common share | $ | (0.30) | $ | (0.62) | $ | 0.32 | 51.6 | % | ||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic and diluted | 156,386,470 | 147,884,812 | ||||||||||||||||||||||||
(1)Exclusive of depreciation and amortization shown in operating expenses below.
N.M.: Not meaningful
Revenue
Revenue increased by $8.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was driven by (i) a $5.8 million increase in professional services revenue, (ii) a $2.1 million increase in software revenue and (iii) a $1.0 million increase in hardware revenue. The increase in professional services revenue was attributable to (a) $4.1 million of revenue from HelloTech, (b) $1.5 million of revenue from DPM, both of which were new sources of revenue in 2024 and (c) direct deployments of $0.2 million. The increase in software revenue reflects the continued growth in subscriptions as a result of increases in delivered hardware units. The increase in hardware revenue was driven by an increase in hardware shipments in 2024 compared to 2023, partially offset by the impact of the Restatement, which shifted a higher level of revenue from previous periods into 2023 compared to 2024.
Cost of Revenue
Cost of revenue decreased by $2.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to a $6.4 million decrease in hardware costs, partially offset by a $4.4 million increase in professional services costs. The decrease in hardware costs was primarily related to a decrease of expense for excess and obsolete reserves. The professional services cost increase was primarily attributable to (i) $2.7 million from HelloTech, (ii) $0.9 million from DPM and (iii) $0.8 million of direct deployments.
Research and Development Expenses
Research and development expenses decreased by $15.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to (i) a $10.4 million decrease in personnel-related expenses comprised of (a) $5.5 million of decreased compensation expense and (b) $4.9 million of decreased stock-based compensation expense, (ii) a $2.7 million decrease in restructuring costs, (iii) a $1.4 million decrease in software license expense and (iv) a $0.8 million decrease in other research and development expenses.
Sales and Marketing Expenses
Sales and marketing expenses decreased by $4.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to (i) $1.5 million decrease in personnel-related expenses, (ii) $1.4 million of decreased restructuring costs, (iii) $0.9 million of decreased professional fees and (iv) $0.8 million decrease in software license expense. These decreases were partially offset by $0.7 million increase in marketing expense.
General and Administrative Expenses
General and administrative expenses decreased by $13.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to (i) $8.3 million decrease in professional fees, including (a) $7.0 million related to the Investigation and Restatement; (b) $1.8 million related to outsourced management, (c) $0.7 million in litigation expenses and (d) $0.3 million in investment advisory fees, partially offset by (e) an increase of $1.7 million in audit fees; and (ii) $5.1 million decrease in personnel-related expense, comprised of (a) $3.3 million of decreased stock-based compensation expense and (b) $1.9 million of decreased compensation expense. These decreases were partially offset by a $0.5 million increase of expense of net allowances for expected credit losses.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased by $0.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to the increased amortization of capitalized internally-developed software.
Total Other Income (Expense), Net
Total other income (expense), net decreased by $0.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to (i) a $0.3 million unfavorable change in the fair value of the private placement warrants liability and (ii) a $0.2 million decrease in interest income, net.
Liquidity and Capital Resources
We have incurred losses since our inception. Prior to the Closing of the Business Combination, our operations were financed primarily through net proceeds from the issuance of redeemable convertible preferred stock and convertible notes, as well as borrowings under our term loan. We received approximately $450.0 million in cash proceeds, net of fees and expenses funded in connection with the Closing, which included approximately $192.6 million from the sale of approximately 19.3 million newly-issued shares of common stock in connection with the Business Combination. To date, the Company's principal sources of liquidity have been the net proceeds received as a result of the Business Combination and payments received from our customers.
As of September 30, 2025 and September 30, 2024, the Company's unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $44.1 million and $91.2 million, respectively. The Company'savailable-for-sale securities investment portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company'sinvestment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.
As of September 30, 2025 and September 30, 2024, the Company also had approximately $29.2 million and $24.5 million in net inventory, respectively.
Prior to December 31, 2023, the Company (i) received $19.3 million of proceeds from the sale of a maturing available-for-sale securityand (ii) reinvested the proceeds by purchasing an equal amount of new securities prior to such date. The Company uses trade-date accounting and, as such, the new securities position of $19.3 million is included in the balance of available-for-sale securities on the accompanying Condensed Consolidated Balance Sheet as of December 31, 2023, and a liability of $19.3 million presented as investment purchases payable is included in accrued expenses on the accompanying Condensed Consolidated Balance Sheet as of December 31, 2023. The funds were deducted from the Company's account in early January 2024. Accordingly, the sum of the Company's cash and cash equivalents as of December 31, 2023 was $19.3 million higher than it would have been had the funds been deducted from the Company's account prior to year end. See Note 2. Summary of Significant Accounting Policies - Cash and Cash Equivalents, and Note 10. Accrued Expenses, in Part I, Item 1. "Financial Statements."
Our short-term liquidity needs have primarily included working capital for salaries, including sales and marketing and research and development, as well as component inventory purchases from our contract manufacturers. To better align staffing and expense levels with sales volumes and the macroeconomic environment and create operating efficiencies, we conducted the July 2023 RIF in order to streamline our business operations, reduce costs and complexities in the business and create additional operating efficiencies. In connection with the July 2023 RIF, we incurred $5.7 million in restructuring costs (excluding the impact of stock-based compensation).
Beginning in the second quarter of 2022 and continuing through the date of this Form 10-Q, we have incurred, and may continue to incur, significant professional fees, primarily consisting of legal, forensic accounting, management consulting and related advisory services as a result of the Investigation and the SEC Investigation, as well as accounting related consulting services, independent registered accounting firm fees and advisory services related to the Restatement and Financial Statement Review. Additionally, we have incurred significant costs in connection with various pending litigation. See Note 12. Commitments and Contingencies, in Part I, Item 1. "Financial Statements." Such litigation involves significant defense and other costs and, if decided adversely to us or settled, has resulted or could result in significant monetary damages or expenditures. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance coverage does not cover all claims that have been or may be brought against us.
In connection with the HDW Acquisition, in July 2023 the Company issued to HDW's stockholders as merger consideration $22.0 million aggregate principal amount of unsecured promissory notes (the "Promissory Notes"). On April 26, 2024, the Company repaid the Promissory Notes in full without penalty.
Our future capital requirements will depend on many factors, including our business plans, our levels of revenue, the expansion of sales and marketing activities, market acceptance of our products, the results of business initiatives, the timing of new product introductions and overall economic conditions.
Based on our current business plan, we expect to be able to use our current cash and cash equivalents and available-for-sale securities to fund our operational cash requirementsfor at least 12 months from the date of this Form 10-Q. For more information about our liquidity position as of the date of this Form 10-Q, see Part II, Item 7. "Management's Discussion and
Analysis - Liquidity and Capital Resources" in the 2024Annual Report, which we expect to file concurrently with, or promptly after, the filing of this Form 10-Q.
Other significant factors that affect our overall management of liquidity include certain actions controlled by management such as capital expenditures and acquisitions. See Note 11. Debtand Note 12. Commitments and Contingencies, in Part I, Item 1. "Financial Statements."
Commitments and Contractual Obligations
We are obligated to make payments as part of certain contracts that we have entered into during the normal course of business. Following the Property Management Acquisitions, in February 2024 we entered into a three-year advisory agreement with a partner pursuant to which the partner provides DPM with certain management and advisory services related to DPM's property management business. Pursuant to such agreement, we are required to pay the partner $0.5 million annually.
Indebtedness
Promissory Notes
As discussed above, in July 2023 in connection with the HDW Acquisition, the Company issued to HDW's stockholders as merger consideration $22.0 million aggregate principal amount of Promissory Notes. The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. As of December 31, 2023, the Company concluded that it was virtually certain the Promissory Notes would become payable within the upcoming 12 months due to the Company's then-anticipated delisting from Nasdaq, which was an event of default with respect to the Promissory Notes. Consequently, the Company reclassified the debt obligation as current as of December 31, 2023, despite the event of default not yet occurring. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty. The Company paid an aggregate of $23.9 million in principal and accrued interest to the holders of the Promissory Notes.
Term Loan with Customers Bank
Following the closing of the HelloTech Merger, on July 15, 2024, Latch Systems, Inc. and HelloTech, as the borrowers (the "Borrowers"), entered into an Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Customers Bank.
Pursuant to the Loan Agreement, Customers Bank issued the Borrowers a term loan in the principal amount of $6.0 million (the "New Loan"). The Loan Agreement did not result in the Borrowers receiving any additional loan proceeds. Interest is payable on the New Loan at a rate equal to the greater of (a) the prime rate published in The Wall Street Journal or (b) 6.0%, and the New Loan matures July 15, 2029 (the "Maturity Date").
The Borrowers were only required to pay interest on the New Loan monthly until January 15, 2025. Thereafter, the Borrowers are required to pay equal monthly installments of principal plus accrued interest until the Maturity Date. There is no penalty for prepayment of the New Loan.
Pursuant to the Loan Agreement, the Borrowers have granted Customers Bank security interests in substantially all of the Borrowers' assets, other than intellectual property. HelloTech is required to maintain an operating account with Customers Bank with a sufficient balance to support monthly payments. Additionally, the Borrowers are collectively required to maintain a liquidity ratio of at least 4.00, tested monthly, which is calculated as the quotient of unrestricted cash and cash equivalents of the Company and its subsidiaries (subject to certain limitations with respect to cash of foreign subsidiaries), divided by all outstanding indebtedness owed to Customers Bank.
The Loan Agreement contains various covenants that, among other things, limit the Borrowers' ability to:
• engage in certain asset dispositions;
• permit a change in control;
• merge or consolidate;
• incur indebtedness or grant liens on its assets;
• declare or pay dividends, distributions or redemptions;
• make loans or investments; and
• engage in certain transactions with affiliates.
If an event of default exists under the Loan Agreement, Customers Bank will be able to accelerate the maturity of the New Loan and exercise other rights and remedies. Events of default include, but are not limited to, the following events:
• failure to pay any principal or interest within three business days of the due date;
• failure to perform or otherwise comply with the covenants and obligations in the Loan Agreement, subject, in certain instances, to certain grace periods;
• bankruptcy or insolvency events involving the Borrowers; or
• the rendering of judgments against a Borrower that remain undischarged, unvacated, unbonded, unsatisfied or unstayed for a certain period.
As of September 30, 2024, the Company was in compliance with the covenants under the Loan Agreement.
On July 15, 2024, in a private placement concurrent with the Company's entry into the Loan Agreement, the Company issued a warrant to Customers Bank to purchase 1,000,000 shares of the Company's common stock. The Bank Warrant has an exercise price of $1.25 per share, was exercisable upon issuance and will expire six years from the date of issuance, or July 15, 2030.
Cash Flows
The following table sets forth a summary of our cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):
| Nine months ended September 30, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
|
Net cash used in operating activities
|
$ | (61,972) | $ | (73,934) | ||||||||||
|
Net cash provided by investing activities
|
71,874 | 20,419 | ||||||||||||
|
Net cash used in financing activities
|
(22,000) | - | ||||||||||||
|
Effect of exchange rates on cash
|
14 | (15) | ||||||||||||
|
Net change in cash and cash equivalents
|
$ | (12,084) | $ | (53,530) | ||||||||||
Operating Activities. Net cash used in operating activities for the nine months ended September 30, 2024 decreased by $12.0 million compared to the nine months ended September 30, 2023. The decrease resulted from (i) a $34.2 million decrease in net loss, after adjusting for non-cash items, (ii) a $22.5 million decrease in prepaid expense and other current assets, (iii) a $2.7 million increase in accounts payable and (iv) a $0.9 million decrease in other non-current assets. These sources of cash were partially offset by (i) a $30.0 million decrease in accrued expenses primarily due to the $19.3 million accrual of an investment security in 2023, which was subsequently settled in 2024, (ii) an $8.9 million increase in net inventories, (iii) a $4.4 million decrease in deferred revenue, (iv) a $4.3 million increase in accounts receivable and (v) a $0.8 million decrease in payments of other current and non-current liabilities.
Investing Activities. Net cash provided by investing activities increased by $51.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was driven by a $105.6 million decrease in purchases of available-for-sale securities, partially offset by (i) a $42.1 million decrease in proceeds from sales and maturities of available-for-sale and trading securities, (ii) a $9.0 million decrease in cash acquired through business acquisitions and (iii) a $2.9 million increase in capitalization of internally-developed software.
Financing Activities.Net cash used in financing activities for the nine months ended September 30, 2024, primarily consisted of the $22.0 million repayment of the Promissory Notes. The Company did not conduct any financing activities during the nine months ended September 30, 2023.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of September 30, 2024 and December 31, 2023 that had, or were reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates as disclosed in the 2023 Annual Report.
Recent Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies, in Part I, Item 1. "Financial Statements" for information about recent accounting pronouncements.
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