lat-20210930
000182600012/312021Q3FALSE Exclusive of depreciation and amortization shown in operating expense below.
Stock-based compensation expense included in cost of revenue and operating expenses is as follows:

Cost of hardware and other related revenue$170 $$200 $
Cost of software revenue10 — 10 — 
Research and development2,707 111 6,804 307 
Sales and marketing1,904 32 2,108 103 
General and administrative2,157 218 12,743 652 
Total stock-based compensation$6,948 $363 $21,865 $1,070 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-39688
Latch, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-3087759
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
508 West 26th Street, Suite 6G
New York, New York 10001
(917) 338-3915
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.0001 per shareLTCHThe Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per shareLTCHWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No ☒
As of November 8, 2021, there were 142,219,716 shares of the registrant’s common stock outstanding, par value $0.0001 per share.




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Report, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the section in our Registration Statement on Form S-1 filed with the Securities and Exchange Commission (the “SEC”) on June 25, 2021 titled “Risk Factors.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:
the impact of the novel coronavirus (“COVID-19”) pandemic, including the continued spread of highly transmissible variants of the virus, on our business, financial condition and results of operations;
legal proceedings, regulatory disputes and governmental inquiries;
privacy and data protection laws, privacy or data breaches or the loss of data;
the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability;
increases in component costs, long lead times, supply shortages and other disruptions to our supply chain;
delays in construction timelines at our customers’ building sites;
any defects in new products or enhancements to existing products;
our ability to continue to develop new products and innovations to meet constantly evolving customer demands;
our ability to hire, retain, manage and motivate employees, including key personnel;
our ability to enhance future operating and financial results;
compliance with laws and regulations applicable to our business;
our ability to upgrade and maintain our information technology systems;
our ability to acquire and protect intellectual property; and
our ability to successfully deploy the proceeds from the Business Combination (as defined below).
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.



Latch, Inc. and Subsidiaries
Form 10-Q
Table of Contents

Page


Part I. Financial Information
Item 1. Financial Statements
Latch, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)



As of September 30, 2021 (unaudited)As of December 31, 2020
Assets
Current Assets
Cash and cash equivalents$240,306 $60,529 
Marketable securities - current88,135  
Accounts receivable, net18,648 8,227 
Inventories, net9,976 8,293 
Prepaid expenses and other current assets10,136 3,309 
Total current assets367,201 80,358 
Property and equipment, net1,653 753 
Marketable securities - non-current104,138  
Internally developed software, net13,037 7,416 
Other non-current assets1,452 1,082 
Total assets$487,481 $89,609 
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable$5,945 $3,732 
Accrued expenses12,062 5,781 
Deferred revenue - current4,541 2,344 
Other current liabilities2,724  
Total current liabilities25,272 11,857 
Deferred revenue - non-current18,818 13,178 
Term loan, net 5,481 
Convertible notes, net 51,714 
Warrant liability17,600  
Other non-current liabilities559 1,051 
Total liabilities62,249 83,281 
Commitments and contingencies (see Note 11)
Redeemable convertible preferred stock - $0.00001 par value, 63,877,518 shares authorized, 63,756,438 shares issued and outstanding as of December 31, 2020: liquidation preference - $165,562(1)
 160,605 
Stockholders’ equity (deficit)
Common stock - $0.0001 par value, 1,000,000,000 shares authorized; 141,112,920 and 8,168,780 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively(1)
21  
Additional paid-in capital699,866 7,901 
Accumulated other comprehensive income (loss)(57)9 
Accumulated deficit(274,598)(162,187)
Total stockholders’ equity (deficit)425,232 (154,277)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)$487,481 $89,609 
(1)Shares outstanding for all periods reflect the adjustment for the Exchange Ratio as a result of the Business Combination. Shares issued and outstanding as of September 30, 2021 excludes 738,000 shares subject to vesting requirements. See Note 1, Description of Business.
See accompanying notes to the condensed consolidated financial statements.
1

Latch, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)
(in thousands, except share and per share amounts)

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue:
Hardware and other related revenue$9,047 $4,093 $21,263 $8,050 
Software revenue2,150 1,002 5,575 2,523 
Total revenue11,197 5,095 26,838 10,573 
Cost of revenue(1)(2):
Cost of hardware and other related revenue10,952 5,824 25,049 12,206 
Cost of software revenue201 66 508 185 
Total cost of revenue11,153 5,890 25,557 12,391 
Operating expenses:
Research and development(2)
11,798 6,977 28,402 19,511 
Sales and marketing(2)
9,797 3,161 18,602 10,416 
General and administrative(2)
11,971 4,198 39,660 13,250 
Depreciation and amortization825 321 2,167 907 
Total operating expenses34,391 14,657 88,831 44,084 
Loss from operations(34,347)(15,452)(87,550)(45,902)
Other income (expense)
Change in fair value of derivative liabilities (15)(12,588)(15)
Change in fair value of warrant liability1,067  (3,728) 
Loss on extinguishment of debt  (1,469) 
Interest expense, net(780)(458)(6,971)(809)
Other (expense) income(89)54 (5)(72)
Total other income (expense)198 (419)(24,761)(896)
Loss before income taxes(34,149)(15,871)(112,311)(46,798)
Income taxes90 3 100 3 
Net loss$(34,239)$(15,874)$(112,411)$(46,801)
Other comprehensive loss
Unrealized loss on marketable securities(60) (60) 
Foreign currency translation adjustment(1) (6) 
Comprehensive loss$(34,300)$(15,874)$(112,477)$(46,801)
Net loss per common share
Basic and diluted net loss per common share$(0.24)$(2.18)$(1.66)$(6.55)
Weighted averages shares outstanding
Basic and diluted140,675,490 7,270,903 67,933,833 7,150,235 
(1)Exclusive of depreciation and amortization shown in operating expenses below.
(2)Stock-based compensation expense included in cost of revenue and operating expenses is as follows:
Cost of hardware and other related revenue$170 $2 $200 $8 
Cost of software revenue10  10  
Research and development2,707 111 6,804 307 
Sales and marketing1,904 32 2,108 103 
General and administrative2,157 218 12,743 652 
Total stock-based compensation$6,948 $363 $21,865 $1,070 

See accompanying notes to the condensed consolidated financial statements.
2

Latch, Inc. and Subsidiaries
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited)
(in thousands)

Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
January 1, 202068,318 $150,305 7,839 $ $5,724 $ $(96,193)$(90,469)
Retroactive application of Exchange Ratio(7,030) (807)     
January 1, 2020 as adjusted61,288 150,305 7,032  5,724  (96,193)(90,469)
Issuance of Series B-1 preferred stock for cash, net of issuance costs2,468 10,300 — — — — — — 
Exercises of common stock options— — 55 — 19 — — 19 
Stock-based compensation— — — — 366 — — 366 
Net loss— — — — — — (15,941)(15,941)
March 31, 202063,756 $160,605 7,087 $ $6,109 $ $(112,134)$(106,025)
Exercises of common stock options— — 65 — 25 — — 25 
Stock-based compensation— — — — 359 — — 359 
Net loss— — — — — — (14,986)(14,986)
June 30, 202063,756 160,605 7,152 $ $6,493 $ $(127,120)$(120,627)
Exercise of common stock options— — 145 — 47 — — 47 
Stock-based compensation— — — — 440 — — 440 
Net loss— — — — — — (15,874)(15,874)
September 30, 202063,756 $160,605 7,297 $ $6,980 $ $(142,994)$(136,014)
3

Latch, Inc. and Subsidiaries
Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited)
(in thousands)
                                        
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
January 1, 202171,069 $160,605 9,106 $ $7,901 $9 $(162,187)$(154,277)
Retroactive application of Exchange Ratio(7,313) (937)    $ 
January 1, 2021, as adjusted63,756 160,605 8,169  7,901 9 (162,187)(154,277)
Exercises of common stock options— — 5,428 — 2,816 — — 2,816 
Foreign translation adjustment— — — — — (7)— (7)
Stock-based compensation— — — — 14,513 — — 14,513 
Net loss— — — — — — (38,101)(38,101)
March 31, 202163,756 $160,605 13,597 $ $25,230 $2 $(200,288)$(175,056)
Conversion of Convertible Notes— — 6,925 — 69,252 — — 69,252 
Conversion of Legacy Latch warrants— — 233 — 2,143 — — 2,143 
Conversion of redeemable convertible preferred stock to common shares(63,756)(160,605)63,756 1 160,604 — — 160,605 
Reverse recapitalization, net of transaction costs(1)
— — 56,011 14 434,912 — — 434,926 
Foreign translation adjustment— — — — — 2 — 2 
Stock-based compensation— — — — 459 — — 459 
Net loss— — — — — — (40,071)(40,071)
June 30, 2021  140,522 15 692,600 4 (240,359)452,260 
Exercises of common stock options— — 645 6 218 — — 224 
Issuance of common stock upon settlement of restricted stock units— — 12 — — — — — 
Tax withholdings on settlement of equity awards— — (66)— (394)— — (394)
Transaction costs related to reverse recapitalization— — — — (253)— — (253)
Foreign translation adjustment— — — — — (1)— (1)
Stock-based compensation— — — — 7,695 — — 7,695 
Unrealized loss on marketable securities— — — — — (60)— (60)
Net loss— — — — — — (34,239)(34,239)
September 30, 2021 $ 141,113 $21 $699,866 $(57)$(274,598)$425,232 
(1) Excludes 738,000 shares subject to vesting requirements. See Note 1, Description of Business.
See accompanying notes to the condensed consolidated financial statements.
4

Latch, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (unaudited)
(in thousands)

Nine Months Ended September 30,
20212020
Operating activities
Net loss$(112,411)$(46,801)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization2,167 907 
Non-cash interest expense3,527 36 
Change in fair value of derivative liabilities12,588 15 
Change in fair value of warrant liability3,728  
Loss on extinguishment of debt1,469  
Provision (reversal) for excess and obsolete inventory(328)108 
Allowance (reversal) for doubtful accounts753 (196)
Stock-based compensation21,865 1,138 
Changes in assets and liabilities
Accounts receivable(11,174)(923)
Inventories(1,355)(4,416)
Prepaid expenses and other current assets(1,576)(163)
Other non-current assets(431)(917)
Accounts payable2,150 1,374 
Accrued expenses5,969 1,076 
Other current liabilities358  
Other non-current liabilities1,185 820 
Deferred revenue7,837 7,139 
Net cash used in operating activities(63,679)(40,803)
Investing activities
Purchase of marketable securities(193,135) 
Purchase of convertible promissory note(4,000) 
Purchase of property and equipment(993)(123)
Development of internal software(6,480)(4,155)
Purchase of intangible assets (207)
Net cash used in investing activities(204,608)(4,485)
Financing activities
Proceeds from issuance of Series B-1 preferred stock, net of issuance costs 10,300 
Proceeds from issuance of convertible promissory notes, net of issuance costs 2,069 
Proceeds from issuance of term loan, net 4,976 
Proceeds from business combination and private offering, net of issuance costs448,035  
Repayment of term loan(5,000) 
Proceeds from unsecured loan 3,441 
Repayment of unsecured loan (3,441)
Proceeds from issuance of common stock3,040 90 
Payments for tax withholding on net settlement of equity awards(372) 
Proceeds from revolving credit facility3,682  
Repayment of revolving credit facility(1,316) 
Net cash provided by financing activities448,069 17,435 
Effect of exchange rate on cash(5)(2)
Net change in cash and cash equivalents179,777 (27,855)
Cash and cash equivalents
Beginning of period60,529 54,218 
End of period$240,306 $26,363 
5

Latch, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (unaudited)
(in thousands)

Supplemental disclosure of non-cash investing and financing activities
Capitalization of stock-based compensation to internally developed software$803 $27 
Bifurcation of derivative liabilities component of issuance of convertible promissory notes and term loan $ $624 
Accrued issuance costs$ $82 
Accrued fixed assets$416 $ 
Private placement warrants received as part of business combination$13,872 $ 
Prepaid expenses received as part of business combination$510 $ 
Accrued taxes related to net share settlement of equity awards$24 $ 
See accompanying notes to the condensed consolidated financial statements.
6

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)

1.DESCRIPTION OF BUSINESS
Latch, Inc. (referred to herein, collectively with its subsidiaries, as “Latch” or the “Company”) is an enterprise technology company focused on revolutionizing the way people experience spaces by making spaces better places to live, work and visit. Latch has created a full-building operating system, LatchOS, that addresses the essential needs of modern buildings by streamlining building operations, enhancing the resident experience and enabling more efficient interactions with service providers.
On June 4, 2021 (the “Closing Date”), the Company consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated as of January 24, 2021 (the “Merger Agreement”), by and among the Company (formerly known as TS Innovation Acquisitions Corp. (“TSIA”)), Latch Systems, Inc. (formerly known as Latch, Inc. (“Legacy Latch”)) and Lionet Merger Sub Inc., a wholly owned subsidiary of TSIA (“Merger Sub”), pursuant to which Merger Sub merged with and into Legacy Latch, with Legacy Latch becoming a wholly owned subsidiary of the Company (the “Business Combination” and, collectively with the other transactions described in the Merger Agreement, the “Transactions”). In connection with the closing of the Transactions, the Company changed its name from TS Innovation Acquisitions Corp. to Latch, Inc. The “Post Combination Company” following the Business Combination is Latch, Inc.
The Company is located and headquartered in New York, NY. Other offices operated by the Company are in San Francisco, CA and Taipei, Taiwan. In May 2019, the Company incorporated Latch Taiwan, Inc., a wholly owned subsidiary, in the state of Delaware. In October 2020, the Company incorporated Latch Insurance Solutions, LLC, a wholly owned subsidiary, in the state of Delaware. In September 2021, the Company incorporated Latch Systems Ltd., a wholly owned subsidiary, in England and Wales. The Company’s revenues are derived primarily from operations in North America.
The Business Combination
On January 24, 2021, TSIA entered into the Merger Agreement with Merger Sub and Legacy Latch. Legacy Latch’s board of directors unanimously approved Legacy Latch’s entry into the Merger Agreement.
On June 3, 2021, TSIA held a special meeting of its stockholders (the “Special Meeting”), at which the TSIA stockholders considered and adopted, among other matters, a proposal to approve the Business Combination, including (a) adopting the Merger Agreement and (b) approving the other Transactions contemplated by the Merger Agreement.
On June 4, 2021, the Company consummated the Business Combination and the other Transactions (the “Closing”). The following occurred upon the Closing:
The mandatory conversion feature upon a business combination was triggered for the Convertible Notes described in Note 9, Debt, causing a conversion of the $50.0 million outstanding principal amount of these Convertible Notes and any unpaid accrued interest into equity securities at a specified price. The noteholders received approximately 6.9 million shares of common stock in the Post Combination Company. Also, the embedded derivative related to the Convertible Notes was extinguished as part of the Closing.
The 71.1 million outstanding shares of redeemable convertible preferred stock described in Note 12, Convertible Preferred Stock and Equity, were exchanged for 63.8 million shares of common stock in the Post Combination Company.
Repayment in full of the outstanding principal and accrued interest on the term loan, described in Note 9, Debt, in the total amount of $5.0 million. The embedded derivative on the warrants issued in connection with the term loan was extinguished as part of the Closing.
Holders of 5,916 shares of TSIA’s Class A common stock sold in its initial public offering (the “Initial Shares”) properly exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from TSIA’s initial public offering (the “TSIA IPO”), calculated as of two business days prior to the consummation of the Business Combination, which was approximately $10.00 per share, or $59,160 in the aggregate.
7

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
The shares of TSIA Class B common stock held by TS Innovation Acquisitions Sponsor, L.L.C. (“Sponsor”) automatically converted to 7.4 million shares of common stock in the Post Combination Company. Of the 7.4 million shares of common stock held by the Sponsor, 0.7 million are subject to vesting under certain conditions (the “Sponsor Earnout Shares”), including that the volume-weighted average price of the Post Combination Company equals or exceeds $14.00 for any 20 trading days within a 30 trading day period on or prior to the five year anniversary of the Closing.
Pursuant to subscription agreements entered into in connection with the Merger Agreement, certain investors agreed to subscribe for an aggregate of 19.3 million newly-issued shares of common stock at a purchase price of $10.00 per share for an aggregate purchase price of $192.6 million (the “PIPE Investment”). The PIPE Investment included 0.3 million newly issued shares of common stock at a purchase price of $10.00 per share for an aggregate purchase price of $2.6 million that was used to fund a cash election (see Note 14, Stock-Based Compensation). At the Closing, the Company consummated the PIPE Investment.
After giving effect to the Transactions, the redemption of Initial Shares as described above and the consummation of the PIPE Investment, there were 140.5 million shares of common stock issued and outstanding (excluding the Sponsor Earnout Shares).
As noted above, an aggregate of $59,160 was paid from TSIA’s trust account to holders that properly exercised their right to have Initial Shares redeemed, and the remaining balance immediately prior to the Closing of approximately $300.0 million remained in the trust account. The remaining amount in the trust account was used to fund the Business Combination. Latch received approximately $450.0 million in cash proceeds, net of fees and expenses funded in connection with the Closing of the Business Combination, which included approximately $192.6 million from the PIPE Investment mentioned above.
The following table reconciles the elements of the Business Combination to the Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the nine months ended September 30, 2021.
Cash - TSIA trust and cash, net of redemptions$300,122 
Cash - PIPE Investment including cash election192,550 
Less: transaction costs and advisory fees paid(36,783)
Less: Cash election payment(2,313)
Less: issuance and other costs paid(5,541)
Net proceeds from Business Combination448,035 
Less: Accrued issuance costs 
Less: Private placement warrants received as part of Business Combination(13,872)
Plus: Prepaid expenses received as part of Business Combination510 
Reverse recapitalization, net of transaction costs$434,673 
As a result of the Business Combination, each share of Legacy Latch redeemable convertible preferred stock and common stock was converted into the right to receive approximately 0.8971 shares of the common stock of the Post Combination Company (the “Exchange Ratio”).
Based on the following factors, the Company determined under Accounting Standards Codification (“ASC”) 805, Business Combinations, that the Business Combination was a reverse recapitalization.
Legacy Latch stockholders owned approximately 60.0% of the shares in the Post Combination Company, and thus had sufficient voting rights to exert influence over the Post Combination Company.
Legacy Latch appointed a majority of the Post Combination Company’s board of directors and maintained a majority of the composition of management.
Legacy Latch was the larger entity based on historical revenues and business operations and comprised the ongoing operations of the Post Combination Company.
The Post Combination Company assumed the name “Latch, Inc.”
8

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
The accounting for the transaction was similar to that resulting from a reverse acquisition, except that goodwill or other intangibles were not recognized, and the transaction was followed by a recapitalization.
In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s common stock, $0.0001 par value per share, issued to Legacy Latch’s stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Latch redeemable convertible preferred stock and Legacy Latch common stock prior to the Business Combination have been retroactively recast as shares reflecting the Exchange Ratio of 0.8971 established in the Business Combination.
Post Combination Company common stock and warrants commenced trading on the Nasdaq Stock Market LLC under the symbols “LTCH” and “LTCHW,” respectively, on June 7, 2021.
COVID-19
In March 2020, the outbreak of COVID-19 was declared a pandemic. The COVID-19 pandemic disrupted and may continue to disrupt the Company’s hardware deliveries due to delays in construction timelines at customers’ building sites. In addition, the COVID-19 pandemic resulted in a global slowdown of economic activity and a recession in the United States, and the economic situation remains fluid as parts of the economy appear to be recovering while others continue to struggle. COVID-19 has also affected our supply chain consistent with its effect across many industries, including creating shipping and logistics challenges. We expect these impacts, including potential delayed product availability and higher component and shipping costs, to continue for as long as the global supply chain is experiencing these challenges. We continue to invest in supply chain initiatives to address industry-wide capacity challenges. While the nature of the situation is dynamic, the Company has considered the impact when developing its estimates and assumptions. Actual results and outcomes may differ from management’s estimates and assumptions.
In the first quarter of 2020, the Company initiated a restructuring plan as part of its efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic. The Company incurred costs in connection with involuntary termination benefits associated with a reduction in force (the “RIF”), which involved an approximate 25% reduction in headcount, including severance and benefits costs for affected employees and other miscellaneous direct costs. As a result of its strong performance in 2020 and 2021, the Company has rehired some of the staff that was terminated at the outset of the pandemic. Restructuring cost of $0.1 million and $1.0 million was recorded for the three and nine months ended September 30, 2020, respectively, principally in research and development, sales and marketing, and general and administrative within the Condensed Consolidated Statements of Operations and Comprehensive Loss based on the department to which the expense relates. All amounts have been paid as of September 30, 2021.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted to provide certain relief in response to the COVID-19 pandemic. The CARES Act includes numerous tax provisions and other stimulus measures (see Note 15, Income Taxes). Among the various provisions in the CARES Act, the Company is utilizing the payroll tax deferrals. In the second quarter of 2020, the Company received and repaid $3.4 million in loans under the CARES Act.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC for interim financial reporting. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements for the year
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Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
ended December 31, 2020, which are included in the Company’s registration statement on Form S-1 filed with the SEC on June 25, 2021.
Shares outstanding and earnings per share available for common stockholders prior to the Business Combination have been retroactively restated to reflect the Exchange Ratio and for consistency with the current period presentation.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Latch, Inc. and its wholly owned subsidiaries, Latch Systems, Inc., Latch Taiwan, Inc., Latch Insurance Solutions, LLC and Latch Systems Ltd. All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expense during the reporting period. Estimates are used when accounting for revenue recognition, allowance for doubtful accounts, allowance for hardware returns, estimates of excess and obsolete inventory, stock-based compensation, warrants, impairment of fixed assets and capitalized internally developed software. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the condensed consolidated financial statements. Due to the use of estimates inherent in the financial reporting process and given the unknowable duration and effects of the COVID-19 pandemic, actual results could differ from those estimates.
The Company’s significant accounting policies for its condensed consolidated financial statements as of September 30, 2021 are summarized below and should be read in conjunction with the Summary of Significant Accounting Policies detailed in the Company’s Consolidated Financial Statements for the year ended December 31, 2020.
Marketable Securities
The Company classifies its fixed income marketable securities as available-for-sale based on its intentions with regard to these instruments. Accordingly, marketable securities are reported at fair value, with all unrealized holding gains and losses reflected in stockholders’ equity. If it is determined that an investment has an other-than-temporary decline in fair value, the Company recognizes the investment loss in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. The Company periodically evaluates its investments to determine if impairment charges are required.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at net realizable value, net of allowance for doubtful accounts and reserve for wholesale returns (See “—Revenue Recognition – Hardware and other related” below for further information). On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off based on a past history of write-offs, collections and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon terms.
The Company generally does not require any security or collateral to support its receivables. The allowance for doubtful accounts was $0.8 million and $0.1 million as of September 30, 2021 and December 31, 2020, respectively.
Inventories, Net
Inventories consist of finished goods and component parts, which are purchased from contract manufacturers and component suppliers. Inventories are stated at the lower of cost or net realizable value with cost being determined using the average cost method. The Company periodically assesses the valuation of inventory and will write down the value for estimated excess and obsolete inventory based upon estimates of future demand and market conditions, when necessary.

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Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Equity Issuance Costs
Costs incurred in connection with the issuance of the Company’s series preferred stock have been recorded as a direct reduction against redeemable convertible preferred stock within the Condensed Consolidated Balance Sheets.
Additionally, certain transaction costs incurred in connection with the Merger Agreement that are direct and incremental to the Business Combination (see Note 1, Description of Business) have been recorded as a component of additional paid in capital within the Condensed Consolidated Balance Sheets.
Revenue Recognition
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09 and its related amendments (collectively known as ASC 606, Revenue from Contracts with Customers) effective January 1, 2018, using the full retrospective approach to all contracts. Incremental costs to obtaining customer contracts, primarily sales commissions, were capitalized in accordance with the adoption of ASC 606.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identify contracts with customers; (ii) identify performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer and is the unit of account in ASC 606. Revenues are recognized when control of the promised goods or services are transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company currently generates its revenues from two primary sources: (1) hardware devices and (2) software products.
Hardware and other related
The Company generates hardware revenue primarily from the sale of its portfolio of devices for its smart access and smart apartment solutions. The Company sells hardware to building developers directly or through its channel partners who act as the intermediary and installer. The Company recognizes hardware revenue when the hardware is shipped directly to building developers or to its channel partners, which is when control is transferred to the building developer.
The Company provides warranties that its hardware will be substantially free from defects in materials and workmanship for a period of one year with respect to electronic components and five years for mechanical components. The Company replaces, repairs or refunds warrantable devices at its sole discretion. The Company determined these warranties are not separate performance obligations as they cannot be purchased separately and do not provide a service in addition to an assurance the hardware will function as expected. The Company records a reserve as a component of cost of hardware revenue based on historical costs of replacement units for returns of defective products. For both the three and nine months ended September 30, 2021, the reserve for hardware warranties was approximately 1% of cost of hardware revenue. For both the three and nine months ended September 30, 2020, the reserve for hardware warranties was approximately 2% of cost of hardware revenue. The Company also provides certain customers a wholesale arrangement with a right of return for non-defective product, which is treated as a reduction of hardware revenue based on the Company’s expectations and historical experience. For the three and nine months ended September 30, 2021, the reserve for wholesale returns against revenue was $(0.3) million and $0.1 million, respectively. For the three and nine months ended September 30, 2020, the reserve for wholesale returns against revenue was $0.01 million and $(0.05) million, respectively. The reserve against accounts receivable as of September 30, 2021 and December 31, 2020 was $0.6 million and $1.8 million, respectively.
The Company also generates revenues related to hardware, which includes professional services related to installation and activation of hardware devices sold to building developers. These services are recognized over time on a percentage of completion basis. The Company recognized professional services revenue of $0.6 million and $0.7 million for the three and nine months ended September 30, 2021, respectively.
Software
The Company generates software revenue primarily through the sale of its software-as-a-service (“SaaS”) to building developers over its cloud-based platform on a subscription-based arrangement. Subscription fees vary depending on the
11

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
optional features selected by customers as well as the term length. SaaS arrangements generally have term lengths of month-to-month, two-year, five-year and ten-year and include a fixed fee paid upfront except for the month-to-month arrangements. As a result of significant discounts provided on the longer-term software contracts paid upfront, the Company has determined that there is a significant financing component and has therefore broken out the interest component and recorded as a component of interest income (expense), net on the condensed consolidated statements of operations and comprehensive loss. The amount of interest expense related to this component was $0.8 million and $2.2 million for the three and nine months ended September 30, 2021, respectively, and $0.4 million and $1.0 million for the three and nine months ended September 30, 2020, respectively.
The services provided by the Company for the subscription-based arrangements are considered stand-ready performance obligations where customers benefit from the services evenly throughout the service period. Revenue is primarily recognized on a ratable basis over the subscription period of the contractual arrangement beginning when or as control of the promised services is available or transferred to the customer.
Performance Obligations
The Company enters into contracts that contain multiple distinct performance obligations, hardware and software. The hardware performance obligation includes the delivery of hardware, and the software performance obligation allows the customer access to the software during the contracted-use term when the promised service is transferred to the customer. The Company has determined that the hardware and software are individual distinct performance obligations because both can be sold by the Company on a standalone basis, and because other vendors sell similar technologies and services on a standalone basis.
For each performance obligation identified, the Company estimates the standalone selling price, which represents the price at which the Company would sell the good or service separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions, historical pricing data and internal pricing guidelines related to the performance obligations. The Company then allocates the transaction price among those obligations based on the estimation of standalone selling price. For software revenue, the Company estimates the transaction price, including variable consideration, at the commencement of the contract and recognizes revenue over the contract term. The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied was $23.4 million as of September 30, 2021. The Company expects to recognize the short-term amount of $4.5 million over the next 12 months and the long-term portion of $18.8 million over the contracted-use term of each agreement.
Revenue Disaggregation
The Company had total revenue of $11.2 million and $26.8 million for the three and nine months ended September 30, 2021, respectively, and $5.1 million and $10.6 million for the three and nine months ended September 30, 2020, respectively. The Company’s revenues are derived primarily from operations in North America.

Deferred Contract Costs
The following table represents a roll-forward of the Company’s deferred contract costs:
Balance as of January 1, 2021$549 
Additions to deferred contract costs378 
Amortization of deferred contract costs(70)
Balance as of September 30, 2021$857 
Contract Assets and Contract Liabilities (Unbilled Receivables and Deferred Revenue)
September 30, 2021December 31, 2020
Contract assets (unbilled receivables)$531 $ 
Contract liabilities (deferred revenue)$23,359 $15,522 
12

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
The Company enters into contracts with its customers, which may give rise to contract assets (unbilled receivables) and contract liabilities (deferred revenue) due to revenue recognition differing from the timing of payments made by customers. The Company recognizes unbilled receivables when the performance obligation precedes the invoice date. The Company records unbilled receivables within prepaid and other current assets on the condensed consolidated balance sheets.
The Company records contract liabilities to deferred revenue when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts, which is generally the case for the Company’s software revenue. The Company generally invoices its customers monthly, or up to two years, five years or ten years in advance of services being provided. The Company recognized $0.9 million and $2.9 million of prior year deferred software revenue during the three and nine months ended September 30, 2021, respectively.
Increase in contract liabilities for the three and nine months ended September 30, 2021 primarily resulted from growth of contracts with new and existing customers. Deferred revenue that will be recognized during the succeeding 12-month period is recorded within current liabilities on the accompanying Condensed Consolidated Balance Sheets.
Cost of Revenue
Cost of hardware and other related revenue consists primarily of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty costs, assembly costs and warehousing costs, as well as other non-inventoriable costs including personnel-related expenses associated with supply chain logistics and channel partner fees.
Cost of software revenue consists primarily of outsourced hosting costs and personnel-related expenses associated with monitoring and managing outsourced hosting service providers.
Cost of revenue excludes depreciation and amortization shown in operating expenses.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of September 30, 2021 and December 31, 2020, the Company recorded a full valuation allowance against its deferred tax assets.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Stock-Based Compensation
The Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined on the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, and uses the straight-line method to recognize stock-based compensation. The fair value of restricted stock units (“RSUs”) is determined using the closing trading price on the grant date. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the fair value of stock options. The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions to determine the fair value of stock options, including the option’s expected term and the price volatility of the underlying stock. The Company calculates the fair value of options granted by using the Black-Scholes option-pricing model with the following assumptions:
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Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Expected Volatility—The Company estimates volatility for option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the option’s expected term.
Expected Term—The expected term of the Company’s options represents the period that the stock-based awards are expected to be outstanding. The Company has elected to use the midpoint between the stock options’ vesting term and contractual expiration period to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a term that is equal to the options’ expected term at the grant date.
Dividend Yield—The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
Fair Value Measurement
Fair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs are observable, either directly or indirectly, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3—Inputs are generally unobservable and typically reflect management’s best estimate of assumptions that market participants would use in pricing the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company invests its excess cash in low-risk, highly liquid money market funds with major financial institutions.
Significant customers are those which represent more than 10% of the Company’s total revenue or gross accounts receivable balance at each balance sheet date. As of September 30, 2021, the Company had one customer that accounted for $2.5 million, or 13%, of gross accounts receivable. As of December 31, 2020, the Company had one customer that accounted for $1.5 million, or 15%, of gross accounts receivable. For the three and nine months ended September 30, 2021, the Company had one and two customers that accounted for $1.8 million and $5.9 million, or 16% and 22%, of total revenue, respectively. For the three months ended September 30, 2020, the Company had one customer that accounted for $0.9 million, or 17%, of total revenue. The Company had no customers that accounted for more than 10% of total revenue for the nine months ended September 30, 2020.
14

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Segment Information
The Company has