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~~March 31, 2022


☐			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)


Delaware						85-3087759
(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 class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.0001 per share

LTCH

The Nasdaq Stock Market LLC

Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per share

LTCHW

The 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 filer	☐☒	Accelerated filer	☐
Non-accelerated filer	☒☐	Smaller 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,~~May 3, 2022, there were ~~142,219,716~~143,621,160 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,~~(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act.~~(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~~Annual Report on Form ~~S-1~~10-K filed with the Securities and Exchange Commission (the “SEC”) on ~~June 25, 2021~~March 1, 2022 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; and

•our ability to acquire and protect intellectual ~~property; and~~

•~~our ability to successfully deploy the proceeds from the Business Combination (as defined below).~~property.

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			1
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020~~2021 (audited)			1
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			2
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			3
Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			54
Notes to Condensed Consolidated Financial Statements (unaudited)			75
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2926
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4538
Item 4. Controls and Procedures			4538
Part II - Other Information			4639
Item 1. Legal Proceedings			4639
Item 1A. Risk Factors			4639
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4740
Item 3. Defaults Upon Senior Securities			4740
Item 4. Mine Safety Disclosures			4740
Item 5. Other Information			4740
Item 6. Exhibits			4841
Signatures			4942

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			As of March 31, 2022 (unaudited)		As of December 31, 2021
Assets	Assets					Assets
Current Assets
Current assets						Current assets
Cash and cash equivalents	Cash and cash equivalents	$	240,306	$	60,529	Cash and cash equivalents	$	90,959	$	124,782
Marketable securities - current		88,135		—
Available-for-sale securities - current						Available-for-sale securities - current	172,993		158,973
Accounts receivable, net	Accounts receivable, net	18,648		8,227		Accounts receivable, net	28,967		25,642
Inventories, net	Inventories, net	9,976		8,293		Inventories, net	18,996		11,615
Prepaid expenses and other current assets	Prepaid expenses and other current assets	10,136		3,309		Prepaid expenses and other current assets	12,047		11,606
Total current assets	Total current assets	367,201		80,358		Total current assets	323,962		332,618
Property and equipment, net	Property and equipment, net	1,653		753		Property and equipment, net	2,755		2,039
Marketable securities - non-current		104,138		—
Available-for-sale securities - non-current						Available-for-sale securities - non-current	71,058		102,878
Internally developed software, net	Internally developed software, net	13,037		7,416		Internally developed software, net	14,411		12,475
Other non-current assets	Other non-current assets	1,452		1,082		Other non-current assets	2,929		2,294
Total assets	Total assets	$	487,481	$	89,609	Total assets	$	415,115	$	452,304

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Liabilities and Stockholders’ Equity (Deficit)						Liabilities and Stockholders’ Equity (Deficit)
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	5,945	$	3,732	Accounts payable	$	5,757	$	6,229
Accrued expenses	Accrued expenses	12,062		5,781		Accrued expenses	24,687		24,184
Deferred revenue - current	Deferred revenue - current	4,541		2,344		Deferred revenue - current	7,211		6,016
Other current liabilities	Other current liabilities	2,724		—		Other current liabilities	2,935		4,342
Total current liabilities	Total current liabilities	25,272		11,857		Total current liabilities	40,590		40,771
Deferred revenue - non-current	Deferred revenue - non-current	18,818		13,178		Deferred revenue - non-current	28,484		24,190
Term loan, net		—		5,481
Convertible notes, net		—		51,714
Warrant liability	Warrant liability	17,600		—		Warrant liability	3,520		9,787
Other non-current liabilities		559		1,051
Other non current liabilities						Other non current liabilities	178		—
Total liabilities	Total liabilities	62,249		83,281		Total liabilities	72,772		74,748

Commitments and contingencies (see Note 11)	Commitments and contingencies (see Note 11)	0		0		Commitments and contingencies (see Note 11)	0		0

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)	Stockholders’ equity (deficit)					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		—
Common stock - $0.0001 par value, 1,000,000,000 shares authorized; 142,237,954 and 141,592,388 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively(1)						Common stock - $0.0001 par value, 1,000,000,000 shares authorized; 142,237,954 and 141,592,388 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively(1)	32		25
Additional paid-in capital	Additional paid-in capital	699,866		7,901		Additional paid-in capital	718,305		706,713
Accumulated other comprehensive income (loss)		(57)		9
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(2,292)		(676)
Accumulated deficit	Accumulated deficit	(274,598)		(162,187)		Accumulated deficit	(373,702)		(328,506)
Total stockholders’ equity (deficit)	Total stockholders’ equity (deficit)	425,232		(154,277)		Total stockholders’ equity (deficit)	342,343		377,556
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)		$	487,481	$	89,609
Total liabilities and stockholders’ equity (deficit)						Total liabilities and stockholders’ equity (deficit)	$	415,115	$	452,304

(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,~~March 31, 2022 and December 31, 2021 ~~excludes~~exclude 738,000 shares subject to vesting requirements. See Note 1, Description of Business.

See accompanying notes to the condensed consolidated financial statements.

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,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Revenue:	Revenue:									Revenue:
Hardware and other related revenue		$	9,047	$	4,093	$	21,263	$	8,050
Software revenue		2,150		1,002		5,575		2,523
Hardware										Hardware		$	9,055	$	5,014
Software										Software		3,039		1,615
Services										Services		1,561		—
Total revenue	Total revenue	11,197		5,095		26,838		10,573		Total revenue		13,655		6,629
Cost of revenue(1)(2):	Cost of revenue(1)(2):									Cost of revenue(1)(2):
Cost of hardware and other related revenue		10,952		5,824		25,049		12,206
Cost of software revenue		201		66		508		185
Hardware										Hardware		10,992		6,028
Software										Software		323		134
Services										Services		1,718		—
Total cost of revenue	Total cost of revenue	11,153		5,890		25,557		12,391		Total cost of revenue		13,033		6,162
Operating expenses:	Operating expenses:									Operating expenses:
Research and development(2)	Research and development(2)	11,798		6,977		28,402		19,511		Research and development(2)		18,257		9,615
Sales and marketing(2)	Sales and marketing(2)	9,797		3,161		18,602		10,416		Sales and marketing(2)		17,296		3,750
General and administrative(2)	General and administrative(2)	11,971		4,198		39,660		13,250		General and administrative(2)		14,178		17,696
Depreciation and amortization	Depreciation and amortization	825		321		2,167		907		Depreciation and amortization		1,506		653
Total operating expenses	Total operating expenses	34,391		14,657		88,831		44,084		Total operating expenses		51,237		31,714
Loss from operations	Loss from operations	(34,347)		(15,452)		(87,550)		(45,902)		Loss from operations		(50,615)		(31,247)
Other income (expense)	Other income (expense)									Other income (expense)
Change in fair value of derivative liabilities		—		(15)		(12,588)		(15)
Change in fair value of warrant liability	Change in fair value of warrant liability	1,067		—		(3,728)		—		Change in fair value of warrant liability		6,267		—
Loss on extinguishment of debt		—		—		(1,469)		—
Change in fair value of trading securities										Change in fair value of trading securities		1,000		—
Interest expense, net	Interest expense, net	(780)		(458)		(6,971)		(809)		Interest expense, net		(864)		(3,318)
Other (expense) income		(89)		54		(5)		(72)
Total other income (expense)		198		(419)		(24,761)		(896)
Other expense										Other expense		(2)		(3,536)
Total other income (expense), net										Total other income (expense), net		6,401		(6,854)
Loss before income taxes	Loss before income taxes	(34,149)		(15,871)		(112,311)		(46,798)		Loss before income taxes		(44,214)		(38,101)
Income taxes		90		3		100		3
Provision for income taxes										Provision for income taxes		17		—
Net loss	Net loss	$	(34,239)	$	(15,874)	$	(112,411)	$	(46,801)	Net loss		$	(44,231)	$	(38,101)
Other comprehensive loss	Other comprehensive loss									Other comprehensive loss
Unrealized loss on marketable securities		(60)		—		(60)		—
Unrealized loss on available-for-sale securities										Unrealized loss on available-for-sale securities		(1,618)		—
Foreign currency translation adjustment	Foreign currency translation adjustment	(1)		—		(6)		—		Foreign currency translation adjustment		2		(7)
Comprehensive loss	Comprehensive loss	$	(34,300)	$	(15,874)	$	(112,477)	$	(46,801)	Comprehensive loss		$	(45,847)	$	(38,108)

Net loss per common share	Net loss per common share									Net loss per common share
Basic and diluted net loss per common share	Basic and diluted net loss per common share	$	(0.24)	$	(2.18)	$	(1.66)	$	(6.55)	Basic and diluted net loss per common share		$	(0.31)	$	(3.65)
Weighted averages shares outstanding
Weighted average shares outstanding										Weighted average shares outstanding
Basic and diluted	Basic and diluted	140,675,490		7,270,903		67,933,833		7,150,235		Basic and diluted		141,970,190		10,438,778

(1)Exclusive of depreciation and amortization shown in operating expenses below.	(1)Exclusive of depreciation and amortization shown in operating expenses below.									(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:	(2)Stock-based compensation expense included in cost of revenue and operating expenses is as follows:									(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 revenue		10		—		10		—
Cost of revenue										Cost of revenue		$	272	$	14
Research and development	Research and development	2,707		111		6,804		307		Research and development		4,501		3,999
Sales and marketing	Sales and marketing	1,904		32		2,108		103		Sales and marketing		2,322		161
General and administrative	General and administrative	2,157		218		12,743		652		General and administrative		4,623		10,319
Total stock-based compensation	Total stock-based compensation	$	6,948	$	363	$	21,865	$	1,070	Total stock-based compensation		$	11,718	$	14,493

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited)

(in thousands)

Redeemable Convertible
Preferred Stock Common Stock Additional
Paid-In
Capital Accumulated Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Stockholders’
Equity (Deficit)
Shares Amount Shares Amount
January 1, 2020 68,318 $ 150,305 7,839 $ — $ 5,724 $ — $ (96,193) $ (90,469)
Retroactive application of Exchange Ratio (7,030) — (807) — — — — —
January 1, 2020 as adjusted 61,288 150,305 7,032 — 5,724 — (96,193) (90,469)
Issuance of Series B-1 preferred stock for cash, net of issuance costs 2,468 10,300 — — — — — —
Exercises of common stock options — — 55 — 19 — — 19
Stock-based compensation — — — — 366 — — 366
Net loss — — — — — — (15,941) (15,941)
March 31, 2020 63,756 $ 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, 2020 63,756 160,605 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, 2020 63,756 $ 160,605 7,297 $ — $ 6,980 $ — $ (142,994) $ (136,014)

~~Latch, Inc. and Subsidiaries~~

~~Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited)~~

~~(in thousands)~~


																						Three months ended March 31, 2021
																						Redeemable Convertible Preferred Stock						Common Stock						Additional Paid-In Capital					Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity (Deficit)
		Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit				Total Stockholders’ Equity (Deficit)				Shares			Amount			Shares			Amount
		Shares	Amount		Shares	Amount
January 1, 2021	January 1, 2021	71,069	$	160,605	9,106	$	—			$	7,901					$	9			$	(162,187)		$	(154,277)	January 1, 2021		71,069		$	160,605			9,106			$	—				$	7,901			$	9			$	(162,187)			$	(154,277)
Retroactive application of Exchange Ratio	Retroactive application of Exchange Ratio	(7,313)	—		(937)	—		—				—		—				$	—		Retroactive application of Exchange Ratio	(7,313)			—			(937)			—				—					—				—				—
January 1, 2021, as adjusted		63,756	160,605		8,169	—		7,901				9		(162,187)				(154,277)
January 1, 2021 as adjusted																					January 1, 2021 as adjusted	63,756			160,605			8,169			—			7,901					9				(162,187)				(154,277)
Exercises of common stock options	Exercises of common stock options	—	—		5,428	—		2,816				—		—				2,816			Exercises of common stock options	—			—			5,428			—			2,816					—				—				2,816
Stock-based compensation																					Stock-based compensation	—			—			—			—			14,513					—				—				14,513
Foreign translation adjustment	Foreign translation adjustment	—	—		—	—		—				(7)		—				(7)			Foreign translation adjustment	—			—			—			—			—					(7)								(7)
Stock-based compensation		—	—		—	—		14,513				—		—				14,513
Net loss	Net loss	—	—		—	—		—				—		(38,101)				(38,101)			Net loss	—			—			—			—			—					—				(38,101)				(38,101)
March 31, 2021	March 31, 2021	63,756	$	160,605	13,597	$	—	$	25,230			$	2	$	(200,288)			$	(175,056)		March 31, 2021	63,756			$	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

																						Three months ended March 31, 2022
																						Redeemable Convertible Preferred Stock						Common Stock						Additional Paid-In Capital					Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity (Deficit)
																						Shares			Amount			Shares			Amount
January 1, 2022																					January 1, 2022	—			$	—		141,593			$	25					$	706,713					$	(676)			$	(328,506)			$	377,556
Cumulative effect adjustment of adopting ASC 326																					Cumulative effect adjustment of adopting ASC 326	—			—			—			—			—					—				(965)				(965)
Exercises of common stock options	Exercises of common stock options	—	—		645	6		218				—		—				224			Exercises of common stock options	—			—			365			4			171					—				—				175
Issuance of common stock upon settlement of restricted stock units	Issuance of common stock upon settlement of restricted stock units	—	—		12	—		—				—		—				—			Issuance of common stock upon settlement of restricted stock units	—			—			490			5			—					—				—				5
Tax withholdings on settlement of equity awards	Tax withholdings on settlement of equity awards	—	—		(66)	—		(394)				—		—				(394)			Tax withholdings on settlement of equity awards	—			—			(210)			(2)			(1,291)					—				—				(1,293)
Transaction costs related to reverse recapitalization		—	—		—	—		(253)				—		—				(253)
Transaction costs related to reverse capitalization																					Transaction costs related to reverse capitalization	—			—			—			—			(25)					—				—				(25)
Stock-based compensation																					Stock-based compensation	—			—			—			—			12,737					—				—				12,737
Foreign translation adjustment	Foreign translation adjustment	—	—		—	—		—				(1)		—				(1)			Foreign translation adjustment	—			—			—			—			—					2				—				2
Stock-based compensation		—	—		—	—		7,695				—		—				7,695
Unrealized loss on marketable securities		—	—		—	—		—				(60)		—				(60)
Unrealized loss on available-for-sale securities																					Unrealized loss on available-for-sale securities	—			—			—			—			—					(1,618)				—				(1,618)
Net loss	Net loss	—	—		—	—		—				—		(34,239)				(34,239)			Net loss	—			—			—			—			—					—				(44,231)				(44,231)
September 30, 2021		—	$	—	141,113	$	21	$	699,866			$	(57)	$	(274,598)			$	425,232
March 31, 2022																					March 31, 2022	—			$	—		142,238			$	32		$	718,305				$	(2,292)			$	(373,702)			$	342,343

~~(1)~~ Excludes 738,000 shares subject to vesting requirements. See Note 1, Description of Business.

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Condensed Consolidated ~~Statement~~Statements of Cash Flows (unaudited)

(in thousands)

Nine Months Ended September 30,
2021 2020
Operating activities
Net loss $ (112,411) $ (46,801)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization 2,167 907
Non-cash interest expense 3,527 36
Change in fair value of derivative liabilities 12,588 15
Change in fair value of warrant liability 3,728 —
Loss on extinguishment of debt 1,469 —
Provision (reversal) for excess and obsolete inventory (328) 108
Allowance (reversal) for doubtful accounts 753 (196)
Stock-based compensation 21,865 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 payable 2,150 1,374
Accrued expenses 5,969 1,076
Other current liabilities 358 —
Other non-current liabilities 1,185 820
Deferred revenue 7,837 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 costs 448,035 —
Repayment of term loan (5,000) —
Proceeds from unsecured loan — 3,441
Repayment of unsecured loan — (3,441)
Proceeds from issuance of common stock 3,040 90
Payments for tax withholding on net settlement of equity awards (372) —
Proceeds from revolving credit facility 3,682 —
Repayment of revolving credit facility (1,316) —
Net cash provided by financing activities 448,069 17,435
Effect of exchange rate on cash (5) (2)
Net change in cash and cash equivalents 179,777 (27,855)
Cash and cash equivalents
Beginning of period 60,529 54,218
End of period $ 240,306 $ 26,363

~~Latch, Inc. and Subsidiaries~~

~~Condensed Consolidated Statement of Cash Flows (unaudited)~~

~~(in thousands)~~


							Three Months Ended March 31,
							2022		2021
Operating activities						Operating activities
Net loss						Net loss	$	(44,231)	$	(38,101)
Adjustments to reconcile net loss to net cash used by operating activities						Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization						Depreciation and amortization	1,506		653
Non-cash interest expense						Non-cash interest expense	994		1,934
Change in fair value of derivative liabilities						Change in fair value of derivative liabilities	—		3,597
Change in fair value of warrant liability						Change in fair value of warrant liability	(6,267)		—
Change in fair value of trading securities						Change in fair value of trading securities	(1,000)		—
Provision for excess and obsolete inventory						Provision for excess and obsolete inventory	665		9
Allowance (reversal) for doubtful accounts						Allowance (reversal) for doubtful accounts	(50)		171
Stock-based compensation						Stock-based compensation	11,718		14,493
Changes in assets and liabilities						Changes in assets and liabilities
Accounts receivable						Accounts receivable	(4,241)		(1,108)
Inventories						Inventories	(8,046)		537
Prepaid expenses and other current assets						Prepaid expenses and other current assets	811		(2,424)
Other non-current assets						Other non-current assets	(713)		(53)
Accounts payable						Accounts payable	(471)		1,732
Accrued expenses						Accrued expenses	199		1,331
Other current liabilities						Other current liabilities	(344)		—
Other non-current liabilities						Other non-current liabilities	178		620
Deferred revenue						Deferred revenue	5,489		2,279
Net cash used in operating activities						Net cash used in operating activities	(43,803)		(14,330)
Investing activities						Investing activities
Purchase of available-for-sale securities						Purchase of available-for-sale securities	(24,367)		—
Proceeds from maturities of available-for-sale securities						Proceeds from maturities of available-for-sale securities	39,587		—
Purchase of trading securities						Purchase of trading securities	(250)		—
Purchase of property and equipment						Purchase of property and equipment	(736)		(290)
Development of internal software						Development of internal software	(2,069)		(1,446)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	12,165		(1,736)
Financing activities						Financing activities
Proceeds from issuance of common stock						Proceeds from issuance of common stock	180		2,035
Payments for tax withholding on net settlement of equity awards						Payments for tax withholding on net settlement of equity awards	(1,293)		—
Proceeds from revolving credit facility						Proceeds from revolving credit facility	1,345		53
Repayment of revolving credit facility						Repayment of revolving credit facility	(2,409)		—
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(2,177)		2,088
Effect of exchange rate on cash						Effect of exchange rate on cash	(8)		(9)
Net change in cash and cash equivalents						Net change in cash and cash equivalents	(33,823)		(13,987)
Cash and cash equivalents						Cash and cash equivalents
Beginning of period						Beginning of period	124,782		60,529
End of period						End of period	$	90,959	$	46,542

Supplemental disclosure of non-cash investing and financing activities	Supplemental disclosure of non-cash investing and financing activities					Supplemental disclosure of non-cash investing and financing activities
Capitalization of stock-based compensation to internally developed software	Capitalization of stock-based compensation to internally developed software	$	803	$	27	Capitalization of stock-based compensation to internally developed software	$	1,019	$	21
Bifurcation of derivative liabilities component of issuance of convertible promissory notes and term loan		$	—	$	624
Capitalization of transaction costs						Capitalization of transaction costs	$	—	$	3,412
Accrued issuance costs	Accrued issuance costs	$	—	$	82	Accrued issuance costs	$	25	$	—
Accrued fixed assets	Accrued fixed assets	$	416	$	—	Accrued fixed assets	$	251	$	67
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	$	—
Receivable from option exercises						Receivable from option exercises	$	—	$	781

See accompanying notes to the condensed consolidated financial statements.

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.~~visit through a system of software, devices and services. 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, CACA; Denver, CO; 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~~convertible promissory notes issued in ~~Note 9,~~ ~~Debt~~2020 (the “Convertible Notes”), 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~~a term loan ~~described~~entered into in ~~Note 9,~~ ~~Debt~~,2020 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 2 business days prior to the consummation of the Business Combination, which was approximately $10.00 per share, or ~~$59,160~~$0.06 million in the aggregate.

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~~).election. 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~~$0.06 million 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 election~~	~~192,550~~
~~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 Combination~~	~~448,035~~
~~Less: Accrued issuance costs~~	—
~~Less: Private placement warrants received as part of Business Combination~~	~~(13,872)~~
~~Plus: Prepaid expenses received as part of Business Combination~~	~~510~~
~~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.”

~~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 $0.0001 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.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

ended December 31, ~~2020,~~2021 and the notes thereto, which are included in the Company’s ~~registration statement~~Annual Report on Form ~~S-1~~10-K filed with the SEC on ~~June 25, 2021.~~March 1, 2022.

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, investment in trading securities 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, among other factors, actual results could differ from those estimates.

The Company’s significant accounting policies for its ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements as of ~~September 30, 2021~~March 31, 2022 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.~~2021.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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. On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”)that requires credit losses to be recorded on an expected loss methodology. The Company monitors the marketable securities for expected credit losses and indicators of impairment. If it is determined that an investment has an ~~other-than-temporary decline in fair value,~~expected credit loss, 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”~~Recognition—Hardware” below for further information). OnFollowing the adoption of ASU 2016-13, the Company recognizes an accounts receivable allowance based on estimates of expected credit losses. The Company estimates the total expected credit loss over the lifetime of the receivables using historical loss data and by applying a ~~periodic~~loss-rate method using relevant available information from internal and external sources, including historical write-off activity, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis ~~management evaluates its~~for the estimation of expected credit losses. Adjustments to historical loss information are made for changes in economic conditions. When certain amounts are deemed uncollectible, those balances are reserved in full.

The allowance for doubtful accounts is measured on a pooled basis when similar risk characteristics exist. When assessing whether to measure certain financial assets on a pooled basis, the Company considers various risk characteristics, including the financial asset type, size and historical or expected credit loss pattern. These risk characteristics are relevant to accounts receivable and ~~determines whether~~contract assets. The Company considers customer type, product lines and geography in relation to ~~provide an allowance or if any~~further segmentation and determined that further segmentation of the accounts ~~should be written off~~receivable and contract assets would not yield a materially different credit loss allowance. The Company only segments its receivables based on ~~a past history~~the aging 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.~~outstanding balance.

The Company generally does not require any security or collateral to support its receivables.

The following table represents a roll-forward of the Company’s allowance for doubtful ~~accounts was $0.8 million and $0.1 million as of September 30, 2021 and December 31, 2020, respectively.~~accounts:


Balance as of January 1, 2022	$	1,980
Impact of adopting ASU 2016-13	927
Provision for doubtful accounts	298
Recoveries	(353)
Balance as of March 31, 2022	$	2,852

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~~writes down the value for estimated excess and obsolete inventory based upon estimates of future demand and market conditions, when necessary.

Leases

On January 1, 2022, the Company adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”). The Company determines if an arrangement contains a lease at the inception of the arrangement. As part of the lease determination process, the Company assesses several factors, including, but not limited to, whether there is a right to control and direct the use of the asset and whether the other party has a substantive substitution right. The Company will apply the portfolio approach whenever leases are both similar in nature and have identical or nearly identical contract provisions. However, as the Company’s leases generally do not have identical or nearly identical contract provisions, the Company will account for

108

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~Equity Issuance Costs~~each of its leases at the contract level. If the Company enters into leases that are similar in nature and have identical or nearly identical contract provisions, the Company will apply the portfolio approach as necessary.

~~Costs incurred in connection~~The Company has made the policy election to not separate lease and non-lease components for any of its leases within its existing classes of assets. The Company will evaluate this election for any new leases involving a new underlying class of asset. The Company also made the policy election to not recognize a lease liability or a right-of-use asset for any leases with a term of 12 months or less. These lease payments are recognized on a straight-line basis over the ~~issuance~~lease term.

In general, the Company concluded that any of its renewal options and termination options are reasonably certain to not be exercised. This is due to the fact that the needs of the Company continue to evolve as the Company’s ~~series preferred stock have been recorded~~business progresses and its facility requirements may change in the future in order to support the Company’s operations. The Company does not generally enter into lease arrangements where the option to renew or terminate a lease is controlled by the lessor. However, the Company will evaluate any such options on a contract-by-contract basis to determine whether specific circumstances would result in the conclusion that any options are reasonably certain to be exercised.

Right-of-use (“ROU”) assets represent the right to use an underlying asset for the term of the lease, and lease liabilities represent the obligation to make lease payments throughout the term of the lease. ROU assets and lease liabilities are recognized as ~~a direct reduction against redeemable convertible preferred stock within~~of the ~~Condensed Consolidated Balance Sheets.~~

~~Additionally, certain transaction costs incurred~~commencement date of the lease based on the present value of contractual lease payments due over the term of the lease. The Company uses an incremental borrowing rate to determine the present value of the lease payments, as the leases do not state the rate implicit in ~~connection with~~ the ~~Merger Agreement that~~lease. The incremental borrowing rate is determined based on various outstanding debt from which an estimated discount rate can be determined. These rates are ~~direct~~adjusted, as necessary, to account for differences in the term, amounts and ~~incremental~~risks of each lease relative to the ~~Business Combination (see Note 1,~~ ~~Description~~terms of ~~Business~~)the debt.

ROU assets resulting from operating leases are recorded within other non-current assets, and lease liabilities from operating leases are recorded within current liabilities and non-current liabilities, on the condensed consolidated balance sheets. We did not have ~~been recorded~~any finance leases or subleases as ~~a component~~ of ~~additional paid in capital within~~March 31, 2022 and December 31, 2021.

Rent expense related to our leases is allocated between cost of revenue, research and development, sales and marketing, and general and administrative depending on headcount and the ~~Condensed Consolidated Balance Sheets.~~nature of the underlying lease.

Intangible Assets

The Company’s finite-lived intangible assets consisted of the following as of March 31, 2022 and December 31, 2021:


	March 31, 2022		December 31, 2021
Assembled workforce	$	700	$	700
Domain names	318		318
Patents	37		37
Other intangibles	4		4
Intangible assets	1,059		1,059
Less: accumulated amortization	(292)		(213)
Total intangible assets, net	$	767	$	846

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 ASU No. 2014-09 and its related amendments (collectively known as ASC ~~606.~~606, Revenue from Contracts with Customers). 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~~three primary sources: (1) hardware devices, ~~and~~ (2) software ~~products.~~products and (3) services related to the hardware devices.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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~~for 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,~~March 31, 2022 and 2021, the reserve for hardware warranties was approximately 2% and 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.~~revenue, respectively. 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,~~March 31, 2022 and 2021, the reserve for wholesale returns against revenue was ~~$(0.3) million~~zero 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~~March 31, 2022 and December 31, ~~2020~~2021 was $0.6 million and ~~$1.8~~$0.6 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

~~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 to our customers on the longer-term software contracts paid upfront, the Company has determined that there is a significant financing component related to the time value of money and has therefore broken out the interest component and recorded it as a component of interest income (expense), net on the condensed consolidated statements of operations and comprehensive loss. The interest expense related to the significant financing component is recorded using the effective interest method, which has higher interest expense at inception and declines over time to match the underlying economics of the transaction where the outstanding principal balance decreases over time.The amount of interest expense related to this component was ~~$0.8~~$1.1 million and ~~$2.2~~$0.7 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 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.

Services

The Company generates revenues for 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 services revenue of $1.6 million and zero for the three months ended March 31, 2022 and 2021, respectively.

Performance Obligations

The Company enters into contracts that contain multiple distinct performance ~~obligations,~~obligations: hardware, software and ~~software.~~services. 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.~~customer and the services performance obligation includes the delivery of activation and installation of the hardware. The Company has determined that the hardware, software and ~~software~~services are individual distinct performance obligations because ~~both~~they 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

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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~~$35.7 million as of ~~September 30, 2021.~~March 31, 2022. The Company expects to recognize the short-term amount of ~~$4.5~~$7.2 million over the next 12 months, of which $11.1 million will be recognized as revenue and $3.9 million will be recognized as interest expense related to the significant financing component, and the long-term portion of ~~$18.8~~$28.5 million over the contracted-use term of each ~~agreement.~~agreement, of which $38.1 million will be recognized as revenue and $9.6 million will be recognized as interest expense related to the significant financing component.

Revenue Disaggregation

The Company had total revenue of ~~$11.2~~$13.7 million and ~~$26.8~~$6.6 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 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 Company capitalizes commission expenses paid that are incremental to obtaining customer software contracts. Costs related to the initial signing of software contracts are amortized over the average customer life, which has been estimated to be ten years. The Company determined the period of benefit by taking into consideration the length of terms in its customer contracts, including renewals and extensions. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, current and are included in prepaid expenses and other current assets on the condensed consolidated balance sheets; the remaining portion is recorded as deferred contract costs, non-current and is included in other non-current assets on the condensed consolidated balance sheets. Amortization expense is included in sales and marketing expense in the condensed consolidated statements of operations and comprehensive loss.

The following table represents a roll-forward of the Company’s deferred contract costs:


Balance as of January 1, ~~2021~~2022	$	~~549~~1,275
Additions to deferred contract costs	~~378~~392
Amortization of deferred contract costs	~~(70)~~(40)
Balance as of ~~September 30, 2021~~March 31, 2022	$	~~857~~1,627

Contract Assets and Contract Liabilities (Unbilled Receivables and Deferred Revenue)

September 30, 2021 December 31, 2020
Contract assets (unbilled receivables) $ 531 $ —
Contract liabilities (deferred revenue) $ 23,359 $ 15,522

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~


	March 31, 2022		December 31, 2021
Contract assets (unbilled receivables)	$	619	$	633
Contract liabilities (deferred revenue)	$	35,695	$	30,206

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~~billings to customers. The Company recognizes unbilled receivables when the performance obligation precedes the invoice date. The Company considers contract assets similar to accounts receivable but with an extended credit term. Until the contract asset is billed, the Company is exposed to a similar credit risk as current accounts receivable. The expected loss percentage is the same as the loss rate used for each accounts receivable aging bucket. As of March 31, 2022, contract assets are reported net of a loss reserve of $0.04 million. The Company records unbilled receivables within ~~prepaid and other current assets~~accounts receivable, net on the condensed consolidated balance sheets.

The Company records contract liabilities to deferred revenue when the Company ~~receives customer payments~~bills customers 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~~$2.4 million of prior year deferred software revenue during the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Increase in contract liabilities for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 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 software revenue consists primarily of outsourced hosting costs and personnel-related expenses associated with monitoring and managing outsourced hosting service providers.

Cost of services revenue consists primarily of third-party installation labor costs, parts and materials and personnel-related expenses associated with deployment of our hardware.

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~~March 31, 2022 and December 31, ~~2020,~~2021, 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 of the Company’s common stock 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:

~~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.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

•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 primarily invests its excess cash in low-risk, highly liquid money market funds with major financial ~~institutions.~~institutions as well as marketable securities (see Note 3, Investments).

Significant customers are those ~~which~~that represent more than 10% of the Company’s total revenue or gross accounts receivable balance at each balance sheet date. As of ~~September 30,~~March 31, 2022, the Company had one customer that accounted for $5.0 million, or 17%, of gross accounts receivable. As of December 31, 2021, the Company had one customer that accounted for ~~$2.5~~$3.0 million, or ~~13%~~12%, of gross accounts receivable. ~~As of December~~For the three months ended March 31, ~~2020,~~2022 and 2021, the Company had one customer that accounted for ~~$1.5~~$4.4 million and $0.9 million, or ~~15%, of gross accounts receivable. For the three~~32% 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%~~14%, 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.

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

Segment Information

The Company has 1 operating and reportable segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s chief operating decision maker.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) issued ~~ASU No. 2016-02,~~ ~~Leases (Topic 842)~~,ASC 842, which requires lessees to recognize most leases on the balance sheet as a right of use asset and related lease liability. ~~The ASU is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15,~~On January 1, 2022, ~~with early adoption permitted.~~the Company adopted ASC 842 using a modified retrospective approach recording a cumulative-effect adjustment to retained earnings. The Company ~~is currently evaluating~~elected to adopt the ~~impact~~practical expedients that permit it to combine lease and non-lease components for all lease contracts and also elected not to recognize ROU assets and lease liabilities for leases with terms of 12 months or less. The Company recognized (i) $0.4 million of operating lease ROU assets recorded in other non-current assets on the Condensed Consolidated Balance Sheets and (ii) operating lease liabilities of (x) $0.2 million recorded in other current liabilities and (y) $0.2 million recorded in other non-current liabilities on the Condensed Consolidated Balance Sheets. The adoption of ~~this ASU on its~~ASC 842 did not materially impact the condensed consolidated ~~financial statements.~~statements of operations and comprehensive loss, condensed consolidated statements of equity and condensed consolidated statements of cash flows.

In June 2016, the FASB issued ASU ~~No.~~ 2016-13,~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments~~, which, together with subsequent amendments, amends the requirement on the measurement and recognition of expected credit losses for financial assets held. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company determined that available-for-sale securities, accounts receivable and contract assets are the applicable financial assets that are subject to this ASU and adopted the guidance on January 1, 2022. The Company modified the impairment model related to the available-for-sale securities from the “other-than-temporary” impairment model to the “current expected credit losses” model and determined that an allowance for credit loss is ~~currently evaluating~~not needed as of January 1, 2022 based on various factors, including the ~~impact~~length of time and extent to which fair value has been lower than the cost basis, the financial condition and near-term prospects of the ~~adoption~~issuer and forecasted economic data. As of ~~this ASU on its condensed consolidated financial statements.~~

~~In December 2019,~~January 1, 2022, the ~~FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying~~Company recorded a cumulative-effect adjustment to retained earnings in the ~~Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions~~total amount of $1.0 million related to the ~~general principles in Topic 740. The update also simplifies GAAP~~allowance for ~~other areas of Topic 740 by clarifying~~doubtful accounts on the accounts receivable and amending existing guidance to improve consistent application. The amendment in this update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard effective January 1, 2021. The Company has completedcontract assets using the ~~assessment and determined this ASU does not have a material impact on its condensed consolidated financial statements.~~modified retrospective approach.

3.INVESTMENTS

~~Marketable~~Available-for-Sale Securities (Marketable Securities)

The Company’s investments in marketable securities are classified and accounted for as available-for-sale and consist of high quality asset backed securities, commercial paper, corporate bonds and U.S. government agency debt securities. The Company’s marketable securities with remaining effective maturities of 12 months or less from the balance sheet date are classified as current; otherwise, they are classified as non-current on the condensed consolidated balance sheets. Unrealized gains and losses on marketable securities classified as available-for-sale are recognized in other comprehensive income (loss).

The Company’s marketable securities by security type are summarized as follows:


		As of September 30, 2021							As of March 31, 2022
		Cost		Gross Unrealized Loss		Estimated Fair Value			Amortized Cost		Gross Unrealized Loss		Estimated Fair Value
Asset backed securities	Asset backed securities	$	11,141	$	(13)	$	11,128	Asset backed securities	$	11,066	$	(193)	$	10,873
Commercial paper and corporate bonds	Commercial paper and corporate bonds	176,233		(80)		176,153		Commercial paper and corporate bonds	214,398		(1,788)		212,610
U.S. government agency debt securities	U.S. government agency debt securities	4,997		(5)		4,992		U.S. government agency debt securities	20,881		(313)		20,568
Total marketable securities		$	192,371	$	(98)	$	192,273
Total available-for-sale securities								Total available-for-sale securities	$	246,345	$	(2,294)	$	244,051

~~Convertible~~

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)


	As of December 31, 2021
	Amortized Cost		Gross Unrealized Loss		Estimated Fair Value
Asset backed securities	$	11,101	$	(56)	$	11,045
Commercial paper and corporate bonds	234,497		(551)		233,946
U.S. government agency debt securities	16,929		(69)		16,860
Total available-for-sale securities	$	262,527	$	(676)	$	261,851

As of March 31, 2022 and December 31, 2021, the Company recorded $2.3 million and $0.7 million, respectively, of gross unrealized losses in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets, primarily due to a decrease in the fair value of the corporate bonds.

Trading Securities (Convertible Promissory ~~Note~~Notes)

In July 2021, the Company purchased a convertible promissory note (the “Note”) from a counterparty for $4.0 million. In November 2021 and March 2022, the Company executed additional promissory notes in the aggregate amount of $0.5 million under the same terms as the initial Note (collectively referred to as the “Notes”). The outstanding principal of the ~~Note,~~Notes, together with unpaid and accrued interest, is due and payable on September 30, 2022, which can be extended at the option of the Company for a period of one year, unless the debt is converted to equity securities in the counterparty or the Company declares the ~~Note~~Notes due and payable upon the occurrence of an event of default. The ~~Note~~Notes also ~~contains~~contain certain embedded features, including: acceleration in the event of default; automatic

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

conversion into the equity of the counterparty upon a subsequent equity financing by the counterparty; optional conversion into equity upon the sale of preferred stock by the counterparty; optional acceleration or conversion into equity upon certain corporate transactions by the counterparty; and the Company’s option to extend the maturity date. Interest accrues at 6% per annum and is due upon the earlier of the maturity date or an event of default. The ~~Note meets~~Notes meet the definition of a debt security under the provisions of ASC 320, Investments - Debt Securities. The Company classified the ~~Note~~Notes as trading securities and categorized them within Level 3 of the fair value hierarchy. ~~Subsequent changes~~Changes in fair value ~~will be~~are reported in earnings.

The Company ~~determined that there was no material~~recorded a gain on the Notes of $1.0 million during the three months ended March 31, 2022, recorded in change in fair value as of ~~September 30, 2021.~~trading securities on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The ~~Note is~~Notes are recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Contractual maturities of the Company’s ~~marketable~~available-for-sale and trading securities ~~and other investments~~ are summarized as follows:

As of September 30, 2021
Cost Estimated Fair Value
Due in less than one year 92,156 92,135
Due in one to five years 104,215 104,138
Total investments $ 196,371 $ 196,273

~~As of September 30, 2021, the Company had $0.1 million of gross unrealized losses primarily due to a decrease in the fair value of the corporate bonds.~~


	As of March 31, 2022
	Amortized Cost		Estimated Fair Value
Due in less than one year	178,405		178,543
Due in one to five years	72,490		71,058
Total investments	$	250,895	$	249,601

The Company ~~will regularly review~~monitors the available-for-sale securities for expected credit losses and indicators of impairment. If it is determined that an investment has an expected credit loss, 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 ~~investment portfolio~~investments to ~~identify and evaluate investments that have indications of possible impairment. Investments that~~determine if impairment charges are ~~impaired are those that are considered to have losses that are other-than-temporary.~~required. Factors considered in determining whether athere is an expected credit loss ~~is temporary~~ include:

•the length of time and extent to which fair value has been lower than the cost basis;

•the financial condition, credit quality and near-term prospects of the investee; and

•whether it is more likely than not that the Company will be required to sell the security prior to recovery.

As of ~~September 30, 2021,~~March 31, 2022, the Company had not identified any impairment indicators in the investments.

~~During the three and nine months ended September 30, 2021, the Company recorded no net realized gains or losses from the sale of investments.~~

1615

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

During the three months ended March 31, 2022, the Company recorded no net realized gains or losses from the sale of investments.

4.FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are summarized as follows:


		As of September 30, 2021									As of March 31, 2022
		Fair Value Measurements Using									Fair Value Measurements Using
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Cash	Cash	$	2,003	$	—	$	—	$	2,003	Cash	$	22,157	$	—	$	—	$	22,157
Money market funds	Money market funds	238,303		—		—		238,303		Money market funds	68,802		—		—		68,802
Total cash and cash equivalents	Total cash and cash equivalents	240,306		—		—		240,306		Total cash and cash equivalents	90,959		—		—		90,959
Asset backed securities		—		11,128		—		11,128
Commercial paper and corporate bonds		—		176,153		—		176,153
U.S. government agency debt securities		—		4,992		—		4,992
Convertible promissory note		—		—		4,000		4,000
Available-for-sale securities										Available-for-sale securities	—		244,051		—		244,051
Trading securities (convertible promissory notes)										Trading securities (convertible promissory notes)	—		—		5,550		5,550
Total assets	Total assets	$	240,306	$	192,273	$	4,000	$	436,579	Total assets	$	90,959	$	244,051	$	5,550	$	340,560

Liabilities	Liabilities									Liabilities
Warrant liability	Warrant liability	17,600		—		—		17,600		Warrant liability	—		3,520		—		3,520
Total liabilities	Total liabilities	$	17,600	$	—	$	—	$	17,600	Total liabilities	$	—	$	3,520	$	—	$	3,520


		As of December 31, 2020									As of December 31, 2021
		Fair Value Measurements Using									Fair Value Measurements Using
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Cash	Cash	$	1,244	$	—	$	—	$	1,244	Cash	$	8,983	$	—	$	—	$	8,983
Money market funds	Money market funds	59,285		—		—		59,285		Money market funds	115,799		—		—		115,799
Total cash and cash equivalents										Total cash and cash equivalents	124,782		—		—		124,782
Available-for-sale securities										Available-for-sale securities	—		261,851		—		261,851
Trading securities (convertible promissory notes)										Trading securities (convertible promissory notes)	—		—		4,300		4,300
Total assets	Total assets	$	60,529	$	—	$	—	$	60,529	Total assets	$	124,782	$	261,851	$	4,300	$	390,933

Liabilities	Liabilities									Liabilities
Derivative liabilities		—		—		13,390		13,390
Warrant liability										Warrant liability	—		9,787		—		9,787
Total liabilities	Total liabilities	$	—	$	—	$	13,390	$	13,390	Total liabilities	$	—	$	9,787	$	—	$	9,787

The Company’s investments in money market funds backed by U.S. government securities have been classified as Level 1 as they are valued utilizing quoted prices (unadjusted) in active markets for identical assets. Investments in asset backed securities, commercial paper, corporate bonds and U.S. government agency debt securities have been classified as Level 2 as they are valued using quoted prices in less active markets or other directly or indirectly observable inputs. Fair values of corporate bonds and U.S. government agency debt securities were derived from a consensus or ~~weighted-average~~weighted average price based on input of market prices from multiple sources for the reporting period. With regard to commercial paper, all of the securities had high credit ratings and one year or less to maturity; therefore, fair value was derived from accretion of purchase price to face value over the term of maturity or quoted market prices for similar instruments if available.

The Company’s investments in the Notes are classified as Level 3 in the fair value hierarchy because they rely significantly on inputs that are unobservable in the market. The conversion price is dependent on varying events and equity value and therefore has been estimated using a Monte Carlo model to simulate the various future events.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Significant assumptions include: (i) the timing and amount of a subsequent equity financing, if any; (ii) the equity value of the counterparty as of March 31, 2022; (iii) once converted into equity, the timing of any liquidity event; (iv) the counterparty to undergo a dissolution if the new equity financing does not occur before the maturity of the Notes; and (v) an assumed recovery rate in a dissolution event. The Notes are measured at fair value using a Monte Carlo simulation model at each measurement date. With respect to the ~~Note,~~Notes, the Company elected to apply the fair value option and account for the hybrid instrument containing the ~~Note~~Notes and the embedded derivatives at fair value as a single instrument, with any subsequent changes in fair value being reported in earnings. ~~The~~For the three months ended March 31, 2022, the Company ~~determined that there was no material~~reported a change in ~~the~~ fair value of the ~~Note as~~Notes of ~~September 30, 2021.~~ $1.0 million.

The following table provides quantitative information regarding Level 3 fair value inputs at their measurement dates:


	March 31, 2022
Volatility	80.0	%
Risk free rate	U.S Constant Maturity Treasury Yields
Term	0.50 years

During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, there were no transfers of financial assets between Level 1 and Level 2.

The Company’s warrant liability includes private placement warrants that were originally issued in connection with the TSIA IPO, but which were transferred to the Company as part of the Closing of the Business Combination (the “Private Placement Warrants”). The Private Placement Warrants are recorded on the Condensed Consolidated Balance Sheets at

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

fair value. This valuation is subject to re-measurement at each balance sheet date. With each re-measurement, the valuation will be adjusted to fair value, with the change in fair value recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Private Placement Warrants are held by a single holder. ASC 820, Fair Value Measurements, indicates that the fair value should be determined “from the perspective of a market participant that holds the identical item” and “use the quoted price in an active market held by another party, if that price is available.” As the only market for the transfer of the Private Placement Warrants is the public market, the Company has determined that the fair value of the Private Placement Warrants at a specific date is determined by the closing price of the Company’s public warrants, traded under the symbol “LTCHW,” and within Level 12 of the fair value hierarchy. The closing price of the public warrants was ~~$2.60~~$0.66 and ~~$3.30~~$1.84 as of ~~June 3, 2021~~March 31, 2022 and ~~September 30,~~December 31, 2021, respectively. The fair value of the Private Placement Warrants was ~~$13.9~~$3.5 million and ~~$17.6~~$9.8 million as of ~~June 3, 2021~~March 31, 2022 and ~~September 30, 2021, respectively.~~

~~As of~~ December 31, ~~2020, Level 3 instruments consisted of the Company’s derivative liabilities related to the Convertible Notes and warrants issued in connection with the term loan (see Note 9,~~ ~~Debt~~). Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodologies used to determine fair value, and such changes could result in a significant increase or decrease in the fair value. For the Company’s derivatives related to the Convertible Notes categorized within Level 3 of the fair value hierarchy, the Company compared the calculated value of the Convertible Notes with the indicated value of the host instrument, defined as the straight-debt component of the Convertible Notes. The difference between the value of the straight-debt host instrument and the fair value of the Convertible Notes resulted in the value of the derivative instruments. The Convertible Notes were valued using a discounted cash flow analysis. The Company discounted the future payoffs at risk-adjusted rates consistent with market yields. The discount rate was calculated by adding the risk-free rate, an option-adjusted spread and a calibrated risk premium, each as noted below.

•~~The selected risk-free rate was based on observed yields on U.S. Treasury securities.~~

•~~The selected option-adjusted spread was based on the ICE Bank of America CCC and Lower U.S. High Yield Index (HOA3); and~~

•~~The calibrated risk premium was calculated as the additional risk premium necessary to reconcile with the original issuance at August 11, 2020.~~

Since the potential payoffs for the Convertible Notes were dependent on the outcome of future equity financing rounds, the discounted cash flow models incorporated management’s estimates for the probabilities and timing of future financing events. Upon the Closing of the Business Combination on June 4, 2021, ~~the Convertible Notes were converted into equity and the derivatives related to the Convertible Notes were extinguished. See Note 9,~~ ~~Debt, and Note 10,~~ ~~Derivatives~~.

The Company’s derivatives related to the warrants issued in connection with the term loan were categorized within Level 3 of the fair value hierarchy. The significant unobservable inputs included the expected term, volatility, risk-free interest rate and dividend yield (see Note 12, ~~Convertible Preferred Stock and Equity). Upon the Closing of the Business Combination on June 4, 2021, the term loan was repaid in full, and the derivatives related to the warrants were extinguished.~~respectively.

The following table ~~provides quantitative information regarding~~represents the ~~significant unobservable inputs used by~~activity of the ~~Company related to the derivative liabilities:~~Level 3 instruments:


	~~December 31, 2020~~Trading Securities
~~Term in years~~	~~0.3 to 1.3~~
~~Calibrated risk premium~~Balance at December 31, 2021	~~11.68%~~$	4,300
~~Option adjusted spread~~Purchases	~~8.03%~~250
Change in fair value(1)	1,000
~~Risk free rate~~Balance at March 31, 2022	~~0.12% - 0.19%~~$	5,550

(1)Recorded in other income (expense) within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

During the three months ended March 31, 2022, the Company purchased an additional Note (as described in Note 3, Investments), which is categorized as Level 3 in the fair value hierarchy. There were no sales of Level 3 instruments during the three months ended March 31, 2022. There were no transfers of instruments into or out of Level 3 during the three months ended March 31, 2022.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~The following table represents the activity of the Level 3 instruments:~~

Convertible
Notes Warrants Total
Derivative liabilities - December 31, 2020 $ 12,676 $ 714 $ 13,390
Change in fair value of derivative liabilities(1)
11,158 1,430 12,588
Extinguishment of derivatives (23,834) (2,144) (25,978)
Derivative liabilities - September 30, 2021 $ — $ — $ —

~~(1)Recorded in other income (expense) within the Condensed Consolidated Statements of Operations and Comprehensive Loss.~~

During the three and nine months ended September 30, 2021, the Company purchased the Note, which is categorized as Level 3 in the fair value hierarchy, for $4.0 million. There were no sales of Level 3 instruments during the three and nine months ended September 30, 2021. There were no transfers of instruments into or out of Level 3 during the three and nine months ended September 30, 2021.

5.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Office furniture	Office furniture	$	86	$	86	Office furniture	$	86	$	86
Computers and equipment	Computers and equipment	3,198		1,789		Computers and equipment	4,799		3,810
Property and equipment	Property and equipment	3,284		1,875		Property and equipment	4,885		3,896
Less: Accumulated depreciation	Less: Accumulated depreciation	(1,631)		(1,122)		Less: Accumulated depreciation	(2,130)		(1,857)
Total property and equipment, net	Total property and equipment, net	$	1,653	$	753	Total property and equipment, net	$	2,755	$	2,039

6.INTERNALLY DEVELOPED SOFTWARE, NET

Internally developed software, net consisted of the following as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Internally developed software	Internally developed software	$	9,422	$	4,235	Internally developed software	$	13,071	$	11,761
Construction in progress	Construction in progress	6,481		4,451		Construction in progress	5,812		4,339
Less: Accumulated amortization(1)	Less: Accumulated amortization(1)	(2,866)		(1,270)		Less: Accumulated amortization(1)	(4,472)		(3,625)
Total internally developed software, net	Total internally developed software, net	$	13,037	$	7,416	Total internally developed software, net	$	14,411	$	12,475

(1)Includes $0.3 million related to the decision not to proceed with further development of certain software products during the three months ended March 31, 2022.

Capitalized costs associated with construction in progress are not amortized into amortization expense until the related assets are put into service.

7.INVENTORIES, NET

Inventories, net consisted of the following as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Raw materials	Raw materials	$	3,513	$	2,242	Raw materials	$	3,192	$	2,513
Finished goods	Finished goods	6,749		6,376		Finished goods	16,084		9,492
Excess and obsolete reserve	Excess and obsolete reserve	$	(286)	(325)		Excess and obsolete reserve	(280)		(390)
Total inventories, net	Total inventories, net	$	9,976	$	8,293	Total inventories, net	$	18,996	$	11,615

The Company did not experience any significant inventory write-downs for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022.

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

8.~~ACCRUED EXPENSES~~LEASES

~~Accrued expenses consisted of~~The Company has entered into various operating lease agreements, which are generally for offices and facilities. The Company leases office spaces in New York City, Denver, San Francisco, Chicago and Taiwan with lease termination dates through November 2024. The lease terms range from one to three years with no renewal options. The lease agreements often include escalating lease payments, renewal provisions and other provisions that require the ~~following~~Company to pay costs related to taxes, insurance and maintenance.

Additional information related to operating leases included on the Condensed Consolidated Balance Sheet as of ~~September 30, 2021~~ and ~~December~~for the three months ended March 31, ~~2020:~~

September 30, 2021 December 31, 2020
Accrued payroll $ 5,663 $ 1,246
Accrued duties 154 204
Accrued warranties 454 284
Accrued purchases 1,498 25
Accrued excess inventory 159 465
Accrued operating expense 3,717 3,505
Other accrued expenses 417 52
Total accrued expenses $ 12,062 $ 5,781

9.~~DEBT~~

~~Revolving Line of Credit and Term Loan~~

In September 2020, Legacy Latch obtained a revolving line of credit as well as a term loan, both of which were secured by a first-perfected security interest in substantially all of the assets of Legacy Latch. In connection with the term loan, Legacy Latch issued warrants to purchase common stock. See Note 12, ~~Convertible Preferred Stock and Equity~~.

The revolving line of credit provided for a credit extension of up to $5.0 million and bore interest at the greater of the prime rate plus 2% or 5.25% per annum, as long as Legacy Latch maintained an Adjusted Quick Ratio (as defined2022 is presented in the ~~credit agreement) of 1.25. Legacy Latch did not draw any amounts on the line of credit, which was cancelled upon the repayment in full of the~~table below (in thousands, except weighted average term ~~loan in connection with the Closing.~~

The available amount under the term loan was an initial $5.0 million, with 2 additional tranches of $2.5 million each, which Legacy Latch could draw down on in annual increments from closing subject to certain revenue and financing conditions. The term loan bore interest at the greater of the prime rate plus 3% or 6.25% per annum. The term loan was set to mature on December 1, 2024. The term loan was paid off including accrued interest in connection with the Closing (see Note 1, ~~Description of Business). The Company identified certain embedded derivatives in the warrants issued related to the term loan. These embedded derivatives were extinguished at Closing.~~

Legacy Latch was subject to certain affirmative and negative financial covenants that it was required to meet in order to maintain its credit facilities, including approval required for certain transactions and a minimum bookings amount if Legacy Latch’s cash balance plus the amount available under the revolving line of credit fell below $20.0 million combined. The Company believes that Legacy Latch was in compliance with all debt covenants as of the repayment date of June 4, 2021.

~~Term loan, net was comprised of the following indebtedness as of December 31, 2020:~~


	~~December 31, 2020~~
~~Principal~~	$	~~5,000~~
~~Derivative liability~~	~~714~~
~~Less: unamortized discounts and fees~~	~~(127)~~
~~Less: debt issuance costs~~	~~(106)~~
~~Term loan, net~~	$	~~5,481~~

~~Convertible Notes, Net~~

Between August 11, 2020 and October 23, 2020, Legacy Latch issued a series of convertible promissory notes to various investors pursuant to a Note Purchase Agreement dated August 11, 2020, subsequently amended with a Note Purchase Agreement dated October 23, 2020 (as amended, the “Note Purchase Agreement”), with a maturity date of April 23, 2022 (subject to the holder’s option to extend the maturity date for a period of one year), for an aggregate principaldiscount rate):

2018

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

amount of $50.0 million (the “Convertible Notes”). The Convertible Notes accrued interest at a rate of 5% per annum for the first six months, 7% per annum for the following six months and 9% per annum from month 13 until maturity, that was due and payable upon the earlier to occur of the maturity date or an event of default, unless otherwise converted prior to maturity or an event of default.

The Company identified certain embedded derivatives related to contingent requirements to repay its Convertible Notes at a substantial premium, which required separate accounting recognition in accordance with ASC 815-15, ~~Embedded Derivatives~~. The fair value of the embedded derivative was recorded as a derivative liability and combined with the debt host contract within convertible notes, net on the condensed consolidated balance sheets. The embedded derivatives related to the Convertible Notes were extinguished at Closing.

The mandatory conversion feature upon a business combination (as detailed in the Note Purchase Agreement) was triggered for the Convertible Notes causing a conversion of the $50.0 million outstanding principal amount of these Convertible Notes and any unpaid accrued interest into equity securities at the specified conversion price upon the Closing of the Business Combination. The noteholders received 6.9 million shares of common stock in the Post Combination Company.

~~The following table summarizes the aggregate values recorded for the Convertible Notes as of December 31, 2020:~~


	~~December 31, 2020~~
~~Principal~~ROU asset	$	~~50,000~~430
~~Derivative liability~~	~~12,676~~
~~Less: unamortized discounts and fees~~	~~(10,925)~~
~~Less: debt issuance costs~~	~~(37)~~
~~Net carrying amount~~Lease liabilities	$	~~51,714~~431
Operating lease cost	$	125
Short-term lease cost	$	177
Cash paid for amounts included in the measurement of operating lease liabilities	$	124
Weighted average remaining lease term - operating leases	1.8 years
Weighted average discount rate - operating leases	14.5		%

Maturities of lease liabilities as of March 31, 2022 are as follows:


Remainder of 2022	$	248
2023	138
2024	102
2025	—
2026	—
Thereafter	—
Total lease payments	488
Less: imputed interest	57
Total lease liabilities	$	431

9.ACCRUED EXPENSES

Accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021:


	March 31, 2022		December 31, 2021
Accrued compensation	$	4,836	$	6,407
Accrued warranties	318		556
Accrued purchases	4,800		1,692
Accrued excess inventory	1,114		550
Accrued operating expense	6,574		7,894
Accrued litigation costs	6,750		6,750
Other accrued expenses	295		335
Total accrued expenses	$	24,687	$	24,184

10.DEBT

Revolving Credit Facility

In January 2021, Legacy Latch signed an agreement for a revolving credit facility (the “revolving facility”) with a freight forwarding and customs brokerage company. The original revolving facility had a credit limit of $1.0 million. On July 1, 2021, the Company executed a new revolving credit facility with a credit limit of $6.0 million replacing the matured facility. The revolving facility is available to finance supply chain commercial invoices, including freight and customs duty charges. The Company authorizes payment of invoices by the lender on the due date and repays the financed amount plus interest 90 days following the initial payment date. An installment plan agreement is executed for each financing request, which includes the interest rate. The interest rate for the installment plan agreements executed during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ranged from 0.87% to 1.25% per month. The new facility has no financial covenants and limited non-financial covenants, including requiring the lender’s consent prior to a disposition of substantially all assets, a merger or ~~other covenants.~~acquisition or an ownership change in excess of 50% of the voting capital stock of the borrower. As of ~~September 30,~~March 31, 2022 and December 31, 2021, there was ~~$2.4~~$2.3 million and $3.4 million outstanding on the revolving facility, respectively, which is reported in other current liabilities on the Condensed Consolidated Balance Sheets.

~~10.DERIVATIVES~~

The Company identified certain embedded derivatives related to contingent requirements to repay its Convertible Notes at a substantial premium to par, as well as certain derivatives in its warrants in connection with its term loan. These derivatives were carried at estimated fair value on the accompanying Condensed Consolidated Balance Sheets as a portion of convertible notes, net and term loan, net. Changes in the estimated fair value of the derivatives are reported as other income (expense) in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. See Note 4, ~~Fair Value Measurements, for additional information. As described in Note 1,~~ ~~Description of Business, the embedded derivatives were extinguished at Closing. As described in Note 3,~~ ~~Investments, the Company analyzed the acceleration, conversion and other features of the Note under the provisions of ASC 815,~~ ~~Derivatives and Hedging~~, and determined that these features are embedded derivatives. The Company elected to apply the fair value option and account for the hybrid instrument containing the Note and the embedded derivatives at fair value as a single instrument, with any subsequent changes in fair value being reported in earnings.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

11.COMMITMENTS AND CONTINGENCIES

~~Commitments~~

The Company has entered into various operating lease agreements, which are generally for offices and facilities. In January 2020, Legacy Latch signed a one-year sublease agreement for its New York City office space where the landlord was a stockholder of Legacy Latch. In March 2020, Legacy Latch vacated this office space as a result of the transition to a remote work model due to COVID-19 and entered into a one-year lease for a smaller space in New York City, which was renewed for an additional year through March 2022. In August 2020, Legacy Latch terminated the sublease as of September 2020. Leases for additional office spaces are maintained in California and Taiwan. The lease agreements often include escalating lease payments, renewal provisions and other provisions that require the Company to pay costs related to taxes, insurance and maintenance.

Rent expense related to all leases for the three and nine months ended September 30, 2021 was $0.2 million and $0.6 million, respectively. Rent expense for the three and nine months ended September 30, 2020 was $0.9 million and $2.6 million, respectively. Rent expense is allocated between cost of hardware and other related revenue, research and development, sales and marketing, and general and administrative depending on headcount and the nature of the underlying lease.

Purchase Commitment

In January 2021, the Company entered into an arrangement with a supplier that requires future minimum purchases of inventory for an aggregate amount of $3.3 million in scheduled installments starting in August 2021 through December 2022. ~~Future minimum~~Minimum purchases are ~~$0.4 million in 2021 and~~ $2.8 million in 2022. As of ~~September 30,~~March 31, 2022, the Company purchased $0.8 million of inventory and accrued $0.5 million related to the unpurchased minimum commitment. As of December 31, 2021, the Company ~~had made no purchases towards these commitments.~~purchased $0.2 million of inventory and accrued $0.2 million related to the unpurchased minimum commitment.

Registration Rights Agreement

In connection with the execution of the Merger Agreement, the Company and certain stockholders of Legacy Latch and TSIA entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, in June 2021, the Company filed a registration statement on Form S-1 with respect to the registrable securities under the Registration Rights Agreement. Certain Legacy Latch stockholders and TSIA stockholders may each request to sell all or any portion of their registrable securities in an underwritten offering up to 2 times in any 12-month period, so long as the total offering price is reasonably expected to exceed $75.0 million. The Company also agreed to provide certain demand and “piggyback” registration rights. The Registration Rights Agreement also provides that the Company pays certain expenses relating to such registrations and indemnifies the stockholders against certain liabilities. The Company bears the expenses incurred in connection with the filing of any such registration statements. The Registration Rights Agreement does not provide for any penalties connected with delays in registering the Company’s common stock.

~~Litigation~~Legal Contingencies

The Company is currently involved in discussions with a service provider related to a demand for payment under a prior agreement.The Company does not believe that the service provider is entitled to any fees under the prior agreement. However, to avoid the cost of litigation, the Company is negotiating a potential business resolution to the dispute with the service provider, which includes an agreement to engage the service provider for future services in exchange for market rate compensation for those services. The Company believes it is probable that an agreement with the service provider will be reached and that the amount the Company will pay the service provider in connection with the dispute and the resolution thereof can be reasonably estimated. As of March 31, 2022 and December 31, 2021, the Company accrued approximately $6.8 million in connection with the dispute. The Company believes it is reasonably possible that this potential exposure may change based on the resolution of the ongoing discussions. No legal proceedings have been initiated with respect to this demand for payment or the prior agreement with the service provider.

The Company is and may become, from time to time, involved in other legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at ~~September 30, 2021,~~March 31, 2022 (other than detailed above), will not materially affect the Company’s condensed consolidated results of operations, financial position or cash flows. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company’s financial results.

12.~~CONVERTIBLE PREFERRED STOCK AND~~ EQUITY

The Company’s second amended and restated certificate of incorporation designates and authorizes the Company to issue 1.1 billion shares, consisting of (i) 1.0 billion shares of common stock, par value $0.0001 per share; and (ii) 100.0 million shares of preferred stock, par value $0.0001 per share.

~~Preferred stock as of December 31, 2020 consisted of the following (in thousands, except per share amounts):~~

2220

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Issuance Start
Date Shares
Authorized Shares
Issued and
Outstanding Issuance
Price Per
Share Carrying
Value Liquidation
Preference
Series Seed July 14, 2014 3,971 3,971 $ 0.60 $ 1,768 $ 4,978
Series Seed April 29, 2015 4,000 4,000 0.63 2,479 5,101
Series A January 19, 2016 15,231 15,231 0.75 11,110 11,367
Series A-1 May 5, 2017 8,464 8,464 1.18 9,737 10,000
Series B July 30, 2018 15,983 15,983 3.13 50,000 50,000
Series B - 2019 Convertible Notes conversion at 10% discount July 30, 2018 2,753 2,753 2.82 8,601 7,752
Series B-1 May 20, 2019 18,112 17,977 3.74 66,842 67,300
Series B-2 May 20, 2019 2,690 2,690 3.37 10,068 9,064
Total 71,204 71,069 $ 160,605 $ 165,562

Upon the Closing of the Business Combination, the 71.1 million outstanding shares of preferred stock were converted into 63.8 million shares of common stock of the Post Combination Company at the Exchange Ratio of 0.8971.

Common Stock Reserved for Future Issuance

~~Legacy Latch had reserved shares of common stock for future issuance as of December 31, 2020 as follows (in thousands and as adjusted for the Exchange Ratio):~~


						~~December 31, 2020~~
~~Conversion of outstanding redeemable convertible preferred stock~~						~~63,756~~
~~Stock options issued and outstanding~~						~~21,691~~
~~Warrants issued and outstanding~~						~~318~~
~~Remaining shares available for future issuance~~						~~900~~
~~Total~~						~~86,665~~

The reserved shares for future issuance as of ~~September 30, 2021~~March 31, 2022 include the ~~following (in thousands and as adjusted~~following:


	March 31, 2022	December 31, 2021
Stock options issued and outstanding	14,452,845	15,009,656
Restricted stock units issued and outstanding	13,971,741	6,498,869
Public warrants outstanding	9,999,967	9,999,967
Private placement warrants outstanding	5,333,334	5,333,334
2021 Incentive Award Plan available shares(1)	16,279,853	16,731,819
Total	60,037,740	53,573,645

(1)Effective January 1, 2022, the number of shares reserved for future issuance under the ~~Exchange Ratio):~~

2021 Incentive Award Plan increased by 7,116,519 shares.


						~~September 30, 2021~~
~~Stock options issued and outstanding~~						~~15,430~~
~~Restricted stock units issued and outstanding~~						~~5,546~~
~~Public warrants outstanding~~						~~10,000~~
~~Private placement warrants outstanding~~						~~5,333~~
~~2021 Incentive Award Plan available shares~~						~~17,737~~
~~Total~~						~~54,046~~

Warrants

~~In January 2021, warrants to purchase 64,591 shares of Legacy Latch common stock were converted into common stock (as adjusted based on the Exchange Ratio).~~

As part of the Closing of the Business Combination, 10.0 million public warrants sold during the TSIA IPO converted into 10.0 million public warrants to purchase up to 10.0 million shares of common stock of the Post Combination

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

Company, which are exercisable at $11.50 per share. The Company accounts for warrants as required under ASC 815,Derivatives and Hedging, and has concluded that equity classification would be met for the public warrants as the Company has a single class of equity, and thus all holders vote 100% on all matters submitted to the Company’s stockholders and receive the same form of consideration in the event of a change of control (thus qualifying for the exception to the net cash settlement model), and the other conditions of equity classification would be met.

~~Fair Valuation Methodology - Legacy Latch~~

Legacy Latch historically issued warrants that were classified and accounted for as either liabilities or equity instruments on the balance sheet depending on the nature of the issuance. Legacy Latch’s warrants were initially measured at fair market value. Legacy Latch employed the Black-Scholes pricing model to calculate and record the value of the warrants. The inputs utilized by management were highly subjective, and changes in the inputs and estimates could result in a material change to the calculated value. One of the key inputs used by management in calculating the value of these awards was the common stock price. Management and the board of directors considered various objective and subjective factors to determine the fair value of Legacy Latch’s common stock price at various grant dates, including the value determined by a third-party valuation firm. These factors included, among other things, financial performance, capital structure, forecasted operating results and market performance analyses of companies in a similar industry. The assumptions used in calculating the fair value of warrants represented Legacy Latch’s best estimates, but these estimates involved inherent uncertainties and the application of management judgment. These warrants were measured at fair value using significant unobservable inputs (Level 3) and amounted to approximately $0.6 million as of December 31, 2020. Warrants were also issued in connection with Legacy Latch’s 2020 sublease and were recorded within equity and allocated between research and development, sales and marketing, and general and administrative on the condensed consolidated statements of operations and comprehensive loss, depending on headcount, as the issued warrants were in return for rental of office space. The warrants were converted to common stock at Closing. The warrants issued in connection with the term loan and the Convertible Notes were recorded as derivative liabilities, and included within term loan, net and convertible notes, net on the condensed consolidated balance sheets. The debt discount was amortized over the life of the debt. The derivative liabilities for the term loan and Convertible Notes were extinguished upon the repayment of the term loan and the conversion of the Convertible Notes at Closing.

~~Key inputs to calculate the fair value of the warrants outstanding as of December 31, 2020 using the Black-Scholes pricing model were as follows:~~


	~~December 31, 2020~~
~~Expected term~~	~~10 - 12 years~~
~~Volatility~~	~~55.0 - 61.0%~~
~~Risk-free interest rate~~	~~0.68 - 0.93%~~
~~Dividend yield~~	0	%

Fair Valuation Methodology - Private Placement Warrants

The private placement warrants, which Legacy Latch assumed as part of the Closing of the Business Combination, are recorded as warrant liabilities. See Note 4, Fair Value Measurements.

13.EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net income per share for common stock and preferred stock:


	Three Months Ended March 31,
		2022		2021
Numerator:
Numerator for basic and diluted net loss per share - net loss		$	(44,231)	$	(38,101)
Denominator:
Denominator for basic net loss per share - weighted average common shares		141,970,190		10,438,778
Effect of dilutive securities		—		—
Denominator for diluted net loss - adjusted weighted average common shares		141,970,190		10,438,778

Basic and diluted net loss per share		$	(0.31)	$	(3.65)

Potential common shares of 39.4 million underlying outstanding common stock options, RSUs and common stock warrants were excluded from diluted net loss per share for the three months ended March 31, 2022, as the Company had net losses, and their inclusion would be anti-dilutive. Potential common shares of 81.0 million (as adjusted for the Exchange Ratio) underlying outstanding preferred stock, common stock options and common stock warrants were excluded from diluted net loss per share for the three months ended March 31, 2021, as Legacy Latch had net losses, and their inclusion would be anti-dilutive.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~13.EARNINGS PER SHARE~~

~~The following table sets forth the computation of basic and diluted net income per share for common stock and preferred stock:~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Numerator:
Numerator for basic and diluted net loss per share - net loss $ (34,239) $ (15,874) $ (112,411) $ (46,801)
Denominator:
Denominator for basic net loss per share - weighted-average common shares 140,675,490 7,270,903 67,933,833 7,150,235
Effect of dilutive securities — — — —
Denominator for diluted net loss - adjusted weighted-average common shares 140,675,490 7,270,903 67,933,833 7,150,235
Basic and diluted net loss per share $ (0.24) $ (2.18) $ (1.66) $ (6.55)

Potential common shares of 34.1 million and 65.2 million underlying outstanding common stock options and common stock warrants were excluded from diluted net loss per share for the three and nine months ended September 30, 2021, respectively, as the Company had net losses, and their inclusion would be anti-dilutive. Potential common shares of 84.6 million and 83.3 million underlying outstanding preferred stock, common stock options and common stock warrants were excluded from diluted net loss per share for the three and nine months ended September 30, 2020, respectively, as Legacy Latch had net losses, and their inclusion would be anti-dilutive (see Note 12, ~~Convertible Preferred Stock and Equity, and Note 14,~~ ~~Stock-Based Compensation~~).

14.STOCK-BASED COMPENSATION

For thethree ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the components of stock-based compensation expense were as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2021		2020		2021		2020				2022		2021
Stock options	Stock options	$	449	$	372	$	15,421	$	1,097	Stock options		$	1,408	$	14,514
Restricted stock units	Restricted stock units	7,247		—		7,247		—		Restricted stock units		11,329		—
Capitalized costs (1)	Capitalized costs (1)	(747)		(9)		(803)		(27)		Capitalized costs(1)		(1,019)		(21)
Total stock-based compensation	Total stock-based compensation	$	6,948	$	363	$	21,865	$	1,070	Total stock-based compensation		$	11,718	$	14,493

(1)Included in internally developed software, net on the Condensed Consolidated Balance Sheets.

All stock-based compensation expense is included in cost of ~~hardware and other related revenue, cost of software~~ revenue, research and development, sales and marketing, and general and administrative on the condensed consolidated statements of operations and comprehensive loss.

Stock Incentive Plans

In January 2016, Legacy Latch adopted the Latch, Inc. 2016 Stock Plan (the “2016 Plan” and, together with the Latchable, Inc. 2014 Stock Incentive Plan, the “Prior Plans”) pursuant to which Legacy Latch’s board of directors was authorized (i) to grant either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”) to purchase shares of our common stock to our employees and (ii) to grant NSOs to outside directors and consultants. ~~25,412,947~~22,797,955 shares had been authorized for issuance under the 2016 Plan ~~at the time~~when the 2021 Plan (defined below) became effective. Stock options under the 2016 Plan were granted with an exercise price equal to the stock’s fair market value at the ~~date of grant.~~grant date. Stock options outstanding under the 2016 Plan generally have ten-year terms and vest over a four-year period

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

starting from the date specified in each award agreement. From and after the effectiveness of the 2021 Plan, no additional awards will be granted under the ~~2016 Plan.~~Prior Plans. Upon the effectiveness of the Business Combination, all outstanding stock options under the Prior Plans, whether vested or unvested, ~~were~~ converted into options to purchase a number of shares of common stock of the Post Combination Company based on the Exchange Ratio. Awards previously granted under the Prior Plans will continue to be subject to the provisions thereof.

On June 3, 2021, the Latch, Inc. 2021 Incentive Award Plan (the “2021 Plan”) was approved by the TSIA stockholders at the Special Meeting and became effective upon the Closing of the Business Combination. The 2021 Plan provides for the grant of stock options, including ISOs and NSOs, stock appreciation rights, restricted stock, ~~restricted stock units~~RSUs and other stock-based and cash-based awards. The 2021 Plan has a term of ten years. The aggregate number of shares of the Company’s common stock available for issuance under the 2021 Plan is equal to (i) 22,500,611 shares plus (ii) an annual increase for ten years on the first day of each calendar year beginning on January 1, 2022, equal to the lesser of (A) 5% of the aggregate number of shares of the Company’s common stock outstanding on the last day of the immediately preceding calendar year and (B) such smaller amount of shares as determined by the Company’s board of directors. Effective January 1, 2022, the number of shares reserved for future issuance under the 2021 Plan increased by 7,116,519 shares. As of ~~September 30, 2021, 5.7~~March 31, 2022, 15.7 million ~~shares~~RSUs had been granted under the 2021 Plan.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Stock Options

A summary of the status of the employee and non-employee stock options as of ~~September 30, 2021~~March 31, 2022 and changes during ~~2021~~2022 is presented below (the number of options represents ordinary shares exercisable in respect thereof):

Options
Outstanding(1)
Weighted Average
Exercise Price(1)
Aggregate
Intrinsic Value
Balance at December 31, 2020 21,651,225 $ 0.63
Options forfeited (738,207) $ 1.52
Options expired (262,296) $ 0.93
Options exercised (6,008,995) $ 0.57
Options granted 788,045 $ 3.92
Balance at September 30, 2021 15,429,772 $ 0.78 $ 161,900
Exercisable at September 30, 2021 9,920,280 $ 0.58 $ 106,003

~~(1)Options outstanding and weighted average exercise price have been retroactively adjusted to give effect to the Exchange Ratio.~~

~~The weighted-average grant date fair value of options granted during the nine months ended September 30, 2021 was $1.60. No options were granted during the three months ended September 30, 2021.~~


	Options Outstanding	Weighted Average Exercise Price		Aggregate Intrinsic Value
Balance at December 31, 2021	15,009,656	$	0.75
Options forfeited	(191,831)	$	1.03
Options expired	—	$	—
Options exercised	(364,980)	$	0.72
Options granted	—	$	—
Balance at March 31, 2022	14,452,845	$	0.75	$	50,922

Exercisable at March 31, 2022	11,121,183	$	0.64	$	40,421

The Company records stock-based compensation expense on a straight-line basis over the vesting period. As of ~~September 30, 2021,~~March 31, 2022, total compensation expense not yet recognized related to unvested stock options was ~~$2.7~~$1.7 million, which is expected to be recognized over a ~~weighted-average~~weighted average period of ~~1.9~~1.6 years. Additionally, the Company records forfeitures as they occur.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option.

~~The assumptions used~~Restricted Stock Units

On February 22, 2022, the Company granted an aggregate of approximately 7.9 million RSUs under the 2021 Plan to ~~estimate the~~certain employees and consultants at a grant date fair value of ~~stock options~~$5.09 per unit. The RSUs vest over three years.

On March 14, 2022, the Company granted ~~during~~an aggregate of approximately 0.6 million RSUs to certain employees at a grant date fair value of $3.40 per unit. The RSUs vest over three years.

Equity-based RSUs are settled in shares upon vesting and liability-based RSUs are settled in cash upon vesting. The RSUs vest over a period of one to four years. Upon vesting, employees may elect to have shares issued on the ~~nine months ended September 30, 2021~~vesting dates net of the applicable statutory tax withholding to be paid by the Company on behalf of the participant. As a result, fewer shares are issued than the number of RSUs outstanding, and the tax withholding is recorded as ~~follows:~~a reduction to additional paid-in capital.

Equity-based

A summary of the equity-based RSUs as of March 31, 2022 is presented below:


	Number of RSUs	Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2021	6,477,513	$	12.14
Granted	8,548,788	$	4.97
Vested	(489,784)	$	13.14
Forfeited	(584,141)	$	8.25
Balance at March 31, 2022	13,952,376	$	7.88

Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the RSUs. The unrecognized stock-based compensation expense related to the unvested RSUs was $96.4 million as of March 31, 2022 and will be expensed over a weighted average period of 2.6 years.

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Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Liability-based

A summary of the liability-based RSUs as of March 31, 2022 is presented below:


~~Expected term~~		~~6 years~~Number of RSUs
~~Volatility~~Balance at December 31, 2021	~~49.01% - 49.29%~~	21,356
~~Risk-free interest rate~~Granted	~~0.50% - 0.63%~~	—
~~Dividend yield~~Vested		0%(1,991)
Forfeited		—
Balance at March 31, 2022		19,365

Since the Company’s common stock became publicly traded on June 7, 2021, the expected volatility is based on the historical and implied volatility of similar companies whose stock or option prices are publicly available, after considering the industry, stage of life cycle, size, market capitalization and financial leverage of the other companies. The risk-free interest rate assumption is based on observed U.S. Treasury yield curve interest rates in effect at the time of grant appropriate for the expected term of the stock options granted. As permitted under authoritative guidance, due to the limited amount of option exercises, the Company used the simplified method to compute the expected term for options granted in the nine months ended September 30, 2021.

~~Restricted Stock Units~~

On August 9, 2021, the Company granted an aggregate of approximately 4.0 million RSUs under the 2021 Plan to certain employees and consultants at a grant date fair value of $13.19 per unit. The RSUs primarily vest over three years.

~~On August 20, 2021, the Company granted an aggregate of approximately 0.2 million RSUs to the non-employee directors at a grant date fair value of $10.01 per unit. The RSUs vest within one year.~~

On September 13, 2021, the Company granted an aggregate of approximately 1.5 million RSUs to certain executive officers and senior management at a grant date fair value of $13.49 per unit. The RSUs vest over three years.

Number of RSUs Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2020 — $ —
Granted 5,682,586 $ 13.14
Vested (14,412) $ 11.52
Forfeited (121,684) $ 13.19
Balance at September 30, 2021 5,546,490 $ 13.14

~~Stock-based compensation~~Liability-based RSU expense is recognized on a straight-line basis through the vesting date of the RSUs. For the three months ended March 31, 2022, the Company recognized $0.01 million bonus expense within cost of revenue in the Consolidated Statements of Operations and Comprehensive Loss. The unrecognized ~~stock-based compensation~~ expense related to the unvested liability-based RSUs was ~~$65.9~~$0.1 million as of ~~September 30, 2021~~March 31, 2022 and will be expensed over a ~~weighted-average~~weighted average period of ~~2.7~~2.2 years. The Company settled 1,991 liability-based RSUs for $0.01 million in cash for the three months ended March 31, 2022.

Secondary Purchase

On January 19, 2021, one of Legacy Latch’s existing equity holders acquired an additional 2.8 million shares (as adjusted based on the Exchange Ratio) of Legacy Latch’s common stock from certain employees and nonemployee service providers at a price per share of $9.92 (as adjusted based on the Exchange Ratio). This price was determined based on the pre-money equity valuation ascribed to the Post Combination Company by TSIA and the estimated conversion ratio at the time of the sales. The foregoing sales were consummated directly among the equity holders to satisfy the acquiring equity holder’s demand for additional shares of Legacy Latch’s common stock without increasing the size of the PIPE Investment and causing incremental dilution to investors in the Post Combination Company. Legacy Latch determined that the price per share paid by the equity holder was in excess of fair value. The Company recorded $13.8 million in stock-based compensation expense related to the transaction allocated to research and development, sales and marketing, and general and administrative in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Cash Election

Prior to the Business Combination, Legacy Latch’s holders of vested stock options were given an election to cancel up to 25% of the vested stock options in exchange for $10.00 per share less the exercise price applicable to each share. An aggregate amount of 0.3 million options were ~~cancelled (adjusted for the Exchange Ratio).~~cancelled. Payment for the cash election

~~Latch, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

in the amount of $2.6 million was funded as part of the PIPE Investment and 0.3 million of newly issued shares of common stock were granted (see Note 1, Description of Business).

Modifications

In March 2022, the Company entered into a separation agreement with an employee that triggered a modification of the employee’s outstanding stock options and RSUs. The modification resulted in an incremental stock-based compensation expense of $2.1 million during the three months ended March 31, 2022, recorded in general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

15.INCOME TAXES

The income tax provision for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 was ~~$0.09~~$0.02 million and ~~$0.1 million,~~zero, respectively. ~~There was a $0.003 million income tax provision for both the three and nine months ended September 30, 2020.~~

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company’s effective tax rate was different from the U.S. federal statutory rate. This difference is primarily attributable to the effect of state and local income taxes and permanent differences between expenses deductible for financial reporting purposes offset by the valuation allowances placed on the Company’s deferred tax assets.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

As of ~~September 30, 2021,~~March 31, 2022, no liability for unrecognized tax benefits was required to be recorded by the Company. Management does not expect any significant changes in its unrecognized tax benefits in the next 12 months.

To date, the Company has incurred cumulative net losses and maintains a full valuation allowance on its net deferred tax assets as the Company has determined that it is more than likely than not that these assets will not be fully realized.

16.RELATED-PARTY TRANSACTIONS

Throughout the Company’s history, the Company has obtained equity funding from strategic partners with whom the Company transacts through the ordinary course of business. As such, the Company has customers who are also stockholders and directors, or affiliates thereof, in the Company. The Company charges market rates for products and services that are offered to these customers. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had ~~$0.4~~$0.1 million and ~~$1.4~~$0.5 million, respectively, of receivables due from these customers, which are included within accounts receivable on the Condensed Consolidated Balance Sheets. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, the Company had $0.1 million and ~~$0.1~~$0.2 million, respectively, of hardware revenue from these customers, and $0.1 million and $0.4 million, respectively, of software revenue from these customers, which was included within the Condensed Consolidated Statements of Operations and Comprehensive Loss. For the three and nine months ended September 30, 2020, the Company had $0.4 million and $0.4 million, respectively, of hardware revenue from these customers, and $0.1$0.03 million and $0.2 million, respectively, of software revenue from these customers, which was included within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

In January 2021, one of the Company’s existing equity holders acquired shares of Legacy Latch’s common stock from certain employees and non-employee service providers. See Note 14, Stock-Based Compensation.

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Item 2. 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 unaudited consolidated financial statements and the related notes of Latch, Inc. and its subsidiaries included elsewhere in this Report. 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 our ~~Registration Statement~~Annual Report on Form ~~S-1~~10-K filed with the SEC on ~~June 25, 2021~~March 1, 2022 and elsewhere in this Report, 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” and the “Company” refer to the business and operations of Latch Systems, Inc. (formerly known as Latch, Inc.) and its consolidated subsidiaries prior to the ~~Merger~~Business Combination and to Latch, Inc. (formerly known as TS Innovation Acquisitions Corp.) and its consolidated subsidiaries following the consummation of the ~~Merger.~~Business Combination.

Overview

Latch is an enterprise technology company focused on revolutionizing how people experience spaces by making spaces better places to live, work and ~~visit.~~visit through a system of software, devices and services. Latch has created a full-building operating system, LatchOS, which addresses the essential requirements of modern buildings. ~~Our~~ LatchOS ~~system~~ streamlines building operations, enhances the resident experience and enables efficient interactions with service providers. Our product offerings, designed to optimize the resident experience, include smart access, delivery and guest management, smart home and sensors, connectivity and ~~resident experience.~~personalization and services. We combine hardware, software and services into a holistic system that makes spaces more enjoyable for residents, more efficient and profitable for building operators and more convenient for service providers.

LatchOS enables spaces across North ~~America. Throughout 2020, approximately one~~America, including in ~~ten newly constructed multi-family apartment home units in the United States were equipped with Latch products including 35~~44 states and Canada, from affordable housing in Baltimore, to historic buildings in Manhattan, to luxury towers in the Midwest. Latch works with real estate developers, large and small, ranging from the largest real estate companies in the world to passionate local owners.

We engage with customers early in their new construction or renovation process, helping establish Latch as the technology consultant for the building. LatchOS is made up of modules, enabling essential capabilities for modern buildings. Building owners have the flexibility to select LatchOS modules to match their specific building’s or portfolio’s needs. LatchOS software starting pricing ranges from $7-12 per apartment per month, depending on which capabilities the building owner selects, for the LatchOS Smart Access, Smart Home and Guest Management modules. Customers also purchase our hardware devices ~~upfront~~ to go along with the LatchOS modules they choose.

The LatchOS ecosystem has been created to serve all the stakeholders at a building, and today LatchOS modules consist of the following:

•Smart Access. Latch’s smart access software capabilities include complete resident, building staff, guest, service provider and construction access management powered by the Latch R, M and C devices. These devices serve every door in a building, from apartment doors to elevators, ~~from~~to parking garages to gyms.

•Delivery & Guest Management. Going beyond smart access, Latch Intercom solves the access problem for unexpected guests and deliveries enabling visitors to quickly connect with residents or building operators with just a few clicks. The Latch Delivery Assistant takes this ~~further~~solution to the package room with a remote, virtual doorman facilitating secure package management.

•Smart Home & Sensors. Latch’s enterprise device management enables smart home capabilities for thermostat, lighting, leak detection and other sensor integration, monitoring and centralized device management for building owner and private resident control right in the Latch App. The integration of the LatchOS platform with smart home device manufacturers like Google Nest, ecobee, Honeywell, Jasco and more provide our customers with a wide choice in smart home devices that can be controlled through LatchOS.

•Connectivity. Connecting devices, operations and residents reliably to the network across buildings can be complex. Latch Intercom and Latch Hub’s cellular connectivity bring internet access to new and existing building infrastructure from new construction to retrofits.

•Personalization and Services. Residents can control all of the Latch-enabled devices in their spaces through the Latch App ~~right~~ from the moment they arrive. Latch’s mobile applications also enable resident onboarding, streamlining

the move-in experience. The average Latch App user interacts with the Latch App multiple times per day, giving us a foundation from which to engage and transact further with residents over time as we introduce new functionalities and services to the Latch mobile applications.

After Latch has been installed and set up at a building, the building managers add all their residents as users to the Latch system. Our mobile applications then enable the residents to unlock all connected spaces in Latch buildings from the front door, package rooms, common spaces, elevators and garages to their unit entrance, control their thermostat and smart home devices from the app, see who rang the bell at the front door through ~~the~~ Latch Intercom and let guests in through the app. In the near future, we believe ~~interacting with service providers, buying renters insurance or choosing an internet package will all be possible from~~that Latch has a powerful opportunity to improve the experience of living in a space through new offerings and services in the Latch App. Residents become highly engaged users across all the capabilities that Latch provides them in their spaces.

Beyond enabling a new set of experiences at buildings for residents and building operators, Latch turns the purchase experience of smart building technology for building owners from a complex sale with multiple vendors into a simple process with Latch as a single vendor with a single contract and straightforward billing. LatchOS enables a unified management experience for building operators with a single interface to manage all Latch experiences instead of having a separate interface for each vendor and solution. Latch also enables a unified resident experience with a single interface through the Latch App for all resident-facing interactions and Latch experiences in our customers’ buildings. Devices that are part of the Latch ecosystem work better together since our curated set of partner devices and our smart building operating system, LatchOS, seamlessly integrate instead of a patchwork of devices from different vendors with different standards and interfaces that create technology silos and limited experiences.

Our sales strategy is simple, repeatable, scalable and unique. We engage directly with our customers to ensure they have the best possible experience with Latch and our partners from sale to installation to lease-up. Latch engages with customers early in their construction or renovation process, establishing Latch as a technology advisor to the building. This engagement enables us to provide more technology advice early in the development process and creates high revenue visibility. Our customers sign letters of intent, or LOIs, specifying which software and devices they want to receive and on which dates. This approach leads to multi-year software contracts, direct feedback loops with our customers and their residents, local and regional market insights and a complete picture of the ever-changing demands of building operators. The installation timeline can range from six to 18 months after signing the LOI, depending on the construction schedule. We continuously evolve our products and add new features between signing the LOI and installation.

Currently, we primarily serve the rental home markets in North America. Based on internal research and external reporting, we estimate there are approximately 32 million multi-family apartment home units in North America. Today we primarily serve new construction and retrofit buildings. Since our launch in 2017, we have seen the share of our business coming from retrofit opportunities increase ~~significantly:~~significantly, a trend we expect to continue over the medium term. We also serve the single-family rental market through our existing relationships with large real estate developers and owners. Based on internal research and external reporting, we estimate there are 15 million single-family rental home units in North America.

~~Developments in First Quarter 2021~~

In February 2021, we launched the C2 series door-mounted access control product to make retrofits and ongoing operations easier for every project. Through March 31, 2021, we booked over 20,000 units and delivered over 1,000 units to customers across the country. The C2 includes: a patent-pending turn mechanism ensuring smooth locking and unlocking; a three-piece modular design simplifying and reducing installation costs; 24 months of battery life, decreasing building staff time and operational costs; and improved functionality and quality at a lower price to both customers and Latch.

In March 2021, we launched NFC unlock on Android through an over-the-air update, delivering a much desired feature for the industry and deepening our integrations with the Google ecosystem. As a result of owning the full technology stack—hardware, firmware and software—we can more easily and quickly deploy new features like NFC unlock that add immediate value to both building owners and residents. NFC unlock on Android has an average ~850ms unlock time and allows the user to unlock their door without even opening their phone, making for a more convenient and faster unlocking experience.

~~Developments in Second Quarter 2021~~

In May 2021, we announced the expansion of LatchOS into commercial offices, bringing Latch’s expertise in multifamily building management technology to the commercial office space for the first time. With the availability of LatchOS for

offices, we are extending our smart access, visitor and delivery management, smart device and sensor control, connectivity and identity and personalization solutions to meet the needs of modern office spaces. The first solution in our new ecosystem for commercial offices is Latch Visitor Express, a new contactless visitor entry system designed to streamline visitor entry within office buildings, reduce lobby lines and wait times and greatly increase operational efficiencies for building staff.

This innovative solution is powered by LatchID, our proprietary identification system that creates a trusted network of users across spaces and devices. LatchID provides users with digital credentials that can be accepted at Latch-enabled buildings, streamlining access across both residential, short term rental and office spaces. Once users are credentialed, they receive a personalized and unified “identity” that works across every Latch-enabled space and device, allowing them to move seamlessly across Latch-enabled buildings.

~~Developments in Third Quarter 2021~~

In the third quarter, Latch announced the new Latch M, which is its latest mortise lock built for retrofits and new construction. The product is designed to be easy to install without any added infrastructure and brings all of the benefits of the new Latch Lens to the mortise format. The updated Latch M further broadens Latch’s ability to provide more buildings of all shapes and sizes with the experience of LatchOS, our full-building operating system of software, products and services.

COVID-19 Update

In March 2020, the outbreak of COVID-19 was declared a pandemic. Measures taken by various governments to contain the virus have affected economic activity. We have taken a number of measures to monitor and mitigate the effects of COVID-19, such as safety and health measures for our people (such as social distancing and working from home) and securing the supply of materials that are essential to our production process. The COVID-19 pandemic disrupted and may continue to disrupt our hardware deliveries due to delays in construction timelines at our 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, we initiated a restructuring plan as part of our efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic. We incurred costs in connection with involuntary termination benefits associated with our corporate-related initiatives and cost-saving opportunities. The RIF involved an approximate 25% reduction in headcount, including severance and benefits costs for affected employees and other miscellaneous direct costs. These amounts were recorded principally in research and development, sales and marketing, and general and administrative within the Consolidated Statements of Operations and Comprehensive Loss based on the department to which the expense relates. As a result of our strong performance in 2020 and 2021, we have rehired some of the staff that was terminated at the outset of the pandemic.

On March 27, 2020, 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. 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.

The Business Combination

On June 4, 2021, we consummated the previously announced Merger, pursuant to which Merger Sub merged with and into Legacy Latch, with Legacy Latch becoming our wholly owned subsidiary. On the Closing Date, and in connection with the Closing of the Transactions, we changed our name to Latch, Inc. On June 7, 2021, Latch’s common stock and warrants began trading on the Nasdaq Stock Market LLC under the ticker symbols “LTCH” and “LTCHW,” respectively.

The Business Combination is accounted for as a reverse capitalization in accordance with GAAP. Under the guidance in ASC 805, Business Combinations, TSIA is treated as the “acquired” company for financial reporting purposes. We are deemed the accounting predecessor of the combined business and the successor SEC registrant, meaning that our financial statements for

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previous periods will be disclosed in future periodic reports filed with the SEC. See Note 1, Description of Business, in Part I, Item 1. “Financial Statements” for additional detail about the Business Combination.

Products and Platform

Our platform, LatchOS, is a full building operating system that brings together all the elements that make up the modern building experience for building managers, vendors and residents. The LatchOS ecosystem consists of two general elements: software and devices. Our software ~~hardware~~ and ~~services in turn~~devices enable the essential features for every stakeholder in the Latch ecosystem.

Latch has three software products in the market today: the Latch Resident Mobile Applications, Latch Manager Web and the Latch Manager Mobile Applications. These three products encompass the software that powers the LatchOS platform and allows ~~for~~ devices and services to operate in harmony. We also have a collection of first-party devices and third-party partner devices and services that can integrate into the LatchOS system to be managed, controlled and/or operated through our software products.

Software Products

Latch Mobile Applications

The Latch mobile applications are the primary tools for residents to unlock doors, give access to guests or service providers, control and manage smart devices, interact and communicate with the building or consumer services and transact with Latch. Latch offers a subset of these experiences through the Apple Watch as well.

Latch Manager Web and Manager Mobile Applications

Latch Manager Web is LatchOS’s central orchestration application for building operators. Our fully integrated system lets property managers support the resident experience from a single source. From the Latch Manager Web, property managers can control access sharing, resolve issues remotely, save time and money on rental unit turnover and ensure their residents are secure.

First Party Hardware Devices

M, C, R Series

The M, C and R series are door-mounted access control products that interface with industry-standard lock hardware. They are designed to meet ~~and exceed~~ every project requirement. They are built to industry standards, compliant with code requirements and suited for interior or exterior use.

Other Devices

Latch Intercom integrates seamlessly into the Latch core access systems and allows audio and video calls for remote unlocking. Latch Camera is a dome camera that integrates seamlessly into Latch Intercom and core access systems to allow for video calls for remote unlocking. Latch Hub is an all-in-one connectivity solution that enables smart access, smart home and sensor devices to do more at every building. The Latch Leak Detector offers a simple and scalable solution to enable leak prevention, detection and quick resolution for building owners and residents.

Works with Latch: Third Party Devices, Software and Partnerships

The LatchOS platform is compatible with a collection of industry-leading smart home devices, allowing these devices to be managed, controlled and viewed from the LatchOS platform. Latch has selected several initial smart home devices with which to integrate (currently or in the near term), including smart home devices manufactured by Google Nest, Honeywell, ecobee ~~Jasco~~ and ~~Sonos,~~Jasco, based on Latch’s assessment that these devices are aligned with Latch’s vision around enterprise device management privacy and security, design and brand when it comes to building operators and residents. Latch has entered into agreements with Google Nest, Honeywell and ~~ecobee and plans to enter into an agreement with Sonos.~~ecobee. Such agreements include application programming interface (API) licensing terms that allow partner devices to be managed, controlled and viewed from the LatchOS platform as appropriate for desired functionality. Such agreements include other terms that are customary in API license agreements, including intellectual property ownership and licensing provisions, joint marketing and advertising arrangements, indemnification obligations, confidentiality restrictions and data protection

requirements. Jasco smart lighting products can be controlled by the LatchOS platform through the Zigbee protocol; therefore, no separate API license agreement is necessary between Latch and Jasco in order to integrate the LatchOS platform with their smart lighting products.

We understand ~~at Latch~~ that operating a building can be complex, and it can take many different processes, systems and tools to manage a great building. A majority of buildings we work with use property management software to manage their back-office operations. In order to accommodate those complex use-cases, we have forged partnerships with the top property management software companies, such as Yardi, RealPage and ~~RealPage,~~Entrata, and enabled integrations between such software and our software and devices so the building can operate seamlessly between the two systems at the building.

~~Latch leverages its~~We leverage our cutting-edge smart access platform to unlock new use-cases in adjacent real estate verticals and with partners that serve buildings. Our smart access platform integrates with partners such as Tour24, Pynwheel and UPS to enable unattended showings and secure package delivery, and it has also allowed us to build a robust business to business to consumer distribution channel for us to transact with residents through the Latch App and offer future consumer and on-demand services.

Key Factors Affecting Our Performance

We believe that our future success will be dependent on many factors, including those further discussed below. While these areas represent opportunities for Latch, they also represent challenges and risks that we must successfully address in order to operate and grow our business.

Investing in Research and Development (“R&D”) and enhancing our customer experience. Our performance is significantly dependent on the investments we make in research and development, including our ability to attract and retain highly skilled research and development personnel. We must continually develop and introduce innovative new hardware products, mobile applications and other new offerings. If we fail to innovate and enhance our brand and our products, our market position and revenue will likely be adversely affected.

Product introductions and expansion of our platform. We will need to expend additional resources to continue introducing new products, features and functionality to enhance the value of our platform. To date, product introductions have often had a positive impact on our operating results due primarily to increases in revenue associated with sales of new products in the quarters following their introduction. ~~For example, we have recently introduced a number of product enhancements and features, including Latch Intercom and our Smart Home integration software.~~ In the future, we intend to continue to release new products and enhance our existing products, and we expect that our operating results will be impacted by these releases.

Category adoption, expansion of our total addressable market and market growth. Our future growth depends in part on the continued consumer adoption of hardware, software and ~~software~~services products that improve resident experience and the growth of this market. In addition, our long-term growth depends in part on our ability to expand into adjacent markets and international territories in the future.

Key Business Metrics

We review the following key business metrics to measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions that will impact our future ~~operational~~operating results. Increases or decreases in our key business metrics may not correspond with increases or decreases in our revenue.

The limitations our key business metrics have as an analytical tool ~~are:~~include: (1) they might not accurately predict our future ~~GAAP~~ financial ~~results;~~results and (2) ~~we might not realize all or any part of the anticipated value reflected in our Total Bookings; and (3)~~ other companies, including companies in our industry, may calculate our key business metrics or similarly titled measures differently, which reduces their usefulness as comparative measures.

As noted in our Annual Report on Form 10-K filed with the SEC on March 1, 2022, to better align our key business metrics with our internal priorities and business plans for 2022 and beyond, we are reporting new key business metrics beginning with the three months ended March 31, 2022, including Annual Recurring Revenue (“ARR”) and “Spaces.” Rather than focusing on our prior bookings-related metrics that represented future target deliveries, we are now focusing on the near-term execution and delivery of software and the scale of our active platform. Accordingly, we have also adjusted our internal sales compensation structure to discontinue compensating our sales teams on bookings-related metrics beginning in the second quarter of 2022. We are continuing to report total revenue (GAAP) and net loss (GAAP) as key business metrics, and we are also reporting software revenue (GAAP) as an additional key business metric.


		Three Months Ended September 30,									Three Months Ended March 31,
		2021		2020		$ Change		% Change			2022		2021		$ Change		% Change
		(In thousands, except home units)									(In thousands, except spaces)
GAAP Measures:	GAAP Measures:									GAAP Measures:
Software Revenue										Software Revenue	$	3,039	$	1,615	$	1,424	88	%
Total Revenue	Total Revenue	$	11,197	$	5,095	$	6,102	120	%	Total Revenue	$	13,655	$	6,629	$	7,026	106	%
Net Loss	Net Loss	$	(34,239)	$	(15,874)	$	(18,365)	(116	%)	Net Loss	$	(44,231)	$	(38,101)	$	(6,130)	(16	%)
Key Performance Indicators:	Key Performance Indicators:									Key Performance Indicators:
Hardware Bookings		$	39,860	$	17,278	$	22,582	131	%
Software Bookings		$	56,134	$	16,852	$	39,282	233	%
Total Bookings		$	95,994	$	34,130	$	61,864	181	%
Booked ARR		$	59,772	$	26,394	$	33,378	126	%
Booked Home Units—Cumulative		531,657		264,947		266,710		101	%
ARR										ARR	$	7,927	$	3,340	$	4,587	137	%
Spaces										Spaces	126,746		55,305		71,441		129	%
Adjusted EBITDA	Adjusted EBITDA	$	(26,201)	$	(14,630)	$	(11,571)	(79	%)	Adjusted EBITDA	$	(36,815)	$	(13,892)	$	(22,923)	(165	%)

Nine Months Ended September 30,

2021 2020 $ Change % Change
(In thousands, except home units)
GAAP Measures:
Total Revenue $ 26,838 $ 10,573 $ 16,265 154 %
Net Loss $ (112,411) $ (46,801) $ (65,610) (140 %)
Key Performance Indicators:
Hardware Bookings $ 102,966 $ 52,076 $ 50,890 98 %
Software Bookings $ 160,502 $ 67,555 $ 92,947 138 %
Total Bookings $ 263,468 $ 119,631 $ 143,837 120 %
Booked ARR $ 59,772 $ 26,394 $ 33,378 126 %
Booked Home Units—Cumulative 531,657 264,947 266,710 101 %
Adjusted EBITDA $ (57,493) $ (41,981) $ (15,512) (37 %)

~~Bookings~~

We use Bookings to measure sales volume and velocity of our hardware and software products. Bookings represent written but non-binding LOIs from our customers to purchase Latch hardware products and software services, not reflecting discounts. We sell software services with all our access hardware products. Based on historical experience, we believe there is sufficient or reasonable certainty about the customers’ ability and intent to fulfill these commitments with a target delivery date no longer than 24 months following LOI signature. Bookings (including Hardware and Software Bookings) are adjusted to account for any adjustments made to Booked Home Units—Cumulative, including adjustments for those Bookings that do not ship within a 36-month construction timeframe.

~~Hardware Bookings~~

Hardware Bookings represent the total revenue commitment to be recognized at time of shipment of the product. We calculate Hardware Bookings by multiplying the total booked units by the sales price (excluding discounts) for each respective unit. There is typically a lag between Hardware Bookings and recognition of GAAP revenue due to installation timelines with a target delivery date no longer than 24 months following LOI signature.

~~Software Bookings~~

Software Bookings represent the total revenue commitment over the life of the software agreement. We calculate Software Bookings by multiplying the total booked units by the subscription price (excluding discounts) and the contract term as outlined in the LOI. There is typically a lag between Software Bookings and recognition of GAAP revenue due to installation timelines and the recognition of Software Revenue over the course of the contract with a target delivery date no longer than 24 months following LOI signature. Our long-term software contracts typically average more than six years in length.

~~Booked~~ ARR

We use ~~Booked Annual Recurring Revenue (“ARR”)~~ARR to ~~assess~~measure the ~~general health and trajectory of~~recurring cash we expect to collect from our ~~recurring software. Booked~~customers. ARR is defined as the ~~cumulative~~annualized value of ~~annual recurring revenue from Latch~~our active software ~~subscriptions that are under~~contracts. A contract is considered active if a signed ~~LOI. We calculate Booked~~contract is in effect as of the end of the period. The contract value represents the cash value to Latch, net of promotional, term and any other discounts. ARR ~~by multiplying~~is calculated as the total ~~number of units that have been booked~~contract value divided by the ~~annual listed subscription pricing (excluding discounts) at~~contract term in months, multiplied by twelve. We believe ARR provides useful information to investors because it measures the ~~time~~health and growth of booking. LOIs typically deliver within six to 18 months of signing, depending on construction timelines. Booked ARR is adjusted for Bookings that do not ship within a 36-month construction timeframe. It should be viewed differently from Software Bookings as it represents only the average annualour software ~~revenue, not the lifetime contract value.~~business.

~~Booked Home Units—Cumulative~~Spaces

We use ~~Booked Home Units—Cumulative~~Spaces to measure the ~~number~~quantity of ~~homes signed~~units with active software contracts in buildings that generate ARR. Units represent apartments, other dwelling units or commercial spaces in a building. We believe Spaces provides useful information to ~~operate on our platform, market penetration in the rental homes market and~~investors by indicating the size of the opportunity to grow total revenue by increasing ~~sales of~~ additional hardware, software and ~~service~~services revenue into already-signed homes. Booked Home Units represent the total number of apartment units or similar dwellings installed cumulatively, as well as committed to be installed, with Latch products. Booked Home Units are adjusted for Bookings that do not ship within a 36-month construction timeframe. LOIs typically deliver within six to 18 months of signing, depending on construction timelines.generated by each Space.

Adjusted EBITDA

We define Adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, provision for income taxes, restructuring, one-time litigation expenses, loss on extinguishment of debt, gain or loss on change in fair value of derivative instruments, ~~and~~ warrant liabilities and trading securities, and transaction related expenses. 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 Report, Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. See “Non-GAAP Financial Measures” for additional information and a reconciliation of this measure to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Components of Results of Operations

Revenue

We currently generate revenue from ~~two~~three sources: (1) hardware ~~and other related~~ devices that are both ~~Latch built~~Latch-built (“first-party”) and ~~partner built~~partner-built (“third-party”) ~~and~~, (2) software products used by property managers via Web or mobile and by residents via ~~mobile.~~mobile and (3) services related to the hardware devices.

Hardware ~~and Other Related Revenue~~

We generate hardware revenue primarily from the sale of our portfolio of both first-party and third-party devices for our smart access and smart building solutions. We sell hardware to building developers directly or through our channel partners who act as ~~the~~an intermediary and installer. We recognize hardware revenue when the hardware is shipped directly to building developers or to our channel partners, which is when control is transferred to the building developer. We provide warranties ~~related to the intended functionality~~that our hardware will be substantially free from defects in materials and workmanship for a period of ~~the products, and those warranties typically allow for the return of defective hardware up to~~ one year for ~~electrical~~electronic components and five years for mechanical ~~components past the date of sale.~~components. We ~~also generate revenues related to hardware, which includes professional services related to installation and activation of hardware~~replace, repair or refund warrantable devices ~~sold to building developers. These services are recognized over time on a percentage of completion basis.~~at our sole discretion. We continue to see the impact of labor and building material shortages and construction delays. ~~As during the first half of 2021, we continued~~We continue to confront production issues due to industry-wide supply chain disruptions that created shortages of certain construction

materials and other products, and weour customers also experienced trade labor availability constraints and delays. These factors continue to create construction delays for our customers, which have and may continue to delay the timing of our hardware revenue. In addition, we are experiencing higher inventory costs as a result of the global supply chain shortages, which we will continue to incur where economically reasonable in order to prioritize and meet customer demand.

Software ~~Revenue~~

We generate software revenue primarily through the sale of our ~~software-as-a-service, or~~ SaaS over our cloud-based platform on a subscription-based arrangement. Subscription fees vary depending on the 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 to our customers on the longer-term software contracts paid up front, we have determined that there is a significant financing component related to the time value of money and have therefore broken out the interest component. 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. We expect software revenue to increase as a percentage of total revenue over time.

Services

We generate revenues related to hardware, which includes 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.

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 the outsourced hosting service provider. Our cost of revenue excludes depreciation and amortization shown in operating expenses. Cost of services revenue consists primarily of outsourced labor costs, parts and materials and personnel-related expenses associated with direct deployment of our hardware.

We expect some volatility in cost of hardware ~~and other related~~ revenue primarily due ~~to: (i) a new generation of hardware products being released with lower production costs; (ii)~~to recent widespread challenges within the global electronics supply chain leading to a much more tactical sourcing environment and higher production and shipping ~~costs; and (iii) changes to import tariff amounts as a result of changes to U.S. trade policy with China.~~costs.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, general and administrative and depreciation and amortization expenses.

Research and Development Expenses

Research and development 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. We expect our research and development expenses to increase in absolute dollars as we continue to make significant investments in developing new products and enhancing existing products.

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. We expect our sales and marketing expense to increase in absolute dollars as ~~the restrictions related to COVID-19 begin to be lifted and as~~ we continue to invest in our sales force and marketing efforts to drive increased market share through new customer acquisition and provide best in class support to our existing customer base.

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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. During the first quarter of 2021, we incurred stock-based compensation expense from a non-recurring secondary purchase as described in Note 14, Stock-Based Compensation, in Part I, Item 1. “Financial Statements.” Excluding this impact, we expect our general and administrative expenses to increase in absolute dollars primarily due to: (i) ~~our plans to remediate our material weaknesses that were identified in the years ended December 31, 2020 and 2019; (ii)~~ the continued growth of our business and related infrastructure; and ~~(iii)~~(ii) legal, accounting, director and officer insurance, investor relations and other costs associated with operating as a public company.

Depreciation and Amortization Expenses

Depreciation and amortization expenses consist primarily of depreciation expense related to investments in property and equipment and internally developed capitalized software.

Other Income (Expense), Net

Other income (expense), 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 derivatives, warrant liabilities and ~~warrant liabilities.~~trading securities.

Provision for Income Taxes

The provision for income taxes consists primarily of income taxes related to state 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.

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Results of Operations for the ~~three~~Three Months Ended March 31, 2022 and ~~nine months ended September 30,~~ 2021 ~~and 2020~~

The following tables 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.


		Three Months Ended September 30,								Three Months Ended March 31,
		2021		2020		$ Change		% Change		2022		2021		$ Change		% Change
(In thousands, except share and per share data)	(In thousands, except share and per share data)								(In thousands, except share and per share data)
Revenue:	Revenue:								Revenue:
Hardware and other related revenue		$	9,047	$	4,093	$	4,954	121
Software revenue		2,150		1,002		1,148		115
Hardware									Hardware	$	9,055	$	5,014	$	4,041	81
Software									Software	3,039		1,615		1,424		88
Services									Services	1,561		—		1,561		N.M.
Total revenue	Total revenue	11,197		5,095		6,102		120	Total revenue	13,655		6,629		7,026		106
Cost of revenue(1)	Cost of revenue(1)								Cost of revenue(1)
Cost of hardware and other related revenue		10,952		5,824		5,128		88
Cost of software revenue		201		66		135		205
Hardware									Hardware	10,992		6,028		4,964		82
Software									Software	323		134		189		141
Services									Services	1,718		—		1,718		N.M.
Total cost of revenue	Total cost of revenue	11,153		5,890		5,263		89	Total cost of revenue	13,033		6,162		6,871		112
Operating expenses:	Operating expenses:								Operating expenses:
Research and development	Research and development	11,798		6,977		4,821		69	Research and development	18,257		9,615		8,642		90
Sales and marketing	Sales and marketing	9,797		3,161		6,636		210	Sales and marketing	17,296		3,750		13,546		361
General and administrative	General and administrative	11,971		4,198		7,773		185	General and administrative	14,178		17,696		(3,518)		(20)
Depreciation and amortization	Depreciation and amortization	825		321		504		157	Depreciation and amortization	1,506		653		853		131
Total operating expenses	Total operating expenses	34,391		14,657		19,734		135	Total operating expenses	51,237		31,714		19,523		62
Loss from operations	Loss from operations	(34,347)		(15,452)		(18,895)		(122)	Loss from operations	(50,615)		(31,247)		(19,368)		(62)
Other income (expense)	Other income (expense)								Other income (expense)
Change in fair value of derivative liabilities		—		(15)		15		(100)
Change in fair value of warrant liability	Change in fair value of warrant liability	1,067		—		1,067		N.M.	Change in fair value of warrant liability	6,267		—		6,267		N.M.
Change in fair value of trading securities									Change in fair value of trading securities	1,000		—		1,000		N.M.
Interest expense, net	Interest expense, net	(780)		(458)		(322)		(70)	Interest expense, net	(864)		(3,318)		2,454		74
Other income (expense)		(89)		54		(143)		(265)
Total other income (expense)		198		(419)		617		147
Other expense									Other expense	(2)		(3,536)		3,534		100
Total other income (expense), net									Total other income (expense), net	6,401		(6,854)		13,255		193
Loss before income taxes	Loss before income taxes	(34,149)		(15,871)		(18,278)		(115)	Loss before income taxes	(44,214)		(38,101)		(6,113)		(16)
Income taxes		90		3		87		N.M.
Provision for income taxes									Provision for income taxes	17		—		17		N.M.
Net loss	Net loss	$	(34,239)	$	(15,874)	$	(18,365)	(116)	Net loss	$	(44,231)	$	(38,101)	$	(6,130)	(16)
Other comprehensive income (loss)
Unrealized loss on marketable securities		(60)		—		(60)		N.M.
Other comprehensive loss									Other comprehensive loss
Unrealized loss on available-for-sale securities									Unrealized loss on available-for-sale securities	(1,618)		—		(1,618)		N.M.
Foreign currency translation adjustment	Foreign currency translation adjustment	(1)		—		(1)		N.M.	Foreign currency translation adjustment	2		(7)		9		N.M.
Comprehensive income (loss)	Comprehensive income (loss)	$	(34,300)	$	(15,874)	$	(18,426)	(116)	Comprehensive income (loss)	$	(45,847)	$	(38,108)	$	(7,739)	(20)
Earnings (loss) per common share:
Basic and diluted net loss per share		$	(0.24)	$	(2.18)
Weighted average shares outstanding:
Net loss per common share									Net loss per common share
Basic and diluted net loss per common share									Basic and diluted net loss per common share	$	(0.31)	$	(3.65)
Weighted average shares outstanding									Weighted average shares outstanding
Basic and diluted	Basic and diluted	140,675,490		7,270,903					Basic and diluted	141,970,190		10,438,778

(1)Exclusive of depreciation and amortization shown in operating expenses below.

N.M. – Not meaningful

Nine Months Ended September 30,
2021 2020 $ Change % Change
(In thousands, except share and per share data)
Revenue:
Hardware and other related revenue $ 21,263 $ 8,050 $ 13,213 164
Software revenue 5,575 2,523 3,052 121
Total revenue 26,838 10,573 16,265 154
Cost of revenue(1)
Cost of hardware and other related revenue 25,049 12,206 12,843 105
Cost of software revenue 508 185 323 175
Total cost of revenue 25,557 12,391 13,166 106
Operating expenses:
Research and development 28,402 19,511 8,891 46
Sales and marketing 18,602 10,416 8,186 79
General and administrative 39,660 13,250 26,410 199
Depreciation and amortization 2,167 907 1,260 139
Total operating expenses 88,831 44,084 44,747 102
Loss from operations (87,550) (45,902) (41,648) (91)
Other income (expense)
Change in fair value of derivative liabilities (12,588) (15) (12,573) N.M.
Change in fair value of warrant liability (3,728) — (3,728) N.M.
Loss on extinguishment of debt (1,469) — (1,469) N.M.
Interest expense, net (6,971) (809) (6,162) (762)
Other income (expense) (5) (72) 67 93
Total other income (expense) (24,761) (896) (23,865) N.M.
Loss before income taxes (112,311) (46,798) (65,513) (140)
Income taxes 100 3 97 N.M.
Net loss $ (112,411) $ (46,801) $ (65,610) (140)
Other comprehensive income (loss)
Unrealized loss on marketable securities (60) — (60) N.M.
Foreign currency translation adjustment (6) — (6) N.M.
Comprehensive income (loss) $ (112,477) $ (46,801) $ (65,676) (140)
Earnings (loss) per common share:
Basic and diluted net loss per share $ (1.66) $ (6.55)
Weighted average shares outstanding:
Basic and diluted 67,933,833 7,150,235

~~(1)Exclusive of depreciation and amortization shown in operating expenses below.~~

~~N.M. – Not meaningful~~

~~Comparison of three and nine months ended September 30, 2021 and September 30, 2020~~

~~Revenue~~

Revenue increased $6.1 million and $16.3 million when comparing the three and nine months ended September 30, 2021 with the three and nine months ended September 30, 2020, respectively. The increases were driven by a $5.0 million and $13.2 million increase in hardware and other related revenue and a $1.1 million and $3.1 million increase in software revenue. We experienced delays in unit deliveries in the first half of 2020 as a result of the impact of COVID-19 on the residential multi-family construction market, but as the construction market and economy began to improve, hardware unit deliveries started increasing during the third quarter of 2020. The 121% and 164% hardware and other related revenue growth is also attributable to accelerated demand, including for new 2021 product releases such as C2, Latch Intercom and third-

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~~party smart home devices~~Comparison of Three Months Ended March 31, 2022 and March 31, 2021

Revenue

Revenue increased $7.0 million when comparing the three months ended March 31, 2022 with the three months ended March 31, 2021. The increase was driven by a $4.0 million increase in hardware revenue, a $1.4 million increase in software revenue and a $1.6 million increase in services revenue, which was a new product offering released in the second quarter of 2021. The 81% hardware revenue growth is attributable to accelerated demand across all of our access products as well as ~~our new professional services offerings. High software~~third-party smart home devices. Software revenue ~~growth of 115% and 121%~~increased 88%, which reflects the continued growth in ~~the home units install base~~Spaces as a result of the continued increases in delivered hardware ~~units in 2020 and 2021.~~units.

Cost of Revenue

Cost of revenue increased ~~$5.3 million and $13.2~~$6.9 million when comparing the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 with the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021. The ~~increases were~~increase was primarily as a result of the increases in cost of hardware revenue of $5.0 million and cost of services revenue of $1.7 million. The increase in cost of hardware ~~and other related~~ revenue ~~of $5.1 million and $12.8 million, which~~ was mainly driven by ~~the~~ costs associated with the increased hardware unit deliveries and increased hardware inventory costs due to the global supply chain challenges.

Research and Development Expenses

Research and development expenses increased ~~$4.8 million and $8.9~~$8.6 million when comparing the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 with the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021. The ~~increases were~~increase was primarily due to: (i) ~~$2.2 million and $3.9~~$6.8 million of higher personnel-related expenses due to increased headcount to invest in ~~new hardware devices as well as our expanded~~expanding the functionality of our LatchOS ~~platform and~~platform; (ii) ~~$2.6 million and $6.5~~$0.6 million of higher stock-based compensation due to the RSUs granted ~~during~~since August 2021; and (iii) $0.5 million of higher software license expense due to increased investments made in technology.

Sales and Marketing Expenses

Sales and marketing expenses increased $13.5 million when comparing the ~~third quarter of~~three months ended March 31, 2022 with the three months ended March 31, 2021. The ~~nine~~increase was primarily due to: (i) $8.2 million in higher personnel-related expenses due to increased headcount as we invest in our sales force and demand generation team; (ii) $2.2 million of higher stock-based compensation due to the RSUs granted since August 2021; (iii) $1.3 million of higher advertising expense; and (iv) $0.7 million in higher travel expenses.

General and Administrative Expenses

General and administrative expenses decreased by $3.5 million when comparing the three months ended ~~September 30, 2021 also include~~March 31, 2022 with the three months ended March 31, 2021. The decrease was primarily due to $5.7 million in lower stock-based compensation as a ~~$3.8 million~~result of a non-recurring stock-based compensation charge incurred in the first quarter of 2021 in connection with the sale of shares to investors by certain Company employees and non-employee service ~~providers.~~

~~Sales and Marketing Expenses~~

Sales and marketing expenses increased $6.6 million and $8.2 million when comparing the three and nine months ended September 30, 2021 with the three and nine months ended September 30, 2020, respectively. The increases were primarily due to: (i) $4.2 million and $5.1providers, partially offset by $2.1 million in higher personnel-related expenses due to increased headcount as we invest in our salesforce; (ii) $1.9 million and $2.0 million of higher stock-based compensation due to the RSUs granted during the third quarter of 2021; and (iii) $0.5 million and $0.4 million in higher travel expenses.

~~General and Administrative Expenses~~

General and administrative expenses increased by $7.8 million and $26.4 million when comparing the three and nine months ended September 30, 2021 with the three and nine months ended September 30, 2020, respectively. The increases were primarily due to: (i) $2.6 million and $4.6 million in higher personnel-related expenses and recruiting fees due to increased headcount as a result of building out our corporate infrastructure to operate as a public company; (ii) $1.9 million and $12.1 million of higher stock-based compensation due to the RSUs granted during the third quarter of 2021 and a stock-based compensation charge incurred in the first quarter of 2021 in connection with the sale of shares to investors by certain Company employees and non-employee service providers; (iii) $1.0 million and $1.3 million in public company insurance expense: (iv) $0.7 million and $5.5 million in transaction costs and professional advisory fees in connection with the Business Combination; (v) $0.6 million and $0.9 million of higher bad debt expense; and (vi) $0.2 million and $0.8 million in higher software license costs due to new systems implemented to scale our IT infrastructure.company.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by ~~$0.5 million and $1.3~~$0.9 million when comparing the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 with the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021. The ~~increases were~~increase was primarily due to the ~~increase in amortization~~increased capitalization and releases of internally developed software ~~released~~as a result of our investments made in ~~2020~~our software engineering team and ~~2021.~~added functionality to our LatchOS platform.

Total Other Income (Expense), Net

~~Other~~Total other income increased by ~~$0.6~~$13.3 million when comparing the three months ended ~~September 30, 2021~~March 31, 2022 with the three months ended ~~September 30, 2020~~March 31, 2021 primarily ~~related to~~due to: (i) a $6.3 million favorable change in the fair value of the private placement ~~warrants. Other expense increased by $23.9~~warrants; (ii) a $1.0 million ~~when comparing the nine months ended September 30, 2021 with the nine months ended September 30, 2020 primarily due to: (i) $12.6 million unfavorable~~favorable change in ~~the~~ fair value of the ~~derivative liabilities related to our Convertible Notes and warrants related to our term loan; (ii) $3.7~~trading securities; (iii) a $2.5 million ~~unfavorable change~~decrease in ~~the fair value of the private placement warrants; (iii) $1.5 million loss on extinguishment of debt related to our Convertible Notes; and (iv) $6.2 million higher~~ interest expense primarily related to ~~our~~the conversion of the Convertible ~~Notes.~~Notes and the repayment of the term loan in June 2021 as part of the Business Combination; and (iv) a $3.5 million decrease in other expense primarily due to the extinguishment of the derivatives in June 2021 as part of the Business Combination.

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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 our redeemable convertible preferred stock and Convertible Notes, as well as borrowings under our term loan. We received approximately $448.0 million in cash proceeds, net of fees and expenses funded in connection with the June 4, 2021 Closing of the Business Combination, which included approximately $192.6 million from the PIPE Investment. At Closing, we also repaid the $5.0 million term loan and cancelled ~~the~~an associated $5.0 million revolving line of credit. Also in connection with the Closing of the Business Combination, $50.0 million outstanding principal amount of Convertible Notes, and unpaid accrued interest thereon, converted into 6.9 million shares of our common stock. As of ~~September 30, 2021,~~March 31, 2022, we had an accumulated deficit of ~~$274.6~~$373.7 million, working capital of ~~$341.9~~$283.4 million, ~~$2.4~~$2.3 million outstanding under our $6.0 million revolving facility with a freight forwarding and customs brokerage company and ~~$240.3~~$91.0 million in cash and cash equivalents. ~~During the three months ended September 30, 2021, we~~We have invested ~~approximately $192.3 million~~ in ~~marketable~~available-for-sale securities, including commercial paper, corporate bonds, U.S. government agency debt securities and asset backed securities. As of March 31, 2022, available-for-sale securities totaled approximately $244.1 million. See Note 3, Investments, in Part I, Item 1. “Financial Statements.” The Company’s ~~marketable~~available-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’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

We subcontract with other companies to manufacture our products. During the normal course of business, we and our manufacturers procure components based upon a forecasted production plan. If we cancel all or part of the orders, we may be liable to our suppliers and manufacturers for the cost of the unutilized component orders or components purchased by our manufacturers. Historically, we do not believe there have been any material liabilities that have resulted from cancellation of purchase orders.

Our short-term liquidity needs primarily include working capital for sales and marketing, research and development and continued innovation. Our future capital requirements will depend on many factors, including 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.

We believe our existing cash and cash equivalents, ~~marketable~~available-for-sale securities and revolving facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

Indebtedness

~~2020 Convertible Notes~~

Between August 11, 2020 and October 23, 2020, Legacy Latch issued a series of Convertible Notes with a maturity date of April 23, 2022 (subject to the holder’s option to extend the maturity date for a period of one year), for an aggregate principal amount of $50 million. The notes accrued interest at a rate of 5% per annum for the first six months, 7% per annum for the following six months and 9% per annum from month 13 until maturity, that was due and payable upon the earlier to occur of the maturity date or an event of default, unless otherwise converted prior to maturity or an event of default.

The terms of the Convertible Notes provided for the principal and accrued interest to automatically convert into the type of preferred stock issued in a sale of preferred stock at a specified conversion price. Upon certain corporate transactions or liquidity events, outstanding principal at 1.25 times par value and interest on each note would, at the holder’s option, be due and payable in full or be converted into common stock of Legacy Latch at a specified conversion price.

As noted above, in connection with the Closing of the Business Combination, $50.0 million outstanding principal amount of Convertible Notes and unpaid accrued interest converted into 6.9 million shares of our common stock.

~~Revolving Line of Credit and Term Loan~~

In September 2020, Legacy Latch obtained a revolving line of credit and a term loan, both of which were secured by a first-perfected security interest in substantially all of the assets of Legacy Latch.

The revolving line of credit provided a credit extension of up to $5 million and bore interest at the greater of the prime rate plus 2% or 5.25% per annum, as long as Legacy Latch maintained an Adjusted Quick Ratio of 1.25. If the Adjusted Quick Ratio fell below 1.25, then the revolving line of credit would bear interest at the greater of the prime rate plus 3% or 6.25% per annum. Legacy Latch could only borrow up to 80% of eligible accounts receivable. Legacy Latch did not draw any

~~amounts on the line of credit, which was cancelled upon the repayment in full of the term loan in connection with the Closing.~~

The available amount under the term loan was an initial $5 million, with two additional tranches of $2.5 million each, which Legacy Latch could draw down on in annual increments from closing. The term loan bore interest at the greater of the prime rate plus 3% or 6.25% per annum. The term loan was set to mature on December 1, 2024. On June 4, 2021, the Company paid in full the outstanding principal and accrued interest on the term loan.

~~Revolving Credit Facility~~

On July 1, 2021, the Company executed a new revolving credit facility replacing the matured facility described in Note 9,10, Debt, in Part I, Item 1. “Financial Statements.”The revolving facility has a credit limit of $6.0 million with no stated maturity date. An installment plan agreement is executed for each financing request, which includes the interest rate. The revolving facility has no financial covenants and limited non-financial covenants, including requiring the lender’s consent prior to a disposition of substantially all assets, a merger or ~~other covenants.~~acquisition or an ownership change in excess of 50% of the voting capital stock of the borrower. As of March 31, 2022, $2.3 million was outstanding under the revolving facility.

Cash Flows

The following table sets forth a summary of our cash flows for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:


	Three Months Ended March 31,
(In thousands)	2022		2021
Net cash used in operating activities	$	(43,803)	$	(14,330)
Net cash provided by (used in) investing activities	12,165		(1,736)
Net cash (used in) provided by financing activities	(2,177)		2,088
Effect of exchange rates on cash	(8)		(9)
Net change in cash and cash equivalents	$	(33,823)	$	(13,987)

Nine Months Ended September 30,
(In thousands) 2021 2020
Net cash used in operating activities $ (63,679) $ (40,803)
Net cash used in investing activities (204,608) (4,485)
Net cash provided by financing activities 448,069 17,435
Effect of exchange rates on cash (5) (2)
Net change in cash and cash equivalents $ 179,777 $ (27,855)

Operating Activities

The increase of ~~$22.9~~$29.5 million in net cash used in operating activities reflects the ~~$21.8~~$19.4 million increase in the net loss, after adjusting for non-cash items, and a higher increase in ~~accounts receivable~~inventory of ~~$10.3~~$8.6 million ~~driven by the higher third quarter revenue, partially offset by:~~

•~~a $5.7 million increase~~ in ~~accounts payable and accrued expenses primarily associated with higher expenses~~order to ~~support general business growth and the related timing of payments; and~~

•~~a $3.1 million decrease~~secure inventory in ~~inventory purchases primarily due to the delayed unit deliveries experienced in 2020 as a result~~light of the ~~impact of COVID-19.~~uncertainty in the global supply chain environment.

Investing Activities

Net cash ~~used in~~provided by investing activities increased by ~~$200.1~~$13.9 million to ~~$204.6~~$12.2 million for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 from ~~$4.5~~$(1.7) million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to ~~purchases~~proceeds from the sales or maturities of ~~marketable~~available-for-sale securities, ~~of $193.1 million, a purchase of a convertible promissory note for $4.0 million and~~partially offset by higher capitalization of internally developed software costs ~~of $2.3 million~~ reflecting increased headcount as well as incremental new functionality being added to our LatchOS platform for future product releases.

Financing Activities

In the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net cash ~~provided by~~used in financing activities consisted of: (i) ~~$448.0~~a $1.1 million net repayment of our revolving facility and (ii) a $1.3 million payment for tax withholding on net ~~proceeds from the Business Combination; (ii) $3.0~~settlements of RSUs, partially offset by $0.2 million ~~from~~received upon the issuance of common stock in connection with exercises of stock ~~options; and (iii) $2.4 million of net borrowings under our revolving facility, partially offset by the $5.0 million repayment of the term loan.~~options.

In the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash provided by financing activities consisted ~~of: (i) $10.3~~primarily of $2.0 million ~~of net proceeds from~~received upon the issuance of ~~Series B-1 preferred stock; (ii) $5.0 million~~common stock in connection with exercises of ~~net proceeds from the issuance of the term loan; and (iii) $2.1 million of net proceeds from the issuance of the Convertible Notes.~~stock options.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates as disclosed in our~~Registration Statement~~ Annual Report on Form ~~S-1~~10-K filed with the SEC on ~~June 25, 2021.~~March 1, 2022.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Part I, Item 1. “Financial Statements” for information about recent accounting pronouncements.

Non-GAAP Financial Measures

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 Report Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies.

We define Adjusted EBITDA as our net loss, excluding the impact of stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, provision for income taxes, restructuring, one-time litigation expenses, loss on extinguishment of debt, gain or loss on change in fair value of derivative instruments, ~~and~~ warrant liabilities and trading securities, and transaction related expenses. 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 Report, Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. 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.

Reconciliation of Adjusted EBITDA to Net ~~Loss:~~Loss


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)		2022		2021
Net loss	Net loss	$	(34,239)	$	(15,874)	$	(112,411)	$	(46,801)	Net loss		$	(44,231)	$	(38,101)
Depreciation and amortization	Depreciation and amortization	825		321		2,167		907		Depreciation and amortization		1,506		653
Interest (income)/expense, net		780		458		6,971		809
Income taxes		90		3		100		3
Loss on extinguishment of debt		—		—		1,469		—
Interest expense, net(1)										Interest expense, net(1)		864		3,318
Provision for income taxes										Provision for income taxes		17		—
Change in fair value of derivative liabilities	Change in fair value of derivative liabilities	—		15		12,588		15		Change in fair value of derivative liabilities		—		3,597
Change in fair value of warrant liability	Change in fair value of warrant liability	(1,067)		—		3,728		—		Change in fair value of warrant liability		(6,267)		—
Restructuring costs(1)		—		84		—		970
Change in fair value of trading securities										Change in fair value of trading securities		(1,000)		—
Transaction-related costs(2)	Transaction-related costs(2)	462		—		6,030		—		Transaction-related costs(2)		538		2,148
Litigation costs(3)	Litigation costs(3)	—		—		—		1,046		Litigation costs(3)		40		—
Stock-based compensation and warrant expense(4)		6,948		363		21,865		1,070
Stock-based compensation(4)										Stock-based compensation(4)		11,718		14,493
Adjusted EBITDA	Adjusted EBITDA	$	(26,201)	$	(14,630)	$	(57,493)	$	(41,981)	Adjusted EBITDA		$	(36,815)	$	(13,892)

(1)~~The~~As a result of significant discounts provided to our customers on our longer-term software contracts paid upfront, the Company ~~initiated~~has determined that there is a ~~restructuring plan in the first quarter of 2020 as part of its efforts to reduce operating expenses and preserve liquidity due~~significant financing component related to the ~~uncertainty~~time value of money and ~~challenges stemming from~~has therefore broken out the ~~COVID-19 pandemic. The restructuring included~~interest component and recorded it as a reduction in force involving an approximate 25% reduction in headcount, which resulted in severance and benefit costs for affected employees and other miscellaneous direct costs. These costs are included principally within research and development, sales and marketing, and general and administrative within the Condensed Consolidated Statementscomponent of ~~Operations and Comprehensive Loss, based~~interest income (expense), net on the ~~department~~consolidated statements of operations and comprehensive loss. The interest expense is recorded using the effective interest method, which has higher interest expense at inception and declines over time to ~~which~~match the underlying economics of the transaction where the outstanding principal balance decreases over time. Interest expense ~~relates.~~associated with the significant financing component included in interest (income) expense, net was $1.1 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively.

(2)Transaction costs related to the Business Combination. These costs are included within sales and marketing and general and administrative within the ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss.~~comprehensive loss.

(3)Legal and settlement fees incurred in connection with non-ordinary course litigation and other disputes. These costs are included within general and administrative within the ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss.~~comprehensive loss.

(4)Stock-based compensation ~~and warrant~~ expense associated with equity compensation plans including ~~$7.2~~$11.3 million ~~in RSUs granted~~ during the three months ended ~~September 30,~~March 31, 2022 related to RSUs granted since August 2021 and $13.8 million related to the secondary purchase transaction during the ~~nine~~three months ended ~~September 30,~~March 31, 2021. See Note 14,Stock-Based Compensation ~~Stock-Based Compensation~~ includedin Part I, Item 1. “Financial Statements.”

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~~Emerging Growth Company Status~~

Following the consummation of the Business Combination, the Post Combination Company is an emerging growth company (EGC), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

We will remain an EGC under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the TSIA IPO, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the date on we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We had cash and cash equivalents and available-for-sale securities of $335.0 million as of March 31, 2022. Our cash equivalents and available-for-sale securities are held in money market funds, U.S. government agency debt securities, commercial paper, corporate bonds and asset-backed securities. The primary objective of our investment activities is the preservation of capital, and we do not enter into investments for trading or speculative purposes. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. On June 4, 2021, the Company ispaid in full the outstanding principal and accrued interest on the term loan and converted the Convertible Notes to common stock. We have a ~~smaller reporting company as defined by Rule 12b-2~~revolving credit facility that includes a fixed interest rate and requires repayment of each financing request within 90 days. A hypothetical 10% increase in interest rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements.

Foreign Currency Exchange ~~Act~~Risk

Substantially all of our revenue and operating expenses are denominated in U.S. dollars, and we do not believe that our exposure to foreign currency exchange risk is material to our business, financial condition or results of operations. If a significant portion of our revenue and operating expenses becomes denominated in currencies other than U.S. dollars, we may not ~~required~~be able to ~~provide~~effectively manage this risk, and our business, financial condition and results of operations could be adversely affected by translation and by transactional foreign currency conversions.

Commodity Risk

We are exposed to market risk with respect to commodity price fluctuations for components used in the ~~information under this Item.~~manufacture of our products. These components are impacted by global pricing pressures, general economic conditions and changes in tariff rates. We strive to offset increases in the cost of these materials through supplier negotiations and global sourcing initiatives. We are also exposed to fluctuations in transportation costs, which may remain at elevated levels depending on freight carrier capacity and fuel prices. Transportation costs are managed by optimizing logistics and supply chain planning. We continue to invest in supply chain initiatives to address industry-wide capacity challenges.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and operating results.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis.

Management identified a material ~~weaknesses~~weakness in our internal control over financial reporting for the periods ended December 31, 2020 and 2019. The material ~~weaknesses, which we are currently working~~weakness relates to ~~remediate, relate to: (a) general segregation of duties, including the review and approval of journal entries; (b) lack of a formalized risk assessment process; and (c)~~ selection and development of control activities, including over information ~~technology.~~technology related to certain account balances. Management has concluded that ~~these~~this material ~~weaknesses~~weakness in internal control over financial reporting ~~were~~was due to the fact that we were a private company with limited resources and did not have the necessary business processes and related internal controls formally designed and implemented, coupled with the appropriate resources with the appropriate level of experience and technical expertise, to oversee our business processes and controls. As of December 31, 2021, the material weakness had not been remediated.

4538

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. In making this evaluation, management considered the material ~~weaknesses~~weakness in our internal controls over financial reporting described above. Based on such evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were not effective.

We ~~are in the process of implementing~~have implemented substantial remediation efforts as described below. ~~As such remediation~~Remediation efforts are still ongoing regarding the development and effectiveness of control activities, and we ~~have concluded that~~remain on target to remediate this material weakness during the ~~material weaknesses have not been fully remediated.~~year ended December 31, 2022. Remediation efforts to date include the following:

•We ~~made an assessment~~performed full-scope testing and assessed the effectiveness of ~~the accounting personnel and strengthened~~ our ~~compliance and accounting functions with additional experienced hires to address evaluation of technical accounting matters and general segregation of duties.~~

•~~We performed a formalized~~ financial and ~~fraud risk assessment;~~information technology control activities. While substantial progress was made broadly, further action and ~~subsequently selected and designed internal control activities, including over information technology. Control activities are undergoing~~additional testing ~~by management to assess effectiveness.~~in certain areas is required before we can conclude full remediation.

•We continue to be engaged with external consultants with public company and technical accounting experience to facilitate accurate and timely accounting closes and to accurately prepare and review the financial statements and related footnote disclosures. We plan to retain these financial consultants, as needed, until such time that the required financial controls have been fully implemented.

The actions that have been taken are subject to continued review and testing by management, as well as oversight by the audit committee of our board of directors. While we have implemented a variety of steps to remediate ~~these weaknesses,~~this weakness, we cannot assure you that we will be able to fully remediate ~~them,~~it, which could impair our ability to accurately and timely meet our public company reporting requirements.

Notwithstanding the assessment that our internal controls over financial reporting are not effective and that a material ~~weaknesses exist,~~weakness exists, we believe that we have employed supplementary procedures to ensure that the financial statements contained in this ~~filing~~Report fairly present our financial position, results of operations and cash flows for the reporting periods covered herein in all material respects.

Changes in Internal Control over Financial Reporting

Other than in connection with the implementation of the remedial measures described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

We are and may become, from time to time, involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at ~~September 30, 2021,~~March 31, 2022, will not materially affect the Company’s consolidated results of operations, financial position or cash flows. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on our financial results.

Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. AsFor a ~~result~~discussion of such risks and uncertainties, please see the ~~closing of the Business Combination, the risk factors previously disclosed~~section in ~~Part I, Item 1A of~~ our Annual Report on Form 10-K ~~for the year ended December 31, 2020 no longer apply. For a discussion of risks and uncertainties relating to our business following the~~

~~Business Combination, please see the section in our Registration Statement on Form S-1~~ filed with the SEC on ~~June 25, 2021~~March 1, 2022 titled “Risk Factors.” There have been no material changes to the risk factors disclosed therein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Incorporated by Reference
Exhibit Exhibit Description Form Exhibit Filing Date
2.1*
Agreement and Plan of Merger, dated as of January 24, 2021, by and among TSIA, Lionet Merger Sub Inc. and Legacy Latch.
S-4/A 2.1 5/12/2021
3.1
Second Amended and Restated Certificate of Incorporation
8-K 3.1 6/10/2021
3.2
Amended and Restated Bylaws
8-K 3.2 6/10/2021
31.1
Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101
The following financial information from Latch, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets - Unaudited, (ii) the Condensed Consolidated Statement of Operations and Comprehensive Loss - Unaudited, (iii) the Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) - Unaudited, (iv) the Condensed Consolidated Statement of Cash Flows - Unaudited and (v) the Notes to Condensed Consolidated Financial Statements - Unaudited (submitted electronically herewith).
104 Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101).

Incorporated by Reference

Exhibit

Exhibit Description

Form

Exhibit

Filing Date

2.1*

Agreement and Plan of Merger, dated as of January 24, 2021, by and among TSIA, Lionet Merger Sub Inc. and Legacy Latch.

S-4/A

2.1

5/12/2021

3.1

Second Amended and Restated Certificate of Incorporation

8-K

3.1

6/10/2021

3.2

Amended and Restated Bylaws

8-K

3.2

6/10/2021

10.1

Transition Agreement between Garth Mitchell and the Company, dated as of March 28, 2022 (filed her ewith).

10.2

Employment Agreement between Barry Schaeffer and the Company, dated as of July 9, 2021 (filed herewith).

31.1

Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2

Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101

The following financial information from Latch, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets - Unaudited, (ii) the Condensed Consolidated Statement of Operations and Comprehensive Loss - Unaudited, (iii) the Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) - Unaudited, (iv) the Condensed Consolidated Statement of Cash Flows - Unaudited and (v) the Notes to Condensed Consolidated Financial Statements - Unaudited (submitted electronically herewith).

104

Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101).

* Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

4841

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:


LATCH, INC.

By:			/s/ Luke Schoenfelder
			Luke Schoenfelder
			Chief Executive Officer and Chairman of the Board of Directors

			~~November 9, 2021~~May 5, 2022

By:			/s/ ~~Garth Mitchell~~Barry Schaeffer
			~~Garth Mitchell~~Barry Schaeffer
			Interim Chief Financial Officer and Treasurer

			~~November 9, 2021~~May 5, 2022

4942


	Convertible Notes		Warrants		Total
Derivative liabilities - December 31, 2020	$	12,676	$	714	$	13,390
Change in fair value of derivative liabilities(1)	11,158		1,430		12,588
Extinguishment of derivatives	(23,834)		(2,144)		(25,978)
Derivative liabilities - September 30, 2021	$	—	$	—	$	—


	September 30, 2021		December 31, 2020
Accrued payroll	$	5,663	$	1,246
Accrued duties	154		204
Accrued warranties	454		284
Accrued purchases	1,498		25
Accrued excess inventory	159		465
Accrued operating expense	3,717		3,505
Other accrued expenses	417		52
Total accrued expenses	$	12,062	$	5,781


	Issuance Start Date	Shares Authorized	Shares Issued and Outstanding	Issuance Price Per Share		Carrying Value		Liquidation Preference
Series Seed	July 14, 2014	3,971	3,971	$	0.60	$	1,768	$	4,978
Series Seed	April 29, 2015	4,000	4,000	0.63		2,479		5,101
Series A	January 19, 2016	15,231	15,231	0.75		11,110		11,367
Series A-1	May 5, 2017	8,464	8,464	1.18		9,737		10,000
Series B	July 30, 2018	15,983	15,983	3.13		50,000		50,000

Series B - 2019 Convertible Notes conversion at 10% discount	July 30, 2018	2,753	2,753	2.82		8,601		7,752

Series B-1	May 20, 2019	18,112	17,977	3.74		66,842		67,300
Series B-2	May 20, 2019	2,690	2,690	3.37		10,068		9,064
Total		71,204	71,069			$	160,605	$	165,562


	Options Outstanding(1)	Weighted Average Exercise Price(1)		Aggregate Intrinsic Value
Balance at December 31, 2020	21,651,225	$	0.63
Options forfeited	(738,207)	$	1.52
Options expired	(262,296)	$	0.93
Options exercised	(6,008,995)	$	0.57
Options granted	788,045	$	3.92
Balance at September 30, 2021	15,429,772	$	0.78	$	161,900

Exercisable at September 30, 2021	9,920,280	$	0.58	$	106,003