10-Q 1 lat-20220331.htm 10-Q lat-20220331
000182600012/312022Q1FALSE Exclusive of depreciation and amortization shown in operating expense below.
Stock-based compensation expense included in cost of revenue and operating expenses is as follows:

Cost of revenue$272 $14 
Research and development4,501 3,999 
Sales and marketing2,322 161 
General and administrative4,623 10,319 
Total stock-based compensation$11,718 $14,493 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-39688
Latch, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-3087759
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
508 West 26th Street, Suite 6G
New York, New York 10001
(917) 338-3915
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.0001 per shareLTCHThe Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per shareLTCHWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No
As of May 3, 2022, there were 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (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 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on 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.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.



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

Page


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



As of March 31, 2022 (unaudited)As of December 31, 2021
Assets
Current assets
Cash and cash equivalents$90,959 $124,782 
Available-for-sale securities - current172,993 158,973 
Accounts receivable, net28,967 25,642 
Inventories, net18,996 11,615 
Prepaid expenses and other current assets12,047 11,606 
Total current assets323,962 332,618 
Property and equipment, net2,755 2,039 
Available-for-sale securities - non-current71,058 102,878 
Internally developed software, net14,411 12,475 
Other non-current assets2,929 2,294 
Total assets$415,115 $452,304 
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable$5,757 $6,229 
Accrued expenses24,687 24,184 
Deferred revenue - current7,211 6,016 
Other current liabilities2,935 4,342 
Total current liabilities40,590 40,771 
Deferred revenue - non-current28,484 24,190 
Warrant liability3,520 9,787 
Other non current liabilities178  
Total liabilities72,772 74,748 
Commitments and contingencies (see Note 11)
Stockholders’ equity (deficit)
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 capital718,305 706,713 
Accumulated other comprehensive loss(2,292)(676)
Accumulated deficit(373,702)(328,506)
Total stockholders’ equity (deficit)342,343 377,556 
Total liabilities and stockholders’ equity (deficit)$415,115 $452,304 
(1)Shares issued and outstanding as of March 31, 2022 and December 31, 2021 exclude 738,000 shares subject to vesting requirements. See Note 1, Description of Business.
See accompanying notes to the condensed consolidated financial statements.
1

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

Three Months Ended March 31,
20222021
Revenue:
Hardware$9,055 $5,014 
Software3,039 1,615 
Services1,561  
Total revenue13,655 6,629 
Cost of revenue(1)(2):
Hardware10,992 6,028 
Software323 134 
Services1,718  
Total cost of revenue13,033 6,162 
Operating expenses:
Research and development(2)
18,257 9,615 
Sales and marketing(2)
17,296 3,750 
General and administrative(2)
14,178 17,696 
Depreciation and amortization1,506 653 
Total operating expenses51,237 31,714 
Loss from operations(50,615)(31,247)
Other income (expense)
Change in fair value of warrant liability6,267  
Change in fair value of trading securities1,000  
Interest expense, net(864)(3,318)
Other expense(2)(3,536)
Total other income (expense), net6,401 (6,854)
Loss before income taxes(44,214)(38,101)
Provision for income taxes17  
Net loss$(44,231)$(38,101)
Other comprehensive loss
Unrealized loss on available-for-sale securities(1,618) 
Foreign currency translation adjustment2 (7)
Comprehensive loss$(45,847)$(38,108)
Net loss per common share
Basic and diluted net loss per common share$(0.31)$(3.65)
Weighted average shares outstanding
Basic and diluted141,970,190 10,438,778 
(1)Exclusive of depreciation and amortization shown in operating expenses below.
(2)Stock-based compensation expense included in cost of revenue and operating expenses is as follows:
Cost of revenue$272 $14 
Research and development4,501 3,999 
Sales and marketing2,322 161 
General and administrative4,623 10,319 
Total stock-based compensation$11,718 $14,493 

See accompanying notes to the condensed consolidated financial statements.
2

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

Three months ended March 31, 2021
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
January 1, 202171,069 $160,605 9,106 $ $7,901 $9 $(162,187)$(154,277)
Retroactive application of Exchange Ratio(7,313)— (937)— — — — — 
January 1, 2021 as adjusted63,756 160,605 8,169  7,901 9 (162,187)(154,277)
Exercises of common stock options— — 5,428 — 2,816 — — 2,816 
Stock-based compensation— — — — 14,513 — — 14,513 
Foreign translation adjustment— — — — — (7)(7)
Net loss— — — — — — (38,101)(38,101)
March 31, 202163,756 $160,605 13,597 $ $25,230 $2 $(200,288)$(175,056)
Three months ended March 31, 2022
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
January 1, 2022 $ 141,593 $25 $706,713 $(676)$(328,506)$377,556 
Cumulative effect adjustment of adopting ASC 326— — — — — — (965)(965)
Exercises of common stock options— — 365 4 171 — — 175 
Issuance of common stock upon settlement of restricted stock units— — 490 5 — — — 5 
Tax withholdings on settlement of equity awards— — (210)(2)(1,291)— — (1,293)
Transaction costs related to reverse capitalization— — — — (25)— — (25)
Stock-based compensation— — — — 12,737 — — 12,737 
Foreign translation adjustment— — — — — 2 — 2 
Unrealized loss on available-for-sale securities— — — — — (1,618)— (1,618)
Net loss— — — — — — (44,231)(44,231)
March 31, 2022 $ 142,238 $32 $718,305 $(2,292)$(373,702)$342,343 
Excludes 738,000 shares subject to vesting requirements. See Note 1, Description of Business.
See accompanying notes to the condensed consolidated financial statements.
3

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

Three Months Ended March 31,
20222021
Operating activities
Net loss$(44,231)$(38,101)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization1,506 653 
Non-cash interest expense994 1,934 
Change in fair value of derivative liabilities 3,597 
Change in fair value of warrant liability(6,267) 
Change in fair value of trading securities(1,000) 
Provision for excess and obsolete inventory665 9 
Allowance (reversal) for doubtful accounts(50)171 
Stock-based compensation11,718 14,493 
Changes in assets and liabilities
Accounts receivable(4,241)(1,108)
Inventories(8,046)537 
Prepaid expenses and other current assets811 (2,424)
Other non-current assets(713)(53)
Accounts payable(471)1,732 
Accrued expenses199 1,331 
Other current liabilities(344) 
Other non-current liabilities178 620 
Deferred revenue5,489 2,279 
Net cash used in operating activities(43,803)(14,330)
Investing activities
Purchase of available-for-sale securities(24,367) 
Proceeds from maturities of available-for-sale securities39,587  
Purchase of trading securities(250) 
Purchase of property and equipment(736)(290)
Development of internal software(2,069)(1,446)
Net cash provided by (used in) investing activities12,165 (1,736)
Financing activities
Proceeds from issuance of common stock180 2,035 
Payments for tax withholding on net settlement of equity awards(1,293) 
Proceeds from revolving credit facility1,345 53 
Repayment of revolving credit facility(2,409) 
Net cash (used in) provided by financing activities(2,177)2,088 
Effect of exchange rate on cash(8)(9)
Net change in cash and cash equivalents(33,823)(13,987)
Cash and cash equivalents
Beginning of period124,782 60,529 
End of period$90,959 $46,542 
Supplemental disclosure of non-cash investing and financing activities
Capitalization of stock-based compensation to internally developed software$1,019 $21 
Capitalization of transaction costs$ $3,412 
Accrued issuance costs$25 $ 
Accrued fixed assets$251 $67 
Receivable from option exercises$ $781 
See accompanying notes to the condensed consolidated financial statements.
4

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 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, CA; 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 promissory notes issued in 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 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 a term loan entered into in 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 two business days prior to the consummation of the Business Combination, which was approximately $10.00 per share, or $0.06 million in the aggregate.
5

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. 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 $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.
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.”
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, 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.
6

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. 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.
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 ended December 31, 2021 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on 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 as of 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, 2021.
7

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 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” below for further information). Following 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 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 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 contract assets. The Company considers customer type, product lines and geography in relation to further segmentation and determined that further segmentation of the accounts receivable and contract assets would not yield a materially different credit loss allowance. The Company only segments its receivables based on the aging of the 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:
Balance as of January 1, 2022$1,980 
Impact of adopting ASU 2016-13927 
Provision for doubtful accounts298 
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 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
8

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
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.
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 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 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 of the 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 the lease. The incremental borrowing rate is determined based on various outstanding debt from which an estimated discount rate can be determined. These rates are adjusted, as necessary, to account for differences in the term, amounts and risks of each lease relative to the terms of 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 any finance leases or subleases as of 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 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, 2022December 31, 2021
Assembled workforce$700 $700 
Domain names318 318 
Patents37 37 
Other intangibles4 4 
Intangible assets1,059 1,059 
Less: accumulated amortization(292)(213)
Total intangible assets, net$767 $846 
Revenue Recognition
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, 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 three primary sources: (1) hardware devices, (2) software products and (3) services related to the hardware devices.
9

Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Hardware
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 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 the three months ended March 31, 2022 and 2021, the reserve for hardware warranties was approximately 2% and 1% of cost of hardware 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 months ended March 31, 2022 and 2021, the reserve for wholesale returns against revenue was zero and $0.01 million, respectively. The reserve against accounts receivable as of March 31, 2022 and December 31, 2021 was $0.6 million and $0.6 million, 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 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 $1.1 million and $0.7 million for the three months ended March 31, 2022 and 2021, 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: hardware, software and services. The hardware performance obligation includes the delivery of hardware, 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 and the services performance obligation includes the delivery of activation and installation of the hardware. The Company has determined that the hardware, software and services are individual distinct performance obligations because 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
10

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 $35.7 million as of March 31, 2022. The Company expects to recognize the short-term amount of $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 $28.5 million over the contracted-use term of each 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 $13.7 million and $6.6 million for the three months ended March 31, 2022 and 2021, 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, 2022$1,275 
Additions to deferred contract costs392 
Amortization of deferred contract costs(40)
Balance as of March 31, 2022$1,627 
Contract Assets and Contract Liabilities (Unbilled Receivables and Deferred Revenue)
March 31, 2022December 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 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 accounts receivable, net on the condensed consolidated balance sheets.
The Company records contract liabilities to deferred revenue when the Company 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 $2.4 million of prior year deferred software revenue during the three months ended March 31, 2022.
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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 months ended 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 hardware revenue consists primarily of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty costs, assembly costs and warehousing costs, as well as other non-inventoriable costs including personnel-related expenses associated with supply chain logistics and channel partner fees.
Cost of software revenue consists primarily of outsourced hosting costs and personnel-related expenses associated with monitoring and managing outsourced hosting service providers.
Cost of 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 March 31, 2022 and December 31, 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:
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.
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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 as well as marketable securities (see Note 3, Investments).
Significant customers are those that represent more than 10% of the Company’s total revenue or gross accounts receivable balance at each balance sheet date. As of 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 $3.0 million, or 12%, of gross accounts receivable. For the three months ended March 31, 2022 and 2021, the Company had one customer that accounted for $4.4 million and $0.9 million, or 32% and 14%, of total revenue, respectively.
Segment Information
The Company has one 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.
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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 (the “FASB”) issued ASC 842, which requires lessees to recognize most leases on the balance sheet as a right of use asset and related lease liability. On January 1, 2022, the Company adopted ASC 842 using a modified retrospective approach recording a cumulative-effect adjustment to retained earnings. The Company elected to adopt the 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 ASC 842 did not materially impact the condensed consolidated 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 2016-13, 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 not needed as of January 1, 2022 based on various factors, including the 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 issuer and forecasted economic data. As of January 1, 2022, the Company recorded a cumulative-effect adjustment to retained earnings in the total amount of $1.0 million related to the allowance for doubtful accounts on the accounts receivable and contract assets using the modified retrospective approach.
3.INVESTMENTS
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 March 31, 2022
Amortized CostGross Unrealized LossEstimated Fair Value
Asset backed securities$11,066$(193)$10,873
Commercial paper and corporate bonds214,398(1,788)212,610
U.S. government agency debt securities20,881(313)20,568
Total available-for-sale securities$246,345$(2,294)$244,051
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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 CostGross Unrealized LossEstimated Fair Value
Asset backed securities$11,101$(56)$11,045
Commercial paper and corporate bonds234,497(551)233,946
U.S. government agency debt securities16,929(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 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 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 Notes due and payable upon the occurrence of an event of default. The Notes also contain certain embedded features, including: acceleration in the event of default; automatic 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 Notes meet the definition of a debt security under the provisions of ASC 320, Investments - Debt Securities. The Company classified the Notes as trading securities and categorized them within Level 3 of the fair value hierarchy. Changes in fair value are reported in earnings.
The Company recorded a gain on the Notes of $1.0 million during the three months ended March 31, 2022, recorded in change in fair value of trading securities on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Notes are recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
Contractual maturities of the Company’s available-for-sale and trading securities are summarized as follows:
As of March 31, 2022
Amortized CostEstimated Fair Value
Due in less than one year178,405178,543
Due in one to five years72,49071,058
Total investments$250,895$249,601
The Company 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 investments to determine if impairment charges are required. Factors considered in determining whether there is an expected credit loss 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 March 31, 2022, the Company had not identified any impairment indicators in the investments.
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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 March 31, 2022
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
Assets
Cash$22,157$$$22,157
Money market funds68,80268,802
Total cash and cash equivalents90,95990,959
Available-for-sale securities244,051244,051
Trading securities (convertible promissory notes)5,5505,550
Total assets$90,959$244,051$5,550$340,560
Liabilities
Warrant liability3,5203,520
Total liabilities$$3,520$$3,520

As of December 31, 2021
Fair Value Measurements Using
Level 1
Level 2
Level 3
Total
Assets
Cash$8,983$$$8,983
Money market funds115,799115,799
Total cash and cash equivalents124,782124,782
Available-for-sale securities261,851261,851
Trading securities (convertible promissory notes)4,3004,300
Total assets$124,782$261,851$4,300$390,933
Liabilities
Warrant liability9,7879,787
Total liabilities$$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 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.
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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 Notes, the Company elected to apply the fair value option and account for the hybrid instrument containing the Notes and the embedded derivatives at fair value as a single instrument, with any subsequent changes in fair value being reported in earnings. For the three months ended March 31, 2022, the Company reported a change in fair value of the Notes of $1.0 million.
The following table provides quantitative information regarding Level 3 fair value inputs at their measurement dates:
March 31, 2022
Volatility80.0 %
Risk free rateU.S Constant Maturity Treasury Yields
Term0.50 years
During the three months ended 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 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 2 of the fair value hierarchy. The closing price of the public warrants was $0.66 and $1.84 as of March 31, 2022 and December 31, 2021, respectively. The fair value of the Private Placement Warrants was $3.5 million and $9.8 million as of March 31, 2022 and December 31, 2021, respectively.
The following table represents the activity of the Level 3 instruments:
Trading Securities
Balance at December 31, 2021$4,300 
Purchases250 
Change in fair value(1)
1,000 
Balance at March 31, 2022$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.
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Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
5.PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
Office furniture$86 $86 
Computers and equipment4,799 3,810 
Property and equipment4,885 3,896 
Less: Accumulated depreciation(2,130)(1,857)
Total property and equipment, net$2,755 $2,039 
6.INTERNALLY DEVELOPED SOFTWARE, NET
Internally developed software, net consisted of the following as of March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
Internally developed software$13,071 $11,761 
Construction in progress5,812 4,339 
Less: Accumulated amortization(1)
(4,472)(3,625)
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 March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
Raw materials$3,192 $2,513 
Finished goods16,084 9,492 
Excess and obsolete reserve(280)(390)
Total inventories, net$18,996 $11,615 
The Company did not experience any significant inventory write-downs for the three months ended March 31, 2022.
8.LEASES
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 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 and for the three months ended March 31, 2022 is presented in the table below (in thousands, except weighted average term and discount rate):
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Latch, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
ROU asset$430 
Lease liabilities$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 leases1.8 years
Weighted average discount rate - operating leases14.5 %
Maturities of lease liabilities as of March 31, 2022 are as follows:

Remainder of 2022$248 
2023138 
2024102 
2025 
2026 
Thereafter 
Total lease payments488 
Less: imputed interest57 
Total lease liabilities$431 
9.ACCRUED EXPENSES
Accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
Accrued compensation$4,836 $6,407 
Accrued warranties318 556 
Accrued purchases4,800 1,692 
Accrued excess inventory1,114 550 
Accrued operating expense6,574 7,894 
Accrued litigation costs