Latch, Inc. Q1 FY2021 Earnings Call

Thank you for joining us today for the Latch First Quarter 2021 Financial Results Conference Call. I would now like to turn it over to your host, Mark Griffin. Please proceed.

Thank you, operator. Good afternoon, and thank you for joining us today to review Latch's First Quarter 2021 Financial Results. With me on the call today are Luke Schoenfelder, Chief Executive Officer, Co-Founder and Chairman of the Board of Directors; and Garth Mitchell, Chief Financial Officer. After prepared remarks, we will open up the call for a question-and-answer session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from these expectations reflected in any forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For a discussion of material risks and other important factors that could affect our actual results, please refer to the Risk Factors section in our SEC filings available on the SEC's EDGAR system and our website, as well as the risk and other important factors discussed in today's results. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Chief Executive Officer, Luke Schoenfelder. Luke?

Thanks, Mark. And I'd like to start by thanking all of you for joining us today on our first earnings call as a public company. Latch recently closed our SPAC transaction with TS Innovation Acquisitions Corp., and we are now a listed public company with our common stock and warrants trading on NASDAQ. We are excited about becoming a public company and credit this important milestone to our team members, our customers, and our partners for making this possible. I've never been more confident in the business we're building and know that this moment will drive continued growth, benefiting our customers, employees, and shareholders. We're also pleased to share our results for the first quarter. In Q1, our total bookings grew 89% year-over-year to $71.7 million and our revenue grew 143% year-over-year to $6.6 million. This growth reflects robust market demand for our products and shows early signs of post-pandemic recovery. In addition, our attach rates of non-access LatchOS software modules grew to 81% in Q1, up from 44% in Q4 of 2020, giving us confidence that our robust 2021 product roadmap and release schedule will drive high adoption and sustained average revenue per home unit growth throughout the year. Garth, our CFO, will talk to Q1 results in more detail shortly. As this is our first earnings call, we thought it would be helpful to provide a brief overview of Latch's history, value proposition, market opportunity, and business model, in addition to providing details on the drivers behind recent performance. I co-founded Latch in 2014 with Brian Jones, Dhruva Rajendra, and Thomas Meyerhoffer, with the mission of making buildings better spaces to live, work, and visit. Together, we've built an executive team with decades of experience at some of the world's best companies, including Apple, Salesforce, and IDEO. At our core, we're a product company, and more than half of our employees work in R&D roles today. In the beginning, we started by solving the access problem at apartment buildings. We created products that work for each door in an apartment building, from building entrances to apartment doors, elevators, parking garages, gyms, and just about everything in between. Once installed, users can use their smartphone, NFC card, door code, or Apple Watch to unlock each door and share access right from their phone. These products help define the smart access category for multifamily buildings and serve as the foundation for our early growth. From there, we expanded the delivery and guest management, making sure that our products enable more efficient and seamless deliveries and guest reception through our Latch intercom, Latch camera, and Latch delivery-assisted products. The pandemic accelerated growth in e-commerce, making package delivery management an important and costly pain point for building operators. We work with partners like UPS to increase operational efficiency while also providing a better experience for residents and buildings, too. After that, we saw an opportunity to extend the enterprise device management capabilities that we use to manage our own devices to also manage third-party products, and we built relationships with companies like Google Nest, Honeywell, ecobee, and others. Now LatchOS manages each of these third-party devices for building managers, and the Latch app enables residents to control each of their devices from our app. From there, we saw the need to bring enterprise connectivity solutions to apartment buildings. And we built LTE into our Latch intercom and Latch hub to enable us to bring connectivity right to the edge, which means our products don't require infrastructure, wiring, or full building WiFi to function. With this foundation of products in place, we've created a resident experience where the average Latch app user interacts with their app 4.6 times per day, setting the stage for the introduction of new experiences over time. This had the effect of expanding our market opportunity to encompass resident spending. And keeping with our focus on helping people create better spaces to live, work, and visit, you can expect to see a suite of services and experiences sold directly to the residents of Latch buildings, as we believe we can make their entire rental experience easier and more efficient. We can do all this via the incredible engagement we get for free via our own app. That's the power of the integrated full building experience LatchOS delivers. Our average building customer today installs Latch and partner devices across the whole building, pays Latch between $7 and $12 per apartment per month for the features that they need, and then onboard their staff and residents. Our building customers sign a LatchOS software contract to provide the capabilities that they need at their buildings, and such contracts have an average length of more than 6 years. After only a few years in the market, Latch consistently delivered strong sales and growth as we continue to drive ever broader market adoption of our products. In fact, more than 1 in 10 new apartments in the U.S. are now built with Latch. In addition, 7 of the 10 National Multifamily Housing Council top developers are currently Latch customers. There is compelling opportunity for further growth, supported by 4 important pillars. First, the market for an apartment building operating system is massive. Second, LatchOS is defining the full building operating system category. Third, there's significant white space for rapid growth. And fourth, since our inception in 2014, we have demonstrated strong customer traction and unit economics, which Garth, our CFO, will discuss shortly. Starting with the massive market opportunity. There is an estimated 47 million rental homes in the United States alone, which Latch can serve through our LatchOS ecosystem. U.S. residential rental owners and operators alone represent an approximately $54 billion total annual market for the previously described LatchOS modules. In Europe, there are an estimated 92 million apartments, which add an incremental $90 billion annual market opportunity. That's a total addressable market of $144 billion. In May, we announced the expansion of LatchOS, our full building operating SaaS platform into commercial office space, with the launch of LatchOS for Commercial Office and Latch Visitor Express, 2 products specifically tailored to commercial office buildings, which will further the company's addressable market. We define the full building operating system category. Our LatchOS software platform combines our own devices, partner devices, and services to create a complete system for each building and stakeholder. To get started, building owners and operators choose the LatchOS capabilities that they need, selecting devices they'd like to install at their building, and we handle the rest. It has taken us 7 years to develop this ecosystem, and we're excited about the capabilities that we provide to our customers, residents, and service providers. The way we sell our products is also unique as we have direct relationships with our customers and become essentially the trusted technology adviser for many of our customers. While traditionally, we've taken a number of disparate largely disconnected vendors to replicate the capabilities of LatchOS, we are able to consolidate all those capabilities into a single system. Our product roadmap is directly informed by this collaboration with our customers as we evolve to meet their needs and provide a singular experience that makes life better for everyone at a building. With installation timelines that could range from 6 to 18 months, depending on the construction schedule, we typically improve our products and add new features between the time of the initial sale and the time of install. Just like a smartphone or a smart car, we believe our products will only improve as time goes on, as our software updates keep adapting to our customers' needs throughout their multi-year software contracts. Building owners and operators buy LatchOS because it helps drive net operating income through increased revenue and reduced expenses. We estimate that building owners and operators using a LatchOS system may see revenue increases of up to $200 to $500 per apartment per year due to premium positioning, lower turnover, faster leasing times, increased rent, fees, and other ancillary monetization opportunities. Moreover, we estimate that building owners and operators using the LatchOS system may see operational expenses reduced by up to $100 to $300 per apartment per year due to decreasing lockout incident responses and increasing efficiencies in resident onboarding and offboarding, delivery management, and more. Latch has significant white space for rapid growth, and we'll be strategic about how we approach these new opportunities. As we look to the near term for Latch, there are several key growth drivers in North America. We are focused on growing the number of units on our LatchOS platform by increasing sales with new customers and expanding within our existing customer portfolios. We're also determined to expand average revenue per home unit by adding and expanding our LatchOS modules for enterprise customers and capturing additional digital services spending from residents. One of the key benefits of going public is that it has given us the resources to expand into new markets and verticals faster. Our partnership with Tishman Speyer will be essential in our announced expansion into the commercial office market, and we're excited to work with other existing customers and partners to expand our business into Europe as well. So to close out, I'd like to walk through some exciting product updates. The Latch C2, the company's new smart access device launched during the quarter, booked over 20,000 units in sales and was a contributing driver of total bookings outperformance. So Latch C2 is competitively positioned to address the retrofit market due to its low cost, long battery life, and limited infrastructure needs. Latch deployed NFC Unlock functionality on Android across its product portfolio, building on the company's industry-leading variety of unlock options. This initiative served to amplify the value of Latch's full technology stack of hardware, firmware, and software, adding new features that can contribute immediate value to both building owners and residents, while simultaneously deepening technology integrations with Google. Latch deepened its status as a trusted technology partner with AvalonBay by developing a self-service touring experience that allows prospective residents to visit Kanso Twinbrook, its newest development concept in a safe, contactless manner. In May, Latch announced the expansion of its full building enterprise SaaS platform into the commercial office space with the launch of LatchOS for Commercial Office, Latch Visitor Express, and LatchID, 3 product offerings specifically tailored to commercial office buildings, which should greatly expand the company's addressable market. Latch has always been a product company, and we're committed more than ever to continuing to deliver for each stakeholder in our ecosystem. We have a strong foundation of products and services, deep customer relationships, and a team that is dedicated to pushing the Latch experience forward in every way that we can. As we continue to add to the depth and breadth of LatchOS, continue to innovate with new products, and continue expanding to new markets, Latch's next chapter is going to be something really special. We hope you'll follow our journey. With that, let me turn it over the call to Garth Mitchell, our CFO. Garth?

Thanks, Luke. It's great to connect with both our existing and prospective stockholders in our first call as a public company. Q1 was a record quarter for the company on many fronts, and I'm excited to share these results in addition to providing an update on our Q2 and fiscal year 2021 guidance. Before diving into our financial results, I wanted to review the important aspects of our business and revenue model considering that some of you may be new to the Latch story. Since our launch in summer 2017, we have not lost a single customer, leading to 100% gross dollar retention, and we've demonstrated our ability to sell deeper into our customers' portfolios over time. This, plus our low single-digit current penetration into existing customer portfolios, gives us confidence that we can drive sustainable same customer expansion for the foreseeable future. Our go-to-market model and long software contract lengths drive remarkable sales and marketing efficiency, as measured by our lifetime customer value to customer acquisition cost ratio, or LTV to CAC. We've previously stated that our 2020 LTV to CAC was 6.8x or 4x factoring in hardware losses. Our strong new product attach rates in the first quarter of 2021 drove meaningful LTV expansion above a stable customer acquisition cost. Note that LTV to CAC does not take into account upsells or recent renewals, leaving room for expansion in the initial LTV. When we win a new account and a customer begins to deploy Latch across their portfolio, we see significant LTV to CAC expansion as sales and marketing costs are typically lower on upselling and cross-selling activity. Furthermore, scale efficiencies in next-generation access products improved hardware profitability, effectively reducing customer acquisition costs. Going forward, this is a lever we can pull to increase profitability, or we can strategically pass along these savings to key customers in order to accelerate top line growth. Equally important, Latch's very compelling upfront unit economics. On average, software contracts are over 6 years in length, and 97% of our customers elect to prepay their full contract value on day 1, which creates highly attractive upfront cash profitability. Before diving into our Q1 results, I thought it might be helpful to walk through revenue recognition and to give some color on seasonality we see in the business. We view total bookings as the primary measure of Latch's sales velocity and LatchOS customer adoption. Total bookings represent signed letters of intent with customers to purchase Latch hardware and software, not reflecting term or promotional discounts with a target delivery date no later than 24 months following letter of intent signature. Total bookings are a combination of the hardware revenue commitment and the software revenue commitment over the total life of the software agreement. The hardware revenue commitment is recognized net of promotional discounts as hardware revenue at the time of the shipment. Software revenue is recognized net of promotional discounts over the course of the contract, starting from software contract signature through contract end, and thus, there is a greater lag between software bookings and the recognition of software revenue than with hardware bookings and hardware revenue. The average delivery timeline ranges from 6 to 18 months. Retrofit deals tend to fall on the shorter end of the scale, while new construction deals, deals with larger customers, or larger portfolio-like deals tend to fall on the longer end of the scale due to increased construction timelines and complexity. As deployment timelines are complex and can depend on construction schedules and activity, we do experience some seasonality in our business. Most notably, delivery volumes in Q1 and Q4 can be lighter than Q2 and Q3 due to seasonality in construction, particularly in colder climate areas and slowdowns due to midyear holidays. Our business was also impacted by COVID-19, as restrictions placed on the residential multifamily construction market drove delays in unit deliveries in the first half of 2020. Beginning in the second half of 2020, these restrictions began to be lifted and construction sites started to open, resulting in accelerating revenue growth in the second half of 2020. Historical 2020 quarterly results are detailed in the appendix of our earnings presentation. Finally, as we continue to scale our business, we expect to see some evenness in the distribution of our total bookings due to the impact of large deals with an outsized impact on our quarterly total bookings cadence. In the second quarter of 2020, we had a very large portfolio-wide deal that led to the stronger than usual seasonal performance. Such unevenness may make it difficult to compare some quarters year-over-year. Now let me turn to our first quarter results. For the first quarter, total bookings were $71.7 million, up 89% year-over-year. Growth in cumulative booked home units also accelerated with a total of 369,000 units, up 109% year-over-year. Finally, booked ARR grew to $38.9 million, up 120% year-over-year. As discussed earlier, total bookings represent signed letters of intent with customers to purchase Latch hardware and software with a target delivery date no longer than 24 months following letter of intent signature. Cumulative booked home units represent the total number of apartment units or similar dwellings installed or committed to be installed with Latch products. Booked ARR is defined as the cumulative value of annual recurring revenue from Latch software subscriptions that are under a signed letter of intent. Sales and marketing spend did not increase in the quarter, and the accelerating growth across all booked metrics is reflective of increased product category adoption and strong demand for our latest product offerings. We are extremely excited to use the proceeds from this business combination to grow sales capacity to meet this accelerating growth in customer demand. We saw attach rates of non-access LatchOS software modules grow to 81% in Q1, a 37-percentage-point increase on attach rates of 44% in Q4 2020. This increase demonstrates robust customer demand for incremental LatchOS modules as they become available. The higher attach rates led to rapid LTV expansion in the first quarter over similar customer acquisition costs. The high attach rates of multiple LatchOS modules underpin our planned increase in investments in R&D, which will accelerate the time to market of several new modules. We expect these modules will drive higher customer ROIs and pull forward LTV expansion. Now turning to revenue. We are very excited to announce revenues of $6.6 million in the quarter, up 143% year-over-year. This, again, demonstrates the strong customer demand for our products and the continued reopening of construction sites as the pandemic subsides in certain markets. Our software margin was 92% for the first quarter, staying flat compared to 92% in the first quarter of 2020. We believe these margins continue to demonstrate the strength of Latch's business, deploying best-in-class software products with iconic integrated hardware devices. Over time, we expect software revenues will increase as a percentage of our revenue mix, which is a key driver for long-term operating margin expansion. Our hardware margin was negative 20% for the first quarter, a significant improvement compared to negative 58% in the first quarter of 2020. Q1 2020 hardware margins were negatively impacted by tariffs and a large one-time inventory write-off. The remaining improvement was largely driven by scale efficiencies and more cost-effective next-generation access products. While we expect the long-term improvement in the hardware margins, the unprecedented global supply chain shortages for electronic components could present short-term volatility in our hardware COGS. We are prioritizing meeting customer demand and are extremely proud of our supply chain team's agility and focus on doing so. We continue to have confidence in our team's ability to remain agile and meet customer demand, and we'll remain focused on making economic trade-offs between revenues and hardware margins where necessary. We will continue to closely monitor the situation and highlight any potential impact beyond Q2. Operating expenses, net of stock-based compensation, were $17.2 million in Q1, up 15% year-over-year compared to a 143% year-over-year increase in revenue. Both the first quarters of 2021 and 2020 were a loss of $13.9 million. The net loss was $38.1 million, and net loss per diluted share was $3.27 based on 11.6 million weighted average shares outstanding as of the end of Q1. The gap between adjusted EBITDA and net loss was driven by an increase in non-operating and nonrecurring items, including a $13.8 million nonrecurring stock-based compensation and warrant expense related to a secondary purchase transaction during the quarter, a $3.6 million unfavorable charge in the fair value of the derivative liability, primarily related to the company's convertible notes, a $3.3 million increase in interest expense, primarily related to the company's convertible notes, and $2.1 million of SPAC transaction costs. Turning now to our balance sheet. As of March 31, we had cash and cash equivalents of $46.5 million compared with $60.5 million as of December 31, 2020. This excludes the $453 million in cash proceeds, net of fees and expenses funded in conjunction with the closing of the business combination with TS Innovation Acquisition Corporation. At the end of the first quarter, we had debt of $62.8 million. Now let me turn to guidance. For the second quarter, we expect total bookings in the range of $82 million to $87 million. We expect revenue in the range of $9 million to $10 million. We expect our adjusted EBITDA to be in the range of negative $17 million to negative $20 million. For the full year 2021, we expect total bookings in the range of $290 million to $325 million. We expect revenue in the range of $47 million to $51 million. We expect adjusted EBITDA to be in the range of negative $75 million to negative $95 million. In summary, we are very pleased with our performance this quarter and look forward to building a track record of consistent performance as we move ahead. With the massive market opportunity ahead of us and a strong market leadership position, we believe the company is extremely well positioned to drive sustainable, long-term healthy growth.

I wanted to start off maybe with just a big picture question on the business, and I had a question on the numbers, too. One of the things that we found is we've studied other technologies and adoption of them in these kinds of markets is that owners, sometimes, if you have an existing building, they're reluctant to put new technology in because it costs them money. And I know you've talked about this adding revenue, maybe $200 to $500 per apartment. I just wonder if you could kind of tell us what you've encountered out there when you talk to owners. I know if they're retrofitting a building, they're building a new building, it makes total sense, they would do this. But what about people that have preexisting apartment buildings? How has the reception been to the technology there? And then I've got a follow-up for you.

Yes, absolutely, Rod. Thanks so much for the question. Yes, so we focus our efforts on the entirety of the market. And what we see is that a huge portion of the sort of market turns over every year as it changes hands every 10 years or gets renovated every 10 years. And so for us, the market that we look at on an in-year basis is new units that are being built and then units that are being renovated or are changing hands and repositioned in the market. And so if you think about the 47 million rental home units in the United States, and you think that those might change hands or need to be renovated every 10 years, that could be a way of thinking about in-year TAM. But for us, the market is so large that we're really focused on serving the entirety of the market. But we see both new construction and that structural renovation market being areas where we've seen a lot of activity over the life of the company.

Just to add one thing there. Our products serve new construction environments and retrofit environments equally well. Our sales teams are organized to focus on serving individual customers and selling both the new construction projects that they have in their portfolios and existing buildings. So for us, there's very little distinction necessarily between the retrofit market and the new construction market; we just focus on serving our customers' needs and selling deeper into their portfolios as they've had opportunities to actually generate ROI from Latch's process.

I wanted to mention that we attended WWDC at Apple this week, where I noticed they are introducing residential keys in their upcoming OS, which will be released later this fall. I'm curious whether Apple's announcement affects the user experience of your products or makes it more efficient in any way. How does this impact your business?

It's another way for users to access their space. For us, it presents an exciting opportunity to enhance our collaboration with Apple while also providing flexible solutions for users, whether they're using the Apple Watch, iPhone, or Android. Working with NFC cards and door codes provides users another method to utilize their LatchID. We see LatchID as a fundamental aspect of how users navigate their Latch environment, and this is yet another way to utilize that credential, which we find exciting. We announced the integration of LatchID into Apple Wallet as part of this initiative during the Keynote, as you mentioned, Rod.

Yes, we noticed those unit numbers, which are 41,000, 48,000, 40,000, and 64,000. I was wondering if Garth could address whether there is a typical seasonal pattern to these unit additions, or if we should anticipate a more random distribution based on the completion of projects. Can you help us understand how these unit additions typically flow throughout the quarters?

Yes, that's a good question, Rod. Delivery volumes in the first and fourth quarters are typically lower than in the second and third quarters due to construction seasonality in colder regions and slowdowns related to year-end holidays. Last year, we had a significant portfolio-wide deal in the second quarter, which contributed to some seasonal strength during that time. Looking ahead, we anticipate experiencing a similar seasonal pattern.

Congratulations on your first earnings report as a public company. Luke, first question for you. It's clear your businesses are accelerating from last spring. And at a high level, maybe you can just give us a sense of the type of customer conversations that you're having today compared to what they were like, say, a year ago?

Yes. Thanks so much, Mark. I think the biggest thing that we've seen is just an acceleration of demand. I think with many businesses, they've seen the pandemic sort of pull the future forward. I think Toby at Shopify mentioned that they saw 2020 look more like their projections for 2030. And I think what we've seen in our enterprise customer base is the reality that technology is going to be required to manage their assets going forward. They always knew that that was going to be a thing at some point. And I think the pandemic and the need to manage things remotely in a contactless way just accelerated that realization in the industry. And I think that's been one of the big drivers of the accelerating growth that we've seen. I think we've also made really smart product decisions. If you look at our focus on delivery and guest management, these were things that we've been big believers in for a long time. And again, the acceleration of e-commerce volume was another pandemic side effect. And it doesn't seem like it's going anywhere. Our ability to provide those solutions that solve these problems for our customers to make sure every delivery could get into a building has been highly valuable in the market, and our customers are really recognizing it in this unique time of technology adoption acceleration.

Great. And then with respect to your non-access modules, what non-access modules are you seeing the most interest in so far?

Yes. We haven't broken out the exact attach rate, but what I'll say is that going back to sort of my last comment about e-commerce volume. Our delivery and guest management products, anchored by our intercom and our Latch delivery assistant. So our intercom, think the call box at the front of the building just updated and really smart, with the ability to call your phone anywhere you are, so you can let the delivery in. But more importantly, in buildings that have also opted for Latch delivery assistant, the call from the delivery person will actually be routed to an operator that can open the door on the resident's behalf. So if I got a call right now for delivery to my building, I probably can't pick up, but the Latch delivery system can, making sure that every delivery gets in. That is a huge asset for buildings that don't have full-time staff. And so when we think about the holistic offering, that ability to always get deliveries in, in this moment of accelerated e-commerce and delivery volume has been really valuable. But we've also seen exciting adoption on the smart home side. People are spending more time at home and are thinking about it more. Our partnership with Google Nest generated a lot of press in the fall, and we're very excited about pushing for all the modules, but that's just a little flavor of kind of how our customers are perceiving them right now.

Great. And then finally here, on your Commercial Office opportunity, which is relatively new. With respect to the 3 office pilots that you have going on in New York, where are you in that process? Are they just getting started? Have the buildings been retrofitted with smart locks yet or are in that process?

Yes, Mark, great question. So I think just to contextualize the announcement a little bit more, we actually announced 3 products as part of our announcement about a month ago. And so the product that is being piloted at those 3 large properties, Brookfield Place, Empire State Building, and Rockefeller Center, these Latch Visitor Express. Latch Visitor Express allows someone in the absolute largest office building to be able to show up as a guest, and with their LatchID, skip straight to the turnstile or the elevator without being stuck in that 10-minute queue at the front desk. So that's Latch Visitor Express. That will be piloted at a number of leading properties in 2021 in New York. However, we also announced LatchOS for commercial offices, which is our holistic suite of products, going to the long tail of commercial offices, not just the largest buildings, and those installs are beginning now. So we're very excited about the expanded TAM that this presents. And really the ability for us to use LatchID, which was our third announcement, again, about 3 weeks ago, to serve as that trusted identity platform to provide single sign-on experiences in physical space. And to give a little bit more meat to that, if I live at a Latch building and I have my Latch account for that, and then I work at a Latch building, it's the same account. And then if I visit another Latch building, it's the same account, which means that you have this persistent identity that just gives you that convenience everywhere that you go. So those were the announcements from a few weeks ago, Mark.

I wanted to ask about the retrofit opportunity a bit more, and Garth, you said retrofits typically fall in kind of the accelerated spectrum between getting the initial commitment and then converting on a delivery and revenue rec. I thought it was interesting with the C2 product to book 20,000 units and to deliver 8,000 units within the scope of 1 quarter. That seems even quicker than the kind of normal timeline Latch has discussed. So I guess a few questions. One is, is that right? And then two, is that a reflection of anything that's changing? Are the products getting engineered a bit differently to accelerate potential adoption? Is it customer demand that's driving this? Just what are your thoughts on that?

Yes. So I can speak to that. And Garth, feel free to chime in. But what we've seen is we recognize the need to have the best possible product for retrofit. And so to get lock nerd here just for a second. If you've ever had that experience when you're trying to close the door and you have to turn the key and sort of jiggle the door to get the door to lock, that happens all the time because the door frame and the door are settled over time and become misaligned. With traditional electronic locks, if that door is not aligned, the lock cannot lock properly, it cannot operate properly. And that's been a big problem with the adoption of electronic locks historically. So what we did, starting about 2 years ago, was we said, how could we solve this problem in a new way. And so we came up with a patented clutching mechanism that allows us to get around that problem and provide this really universal retrofit solution that has extremely long battery life, extremely robust performance, and that has really resonated with our customers, particularly those who are retrofitting older assets. So the idea that you don't have to worry about mechanical issues. You don't have to worry about having any internet connectivity at the building, and you get something that just works right out of the box. That's been a really powerful tool in our arsenal as we've continued to court retrofit customers. Does that answer your question, Joe?

Yes, it does. And maybe just a second question, and this is going to be on competitive landscape. But today, there's a lot of nuance and variety to smart building technology for multifamily. So it seems like you have single product companies, be it intercom or access, smart devices, you have software providers that are hardware agnostic and then you have the crop of more vertically integrated kind of the Latch approach. Maybe you can just walk through how you arrived, why you arrived at your particular business model and how you're seeing that be advantageous as this category kind of gains more interest, more adoption behind us?

Yes, absolutely. I mean, I think it's really simple. We just looked at this and said, we want to serve this market, what are the problems that our customers care about and what are the things that we need to think about in designing our products. And for our customers, uptime and fault tolerance are everything. So for example, in a Latch building, the internet can go down at the property because we don't require internet. The power can be out at the property because we don't require power. And your phone cannot have cell reception and the user can still get into their unit, right? And that sort of fault tolerance and uptime is what our customers really, really value because we thought holistically about how this entire thing would work so that they're able to make sure that their residents have an incredible experience. You can only do that when you have the ability to solve problems in the entire product stack from hardware or software to firmware; you can't do that when you just have arm's length software integrations. And for us, we've been open from the beginning. Our philosophy is to be open to every partner that can provide the uptime and reliability that our customers need, but we can only do that with the best companies who are able to provide that experience. So Google, Apple, Honeywell, RealPage, Entrata. Those are the companies that our customers rely on just like Latch that have that critical infrastructure behind their properties. So we can't compromise on uptime and on reliability. And so we believe that this integrated approach that will provide that uptime and reliability is going to continue to be the winning strategy in the market. It's much harder than just doing one piece or one disparate thing here or there, but it is the winning strategy over the long term and has been why we've been able to be so successful with the largest developers and operators in the country.

You've actually got Stephen Sheldon on here. So first, I guess, congrats on getting the process completed here. Wanted to ask a little bit more on the expansion into the office category. I guess what type of investments will still be needed on both go-to-market side and to tailor the products and pricing structure, I guess, even more for the office sector? And then I guess, what are you kind of targeting in terms of traction on the opposite side, if we thought about the next 3 to 5 years?

Thank you, Stephen. Yes, so as we think about the product, it's really the core product is the same, and that was one of the big advantages in owning the kind of product ecosystem that we do is that it allows us to scale into new verticals and new areas quickly. And so what we're excited about with commercial office is to bring effectively our same software modules, our same partners, our same devices into this market. Now we will also want to add new features, new partners, etc., to make sure that we're solving our customers' needs because it's not a 100% overlap, but it is very similar. Same, as we talked about go-to-market, it is also very similar in terms of the way that things go to market. So the installation capabilities, the direct relationships with real estate owners. Those things are often the same. We often also have relationships with some of the country's largest commercial office owners because they also happen to be large multifamily owners and operators. And so we're excited about that. I think where we will make increased investment is on dedicated sales resources that can take our existing account-based selling motion and relationships and really tailor it to go deeper inside target organizations to serve the commercial office needs that they may have. So that will be an area of additional investment. In terms of how we think about pricing, we look at it just like we did with LatchOS, and we're not a single-point solution. We're an integrated product offering that encompasses visitor management, package management, access experiences, smart home integrations, and all of those capabilities together are not something that we've really seen before in this market. So we're very excited about our ability to price competitively, price to win, but take market share relatively quickly given the strength and robustness that we've demonstrated on the multifamily side. I don't know, Garth, do you want to speak any more to how we're thinking about this over the longer term financially?

Sure. Yes. I mean, we believe we can take these products to market using the same operating expense investments that we've contemplated in the Analyst Day materials you can find on our Investor Relations website. But just like any other business or investment decision, to the extent that we see accelerated adoption by customers, we will obviously invest to meet that demand. But we haven't included meaningful revenue expansion from Commercial Office in our projections; we have included the necessary investments to bring them to market.

Yes. So the way that we think about it is we take a very methodical approach to these markets and serving our customers. And I think what's interesting is that we have many of the same customers in the U.S., in Canada, and in Europe. And so as we think about that highest level organizational relationship, they want a unified technology strategy. And so for us, it's important for us in meeting our customers' needs to meet them in the markets where they have the biggest problems. And there's an increasing demand for our products internationally. And so I think we'll be opportunistic, but really focused on how do we serve our customers in the best way going forward. And the contemplated materials from our Analyst Day really allow us to make the investments needed to pursue those expansion opportunities as they come up, and we're excited about them.

So it's nice to hear about the expansion on the commercial side. But any update on the opportunities for single-family? Maybe can you just speak to where that is in terms of priority.

Yes, Jason. We are actively engaged in the single-family market, which is evolving quickly. We're noticing a growing trend toward institutional involvement in this sector. This is beneficial for us because our account-based sales strategy aligns well with the needs of these institutional operators. However, it's important to note that institutional owners currently represent only a small single-digit percentage of the overall market, while in the multifamily space, large institutional owners control around 60%. Our account-based approach has seen early successes, but we are particularly enthusiastic about expanding our self-serve offerings and collaborating with channel partners in the future. We believe that the vast majority of the single-family rental market is ripe for our solutions since there are few off-the-shelf options that can match our products. We are very optimistic about this opportunity. We are engaging with larger institutional players to better understand their needs, but we see the long tail of the market as offering significant potential for an extended period, considering how early-stage the growth of institutional investors is in that area.

Great. And then maybe one more for me. When we think about the full rental market right now, how did the customer demand trends look across different parts of the country? And then how does it maybe differ compare, contrast between the new construction versus maybe some of the retrofit?

Yes, Jason, fantastic question. We really have seen broad-based growth geographically and in new construction and in retrofit, which I know is sort of an unsatisfying answer, but we're active in over 35 states. And for us, we've really just seen, once people are using the product, they get it and they want to expand. I can't say that we've seen any city-specific or region-specific or asset type specific adoption; it's really been broad-based. And we expect that to continue going forward.

Yes, Jason, to add to that, we have noticed that as customers experience Latch in their buildings, they are coming to us to discuss expanding their deployments across their entire portfolios. This naturally creates more opportunities for existing and retrofit projects. It's truly exciting activity that we anticipate will continue and drive steady growth for the business moving forward. However, as Luke mentioned, we have unique advantages in new construction opportunities where we can provide a fully differentiated deployment process, as well as in retrofit projects as customers integrate us more deeply into their portfolios.

I wanted to follow up on the international opportunity. It sounds like you have some existing partnerships that might provide some low-hanging fruit once you enter these markets. Is this factored into your longer-term projections that you provided during the Analyst Day? Then maybe a follow-up, if I can.

Yes. Absolutely, Ben. We have accounted for modest growth in the European market in our projections given on Analyst Day. I wouldn't say any of them are contingent on any specific relationship or any specific partnership. But we do have existing relationships and partnerships that will help us get in and active in Europe early. And we'll definitely rely on those early on to just make sure that we understand any regional differences, customer preferences, resident preferences, before we go super wide. But we have built in a sort of modest expectations around expanding into Europe in the Analyst Day materials.

Okay. Great. That's helpful. And then as a follow-up, thinking about the consumer monetization opportunity, you disclosed that a user opens the app somewhere between 4 and 5 times a day. Can you provide any color on the duration of these visits and maybe how this has trended as you've rolled out additional modules that might drive more engagements versus just the smart access module?

Yes, we haven't detailed the specific utilization metrics yet. However, I can say that they have been increasing over time, and we're very excited to observe that as we release more modules, our engagement rises. We are optimistic and genuinely thrilled about the level of engagement we are experiencing, which presents a unique opportunity to become the interface for space, enabling residents to interact with their environment in an unprecedented way. Our vision for residents is to create a comprehensive platform that encompasses how they manage their space, including all services and features, effectively serving as a central dashboard for their rental experience. We haven't seen anyone else approach this, and we believe we have a unique opportunity to realize this vision.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.