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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~ June 30, ~~2023~~2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-39688

Latch, Inc.

(Exact name of registrant as specified in its charter)


Delaware						85-3087759
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

1220 N. Price Road, Suite 2

Olivette, Missouri 63132

(314) 200-5218

(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: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of ~~March~~October 2131, 2025, there were 164,~~825~~034,~~277~~812 shares of the registrant’s common stock outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) 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 Form 10-Q, 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 Form 10-Q 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 Form 10-Q 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 for the year ended December 31, ~~2022~~2023 (the “2023 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) ~~on December 19~~, ~~2024 (the “2022 Annual Report”),~~ titled “Risk Factors.” Additionally, see the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2023~~2024 (the “~~2023~~2024 Annual Report”), which we expect to file concurrently with, or promptly after, the filing of this Form 10-Q. These forward-looking statements are subject to numerous risks, including, without limitation, the following:

•our ability to remediate the material weaknesses we identified in our internal control over financial reporting and the timing of such remediation;

•the performance of the Company’s stock, particularly given the limited liquidity and depressed trading prices of the Company’s common stock as a result of delisting of the Company’s securities from The Nasdaq Stock Market LLC (“Nasdaq”);

•whether the Company’s common stock and warrants, which are trading on OTC Markets Group Inc.’s (“OTC”) Expert Market (the “OTC Expert Market”), may remain on the OTC Expert Market rather than be listed on the OTCQX, OTCQB or OTC Pink markets;

•developments in the pending stockholder class action and derivative complaints or other legal proceedings, relating to the Investigation and Restatement (each as defined below) or otherwise;

•regulatory disputes and governmental inquiries, including the SEC Investigation (as defined below);

•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, services and innovations to meet constantly evolving customer demands;

•our ability to hire, retain, manage and motivate employees, including key personnel;

•the impact of workforce reductions on our business, financial condition and results of operations;

•our ability to improve operating and financial results and attain profitability;

•compliance with laws and regulations applicable to our business;

•the impact of macroeconomic conditions on our business, our suppliers and our existing and potential customers;

•our ability to upgrade and maintain our information technology systems;

•our ability to acquire and protect intellectual property;

•our ability to successfully identify, complete, integrate and realize synergies from acquisitions, such as the ~~2023 acquisition (the “HDW Acquisition”) of Honest Day’s Work, Inc. (“HDW”) and the 2024 merger (the “~~HelloTech Merger”) ~~with~~(as ~~HelloTech,~~defined ~~Inc. (“HelloTech”~~below), including the ability to retain key personnel from such acquisitions;

•the potential adverse impact of the ~~HDW Acquisition,~~ HelloTech Merger and any future acquisitions, including the potential increase in risks already existing in our operations, poor performance or decline in value of ~~HDW~~HelloTech, ~~HelloTech~~Inc. or other acquired businesses and unexpected costs or liabilities that may arise from the ~~HDW Acquisition,~~ HelloTech Merger or any future acquisitions; and

•the impact of remediating the findings of the Investigation.

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 Form 10-Q 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 Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Latch, Inc. and Subsidiaries

Form 10-Q

Table of Contents

			Page
Part I - Financial Information			1
Item 1. Financial Statements (unaudited)			1
Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022			1
Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2024 and December 31, 2023			1
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2023 and 2022			2
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2024 and 2023			2
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2023 and 2022			3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2024 and 2023			3
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022			5
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2024 and 2023			4
Notes to Condensed Consolidated Financial Statements (unaudited)			65
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			4038
Item 3. Quantitative and Qualitative Disclosures About Market Risk			5349
Item 4. Controls and Procedures			5349
Part II - Other Information			5753
Item 1. Legal Proceedings			5753
Item 1A. Risk Factors			5753
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5753
Item 3. Defaults Upon Senior Securities			5753
Item 4. Mine Safety Disclosures			5753
Item 5. Other Information			5753
Item 6. Exhibits			5854
Signatures			6055

Part I. Financial Information

Item 1. Financial Statements

Latch, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share amounts)

	September 30, 2023		December 31, 2022
	June 30, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	56,298	$	109,828
Cash and cash equivalents(1)	$	87,459	$	94,675
Available-for-sale securities, current	112,201		120,233
Available-for-sale securities	22,532		84,861
Accounts receivable, net	612,~~917~~733		76,~~026~~001
Inventories, net current	2211,~~134~~730		2916,~~435~~559
Prepaid expenses and other current assets	3336,~~912~~511		1234,~~333~~757
Total current assets	~~231~~170,~~462~~965		~~278~~236,~~855~~853
Available-for-sale securities, non-current	2,002		4,836
Property and equipment, net	800		1,465
Property and equipment, net	1,602		2,466
Internally-developed software, net	9,661		9,757
Internally-developed software, net	10,776		13,753
Inventories, net non-current	12,210		10,143
Inventories, net non-current	9,776		13,595
Goodwill	25,854		25,322
Goodwill	25,322		—
Intangible assets, net	4,971		4,791
Intangible assets, net	4,999		133
Other non-current assets	6,073		6,101
Other non-current assets	3,659		3,024
Total assets	$	230,534	$	294,432
Total assets	$	289,598	$	316,662
Liabilities and Stockholders’ Equity
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	23,~~238~~297	$	63,~~005~~642
Accrued expenses	38,718		25,645
Current portion of long-term debt	—		22,000
Deferred revenue, current	11,212		10,686
Accrued expenses(1)	43,988		54,966
Notes payable	22,000		—
Deferred revenue, current	11,157		10,837
Other current liabilities	21,~~171~~801		12,~~926~~893
Total current liabilities	7660,~~339~~243		4494,~~262~~338
Deferred revenue, non-current	3025,~~120~~229		3128,~~239~~742
Warrant liability	12		230
Other non-current liabilities	2,443		2,215
Other non current liabilities	18		176
Total liabilities	87,915		125,295
Total liabilities	106,489		75,907
Commitments and contingencies (see Note 12)
Commitments and contingencies (see Note 10)
Stockholders’ equity
Stockholders’ Equity
Common stock - $0.0001 par value, 1,000,000,000 shares authorized; 175,462,145 and 175,462,145 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively(2)	19		19
Common stock - $0.0001 par value, 1,000,000,000 shares authorized; 173,620,261 and 144,609,513 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively(1)	19		16
Additional paid-in capital	774,294		770,196
Additional paid-in capital	767,828		735,785
Accumulated other comprehensive income	6		48
Accumulated other comprehensive loss	(74)		(1,460)
Accumulated deficit	(631,700)		(601,126)
Accumulated deficit	(584,664)		(493,586)
Total stockholders’ equity	142,619		169,137
Total stockholders’ equity	183,109		240,755
Total liabilities and stockholders’ equity	$	230,534	$	294,432
Total liabilities and stockholders’ equity	$	289,598	$	316,662

(1)~~Shares~~Amount ~~issued~~presented ~~and outstanding~~ as of ~~September~~December 3031, 2023 ~~and~~includes $19.3 million of cash required for a purchase of securities executed during the year ended December 31, ~~2022~~2023 ~~exclude~~but ~~738,000~~that ~~shares~~was ~~subject~~not todeducted ~~vesting~~from ~~requirements~~the ~~held~~Company’s byaccounts TSuntil ~~Innovation~~January ~~Acquisitions~~2024. ~~Sponsor,~~See LNote 2.~~L.C~~ ~~(the~~Summary ~~“Sponsor”)~~of ~~related~~Significant toAccounting ~~the~~Policies ~~2021~~- ~~business~~Cash ~~combination~~and Cash Equivalents, and Note 10. Accrued Expenses.

(2)Shares issued and outstanding as of June 30, 2024 and December 31, 2023 exclude 738,000 shares subject to vesting requirements held by TS Innovation Acquisitions Sponsor, L.L.C. (the “Sponsor”) related to the 2021 business combination (the “Sponsor Shares”).

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(in thousands, except share and per share amounts)

	Three months ended September 30,				Nine months ended September 30,
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	2024		2023		2024		2023
Revenue
Hardware	$	35,~~215~~583	$	4,~~027~~263	$	1210,~~823~~226	$	189,~~025~~608
Software	45,~~660~~022		34,~~403~~413		1310,~~046~~059		98,~~349~~386
Installation services	1,798		1,409		5,132		4,851
Professional services	2,333		1,502		4,688		3,334
Total revenue	912,~~673~~938		810,~~839~~178		3124,~~001~~973		3221,~~225~~328
Cost of revenue(1)
Hardware	14,~~393~~352		4,~~739~~381		177,~~363~~377		2715,~~591~~970
Software	~~546~~573		~~462~~524		~~1,489~~930		~~1,123~~943
Installation services	1,640		1,604		4,646		5,115
Professional services	2,081		1,373		4,280		3,006
Total cost of revenue	37,~~579~~006		6,~~805~~278		2312,~~498~~587		3319,~~829~~919
Operating expenses
Research and development	102,~~236~~940		108,~~991~~660		277,~~959~~141		4617,~~523~~723
Sales and marketing	32,~~819~~252		74,~~028~~378		124,~~753~~751		418,~~275~~934
General and administrative	1816,~~791~~726		1520,~~077~~517		5428,~~502~~575		4235,~~898~~711
Depreciation and amortization	1,~~856~~814		1,~~386~~696		53,~~375~~710		3,~~897~~519
Total operating expenses	3423,~~702~~732		3435,~~482~~251		~~100~~44,~~589~~177		~~134~~65,~~593~~887
Loss from operations	(2817,~~608~~800)		(3231,~~448~~351)		(9331,~~086~~791)		(~~136~~64,~~197~~478)
Other income (expense), net
Other income, net
Change in fair value of warrant liability	~~553~~53		~~389~~(245)		~~218~~(1)		~~9,355~~(335)
Change in fair value of trading securities	—		(1,960)		—		(3,460)
Interest income, net	521		543		967		812
Interest income (expense), net	808		(702)		1,620		(2,802)
Other income, net	289		177		253		212
Other income (expense), net	(31)		(78)		181		(109)
Total other income, net	863		475		1,219		689
Total other income (expense), net	1,330		(2,351)		2,019		2,984
Loss before income taxes	(16,937)		(30,876)		(30,572)		(63,789)
Loss before income taxes	(27,278)		(34,799)		(91,067)		(133,213)
Provision for income taxes	—		—		2		11
Provision for income taxes	—		10		11		44
Net loss	$	(16,937)	$	(30,876)	$	(30,574)	$	(63,800)
Net loss	$	(27,278)	$	(34,809)	$	(91,078)	$	(133,257)
Other comprehensive income (loss)
Other comprehensive loss
Unrealized (loss) gain on available-for-sale securities	(9)		468		(44)		1,148
Unrealized gain (loss) on available-for-sale securities	238		257		1,386		(1,642)
Foreign currency translation adjustment	(4)		2		2		—
Foreign currency translation adjustment	—		12		—		13
Comprehensive loss	$	(16,950)	$	(30,406)	$	(30,616)	$	(62,652)
Comprehensive loss	$	(27,040)	$	(34,540)	$	(89,692)	$	(134,886)
Net loss per common share:
Basic and diluted net loss per common share	$	(0.1611)	$	(0.2421)	$	(0.5920)	$	(0.9344)
Weighted average shares outstanding:
Basic and diluted	~~172~~156,~~989~~386,~~593~~470		144,~~590~~609,~~030~~513		~~154~~156,~~173~~386,~~496~~470		~~143~~144,~~280~~609,~~949~~513

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

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands)

	Nine months ended September 30, 2022
				Six months ended June 30, 2023
	~~Common Stock(1)~~	Common Stock(1)		~~AdditionalPaid-InCapital~~		~~Accumulated OtherComprehensiveIncome (Loss)~~AdditionalPaid-InCapital			~~AccumulatedDeficit~~Accumulated OtherComprehensiveIncome (Loss)		~~TotalStockholders’ Equity~~AccumulatedDeficit		TotalStockholders’ Equity
	~~Shares~~	~~Amount~~		Shares				Amount
January 1, 2022	141,586	$	15	$	705,865	$	(676)		$	(331,212)	$	373,992
January 1, 2023				144,610		$	16		$	735,785	$	(1,460)	$	(493,586)	$	240,755
Cumulative effect adjustment of adopting ASC 326	—	—		—		—			(38)		(38)
Stock-based compensation				—		—			4,680		—		—		4,680
Exercises of common stock options	365	—		177		—			—		177
Foreign currency translation adjustment				—		—			—		(2)		—		(2)
Issuance of common stock upon settlement of restricted stock units	490	—		—		—			—		—
Unrealized gain on available-for-sale securities				—		—			—		680		—		680
Tax withholdings on settlement of equity awards	(202)	—		(1,292)		—			—		(1,292)
Net loss				—		—			—		—		(32,924)		(32,924)
Transaction costs related to reverse capitalization	—	—		(25)		—			—		(25)
March 31, 2023				144,610		16			740,465		(782)		(526,510)		213,189
Stock-based compensation	—	—		~~13,075~~—		—			—4,218		~~13,075~~—		—		4,218
Foreign currency translation adjustment	—	—		—		2—			—		2		—		2
Unrealized gain (loss) on available-for-sale securities	—	—		—		(1,618)			—		(1,618)
Unrealized gain on available-for-sale securities				—		—			—		468		—		468
Net loss	—	—		—		—			~~(46,832)~~—		~~(46,832)~~—		(30,876)		(30,876)
March 31, 2022	142,239	15		717,800		(2,292)			(378,082)		337,441
June 30, 2023				144,610		$	16		$	744,683	$	(312)	$	(557,386)	$	187,001
Exercises of common stock options	637	—		528		—			—		528
				Six months ended June 30, 2024
Issuance of common stock upon settlement of restricted stock options	1,833	1		—		—			—		1
		Common Stock(1)				AdditionalPaid-InCapital			Accumulated OtherComprehensiveIncome (Loss)		AccumulatedDeficit		TotalStockholders’ Equity
Tax withholdings on settlement of equity awards	(622)	—		(1,883)		—			—		(1,883)
				Shares				Amount
Stock-based compensation	—	—		7,840		—			—		7,840
January 1, 2024				175,462		$	19		$	770,196	$	48	$	(601,126)	$	169,137
Foreign currency translation adjustment	—	—		—		(1)			—		(1)
Stock-based compensation				—		—			2,119		—		—		2,119
Unrealized gain (loss) on available-for-sale securities	—	—		—		(281)			—		(281)
Foreign currency translation adjustment				—		—			—		6		—		6
Net loss	—	—		—		—			(51,616)		(51,616)
Unrealized loss on available-for-sale securities				—		—			—		(35)		—		(35)
June 30, 2022	144,087	16		724,285		(2,574)			(429,698)		292,029
Net loss				—		—			—		—		(13,637)		(13,637)
Exercises of common stock options	50	—		17		—			—		17
March 31, 2024				175,462		19			772,315		19		(614,763)		157,590
Issuance of common stock upon settlement of restricted stock units	706	—				—			—		—
Stock-based compensation				—		—			1,979		—		—		1,979
Tax withholdings on settlement of equity awards	(233)	—		(218)		—			—		(218)
Foreign currency translation adjustment				—		—			—		(4)		—		(4)
Foreign currency translation adjustment	—	—		—		12			—		12
Unrealized loss on available-for-sale securities				—		—			—		(9)		—		(9)
Stock-based compensation	—	—		5,813		—			—		5,813
Net loss				—		—			—		—		(16,937)		(16,937)
Unrealized gain (loss) on available-for-sale securities	—	—		—		257			—		257
June 30, 2024				175,462		$	19		$	774,294	$	6	$	(631,700)	$	142,619
Net loss	—	—		—		—			(34,809)		(34,809)
September 30, 2022	144,610	$	16	$	729,897	$	(2,305)		$	(464,507)	$	263,101

(1)Shares issued and outstanding exclude 738,000 Sponsor Shares subject to vesting requirements.

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Condensed Consolidated ~~Statement~~Statements of ~~Stockholders’~~Cash ~~Equity~~Flows (unaudited)

(in thousands)

	Nine months ended September 30, 2023
	Six months ended June 30,
	Common Stock(1)				AdditionalPaid-InCapital		Accumulated OtherComprehensiveIncome (Loss)		AccumulatedDeficit		TotalStockholders’ Equity
	2024		2023
	Shares		Amount
Operating activities
January 1, 2023	144,610		$	16	$	735,785	$	(1,460)	$	(493,586)	$	240,755
Net loss	$	(30,574)	$	(63,800)
Stock-based compensation	—		—		4,680		—		—		4,680
Adjustments to reconcile net loss to net cash used by operating activities
Foreign currency translation adjustment	—		—		—		(2)				(2)
Depreciation and amortization	3,710		3,519
Unrealized gain (loss) on available-for-sale securities	—		—		—		680		—		680
Non-cash interest income	(932)		(489)
Net loss	—		—		—		—		(32,924)		(32,924)
Change in fair value of warrant liability	1		335
March 31, 2023	144,610		16		740,465		(782)		(526,510)		213,189
Realized loss on available-for-sale securities	1		—
Stock-based compensation	—		—		4,218		—		—		4,218
Unrealized loss on marketable securities	84		—
Foreign currency translation adjustment	—		—		—		2		—		2
Loss on disposal of fixed assets	189		—
Unrealized gain (loss) on available-for-sale securities	—		—		—		468		—		468
Impairment loss on long-lived assets	—		697
Net loss	—		—		—		—		(30,876)		(30,876)
Provision for expected credit losses, net of recoveries	(113)		(824)
June 30, 2023	144,610		16		744,683		(312)		(557,386)		187,001
Provision for credit losses on contract assets	(136)		18
Issuance of common stock related to HDW Acquisition	29,010		3		15,624		—		—		15,627
Stock-based compensation expense	3,988		8,280
Stock-based compensation	—		—		7,521		—		—		7,521
Changes in assets and liabilities (excluding effects of acquisitions)
Unrealized gain (loss) on available-for-sale securities	—		—		—		238		—		238
Accounts receivable	(6,619)		(744)
Net loss	—		—		—		—		(27,278)		(27,278)
Inventories, net	2,762		10,278
September 30, 2023	173,620		$	19	$	767,828	$	(74)	$	(584,664)	$	183,109
Prepaid expenses and other current assets	(1,618)		(16,509)
Other non-current assets	187		(878)
Accounts payable	(344)		(3,193)
Accrued expenses	(11,000)		17,681
Other current liabilities	(1,103)		(29)
Other non-current liabilities	227		(120)
Deferred revenue	(3,193)		493
Net cash used in operating activities	(44,483)		(45,285)
Investing activities
Purchase of available-for-sale securities	(10,119)		(41,289)
Proceeds from sales and maturities of available-for-sale securities	73,251		97,668
Business acquisitions, net of cash acquired	(1,160)		—
Purchase of property and equipment	(40)		(83)
Capitalized internally-developed software	(2,694)		(968)
Net cash provided by investing activities	59,238		55,328
Financing activities
Repayment of unsecured promissory notes	(22,000)		—
Net cash used in financing activities	(22,000)		—
Effect of exchange rate on cash	29		(21)
Net change in cash and cash equivalents	(7,216)		10,022
Cash and cash equivalents
Beginning of period	94,675		109,828
End of period	$	87,459	$	119,850
Supplemental disclosure of non-cash investing and financing activities
Capitalization of stock-based compensation to internally developed software	$	110	$	618
Net assets acquired as part of business acquisitions	$	628	$	—

(1)Excludes 738,000 shares held by the Sponsor subject to vesting requirements.

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Nine months ended September 30,
	2023		2022
Operating activities
Net loss	$	(91,078)	$	(133,257)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization	5,375		3,897
Non-cash interest (income) expense	(1,436)		2,086
Change in fair value of warrant liability	(218)		(9,355)
Change in fair value of trading securities	—		3,460
Unrealized income on marketable securities	(6)		—
Realized gains/losses on available-for-sale securities	(1)		47
Impairment loss on long-lived assets	697		886
Provision for doubtful accounts, net of recoveries	(792)		993
Provision for credit losses on contract assets	74		—
Stock-based compensation expense	15,783		24,352
Changes in assets and liabilities
Accounts receivable	901		3,287
Inventories, net	11,120		(20,524)
Prepaid expenses and other current assets	(21,660)		(3,491)
Other non-current assets	(628)		(1,150)
Accounts payable	(3,765)		(257)
Accrued expenses	12,811		3,284
Other current liabilities	(360)		758
Other non-current liabilities	(158)		238
Deferred revenue	(593)		11,188
Net cash used in operating activities	(73,934)		(113,558)
Investing activities
Purchase of available-for-sale securities	(117,539)		(57,613)
Proceeds from sales and maturities of available-for-sale securities	131,234		171,212
HDW Acquisition, net	8,085		—
Purchases of trading securities	—		(250)
Purchase of property and equipment	(136)		(2,160)
Capitalized internally-developed software	(1,225)		(4,000)
Net cash provided by investing activities	20,419		107,189
Financing activities
Proceeds from issuance of common stock	—		724
Payments for tax withholding on net settlement of equity awards	—		(3,394)
Proceeds from revolving credit facility	—		1,345
Repayment of revolving credit facility	—		(4,714)
Net cash used in financing activities	—		(6,039)
Effect of exchange rate on cash	(15)		(54)
Net change in cash and cash equivalents	(53,530)		(12,462)
Cash and cash equivalents
Beginning of period	109,828		124,782
End of period	$	56,298	$	112,320
Supplemental disclosure of non-cash investing and financing activities
Capitalization of stock-based compensation to internally developed software	$	636	$	2,376
Net assets acquired	$	4,221	$	—
Promissory note issued as part of HDW Acquisition	$	22,000	$	—
Common stock issued for HDW Acquisition	$	15,627	$	—

See accompanying notes to the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

1.DESCRIPTION OF BUSINESS

Latch, Inc. (referred to herein, collectively with its subsidiaries, as “Latch,” “DOOR” or the “Company”) is a technology company ~~primarily~~delivering ~~serving~~an ~~the~~integrated ~~multifamily~~ecosystem ~~rental~~of ~~home~~hardware, ~~market~~software ~~segment~~and ofservices ~~the~~designed ~~smart~~to ~~building~~enhance ~~industry~~operations ~~deploying~~and ~~hardware~~experiences ~~and~~within ~~software~~buildings, ~~technology~~primarily toserving ~~digitize~~the ~~otherwise~~multifamily ~~manual~~rental ~~processes~~market. In August 2025, ~~including~~the ~~building~~Company ~~and~~rebranded ~~unit~~as ~~access~~DOOR, ~~and~~although ~~in-unit~~its ~~device~~legal ~~control.~~name remains Latch, Inc.

InThe ~~May 2019, the~~ Company’s ~~incorporated~~revenues ~~Latch~~are ~~Taiwan,~~derived ~~Inc.,~~primarily afrom ~~wholly-owned~~operations ~~subsidiary,~~ in ~~the~~North ~~state of Delaware~~America. 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~~operations ~~are~~consist ~~derived~~of ~~primarily~~one ~~from~~reportable ~~operations in North America~~segment.

OnIn ~~June~~May 42019, ~~2021,~~ the Company ~~consummated~~incorporated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated as of January 24, 2021 (the “TSIA Merger Agreement”), by and among the Company (formerly known as TS Innovation Acquisitions Corp. (“TSIA”)), Latch ~~Systems~~Taiwan, Inc. ~~(formerly known as Latch~~, ~~Inc. (“Legacy Latch”)) and Lionet Merger Sub Inc.,~~ a wholly-owned subsidiary, ofin ~~TSIA~~the ~~(“Merger~~state ~~Sub”),~~of ~~pursuant~~Delaware. toIn ~~which~~October ~~Merger~~2020, ~~Sub~~the ~~merged~~Company ~~with~~incorporated ~~and~~Latch ~~into~~Insurance ~~Legacy~~Solutions, ~~Latch~~LLC, ~~with Legacy Latch becoming~~ a wholly-owned subsidiary ~~of the Company (the “Business Combination” and~~, ~~collectively with the other transactions described~~ in the ~~TSIA~~state ~~Merger~~of ~~Agreement, the “Transactions”)~~Delaware. In ~~connection~~September ~~with the consummation of the Transactions (the “Closing”)~~2021, the Company ~~changed~~incorporated ~~its~~Latch ~~name~~Systems ~~from TS Innovation Acquisitions Corp. to Latch~~Ltd, ~~Inc.~~a ~~The “Post~~wholly-~~Combination~~owned ~~Company”~~subsidiary, ~~following~~in ~~the~~England ~~Business~~and ~~Combination is Latch, Inc~~Wales.

InOn ~~May~~June ~~2023~~4, in2021, ~~connection~~the ~~with~~Company consummated the ~~HDW~~previously ~~Acquisition~~announced ~~(as~~merger ~~defined~~pursuant to that certain Agreement and ~~further~~Plan ~~described~~of ~~below~~Merger, dated as of January 24, 2021 (the “TSIA Merger Agreement”), by and among the Company ~~formed~~(formerly ~~two~~known ~~subsidiaries~~as TS Innovation Acquisitions Corp. (“TSIA”)), ~~one~~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 ~~was~~Merger ~~the~~Sub ~~surviving~~merged ~~entity~~with and into Legacy Latch, with Legacy Latch becoming a wholly-owned subsidiary of the ~~HDW~~Company ~~Acquisition~~(the “Business Combination” and, ~~was~~collectively ~~renamed~~with ~~Honest~~the ~~Day’s~~other ~~Work,~~transactions ~~LLC.~~described Inin ~~January~~the ~~2024~~TSIA Merger Agreement, inthe “Transactions”). In connection with the ~~acquisition~~consummation of athe ~~property~~Transactions ~~management~~(the ~~business~~“Closing”), the Company ~~formed~~changed ~~Door~~its ~~Property~~name ~~Management,~~from ~~LLC.~~TS InInnovation ~~June~~Acquisitions ~~2024~~Corp. to Latch, inInc. ~~connection~~The ~~with~~“Post-Combination Company” following the ~~HelloTech~~Business ~~Merger~~Combination ~~(as~~is ~~defined~~Latch, ~~and~~Inc. ~~further~~In ~~described~~August ~~below)~~2025, ~~the~~Latch ~~Company~~Systems, ~~formed~~Inc. achanged ~~subsidiary~~its ~~into~~name ~~which~~to ~~HelloTech~~DOOR Systems, Inc. ~~merged~~(referred to as ~~the~~“Legacy ~~surviving~~Latch,” ~~entity~~“Latch ofSystems” or “DOOR Systems,” as the ~~HelloTech~~context ~~Merger~~requires).

~~Effective~~In ~~November~~July 1, 2023, the Company ~~relocated~~completed its ~~headquarters~~acquisition toof ~~St.~~Honest ~~Louis~~Day’s ~~(Olivette)~~Work, ~~Missouri~~Inc. ~~From~~(“HDW”) ~~2020~~in ~~through~~order ~~2023~~to acquire HDW’s technology assets to accelerate the development of the Company’s platform, enable the Company ~~operated~~to ~~offices~~offer inresident ~~Denver,~~services ~~Colorado,~~and ~~New~~incorporate ~~York,~~HDW’s ~~New~~team ~~York~~members (the “HDW Acquisition”). In connection with the HDW Acquisition, ~~Los~~the ~~Angeles~~Company formed two subsidiaries, ~~California~~one of which was the surviving entity of the HDW Acquisition and ~~Taipei~~was renamed Honest Day’s Work, ~~Taiwan~~LLC.

~~HDW~~In ~~Acquisition~~January 2024, in connection with the acquisition of a property management business, the Company formed Door Property Management, LLC (“DPM”). In June 2024, in connection with the HelloTech Merger (as defined and further described below), the Company formed a subsidiary into which HelloTech, Inc. (“HelloTech”) merged as the surviving entity.

OnEffective ~~May~~November 151, 2023, the Company, LSrelocated ~~Key~~its ~~Merger~~headquarters ~~Sub~~to ~~1, Inc~~St., aLouis ~~wholly-owned subsidiary of the Company~~ (~~“Merger Sub I”~~Olivette), ~~and~~Missouri. LSFrom ~~Key~~2023 ~~Merger~~through ~~Sub 2~~2024, ~~LLC, a wholly-owned subsidiary of~~ the Company ~~(“Merger~~operated ~~Sub~~offices ~~II”),~~in ~~entered into an Agreement and Plan of Merger (as amended~~Denver, ~~the “HDW Merger Agreement”) with Honest Day’s Work~~Colorado, ~~Inc.~~New ~~(“HDW”). On July 3~~York, ~~2023~~New ~~(the “HDW Closing Date”)~~York, ~~(i)~~Los ~~Merger Sub I merged with and into HDW~~Angeles, ~~with HDW continuing as the surviving corporation~~California, ~~and subsequently~~Boston, ~~(ii) HDW merged with and into Merger Sub II~~Massachusetts, ~~with~~Argentina ~~Merger Sub II continuing as the surviving entity~~ and ~~a wholly-owned subsidiary of the Company (collectively, the “HDW Acquisition”)~~Taiwan. ~~The Company concluded that the transaction was a business combination and that the Company was the acquirer.~~

OnInvestigation ~~the HDW Closing Date, the Company issued to HDW’s stockholders as merger consideration (i) $22.0 million aggregate principal amount of unsecured promissory notes (the “Promissory Notes”)~~ and (ii) approximately 29.0 million shares of the Company’s common stock (the “Consideration Shares”). Certain of HDW’s stockholders (the “Ineligible Holders”) that were not eligible to receive unregistered shares of the Company’s common stock received $0.76 in lieu of each Consideration Share such stockholder would otherwise have received as merger consideration, with the total cash consideration paid to all Ineligible Holders equaling approximately $0.02 million. Upon the HDW Closing Date, Latch indirectly acquired all of HDW’s assets, including its intellectual property and $8.0 million in cash. Additionally, approximately 35 HDW team members joined Latch.Restatement

~~The~~During ~~Consideration~~the ~~Shares~~quarter ~~were~~ended ~~originally~~June ~~non-transferable~~30, ~~until~~2022, ~~July~~the 3,audit ~~2028~~committee of the Company’s board of directors (the “~~Restricted~~Board”) ~~Period~~commenced an investigation (the “Investigation”) of certain of the Company’s key performance indicators and revenue recognition practices, ~~subject~~including tothe ~~certain~~accounting ~~accelerated~~treatment, ~~releases~~financial reporting and internal controls related thereto. AsFollowing the Investigation, the Company completed a ~~result~~comprehensive review of its previously issued financial statements (the ~~Company’s~~“Financial ~~delisting~~Statement ~~from~~Review”). The ~~Nasdaq~~Company ~~Stock~~identified ~~Market~~errors ~~LLC~~related to, among other items: (~~“Nasdaq”~~i) revenue recognition on hardware and software sales, ~~the~~(ii) ~~Restricted~~revenue ~~Period~~recognition ~~now~~and ~~terminates~~billing on ~~April~~software 15licenses, ~~2027~~(iii) recognition of various expenses, and (iv) errors in certain key performance indicators, including “bookings” and related metrics. InAs a result of the ~~event~~Investigation and Financial Statement Review, the Company’s 60restated ~~trading~~certain ~~day~~of ~~volume~~its financial statements (the “Restatement”) in its Annual Report on Form 10-~~weighted~~K ~~average~~for ~~price~~the year ended December 31, 2022 (the “2022 Annual Report”).

62.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under GAAP

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “~~VWAP~~SEC”) ~~exceeds~~for interim financial reporting. In the ~~price~~opinion ~~thresholds~~of ~~set~~management, ~~forth~~all inadjustments ~~the~~considered ~~table~~necessary ~~below~~for (a fair presentation of the ~~“Share~~Company’s ~~Price~~financial ~~Thresholds”)~~position, ~~the~~results ~~applicable~~of ~~portion~~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 ~~Consideration~~results ~~Shares~~that ~~set~~may ~~forth~~be ~~below~~expected ~~will~~for any other interim period or for the entire year. These financial statements should be ~~released~~read ~~from~~in ~~transfer~~conjunction ~~restrictions:~~with the Company’s consolidated financial statements and the notes thereto, which are included in the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 26, 2025.

Share Price Threshold						Percent of Consideration Shares Released
$2.00						25%
$3.00						25%
$4.00						25%
$5.00						25%

In addition, there may be accelerated releases of the Consideration Shares in connection with a change of control of the Company.

In connection with the HDW Acquisition, the Company and Jamie Siminoff entered into a stock restriction agreement, dated May 15, 2023 (the “Original Siminoff Stock Restriction Agreement”). Pursuant to the Original Siminoff Stock Restriction Agreement, in the event Mr. Siminoff ceased to be an employee of the Company prior to July 3, 2028, the Company had the right to repurchase, for nominal consideration, all of Mr. Siminoff’s Consideration Shares that had not already been released from transfer restriction, subject to certain exceptions. In the event Mr. Siminoff was terminated without Cause or resigned for Good Reason (each as defined in the Siminoff Employment Agreement (as defined below)), or upon his death or disability (each, an “Exit”), his Consideration Shares would accelerate in an amount equal to the greater of (i) the number of Consideration Shares to which he was entitled pursuant to the Share Price Thresholds (with linear interpolation of Consideration Shares based on the 60 trading day VWAP as of the date of Exit) and (ii) the number of Consideration Shares equal to the product of (a) his total Consideration Shares multiplied by (b) the quotient of (x) the number of calendar days between July 3, 2023 and his Exit divided by (y) 1,825; provided, however, that in no event would the number of Mr. Siminoff’s Consideration Shares that accelerate in connection with an Exit be less than 40% of the total number of his Consideration Shares.

The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. As of September 30, 2023, the Company concluded that it was virtually certain the Promissory Notes would become payable within the upcoming 12 months due to the Company’s then-anticipated delisting from Nasdaq, which was an event of default with respect to the Promissory Notes. Consequently, the Company reclassified the debt obligation as current as of September 30, 2023, despite the event of default not yet occurring. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty. The Company paid an aggregate of $23.9 million in principal and accrued interest to the holders of the Promissory Notes.

On the HDW Closing Date, in connection with the consummation of the HDW Acquisition and as contemplated by the HDW Merger Agreement, the Company and certain of HDW’s stockholders (the “Holders”) entered into that certain Registration Rights Agreement (the “2023 Registration Rights Agreement”), pursuant to which the Company agreed to file a shelf registration statement registering the resale of the Registrable Securities (as defined in the 2023 Registration Rights Agreement) as promptly as reasonably practicable after the date on which the Company files its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (and no later than the 20th business day following the filing date of such Quarterly Report). Up to twice in any 12-month period, the Holders may request to sell all or any portion of their Registrable Securities in an underwritten offering so long as the total offering price is reasonably expected to exceed $25 million. The Company also agreed to provide customary “piggyback” registration rights to certain Holders designated as “Major Equityholders,” subject to certain requirements and customary conditions. The 2023 Registration Rights Agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the stockholders against certain liabilities. In the event the Company is unable to file a registration statement required by the 2023 Registration Rights Agreement, the Company is not required to repurchase or settle any Registrable Securities.

In connection with the HDW Acquisition, the Company and Mr. Siminoff entered into an employment agreement, dated May 15, 2023 (the “Siminoff Employment Agreement”). Pursuant to the Siminoff Employment Agreement, on the HDW Closing Date, Mr. Siminoff was appointed as the Company’s Chief Strategy Officer. At the time, Mr. Siminoff was expected to be appointed as Chief Executive Officer of the Company following the completion of the Restatement (as defined below). As described below in Note 18. Subsequent Events, Mr. Siminoff ceased to serve as Chief Strategy Officer on December 31, 2024 and will no longer be appointed as the Company’s Chief Executive Officer.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

2023 RIFs and Severance Payments

In July 2023, the Company commenced a reduction in force (the “July 2023 RIF”) in order to streamline its business operations, reduce costs and complexities in the business and create further operating efficiencies. The July 2023 RIF, substantially completed in the fourth quarter of 2023, impacted approximately 95 employees, or approximately 70% of the Company’s full-time employees at the time.

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 generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (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 and the notes thereto, which are included in the 2022 Annual Report on Form 10-K filed with the SEC on December 19, 2024. The balance sheet at December 31, 2022 was derived from the financial statements included in such annual report.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Latch, Inc. and its wholly-owned subsidiaries ~~as of September 30, 2023, Latch Systems, Inc~~., ~~Latch Taiwan, Inc., Latch Insurance Solutions, LLC and Latch Systems Ltd.~~ All intercompany transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications would not have a material effect on the reported financial results.

Use of Estimates

The preparation of 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. Significant estimates are used when accounting for stock-based compensation, inventory valuation, goodwill and intangible asset impairments, business combinations and litigation. 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; actual results could differ from those estimates.

The Company’s significant accounting policies for its condensed consolidated financial statements as of September 30, 2023 are summarized below.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. As of ~~September~~June 30, ~~2023~~2024 and December 31, ~~2022~~2023, cash consisted primarily of funds held in the Company’s checking accounts, money market funds and commercial paper. The Company considers these money market funds and commercial paper to be Level 1 financial instruments.

~~The~~In addition, the Company’s cash ~~balances~~and ~~exceed~~cash ~~the~~equivalents ~~limits~~are maintained at financial institutions in amounts that ~~are~~exceed federally insured limits. To date, the Company has not recognized any losses caused by uninsured balances.

8Prior to December 31, 2023, the Company (i) received $19.3 million of proceeds from the sale of a maturing available-for-sale security and (ii) reinvested the proceeds by purchasing an equal amount of new securities prior to such date. The Company uses trade-date accounting and, as such, the new securities position of $19.3 million is included in available-for-sale securities on the accompanying Condensed Consolidated Balance Sheet as of December 31, 2023, and a liability of $19.3 million presented as investment purchases payable is included in accrued expenses on the accompanying Condensed Consolidated Balance Sheet as of December 31, 2023. The funds were deducted from the Company’s account in early January 2024. Accordingly, the sum of the Company’s cash and cash equivalents as of December 31, 2023 was $19.3 million higher than it would have been had the funds been deducted from the Company’s account prior to year end. See Note 10. Accrued Expenses.

Marketable Securities

The Company classifies its fixed income marketable securities as available-for-sale based on its intentions with regard to these instruments. Accordingly, marketable securities are reported at fair value, with all unrealized holding gains and losses reflected in stockholders’ equity. If it is determined that an investment has an other-than-temporary decline in fair value, the Company recognizes the investment loss in other income, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company periodically evaluates its investments to determine if impairment charges are required.

Accounts Receivable, Net and Contract Balances

The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~Marketable~~Accounts ~~Securities~~Receivable, Net

A receivable is a right to consideration that is unconditional. The Company ~~classifies~~recognizes ~~its~~accounts ~~fixed~~receivable ~~income~~when ~~marketable~~the ~~securities~~right asto ~~available-for-sale~~consideration ~~based~~is onunconditional, ~~its~~such ~~intentions~~that ~~with~~only ~~regard~~the topassage ~~these~~of ~~instruments~~time is required before payment is due. ~~Accordingly,~~The ~~marketable~~Company ~~securities~~extends ~~are~~credit ~~reported~~based aton ~~fair~~an ~~value,~~evaluation ~~with~~of ~~all~~a ~~unrealized~~customer’s ~~holding~~financial ~~gains~~condition and, ~~losses~~generally, ~~reflected~~collateral inis ~~stockholders’~~not ~~equity~~required. IfAccounts itoutstanding islonger ~~determined~~than ~~that~~the ancontractual ~~investment~~payment ~~has~~terms anare ~~other-than-temporary~~considered ~~decline~~past indue. The fair value, of accounts receivable approximates book value due to the ~~Company~~short-term ~~recognizes~~nature of the ~~investment~~payment ~~loss~~terms. inAccounts ~~other~~receivable ~~income~~are ~~(expense),~~stated at net inrealizable ~~the~~value, ~~Condensed~~which ~~Consolidated~~represents ~~Statements~~the face value of ~~Operations~~the ~~and~~receivable ~~Comprehensive~~less ~~Loss.~~(i) ~~The~~an ~~Company~~allowance ~~periodically~~for ~~evaluates~~expected ~~its~~credit ~~investments~~losses toand ~~determine~~(ii) ifa ~~impairment~~reserve ~~charges~~for ~~are~~returns ~~required~~(see “—Revenue Recognition”).

~~Accounts~~The ~~Receivable~~opening and ~~Allowance~~closing ~~for~~balances ~~Doubtful~~of ~~Accounts~~accounts receivable, net is as follows:

Accounts receivable are stated at net realizable value, net of allowance for doubtful accounts and reserve for returns (see “Revenue Recognition” below for further information). The Company adopted Accounting Standards Update (“ASU”) 2016-13 effective January 1, 2022. Following the adoption, 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.


	June 30, 2024		December 31, 2023
Balance at beginning of the year	$	6,001	$	7,026
Ending balance	$	12,733	$	6,001

The ~~allowance~~Company ~~for~~recognizes ~~doubtful~~an accounts isreceivable ~~measured~~allowance based on aestimates ~~pooled~~of ~~basis~~expected ~~when~~credit ~~similar risk characteristics exist~~losses. ~~When~~The ~~assessing~~Company ~~whether~~estimates tothe ~~measure~~total ~~certain~~expected ~~financial~~credit ~~assets~~loss onover athe ~~pooled~~lifetime ~~basis,~~of the ~~Company~~receivables ~~considers~~using ~~various~~historical ~~risk~~loss ~~characteristics,~~data ~~including~~and ~~the~~by ~~financial~~applying ~~asset~~a ~~type,~~loss-rate ~~size~~method ~~and~~using ~~historical~~relevant oravailable ~~expected~~information ~~credit~~from ~~loss~~internal ~~pattern.~~and ~~The~~external ~~Company~~sources, ~~has~~including ~~considered~~historical ~~customer~~write-off ~~identity~~activity, ~~customer~~current ~~type~~conditions and ~~product~~reasonable ~~lines~~ and ~~determined~~supportable ~~that~~forecasts. ~~further~~Historical ~~segmentation~~credit ofloss ~~the~~experience ~~accounts~~provides ~~receivable~~the ~~would~~basis ~~not~~for ~~yield~~the aestimation ~~materially~~of ~~different~~expected credit losses. Adjustments to historical loss ~~allowance.~~information ~~The~~are ~~Company~~made ~~only~~for ~~segments~~changes ~~its~~in ~~receivables~~economic ~~based~~conditions. onWhen ~~the~~certain ~~age~~amounts ofare ~~the~~deemed ~~outstanding~~uncollectible, ~~balance~~those balances are reserved in full.

AsThe ofallowance ~~September~~for ~~30,~~expected ~~2023~~credit ~~and~~losses ~~December~~is 31measured on a pooled basis when similar risk characteristics exist. When assessing whether to measure certain financial assets on a pooled basis, ~~2022~~the Company considers various risk characteristics, including the ~~allowance~~financial ~~for~~asset ~~doubtful~~type, ~~accounts~~size ~~contains~~and anhistorical ~~estimate~~or ofexpected credit ~~losses~~loss ~~for~~pattern. ~~outstanding~~The ~~invoices~~Company ~~related~~has toconsidered ~~(1)~~customer ~~hardware~~identity, ~~accounts~~customer ~~receivable~~type ~~when~~and ~~revenue~~product ~~was~~lines ~~recognized~~and ~~for~~determined ~~consideration~~that ~~received~~further ~~from~~segmentation of the ~~related~~accounts ~~software~~receivable ~~contract~~would ~~and~~not ~~(2)~~yield ~~invoices~~a ~~related~~materially todifferent ~~software~~credit ~~accounts~~loss ~~receivable~~allowance. The Company ~~generally~~only ~~does~~segments ~~not~~its ~~require~~receivables ~~any~~based ~~security~~on orthe ~~collateral~~age toof ~~support~~the ~~its~~outstanding ~~receivables~~balance.

~~The~~As ~~following~~of ~~table~~June 30, ~~represents~~2024 aand ~~roll-forward~~December 31, of2023, the ~~Company’s~~ allowance for ~~doubtful~~expected ~~accounts:~~credit losses contains an estimate of credit losses for any outstanding invoices. The Company generally does not require any security or collateral to support its receivables.

Balance as of January 1, 2023	$	2,537
Provision for doubtful accounts, net of recoveries	(792)
Write-offs charged against the allowance	(1,091)
Balance as of September 30, 2023	$	654

The following table represents a roll-forward of the Company’s allowance for expected credit losses:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Balance as of beginning of period	$	105	$	990	$	496	$	2,537
Provision for expected credit losses	115		336		214		789
Recoveries	(29)		(534)		(327)		(1,613)
Write-offs charged against the allowance	(14)		(118)		(206)		(1,039)
Balance as of end of period	$	177	$	674	$	177	$	674

Contract Balances

The Company enters into contracts with its customers, which may give rise to contract assets (unbilled receivables) and contract liabilities (deferred revenue) due to timing differences between revenue recognition and billing.

Contract assets (unbilled receivables) represent amounts for which the Company has recognized revenue for contracts that have not yet been invoiced to customers where there is a remaining performance obligation. For hardware contracts, customers are billed after shipment of the hardware, with payment typically due within 45 days of the receipt of the invoice. For software contracts, customers are typically billed in advance of services on either an annual or monthly basis over the contract term. Payment is due within 30 days of the receipt of the invoice. For installation contracts, customers are billed after the service has been performed, with payment typically due within 30 days of the receipt of the invoice.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

The Company recognizes contract assets (unbilled receivables) when the performance obligation precedes the invoice date, which is generally the case for the Company’s installation contracts. The Company estimates and recognizes its expected credit losses on unbilled receivables. The Company presents its contract assets (unbilled receivables) net of any expected credit losses within prepaid expenses and other current assets on the accompanying Condensed Consolidated Balance Sheets. The opening and closing balances of contract assets (unbilled receivables) are as follows:


	June 30, 2024		June 30, 2023
Balance at beginning of the year	$	5,942	$	942
Ending balance	3,567		2,224
Change	$	(2,375)	$	1,282

The difference between the opening and closing balances of the Company’s contract assets (unbilled receivables) primarily results from timing differences between the Company’s performance and the customer’s payment as well as the number of active installation projects.

The Company records contract liabilities (deferred revenue) when the Company bills customers in advance of the performance obligations being satisfied, which is generally the case for the Company’s software contracts. The opening and closing balances of contract liabilities (deferred revenue) were as follows:


	June 30, 2024		June 30, 2023
Balance at beginning of the year	$	39,579	$	41,925
Ending balance	36,386		42,418
Change	$	(3,193)	$	493

The difference between the opening and closing balances of the Company’s contract liabilities (deferred revenue) primarily related to a shift from multi-year contracts billed upfront to contracts billed on an annual basis resulting in less deferred revenue being added upon invoice date.

The Company recognized $8.2 million of prior year deferred software revenue during the six months ended June 30, 2024 and $14.1 million during the year ended December 31, 2023.

Contract liabilities (deferred revenue) consisted of the following:


	June 30, 2024		December 31, 2023
Revenue	$	14,165	$	13,056
Interest expense	(3,008)		(2,219)
Total current deferred revenue	$	11,157	$	10,837

Revenue	$	31,085	$	37,187
Interest expense	(5,856)		(8,445)
Total non-current deferred revenue	$	25,229	$	28,742

Inventories, Net

Inventories, net consist of raw materials, finished goods and ~~component~~channel ~~parts.~~inventory ~~Finished goods are manufactured by the Company or 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~~Finished ~~Company~~goods ~~periodically~~are ~~assesses~~purchased ~~the~~from ~~valuation~~contract ofmanufacturers ~~inventory~~ and ~~writes~~component ~~down the value for estimated excess and obsolete inventory based upon estimates of future demand and market conditions, when necessary~~suppliers. AsHardware ofshipped ~~September~~to ~~30,~~channel ~~2023,~~partners ~~net~~is ~~inventories~~considered inchannel ~~excess~~inventory ofuntil ~~one~~there ~~year~~is ofevidence ~~historical~~a ~~sales~~contract ~~are~~exists ~~classified~~and ascontrol ~~other~~has ~~non-current~~passed ~~assets~~to on the ~~Condensed Consolidated Balance Sheets~~customer.

~~Hardware~~The ~~shipped~~Company toperiodically ~~channel~~assesses ~~partners~~the isvaluation ~~considered~~of ~~channel~~ inventory ~~until~~and ~~there~~writes isdown ~~evidence~~the avalue ~~contract~~for ~~exists~~estimated excess and ~~control~~obsolete ~~has~~inventory ~~passed~~ to ~~the~~their ~~customer.~~net ~~Channel~~realizable ~~inventory~~value isbased ~~included~~upon ~~within~~estimates ~~inventory,~~of ~~net~~future ondemand ~~the~~and ~~Condensed~~market ~~Consolidated~~conditions, ~~Balance~~when ~~Sheets~~necessary. ~~Channel~~Net ~~inventory~~inventories isin ~~stated~~excess atof ~~the~~one ~~lower~~year of ~~cost~~historical orsales ~~net~~are ~~realizable~~classified ~~value~~as ~~with~~other ~~cost~~non-current ~~being~~assets ~~determined~~on ~~using~~ the ~~average~~accompanying ~~cost~~Condensed ~~method~~Consolidated Balance Sheets. Inventory on hand that exceeds a three year forecasted sales projection is recorded as an excess

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

and obsolete inventory reserve. This reserve is comprised of inventory greater than the amount that can be used to meet future needs (excess) or for which the product is outdated or otherwise not expected to be sold (obsolete).

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are recorded at cost and primarily consist of insurance receivables, prepaid inventory, unbilled receivables and other various payments that the Company has made in advance for goods or services to be received in the future.

Insurance receivables are collected from third-party insurance providers for covered litigation matters once applicable retentions or deductibles have been satisfied. Prepaid inventory charges are incurred to secure the production of inventory prior to delivery. Upon delivery of the inventory, these amounts are reclassified from prepaid inventory to the appropriate inventory accounts on the accompanying Condensed Consolidated Balance Sheets. Unbilled receivables are recognized when the Company (i) provisions software access, (ii) provides services or (iii) ships hardware, in each case in advance of billing.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:

						Useful lifein years
Office furniture						5
Computers and equipment						3 - 5
Vehicles						5
Leasehold improvements						10

The Company capitalizes the cost of pre-production tooling that it owns. Pre-production tooling that the Company will not own or that will not be used in producing products under long-term supply arrangements, including the related engineering costs, is expensed as incurred.

Internally -Developed Software, Net

The Company capitalizes certain development costs incurred in connection with its internally-developed software (including specific software upgrades and enhancements when it is probable the expenditures will result in additional features and functionality). These capitalized costs are primarily related to software that is hosted by the Company and the firmware in the Company’s devices. Costs incurred in the preliminary stages of development are expensed as incurred. Once a project has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing, at which time amortization of the capitalized software begins. The Company also capitalizes costs related to specific software upgrades and enhancements when it is probable the expenditures will result in additional features and functionality. Internally-developed software is amortized on a straight-line basis over its estimated useful life, generally three to five years.

When the Company determines that a planned feature is discontinued or will not be implemented, costs are expensed. Maintenance costs are also expensed as incurred.

Goodwill

Goodwill represents the excess of purchase consideration over the fair value of identifiable net assets acquired in a business combination. AsThe ofCompany ~~September~~evaluates 30goodwill for impairment annually, ~~2023~~as of December 31 of each year, ~~the~~or ~~Condensed~~more ~~Consolidated~~frequently ~~Balance~~whenever ~~Sheet~~events ~~includes~~or ~~$25~~circumstances make it more likely than not that an impairment may have occurred.3 ~~million~~These events or circumstances could include a significant change in ~~goodwill~~general economic conditions, ~~entirely~~deterioration ~~from~~in industry environment, changes in cost factors, declining operating performance indicators, legal factors, competition, customer engagement, changes in the ~~HDW~~carrying ~~Acquisition~~amount of net assets, sale or disposition of a significant portion of a reporting unit or a sustained decrease in stock price. Operating as a single reporting unit, the Company’s entire goodwill balance is subject to this assessment. Goodwill is not amortized and is evaluated annually for impairment, as of December 31 of each year, or more frequently if indicators of impairment exist. As of June 30, 2024 and December 31, 2023, the accompanying Condensed Consolidated Balance Sheets includes $25.9 million and $25.3 million, respectively, in goodwill.

~~Intangible Assets~~9

Intangible assets are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Intangible assets consisted of the following, which are included within other non-current assets on the Condensed Consolidated Balance Sheets:

	September 30, 2023		December 31, 2022
Domain names	$	1,634	$	318
Patents	37		37
Licenses	4		4
Developed technology	3,795		—
Intangible assets	5,470		359
Less: accumulated amortization	(471)		(226)
Total intangible assets, net	$	4,999	$	133

Total amortization expense related to intangible assets was $0.2 million and $0.2 million for the three and nine months ended September 30, 2023, respectively, and $0.1 million and $0.2 million for the three and nine months ended September 30, 2022, respectively. The Company did not record any impairment of intangible assets for the three and nine months ended September 30, 2023. Total impairment of intangible assets was $0.5 million for both the three and nine months ended

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~September 30,~~Business ~~2022, respectively, and included in general and administrative expense on the Condensed Consolidated Statement of Operations and Comprehensive Loss.~~Combinations

The Company accounts for business combinations using the acquisition method of accounting, in which the purchase price is allocated to the assets acquired and liabilities assumed and recorded at their estimated fair values at the date of acquisition. Management is required to make significant assumptions and estimates in determining the fair value of the assets acquired, particularly the intangible assets. Purchased intangible assets are primarily comprised of acquired trade names and customer relationships that are recorded at fair value at the date of acquisition. The Company utilizes third-party valuation specialists to assist it in the determination of the fair value of the intangibles. The fair value of acquired trade names and developed technology is determined using the relief-from-royalty method, which relies on the use of estimates and assumptions about projected revenue growth rates, royalty rates and discount rates. The fair value of customer relationships is determined using the multi-period excess earnings method, which relies on the use of estimates and assumptions about projected revenue growth rates, customer attrition rates, profit margins and discount rates. Intangible assets are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Determining the useful lives of intangible assets also requires management to make various assumptions and is inherently uncertain. There is a measurement period of up to one year in which to finalize the fair value determinations, and preliminary fair value estimates may be revised if new information is obtained during this period.

Intangible Assets, Net

Intangible assets, net are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method. Intangible assets are typically classified as Level 3 measurements within the fair value hierarchy.

Intangible assets, net consisted of the following:


	June 30, 2024		December 31, 2023
Developed technology	$	3,795	$	3,795
Domain names	1,634		1,634
Customer relationships	594		—
Patents	37		37
Non-compete	10		—
Licenses	4		4
Intangible assets	6,074		5,470
Less: accumulated amortization	(1,103)		(679)
Total intangible assets, net	$	4,971	$	4,791

Total amortization expense related to intangible assets was $0.2 million and $0.4 million for the three and six months ended June 30, 2024, respectively, and $0.02 million and $0.04 million for the three and six months ended June 30, 2023, respectively.

The estimated useful life of the intangible assets is as follows:

						Useful life in years
Developed technology						6 - 10
Domain names						3 - 13
Customer relationships						15 - 20
Patents						12
Non-compete						3
Licenses						5
Developed technology						6

Total intangible impairment expense was zero for both the three and six months ended June 30, 2024 and zero for both the three and six months ended June 30, 2023.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Leases

OnThe ~~January~~Company 1,accounts ~~2022,~~for ~~the~~its ~~Company~~leases ~~adopted~~in ~~ASU~~accordance ~~2016-02,~~with ~~Leases~~Accounting ~~(Topic~~Standards ~~842)~~Codification (“ASC ~~842~~”) ~~using~~Topic a842, ~~modified~~Lease ~~retrospective~~Accounting ~~approach~~(“ASC ~~recording a cumulative-effect adjustment to retained earnings~~842”). ~~The~~ASC ~~Company~~842 ~~elected~~requires tothat ~~adopt~~leases ~~the~~be ~~practical~~evaluated ~~expedients~~and ~~that~~classified ~~permit~~as itoperating toor ~~combine~~finance ~~lease~~leases ~~and non-lease components~~ for ~~all~~financial ~~lease~~reporting ~~contracts~~purposes. ~~and~~The ~~also~~Company ~~elected~~did not tohave ~~recognize~~any ~~right-of-use~~finance ~~(“ROU”) assets and lease liabilities for~~ leases ~~with~~or ~~terms~~subleases as of 12June 30, ~~months~~2024 orand ~~less~~December 31, 2023.

The Company determines if an arrangement contains a lease at ~~the~~contract 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. As the Company’s leases generally do not have identical or nearly identical contract provisions, the Company accounts for each of its leases at the contract level.

The Company ~~has~~recognizes ~~made~~a ~~the~~right-of-use ~~policy~~(“ROU”) ~~election~~asset ~~to not separate lease~~ and ~~non-~~lease ~~components~~liability ~~for~~at ~~any~~the oflease ~~its~~commencement ~~leases~~date ~~within~~and ~~its~~thereafter. ~~existing~~ROU ~~classes~~assets ofrepresent ~~assets.~~the ~~The~~right ~~Company~~to ~~will~~use ~~evaluate~~an ~~this~~underlying ~~election~~asset for ~~any~~the ~~new~~term ~~leases involving a new underlying class~~ of ~~asset.~~the ~~The~~lease, ~~Company~~and ~~has~~lease ~~also~~liabilities ~~made~~represent the ~~policy~~obligation ~~election~~ to ~~not~~make ~~recognize a~~ lease ~~liability~~payments orthroughout anthe ~~ROU~~term ~~asset~~of ~~for~~the ~~any~~lease. ~~leases~~The ~~with~~lease aterms ~~term~~include ofany 12renewal ~~months~~options orand ~~less.~~termination ~~These~~options ~~lease~~that ~~payments~~the ~~are~~Company ~~recognized~~is onreasonably aassured ~~straight-line~~to ~~basis~~exercise, ~~over~~if ~~the lease term~~applicable.

The Company’s leases do not provide an implicit rate; therefore, the Company uses its incremental borrowing rate (“IBR”) based on the information available at the lease commencement date in determining the present value of future payments for those leases. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of comparable value to the ROU asset in a similar economic environment. IBR therefore reflects what the Company “would have to pay,” which requires estimation when no observable rates are available or where the applicable rates need to be adjusted to reflect the terms and conditions of the lease. In calculating its IBR, the Company considers observed debt rates and the significant financing component of longer-term software contracts. The Company’s leases are generally not sensitive to changes in IBR due to their relatively short terms.

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 accompanying Condensed Consolidated Balance Sheets. The lease liability is calculated as the present value of the remaining future lease payments over the lease term, including reasonably assured renewal options.

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 has also made the policy election to not recognize a lease liability or ROU 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.

The Company has evaluated lease renewal 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. Generally, the Company does not enter into lease arrangements where the option to renew or terminate a lease is controlled by the lessor.

~~The~~Rent ~~Company~~expense ~~cannot readily determine the interest rate implicit in leases where it~~ is ~~the~~allocated ~~lessee.~~among Ascost ~~such, it uses its incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate~~ of ~~interest~~revenue, ~~that~~research ~~the~~and ~~Company~~development, ~~would~~sales ~~have~~and ~~to pay to borrow over a similar term~~marketing, and ~~with~~general aand ~~similar security~~administrative, ~~the~~based ~~funds~~on ~~necessary to obtain an asset of comparable value to~~ the ~~ROU~~use asset in a similar economic environment. IBR therefore reflects what the Company “would have to pay,” which requires estimation when no observable rates are available or where the applicable rates need to be adjusted to reflect the terms and conditions of the ~~lease.~~underlying ~~The~~leased ~~Company estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates~~property. ~~The Company’s leases are generally not sensitive to changes in IBR due to their relatively short terms.~~

~~ROU~~Revenue 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.Recognition

~~ROU~~In ~~assets~~determining ~~resulting~~the ~~from~~appropriate ~~operating~~amount ~~leases~~of ~~are~~revenue ~~recorded~~to ~~within~~be ~~other~~recognized ~~non-current~~as ~~assets,~~it ~~and~~fulfills ~~lease~~its ~~liabilities~~obligations ~~from~~under ~~operating~~its ~~leases~~agreements, ~~are~~the ~~recorded~~Company ~~within~~performs ~~current~~the ~~liabilities~~following ~~and~~steps: ~~non-current~~(i) identify ~~liabilities,~~contracts onwith customers; (ii) identify performance obligations; (iii) determine the ~~Condensed~~transaction ~~Consolidated~~price; ~~Balance~~(iv) allocate ~~Sheets.~~the ~~The~~transaction ~~Company~~price ~~did~~to ~~not~~the ~~have~~performance ~~any~~obligations; ~~finance~~and ~~leases~~(v) recognize orrevenue ~~subleases~~when (or as) ofthe ~~September 30,~~Company ~~2023~~satisfies ~~and~~each ~~December 31,~~performance ~~2022~~obligation.

~~Rent~~A ~~expense~~performance obligation is ~~allocated~~a ~~among~~promise ~~cost~~in ofa ~~revenue,~~contract ~~research~~to ~~and~~transfer ~~development,~~a ~~sales~~distinct ~~and~~good ~~marketing,~~or service to a customer and ~~general~~is the unit of account in ASC 606 and ~~administrative~~its related amendments (collectively known as ASC 606, ~~based~~Revenue onfrom ~~headcount~~Contracts ~~and~~with ~~the~~Customers). ~~use~~Revenues are recognized when control of the ~~underlying~~promised ~~leased~~goods ~~property~~or services is 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) sales of hardware devices, (2) licenses of software products, and (3) professional services.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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 Accounting Standards Codification (“ASC”) 606 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 is 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) sales of hardware devices, (2) licenses of software products and (3) installation services related to the hardware devices.

Performance Obligations

The Company enters into contracts that contain multiple distinct performance obligations: hardware, software and ~~installation~~professional services. The hardware performance obligation ~~includes~~is the delivery of hardware,. ~~the~~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 ~~the~~professional ~~installation~~ services obligation includes the ~~delivery~~activation and installation of ~~activation~~hardware and ~~installation~~DPM’s performance of ~~the~~property ~~hardware~~management services. The Company has determined that the hardware, software and ~~installation~~professional services are individual distinct performance obligations because they can be and generally are sold by the Company on a standalone basis, and because other vendors sell similar technologies and services on a standalone basis.

For each performance obligation identified, the Company estimates the standalone selling price, which represents the price at which the Company would sell the good or service separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions, historical pricing data and internal pricing guidelines related to the performance obligations. The Company then allocates the transaction price among those obligations based on the estimation of standalone selling price. ~~For~~The ~~software~~transaction ~~revenue,~~price is determined within the ~~Company~~terms ~~estimates~~of the ~~transaction~~contract. ~~price,~~Historically ~~including~~for ~~variable~~software ~~consideration~~revenue, at the ~~commencement~~Company ofdetermined ~~the~~a ~~contract~~significant ~~and~~financing ~~recognizes~~component ~~revenue~~exists, ~~over~~as ~~the~~described ~~contract term~~below.

Hardware

The Company generates hardware revenue primarily from the sale of its portfolio of devices. The Company sells hardware to customers, which include real estate developers, builders, building owners and property managers, directly or through its channel partners, who act as intermediaries, installers or wholesalers. The Company recognizes hardware revenue when there is evidence a contract exists and control has been transferred to the customer. The Company has determined that control transfers to a customer when hardware is shipped, as the Company’s standard delivery terms are Free on Board (“FOB”) Shipping Point. Certain customers may request FOB Destination, in which case control transfers to the customer upon delivery to the requested destination.

The Company generally provides warranties that its hardware will be substantially free from defects in materials and workmanship for a period of one or two years for electronic components depending on the hardware product, and five years for mechanical components. The Company determines in its sole discretion whether to replace, ~~repair~~ or refund warrantable devices. 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 and ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, the reserve recorded for hardware warranties was approximately 3% and 23%, respectively, of cost of hardware revenue. For ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, the reserve recorded for hardware warranties was approximately 2% and 1%, respectively, of cost of hardware revenue. The Company also provides certain customers a right of return for non-defective product, which is treated as a reduction of hardware revenue based on the Company’s expectations and historical experience. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, the allowance for returns resulted in a recovery of revenue by ~~$0.03~~zero ~~million~~ and $0.1 million, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, the allowance for returns ~~reduced~~resulted in a recovery of revenue by $0.21 million and $0.61 million, respectively.

Software

The Company generates software revenue primarily through the license of its software-as-a-service (“SaaS”) cloud-based platform to customers on a subscription-based arrangement. Subscription fees vary depending on the features selected by customers as well as the term. SaaS arrangements generally have term lengths of one, two, five or ten years and include a fixed fee generally paid in advance, annually or monthly. When significant discounts were provided to customers on the longer-term software contracts paid in advance, the Company has determined that there is a significant financing component related to the time value of money and therefore has recorded the interest expense in interest expense, net on the accompanying 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. The amount of interest expense related to this component was $0.9 million and $1.9 million for the three and six months ended June 30, 2024, respectively, and $1.2 million and $2.5 million for the three and six months ended June 30, 2023, respectively.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

customers as well as the term. SaaS arrangements generally have term lengths of one, two, five or ten years and include a fixed fee generally paid in advance, annually or monthly. When significant discounts were provided to customers on the longer-term software contracts paid in advance, the Company has determined that there is a significant financing component related to the time value of money and therefore has recorded the interest expense in interest 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. The amount of interest expense related to this component was $1.1 million and $3.6 million for the three and nine months ended September 30, 2023, respectively, and $1.3 million and $3.7 million for the three and nine months ended September 30, 2022, respectively.

The SaaS licenses provided by the Company are considered stand-ready performance obligations where customers benefit from the services evenly throughout the service period. Revenue generally is recognized ratably over the subscription period beginning when or as control of the promised services is transferred to the customer.

~~Installation~~Professional Services

The Company generates ~~revenues~~professional ~~by facilitating hardware installation and activation~~ services. ~~These~~revenue ~~revenues~~in ~~are~~two ~~recognized~~primary ~~over~~ways: ~~time~~(i) onby afacilitating ~~percentage~~smart ofaccess ~~completion~~hardware ~~basis. The Company recognized~~ installation ~~services revenue of $1.8 million~~ and ~~$5.1~~activation ~~million~~to ~~for~~multifamily ~~the~~building ~~three~~customers and ~~nine~~(ii) ~~months~~through ~~ended~~property ~~September 30,~~management ~~2023,~~services ~~respectively,~~performed ~~and~~by ~~$1.4~~DPM ~~million and $4.9 million~~ for ~~the~~its ~~three~~multifamily ~~and~~building ~~nine months ended September 30, 2022, respectively~~customers.

The Company provides smart access hardware installation and activation services to select customers. The revenues associated with these services are recognized over time based on a percentage of the installation completed and represent a transfer of services to a customer under contract.

DPM’s property management services include operating DPM customers’ buildings, which involves maintenance and repair, construction supervision, leasing and administrative services, typically pursuant to a property management agreement with an annual term. Property management service revenues are recognized ratably over the service period.

Disaggregation of Revenue

The following table provides information about disaggregated revenue ~~presentation~~from ~~illustrates~~customers into the nature, ~~amount and timing~~ of ~~revenue~~the products and ~~cash~~services ~~flows~~provided, ~~across~~and the ~~Company’s~~related ~~various~~timing ~~offerings.~~of revenue recognition:

Revenue recognition varies by product or service category. Hardware consists of different product categories, and the sales cycle, contractual obligations, customer requirements and go-to-market strategies are generally consistent. Revenue for hardware is recognized at a point in time upon transfer of control. SaaS is subscription-based, and revenue is recognized over the subscription period. Installation services revenue is generated by facilitating hardware installation for select customers and is recognized over time using the percentage of completion method.


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Point-in-time revenue:
Hardware	$	5,583	$	4,263	$	10,226	$	9,608
Total point-in-time revenue	5,583		4,263		10,226		9,608
Period-of-time revenue:							.
Software	5,022		4,413		10,059		8,386
Hardware installation and activation services	1,829		1,502		4,018		3,334
Property management services	501		—		664		—
Other	3		—		6		—
Total period-of-time revenue	7,355		5,915		14,747		11,720
Total revenue	$	12,938	$	10,178	$	24,973	$	21,328

The revenue disaggregation presented below aligns with the Company’s Condensed Consolidated Statements of Operations, categorized into hardware, software and installation services. The following table presents revenue broken down by offering type and the timing of revenue recognition:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Product revenue (point-in-time):
Hardware	$	3,215	$	4,027	$	12,823	$	18,025
Service revenue (period-of-time):
Software	4,660		3,403		13,046		9,349
Installation services	1,798		1,409		5,132		4,851
Total service revenue	6,458		4,812		18,178		14,200
Total revenue	$	9,673	$	8,839	$	31,001	$	32,225

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~~based ~~Company~~upon ~~determined~~contract ~~the period of benefit by taking into consideration the length of terms in its customer contracts~~duration, 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 accompanying 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 accompanying Condensed Consolidated Balance Sheets. Amortization expense is included in sales and marketing expense inon the accompanying 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, 2024	$	3,539
Additions to deferred contract costs	8
Amortization of deferred contract costs	(216)
Balance as of June 30, 2024	$	3,331

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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

Balance as of January 1, 2023	$	2,617
Additions to deferred contract costs	1,298
Amortization of deferred contract costs	(309)
Balance as of September 30, 2023	$	3,606

Contract Assets and Contract Liabilities

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 billing to customers. The Company recognizes unbilled receivables when the performance obligation precedes the invoice date. The Company reports unbilled receivables within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

	September 30, 2023		December 31, 2022
Contract assets (unbilled receivables), net	$	3,974	$	942
Contract liabilities (deferred revenue)	$	41,332	$	41,925

The Company records contract liabilities as deferred revenue when the Company bills customers in advance of the performance obligations being satisfied, which is generally the case for the Company’s software contracts. The Company recognized $9.8 million of prior year deferred software revenue during the nine months ended September 30, 2023 and $9.5 million during the year ended December 31, 2022.

As of September 30, 2023, total deferred revenue was $41.3 million. The current amount, which is expected to be recognized over the next 12 months, of $11.2 million is comprised of $14.1 million, which will be recognized as revenue, net of $2.9 million, which will be recognized as interest expense related to the significant financing component. The non-current amount of $30.1 million is comprised of $38.9 million, which will be recognized as revenue, net of $8.8 million, which will be recognized as interest expense related to the significant financing component.

Cost of Revenue

Cost of hardware revenue consists primarily of product costs, including manufacturing costs, duties and other applicable importation 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. Costs of hardware revenue also include charges related to lower of cost or market adjustments and reserves for excess inventory and non-cancellable purchase commitments.

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 ~~installation~~professional services revenue consists primarily of (i) third-party installation labor costs, and parts and materials and ~~personnel-related~~(ii) ~~expenses~~costs ~~associated~~related ~~with~~to ~~deployment~~third-party ofproperty ~~hardware~~service providers.

Cost of revenue excludes depreciation and amortization shown in operating expenses.

Research and Development

Research and development (“R&D”) expense consists primarily of personnel and related expenses for employees working on product design and engineering teams, including salaries, bonuses, benefits, payroll taxes, travel and stock-based compensation. Also included are non-personnel costs such as amounts paid to third-party contract manufacturers for tooling, engineering and prototype costs of hardware products, fees paid to third-party consultants, R&D supplies, rent and restructuring costs. R&D costs that do not meet the criteria for capitalization are expensed as incurred.

Sales and Marketing

Sales and marketing expense consists primarily of personnel and related expenses for employees working on sales, customer success, deployment and marketing teams, including salaries, bonuses, benefits, payroll taxes, travel, commissions and stock-based compensation. Also included are non-personnel costs such as marketing activities (trade shows and events, conferences and advertising), professional fees, rent, restructuring costs and customer support.

General and Administrative

Depreciation and Amortization

Depreciation and amortization expense consists primarily of depreciation expense related to investments in property and equipment, internally-developed software and intangible assets.

Impairment of Long-Lived Assets other than Goodwill and Intangible Assets

The Company assesses long-lived assets for impairment in accordance with the provisions of ASC 360, Property, Plant and Equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

During the three and six months ended June 30, 2024, zero and zero, respectively, of long-lived assets were impaired. During the three and six months ended June 30, 2023, $0.6 million and $0.7 million, respectively, of long-lived assets were impaired. Impairment of long-lived assets other than goodwill and intangible assets is included in general and administrative expense on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

based compensation. Also included are non-personnel costs such as marketing activities (trade shows and events, conferences and advertising), professional fees, rent, restructuring costs and customer support. Advertising expense was zero for both the three and nine months ended September 30, 2023. Advertising expense was $0.4 million and $2.4 million for the three and nine months ended September 30, 2022, respectively.

General and Administrative

General and administrative expense consists primarily of personnel and related expenses for executive, legal, human resources, finance and IT functions, including salaries, bonuses, benefits, payroll taxes, travel and stock-based compensation. Additional expenses included in this category are non-personnel costs such as legal fees, rent, professional fees, audit fees, costs related to the Audit Committee’s investigation of certain of its key performance indicators and revenue recognition practices that it commenced in the three months ended June 30, 2022 (the “Investigation”) and the Company’s reissuance of certain of its consolidated financial statements (the “Restatement”), restructuring costs, bad debt expense and insurance costs.

Depreciation and Amortization

Depreciation and amortization expense consists primarily of depreciation expense related to investments in property and equipment, internally-developed software and intangible assets.

Impairment of Long-Lived Assets

The Company assesses long-lived assets for impairment in accordance with the provisions of ASC 350, Intangibles - Goodwill and Other, and ASC 360, Property, Plant and Equipment. Long-lived assets, such as property and equipment and internally-developed software costs subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. For the three and nine months ended September 30, 2023, the Company recorded zero and $0.7 million, respectively, of impairment of long-lived assets, and $0.5 million and $0.9 million for the three and nine months ended September 30, 2022, respectively, which is included in general and administrative expense in the Condensed Consolidated Statement of Operations.

Restructuring

Costs associated with a restructuring plan generally consist of involuntary employee termination benefits, contract termination costs and other exit-related costs, including costs to close facilities. The Company records a liability for involuntary employee termination benefits when management has committed to a plan that establishes the terms of the arrangement and that plan has been communicated to employees. Costs to terminate a contract before the end of the term are recognized on the termination date, and costs that will continue to be incurred ~~in a contract~~ for the remaining term of a contract without economic benefit are recognized as of the cease-use date. Restructuring and related costs may also include the write-down of related assets, including operating lease ROU assets, when the sale or abandonment of the asset is a direct result of the plan. Other exit-related costs are recognized as incurred. Restructuring and related costs are recognized as an operating expense ~~within~~on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss and are classified based on the Company’s classification policy for each category of operating expense.

Other Income ~~(Expense)~~, Net

Other income ~~(expense)~~, net consists of interest expense associated with the significant financing component of the Company’s longer-term software contracts, interest expense associated with the Company’s previous debt financing arrangements, interest income on highly liquid short-term investments, and gain or loss on change in fair value of derivatives, warrant liabilities and trading securities.

Interest income, net is summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Interest income	$	1,621	$	1,775	$	3,623	$	3,281
Interest expense	(1,100)		(1,232)		(2,656)		(2,469)
Interest income, net	$	521	$	543	$	967	$	812

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 June 30, 2024 and December 31, 2023, 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 estimate occurs.

Stock-Based Compensation

The Company periodically issues options, restricted stock units (“RSUs”) and shares of its common stock as compensation for services received from its employees and directors. 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 fair value amount is then recognized as expense ratably over the requisite vesting period of the individual grant, generally equal to the vesting period using the straight-line method. Stock-based compensation expense is recorded on a straight-line basis over the vesting period in the same expense classifications on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as if such amounts were paid in cash. The Company records forfeitures as they occur.

The Company estimates the fair value of RSUs using the last trading price of its common stock as of the grant date. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the fair value of stock options that vest over time. The Black-Scholes option-pricing model requires the use of the following highly subjective assumptions to determine the fair value of stock options:

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of September 30, 2023 and December 31, 2022, the Company recorded a full valuation allowance against its deferred tax assets.

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. The fair value of restricted stock units (“RSUs”) is determined using the closing trading price on the grant date. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the fair value of stock options. The Black-Scholes option-pricing model requires the use of highly subjective 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 option’s vesting term and contractual expiration period to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

•Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a term that is equal to the option’s 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.

~~Cash~~The ~~Settled~~Company ~~RSUs~~estimates the fair value and requisite service period of market-based option awards as of the grant date based on the Monte Carlo simulation model with the assistance of an independent third-party valuation specialist. The Monte Carlo simulation model is built on certain assumptions, including stock price volatility. The Company cannot predict the prices at which its common stock will trade in the future, and achievement of market conditions may occur in periods different than estimated. Compensation costs related to awards with market conditions are recognized on a straight-line basis over the requisite service period regardless of whether the market condition is satisfied and are not reversed, provided that the requisite service period derived from the Monte-Carlo simulation has been completed. See Note 15. Stock-Based Compensation.

The Company grants cash settled RSUs that are classified as liability awards as defined in ASC 718, Compensation - Stock Compensation. Cash settlement is required (no election for share settlement) and the cash settlement is not contingent on the occurrence of an event. These awards are recorded as a share-based liability, and fair value is remeasured quarterly. Each vested award is released for cash equal to the trading value of the Company’s common stock.

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.

ASC 820, Fair Value Measurements ~~(“ASC 820”)~~, 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 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.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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.

Earnings per Share

The calculation of earnings per share is based on the weighted average number of shares of common stock or common stock equivalents outstanding during the applicable period. The dilutive effect of common stock equivalents is excluded from basic earnings per share and is included in the calculation of diluted earnings per share. Potentially dilutive securities include convertible preferred stock, common stock options, common stock warrants and RSUs.

The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method determines net loss per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. For periods in which the Company reports net losses, diluted net loss per share is the same as basic net loss per share because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. For periods in which the Company reports net losses, diluted net loss per share is the same as basic net loss per share because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Diluted shares outstanding are calculated using the treasury stock method or the two-class method, depending on which method is more dilutive for a given period. Under the treasury stock method, the assumed proceeds, which include the exercise price of stock options or warrants plus the average unrecognized compensation cost for future service, are assumed to be used by the Company to repurchase shares of its common stock at the average share price for the fiscal period.

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 35. 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 ~~September~~June 30, ~~2023~~2024 and December 31, ~~2022~~2023, the Company had one customer that accounted for $48.0 million and $23.91 million, or 4859% and 2643%, respectively, of gross accounts receivable. As of June 30, 2024 and December 31, 2023, the Company had one customer that accounted for $2.7 million and $5.3 million, or 75% and 87%, of unbilled receivables, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, the Company had one customer that accounted for $3.5.1 million and $9.56 million, or 3639% and 3139%, of total revenue, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, the Company had one customer that accounted for $12.42 million and $86.0 million, or 1622% and 2528%, of total revenue, respectively.

Segment Information

As of September 30, 2023, the Company had one operating and reportable segment as it only reports financial information on an aggregate and consolidated basis to its chief operating decision maker.

Legal Fees

The ~~company~~Company accounts for legal fees as they are incurred and typically classifies such fees as general and administrative expenses inon the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Total legal fees were $16.35 million and $10.35 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, respectively, and $46.91 million and $69.10 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively.

Recent Accounting Pronouncements

InRecently ~~July~~Adopted 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement — Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505) and Compensation — Stock Compensation (Topic 718) (“ASU 2023-03”). ASU Pronouncements

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-07 for interim periods beginning in the three months ended March 31, 2024 on a retrospective basis, which resulted in appropriate adjustments of prior year disclosures. The impact of ASU 2023-07 resulted in additional disclosures in the notes to the condensed consolidated financial statements. See Note 3. Segment Reporting.

Accounting Pronouncements Not Yet Adopted

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 was intended to align the requirements of the ASC with overlapping SEC requirements. The guidance in ASU 2023-06 is required to be applied prospectively, and the ASC amendments will be effective only upon the removal of the overlapping SEC disclosure requirements. If, however, the SEC does not act to remove the relevant overlapping requirements by June 30, 2027, the FASB amendments will not be effective. The Company does not anticipate that the adoption of ASU 2023-06 will have a material impact on the condensed consolidated financial statements.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~2023-03~~In ~~amends~~December 2023, the ~~ASC~~FASB inissued ~~response~~ASU to2023-09, ~~certain~~Income ~~SEC~~Taxes ~~staff~~(Topic ~~bulletins~~740): ~~and~~Improvements ~~announcements.~~to AsIncome Tax Disclosures (“ASU 2023-0309”), ~~did~~to ~~not~~expand ~~provide~~the ~~any~~disclosure ~~new~~requirements ~~guidance,~~for ~~there~~income ~~was~~taxes, nospecifically ~~transition~~related orto ~~effective~~rate ~~date~~reconciliation ~~associated~~and ~~with~~income ~~its~~taxes ~~adoption~~paid. ~~Accordingly,~~ASU ~~the~~2023-09 ~~Company~~is ~~adopted~~effective ~~ASU~~for ~~2023-03~~annual ~~immediately~~reporting ~~upon~~periods ~~its~~beginning ~~issuance~~after December 15, 2024, and early adoption is permitted. The ~~adoption~~Company ofis currently evaluating ASU 2023-0309 ~~did~~to ~~not~~determine ~~have~~the ~~any~~ impact on ~~the~~its ~~Company’s~~condensed consolidated financial statements, ~~including their presentation~~ and related disclosures.

In ~~October~~March ~~2023~~2024, the FASB issued ASU ~~No. 2023~~2024-0602, ~~Disclosure~~Codification Improvements: ~~Codification~~– Amendments into ~~Response~~Remove References to the ~~SEC’s~~Concepts ~~Disclosure~~Statements ~~Update and Simplification Initiative~~ (“ASU ~~2023~~2024-0602”)., ~~ASU~~which ~~2023-06~~contains ~~was~~amendments ~~intended~~ to ~~align~~ the ~~requirements of the~~ ASC ~~with~~to ~~overlapping~~remove ~~SEC~~references ~~requirements.~~to ~~The~~various ~~guidance~~FASB inconcepts ~~ASU~~statements. ~~2023-06~~In ismost ~~required~~instances, tothe bereferences ~~applied~~are ~~prospectively,~~extraneous and ~~the~~not ~~ASC~~required ~~amendments~~to ~~will~~understand beor ~~effective~~apply ~~only upon~~ the ~~removal~~guidance. ofGenerally, ~~the~~ASU ~~overlapping~~2024-02 ~~SEC~~is ~~disclosure~~not ~~requirements.~~intended ~~If,~~to ~~however,~~result ~~the~~in ~~SEC~~significant ~~does~~accounting ~~not~~changes ~~act~~for tomost ~~remove~~entities. ~~the~~ASU ~~relevant~~2024-02 ~~overlapping~~is ~~requirements~~effective byfor ~~June~~the ~~30,~~Company ~~2027,~~for ~~the~~fiscal ~~FASB~~years ~~amendments~~beginning ~~will~~after ~~not~~December be15, ~~effective~~2024. The Company does not ~~anticipate~~expect ~~that~~this ~~the~~update ~~adoption~~to ~~of ASU 2023-06 will~~ have a material impact on ~~the~~its condensed consolidated financial statements.

In November ~~2023~~2024, the FASB issued ASU ~~2023~~2024-0703, ~~Segment~~Disaggregation ~~Reporting~~of Income Statement Expenses (~~Topic~~Subtopic ~~280~~220-40): ~~Improvements~~(“ASU to2024-03”). ~~Reportable~~ASU ~~Segment~~2024-03 ~~Disclosures,~~requires ~~which~~additional ~~expands~~disclosure ~~annual~~of ~~and~~the ~~interim~~nature ~~disclosure~~of ~~requirements~~expenses ~~for~~included ~~reportable~~in ~~segments,~~the ~~primarily~~income ~~through~~statement ~~enhanced~~as well as disclosures about ~~significant~~specific ~~segment~~types of expenses included in the expense captions presented in the income statement. ~~The~~In addition, the FASB issued ASU is2025-01, ~~effective~~Income ~~for~~Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date in January 2025 to clarify the requirement to adopt the ASU 2024-03 in annual reporting periods beginning after December 15, ~~2023~~2026 and interim periods inwithin ~~fiscal~~annual ~~years~~reporting periods beginning after December 15, ~~2024, and early adoption is permitted~~2027. The Company is currently evaluating ~~the~~these ~~impact~~standards ~~this~~to ~~ASU~~determine ~~may~~the ~~have~~impact on its condensed consolidated financial statements and related disclosures.

In ~~December~~September ~~2023~~2025, the FASB issued ASU ~~2023~~2025-0906, ~~Income~~Intangibles ~~Taxes~~- Goodwill and Other - Internal-Use Software (~~Topic~~Subtopic ~~740~~350-40): Targeted Improvements to ~~Income~~the ~~Tax~~Accounting ~~Disclosures~~for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 amends the guidance in ASC 350-40, toIntangibles—Goodwill ~~expand~~and Other—Internal-Use Software. The amendments modernize the recognition and disclosure ~~requirements~~framework for ~~income~~internal-use ~~taxes~~software costs, ~~specifically~~removing ~~related~~the toprevious ~~rate~~“development ~~reconciliation~~stage” model and ~~income~~introducing ~~taxes~~a ~~paid.~~more ~~The~~judgment-based approach. ASU 2025-06 is effective for ~~annual~~fiscal ~~reporting~~years ~~periods~~ beginning after December 15, ~~2024,~~2027 and for interim periods within those annual reporting periods, with early adoption is permitted. The Company is currently evaluating the impact ~~that~~of ~~this~~ ASU ~~may~~2025-06 ~~have~~ on its condensed consolidated financial statements ~~and related disclosures~~.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40) (“ASU 2024-03”), which is intended to improve disclosures about a public business entity’s expenses, primarily through additional disaggregation of income statement expenses. The guidance will be effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard may be applied using either a prospective or retrospective application. The Company is currently evaluating ASU 2024-03 to determine the impact on its consolidated financial statements and related disclosures.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures.

3.~~INVESTMENTS~~SEGMENT REPORTING

~~Available-for-Sale~~As ~~Securities~~of ~~(Marketable~~June 30, ~~Securities~~2024, the Company had one operating and reportable segment, as it reports financial information on an aggregate and consolidated basis. The Company’s chief operating decision maker (“CODM”) as of such date was the executive team, which included the Interim Chief Executive Officer, Interim Chief Financial Officer, Chief Strategy Officer and Senior Vice President of Finance. The CODM reviews results to assess performance, make decisions and allocate the Company’s operating and capital resources as a whole, on a consolidated basis. All of the Company’s revenue is attributable to one operating segment. The CODM does not distinguish among the Company’s principal business activities for the purpose of internal reporting and uses net loss to allocate resources in the annual budgeting and forecasting process, along with using that measure as a basis for evaluating financial performance quarterly.

The ~~Company’s~~accompanying ~~investments~~Consolidated inStatements ~~marketable~~of ~~securities~~Operations ~~are classified~~ and ~~accounted~~Comprehensive ~~for~~Loss ~~as available-~~for~~-sale~~ ~~and~~the ~~consist~~three ~~of high quality asset-backed securities, commercial paper, corporate bonds~~ and ~~U.S.~~six ~~Government debt securities. The Company’s marketable securities with remaining effective maturities of 12~~ months orended ~~less from the balance sheet date are classified as current; otherwise~~June 30, ~~they~~2024 ~~are~~and ~~classified~~2023 asreflect ~~non-current on~~ the ~~Condensed~~one ~~Consolidated~~reportable ~~Balance Sheets~~segment. Commercial paper and corporate bonds and U.S. Government debt securities are classified as current assets while asset-backed securities are classified as non-current assets. Unrealized gains and losses on marketable securities classified as available-for-sale are recognized in other comprehensive income (loss).

Geographic Information

The Company’s revenues are primarily generated in the United States. Revenues outside of the United States were approximately zero and $0.4 million for the three and six months ended June 30, 2024, respectively, and zero and $0.01 million for the three and six months ended June 30, 2023, respectively. The Company does not have any long-lived assets located outside the United States.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

4.ACQUISITIONS

Door Property Management

In March 2024, the Company announced the launch of DPM in conjunction with the acquisition of substantially all of the assets of the property management division of The Broadway Company, a Boston-based real estate investment company. Additionally, the Company purchased substantially all of the assets of the property management division of Boston Realty Advisors in May 2024. Together, these acquisitions (the “Property Management Acquisitions”) enable the Company to (i) operate all aspects of multifamily residential properties, from physical management to providing advanced technology solutions, and (ii) gain hands-on experience in property management to further refine and optimize its products and services.

The Property Management Acquisitions were accounted for as business combinations under ASC 805, Business Combinations (“ASC 805”) as of June 30, 2024. Accordingly, the acquired assets and liabilities were recorded at their estimated fair values on the respective acquisition dates. The Company incurred approximately $0.2 million in transaction-related expenses. The aggregate acquisition date fair value of the purchase consideration for the Property Management Acquisitions was comprised of the following:


Cash paid	$	1,160
Fair value of total consideration transferred	$	1,160

Total purchase consideration was funded from available Company funds. The purchase consideration allocation of the acquired assets, based on their estimated fair values as of the respective acquisition dates, is as follows:


Property and equipment	$	24
Intangible assets	605
Goodwill	531
Fair value of net assets acquired	$	1,160

Goodwill of approximately $0.5 million was recognized in connection with the Property Management Acquisitions, primarily reflecting expected synergies and economies of scale from combining the operations of the Company and DPM. The goodwill is expected to be deductible for income tax purposes.

Because the Property Management Acquisitions are not material to the Company’s condensed consolidated financial statements, the revenue and earnings since the acquisition date, as well as pro forma revenue and earnings information, have not been presented.

HDW Acquisition

On July 3, 2023, the Company completed its acquisition of HDW in order to acquire HDW’s technology assets to accelerate the development of the Company’s platform, enable the Company to offer resident services and incorporate HDW’s team members. As a result of the HDW Acquisition, the Company acquired all of the voting equity interests of HDW.

Pursuant to the HDW Merger Agreement, (i) Merger Sub I merged with and into HDW, with HDW continuing as the surviving corporation, and subsequently, (ii) HDW merged with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and a wholly-owned subsidiary of the Company.

The HDW Acquisition qualified as a business combination in accordance with ASC 805, Business Combinations, and the Company was determined to be the acquirer. Accordingly, total consideration was first allocated to the fair value of assets acquired as of the date of acquisition, with the excess being recorded as goodwill. The Company incurred and expensed

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

approximately $1.1 million related to the transaction. The acquisition date fair value of the purchase consideration was $37.7 million, comprised of the following:


	As of July 3, 2023
Cash paid or payable	$	23
Value of Latch common stock issued to holders of HDW preferred stock	8,567
Fair value of replacement awards	7,060
Unsecured promissory notes	22,000
Fair value of total consideration transferred	$	37,650

On the HDW Closing Date, the Company issued to HDW’s stockholders as merger consideration approximately 29.0 million shares of the Company’s common stock. These Consideration Shares consisted of (i) approximately 3.8 million shares of the Company’s common stock issued to the HDW Common Holders, which excludes Mr. Siminoff, (ii) approximately 19.1 million shares to Mr. Siminoff, who was also a holder of HDW common stock, and (iii) approximately 6.1 million shares to holders of HDW preferred stock. As discussed in Note 15. Stock-Based Compensation - HDW Acquisition, the shares of HDW common stock, including the Siminoff Shares, were modified by the HDW board of directors in connection with the HDW Acquisition and subsequently exchanged for the Consideration Shares. The modification of the HDW common stock and subsequent exchange for the Consideration Shares is treated in accordance with the guidance for replacement awards prescribed by ASC 805. Pursuant to the guidance, the fair value of the “replacement awards” is allocated between consideration transferred and post-combination compensation expense.

The Company determined the total fair value of the 3.8 million shares of the Company’s common stock issued to the HDW Common Holders on the HDW Closing Date was $5.3 million based upon the $1.40 closing price of the Company’s common stock on the HDW Closing Date. Of the $5.3 million, (i) $1.4 million was attributable to pre-combination service and included in the consideration transferred (presented within the fair value of replacement awards in the table above) and (ii) $3.9 million was attributable to post-combination service and recognized as stock-based compensation expense by the Company in the post-combination financial statements immediately upon the closing of the HDW Acquisition.

Upon issuance by the Company, the terms of the 19.1 million Siminoff Shares were subject to vesting considerations and restrictions on transfer pursuant to the Original Siminoff Stock Restriction Agreement. The Company estimated the fair value of the Siminoff Shares on the HDW Closing Date to be $26.7 million based upon the $1.40 closing price of the Company’s common stock on the HDW Closing Date. Of the $26.7 million, $5.7 million was attributable to pre-combination service and included in the consideration transferred (presented within the fair value of replacement awards in the table above) and $21.0 million was attributable to post-combination service to be recognized as stock-based compensation expense over the estimated service period of 3.8 years.

The purchase consideration allocation of the acquired assets, based on their respective estimated fair values as of the date of the HDW Acquisition, is as follows:


	As of July 3, 2023
Cash and cash equivalents	$	8,107
Prepaid expenses and other current assets	5
Intangible assets(1)	5,111
Accrued expenses	(895)
Total identifiable net assets	12,328
Goodwill	25,322
Fair value of net assets acquired	$	37,650

(1)Includes developed technology of $3.8 million with a useful life of six years and trade names (domain) of $1.3 million with a useful life of seven years. Significant judgments were made by management related to projected financial information and discount rates used to determine the fair value of the developed technology intangible asset and resulting goodwill as of the date of the HDW Acquisition.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

generate additional revenue by selling HDW platform services to Latch app users; and (iii) the value of the human capital being acquired, including HDW’s experienced leadership team.

There is no expected tax deduction related to the acquired goodwill.

Following are the supplemental consolidated financial results of the Company on an unaudited pro forma basis, as if the HDW Acquisition had been consummated on January 1, 2022:


	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
Total revenue	$	10,178	$	21,328
Net loss	$	(41,927)	$	(75,719)

The supplemental pro forma financial information presented above is not necessarily indicative of the financial position or results of operations that would have been realized if the HDW Acquisition had been completed on January 1, 2022. The supplemental pro forma financial information does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position.

For the three and six months ended June 30, 2024, activity related to the HDW Acquisition is included in the Company’s consolidated results. The operating results of this business were immaterial to the Company’s consolidated results of operations.

5.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 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 accompanying Condensed Consolidated Balance Sheets. Commercial paper and corporate bonds and U.S. Government debt securities are classified as current assets while asset-backed securities are classified as non-current assets. Unrealized gains and losses on marketable securities classified as available-for-sale are recognized in other comprehensive income (loss).

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

	As of September 30, 2023
	As of June 30, 2024
	Amortized Cost		Gross Unrealized ~~Loss~~Gain		Estimated Fair Value
Asset backed securities	$	2,006	$	(4)	$	2,002
U.S. Government debt securities	$	22,531	$	1	$	22,532
Commercial paper and corporate bonds	75,733		(60)		75,673
Total available-for-sale securities	$	22,531	$	1	$	22,532
U.S. Government debt securities	36,535		(7)		36,528
Total available-for-sale securities	$	114,274	$	(71)	$	114,203

	As of December 31, 2022
	As of December 31, 2023
	Amortized Cost		Gross Unrealized ~~Loss~~Gain		Estimated Fair Value
Asset backed securities	$	5,015	$	(178)	$	4,837
Commercial paper and corporate bonds	$	54,374	$	31	$	54,405
Commercial paper and corporate bonds	104,828		(995)		103,833
U.S. Government debt securities	30,440		16		30,456
U.S. Government debt securities	16,689		(290)		16,399
Total available-for-sale securities	$	84,814	$	47	$	84,861
Total available-for-sale securities	$	126,532	$	(1,463)	$	125,069

As of ~~September~~June 30, ~~2023~~2024 and December 31, ~~2022~~2023, the Company recorded $0.1001 million and $10.505 million, respectively, of gross unrealized ~~losses~~gain in accumulated other comprehensive ~~loss~~income on the accompanying Condensed Consolidated Balance Sheets~~, primarily due to a decrease in the fair value of the corporate bonds~~.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

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

As of September 30, 2023

As of June 30, 2024

Amortized Cost

Estimated Fair Value

Due in less than one year

~~112~~22,~~232~~531

~~112~~22,~~201~~532

Due in one to five years

~~2,006~~—

~~2,002~~—

Total investments

~~114~~22,~~238~~531

~~114~~22,~~203~~532


	As of December 31, 2023
	Amortized Cost		Estimated Fair Value
Due in less than one year	$	83,435	$	84,861
Due in one to five years	—		—
Total investments	$	83,435	$	84,861

The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Investments that are impaired are those that are considered to have losses that are other-than-temporary. Factors considered in determining whether a loss is temporary include:

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

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

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

As of ~~September~~June 30, ~~2023~~2024, the Company had not identified any impairment indicators in its investments.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, the Company received $3322.69 million and $~~131~~73.23 million, respectively, of proceeds from maturities and call redemptions and recorded minimal realized losses from the sale of available-for-sale securities. ~~During~~For the three and ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023, the Company received $7554.8 million and $~~171~~97.27 million, respectively, of proceeds from maturities and call redemptions and recorded minimal realized losses from the sale of available-for-sale securities and received no proceeds from sales. Gains and losses are determined using the first-in, first-out method.

Investment in Private Company

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 convertible promissory notes in the amounts of $0.3 million and $0.3 million, respectively, 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, was originally due and payable on September 30, 2022. The maturity date was extended to November 15, 2022. The Notes contained 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; and optional acceleration or conversion into equity upon certain corporate transactions by the counterparty. Interest accrued at 6% per annum. The Notes met the definition of a debt security under the provisions of ASC 320, Investments - Debt Securities.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

equity financing by the counterparty; optional conversion into equity upon the sale of preferred stock by the counterparty; and optional acceleration or conversion into equity upon certain corporate transactions by the counterparty. Interest accrued at 6% per annum. The Notes met the definition of a debt security under the provisions of ASC 320, Investments - Debt Securities.

In December 2022, the counterparty was acquired by a privately held corporation (the “Reference Transaction”). In connection with the Reference Transaction, the Company entered into an agreement in which the Notes were exchanged for consideration, as follows: (i) approximately 124,000 shares of the acquirer’s common stock (“investment in private company”) and (ii) contingent consideration in the form of the acquirer’s common stock and cash (“contingent consideration”), to be paid subject to the acquirer’s achievement of a performance milestone by the second quarter of 2023. The acquirer achieved the performance milestone, and the Company received contingent consideration of approximately 530,000 additional shares of the acquirer’s common stock and $0.3 million of cash in May 2023.

As there was no readily determinable fair value of the acquirer’s common stock, the Company elected to apply the measurement alternative to subsequently value the private company equity interests in accordance with ASC 321, Investments - Equity Securities. The contingent consideration was further discounted to reflect the estimated achievement of the performance milestone. The Company classified the consideration received within Level 3 of the fair value hierarchy. See ~~Note 4. Fair Value Measurements. Changes in fair value are reported in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.~~

The Company received $1.1 million of consideration for the Notes and recorded a loss of $3.5 million during the year ended December 31, 2022 on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The consideration received was comprised of investment in private company of $0.2 million and contingent consideration of $0.9 million, which are presented in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. 22

For the three and nine months ended September 30, 2023, the Company recorded a gain on the contingent consideration of zero and $0.2 million, respectively. Because the Notes were exchanged in the Reference Transaction in December 2022, there were no recorded gains or losses on the Notes during the three and nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, the Company recorded a loss on the Notes of $2.0 million and $3.5 million, respectively. These changes in fair value are recorded on the Condensed Consolidated Statements of Operations and Comprehensive Loss. As of September 30, 2023, the fair value of the investment in private company and contingent consideration was $1.0 million and zero, respectively, and presented in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

4.FAIR VALUE MEASUREMENTS

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

	As of September 30, 2023
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
Assets
Cash	$	5,639	$	—	$	—	$	5,639
Money market funds and other cash equivalents	18,952		31,707		—		50,659
Total cash and cash equivalents	24,591		31,707		—		56,298
Available-for-sale securities	—		114,203		—		114,203
Investment in private company	—		—		954		954
Total assets	$	24,591	$	145,910	$	954	$	171,455
Liabilities
Warrant liability	$	—	$	12	$	—	$	12
Total liabilities	$	—	$	12	$	—	$	12

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

	As of December 31, 2022
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
Assets
Cash	$	12,180	$	—	$	—	$	12,180
Money market funds and other cash equivalents	93,364		4,284		—		97,648
Total cash and cash equivalents	105,544		4,284		—		109,828
Available-for-sale securities	—		125,069		—		125,069
Investment in private company	—		—		181		181
Contingent consideration	—		—		852		852
Total assets	$	105,544	$	129,353	$	1,033	$	235,930
Liabilities
Warrant liability	$	—	$	230	$	—	$	230
Total liabilities	$	—	$	230	$	—	$	230

Note 6. Fair Value Measurements. Changes in fair value are reported in other income, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

For the three and six months ended June 30, 2023, the Company recorded a gain on the contingent consideration of $0.2 million and $0.2 million, respectively, on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

As of June 30, 2024 and December 31, 2023, the fair value of the investment in private company was $1.0 million and $1.0 million, respectively, and presented in prepaid expenses and other current assets on the accompanying Condensed Consolidated Balance Sheets.

6.FAIR VALUE MEASUREMENTS

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


	As of June 30, 2024
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total

Cash	$	6,344	$	—	$	—	$	6,344
Money market funds and other cash equivalents	—		81,115		—		81,115
Total cash and cash equivalents	6,344		81,115		—		87,459
Available-for-sale securities	—		22,532		—		22,532
Investment in private company	—		—		954		954
Total assets	$	6,344	$	103,647	$	954	$	110,945

Liabilities
Warrant liability	$	—	$	1	$	—	$	1
Total liabilities	$	—	$	1	$	—	$	1


	As of December 31, 2023
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total

Cash	$	81,641	$	—	$	—	$	81,641
Money market funds and other cash equivalents	11,221		1,813		—		13,034
Total cash and cash equivalents	92,862		1,813		—		94,675
Available-for-sale securities	—		84,861		—		84,861
Investment in private company	—		—		954		954

Total assets	$	92,862	$	86,674	$	954	$	180,490

The Company’s investments in cash, money market funds and other cash equivalents that are highly liquid and low-risk have been classified as Level 1 as they are valued utilizing quoted prices (unadjusted) in active markets for identical assets. Investments in other cash equivalents that are not active are classified as Level 2. Investments in asset-backed securities, commercial paper, corporate bonds and U.S. Government debt securities that are valued using quoted prices in less active markets or other directly or indirectly observable inputs are classified as Level 2. Fair values of corporate bonds and U.S. Government 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 warrant liability includes private placement warrants that were originally issued in connection with the initial public offering of TSIA (the “TSIA IPO”) that Legacy Latch assumed 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 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 or final trading price of the Company’s public warrants, traded under the symbol “LTCHW,” and within Level 2 of the fair value hierarchy. The closing or final trading price of the public warrants was zero and $0.04 as of September 30, 2023 and December 31, 2022, respectively. The fair value of the Private Placement Warrants was zero and $0.2 million as of September 30, 2023 and December 31, 2022, respectively.23

The Company’s investments in private company and contingent consideration were classified as Level 3 as of September 30, 2023 in the fair value hierarchy because they relied significantly on inputs that were unobservable in the market. The contingent consideration was dependent on varying events and equity value and therefore was estimated. Significant assumptions included: (i) the equity value of the acquirer as of September 30, 2023 and (ii) the ability of the counterparty to achieve future technical milestones in order to make the contingent payment. As discussed in Note 3. Investments, during the three and nine months ended September 30, 2023, the Company recorded a gain on the contingent consideration of zero and $0.2 million, respectively. During the three and nine months ended September 30, 2022, the Company recorded a loss on the fair value of the Notes of $2.0 million and $3.5 million, respectively.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

As of June 30, 2024 and December 31, 2023, the Company’s investment in private company was classified as Level 3 in the fair value hierarchy because it relied significantly on inputs that were unobservable in the market. The ~~following~~Company ~~table~~assessed ~~represents~~the fair value of this investment by reviewing the ~~activity~~private company’s recent operating results and trends and confirming the absence of any observable transactions of its equity securities and other publicly available data. Valuations of private companies are inherently more complex due to the ~~Level~~lack 3of ~~instruments:~~readily available market data. As such, the Company believes that providing a sensitivity analysis is not practicable.

	Investment in Private Company		Contingent Consideration
Balance at December 31, 2022	$	181	$	852
Change in fair value(1)	14		204
Contingent consideration received in cash	—		(297)
Contingent consideration received as investment in private company	759		(759)
Balance at September 30, 2023	$	954	$	—

As discussed in Note 5. Investments, the Company recorded a gain on the contingent consideration of $0.2 million and $0.2 million during the three and six months ended June 30, 2023, respectively.

~~(1)Recorded~~During inthe ~~other~~three ~~income~~and ~~(expense)~~six months ended June 30, ~~net~~2024, ~~within~~there ~~the~~were ~~Condensed~~no ~~Consolidated~~transfers ~~Statements~~of financial assets between Level 1 and Level 2. There were no purchases, sales or transfers of ~~Operations~~Level 3 instruments during the three and ~~Comprehensive~~six ~~Loss~~months ended June 30, 2024.

~~During the three and nine months ended September 30, 2023, there were no transfers of financial assets between Level 1 and Level 2~~7. ~~There were no purchases~~INVENTORIES, ~~sales or transfers of Level 3 instruments during the three and nine months ended September 30, 2023.~~ NET

5.INVENTORIES, NET

Inventories, net consisted of the following:

	September 30, 2023		December 31, 2022
	June 30, 2024		December 31, 2023
Raw materials	$	98,~~615~~681	$	76,~~295~~665
Finished goods	103,~~483~~049		189,~~484~~479
Channel inventory	~~2,036~~—		~~3,656~~415
Total current inventories, net	2211,~~134~~730		2916,~~435~~559
Finished goods, non-current	9,776		13,595
Finished goods, non-current, net	12,210		10,143
Total inventories, net	$	3123,~~910~~940	$	4326,~~030~~702

~~Hardware~~The ~~shipped~~total toexcess ~~channel~~and ~~partners~~obsolete ~~is considered channel~~ inventory ~~until~~reserve ~~there~~as ~~is evidence a contract exists and control has passed to the customer. Inventories, net are stated at the lower~~ of ~~cost or net realizable value at their cost being determined using the average cost method. Inventories~~June 30, ~~net~~2024 are written down to their net realizable value if they have a cost basis in excess of expected net realizable value. The Company did not record a write-down of channel inventory in cost of hardware revenue for the three and ~~nine months ended September~~December 3031, 2023. ~~The~~was ~~Company recorded~~ $012.57 million inand ~~cost~~$12.9 ~~of hardware revenue related to the write-down of channel inventory for the year ended December 31~~million, ~~2022~~respectively.

~~Net inventories not expected to be sold according to a one year forecasted sales projection are classified as other non-current assets on the Condensed Consolidated Balance Sheets~~8.PREPAID ~~Inventory~~EXPENSES onAND ~~hand~~OTHER ~~that~~CURRENT exceeds a three-year forecasted sales projection is recorded as an excess and obsolete inventory reserve. This reserve is comprised of inventory greater than can be used to meet future needs (excess) or for which the product is outdated or otherwise not expected to be sold (obsolete).ASSETS

~~During~~Prepaid ~~the~~expenses ~~nine months ended September 30, 2023, the Company’s Chief Executive Officer, Interim Chief Financial Officer~~ and Chief Accounting Officer resigned, and the Company appointed an Interim Chief Executive Officer and Interim Chief Financial Officer. The newly appointed leadership team conducted an in-depth analysis of the business and changed the Company’s strategy resulting in the rationalization and discontinuation of products and a reduction in the number of distribution channels. As a result, the one year and three-year sales forecasts were lower as of September 30, 2023 than as of December 31, 2022. The Company reduced its sales forecasts due to, among other ~~factors,~~current ~~overall~~assets ~~market~~consisted ~~conditions, strained customer relationships and ongoing brand issues due to adverse publicity from the Investigation and Restatement as well as significant turnover~~ of the sales team. For the three months ended September 30, 2023, the total excess and obsolete inventory reserve decreased by $0.6 million, $0.5 million of which was due to a higher sales forecast and $0.1 million of which represents sales of obsolete inventory. For the nine months ended September 30, 2023, the total excess and obsolete inventory reserve increased by $9.3 million, $6.9 million of which was due to these lower forecasts and $2.5 million of which represents inventory the Company had determined had become obsolete during the period. The total excess and obsolete inventory reserve as of September 30, 2023 and December 31, 2022 was $13.1 million and $3.8 million, respectively.following:


	June 30, 2024		December 31, 2023
Insurance receivable	$	10,014	$	10,961
Prepaid inventory	17,763		11,745
Unbilled receivables, net	3,567		5,942
Investment in private company	954		954
Prepaid capitalized incentives	437		436
Prepaid installation payments	23		678
Other prepaid expenses and other current assets	3,753		4,041
Total prepaid expenses and other current assets	$	36,511	$	34,757

9.INTERNALLY-DEVELOPED SOFTWARE, NET

Internally-developed software, net consisted of the following:


	June 30, 2024		December 31, 2023
Internally-developed software	$	22,510	$	21,613
Software-in-development	2,598		841
Less: accumulated amortization	(15,447)		(12,697)
Total internally-developed software, net	$	9,661	$	9,757

During the three and six months ended June 30, 2024, the Company capitalized $1.8 million and $2.7 million, respectively, in internally-developed software. During the three and six months ended June 30, 2023, the Company capitalized $0.04 million

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

6and $0.~~PREPAID~~7 million, ~~EXPENSES~~respectively, ~~AND~~in ~~OTHER~~internally-developed ~~CURRENT~~software. ~~ASSETS~~Capitalized costs associated with software-in-development are not amortized until the related assets are put into service.

~~Prepaid~~Total ~~expenses~~amortization expense related to internally-developed software for the three and ~~other~~six ~~current~~months ~~assets~~ended ~~consisted~~June 30, 2024 was $1.3 million and $2.7 million, respectively, and $1.4 million and $2.8 million for the three and six months ended June 30, 2023, respectively. Impairment expense, which is included in general and administrative expense on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, was zero for both the ~~following:~~three and six months ended June 30, 2024, and $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively.

	September 30, 2023		December 31, 2022
Insurance receivable	$	10,000	$	205
Prepaid inventory	11,479		6,168
Investment in private company and contingent consideration	954		1,033
Unbilled receivables	3,974		942
Prepaid capitalized incentives	432		304
Prepaid installation payments	295		212
Other prepaid expenses and other current assets	6,778		3,469
Total prepaid expenses and other current assets	$	33,912	$	12,333

10.ACCRUED EXPENSES

7.INTERNALLY-DEVELOPED SOFTWARE, NET

Internally-developed software, net consisted of the following:

	September 30, 2023		December 31, 2022
Internally-developed software	$	20,655	$	17,927
Software-in-development	1,531		3,264
Less: accumulated amortization	(11,410)		(7,438)
Total internally-developed software, net	$	10,776	$	13,753

During the three and nine months ended September 30, 2023, the Company capitalized $0.3 million and $1.0 million, respectively, in internally-developed software. During the three and nine months ended September 30, 2022, the Company capitalized $0.9 million and $5.9 million, respectively, in internally-developed software. Capitalized costs associated with software-in-development are not amortized into amortization expense until the related assets are put into service.

Total amortization expense related to internally-developed software for the three and nine months ended September 30, 2023 was $1.3 million and $4.1 million, respectively. Total amortization expense related to internally-developed software for the three and nine months ended September 30, 2022 was $1.0 million and $2.7 million, respectively. Impairment expense for the three and nine months ended September 30, 2023 was zero and $0.2 million, respectively, which is included in general and administrative expense on the Condensed Consolidated Statement of Operations and Comprehensive Loss. Impairment expense for the three and nine months ended September 30, 2022 was zero and $0.4 million, respectively, which is included in general and administrative expense on the Condensed Consolidated Statement of Operations and Comprehensive Loss.

8.ACCRUED EXPENSES

Accrued expenses consisted of the following:

	September 30, 2023		December 31, 2022
	June 30, 2024		December 31, 2023
Accrued compensation	$	~~2,017~~275	$	12,~~090~~099
Accrued warranties	~~107~~164		~~228~~128
Accrued purchases	~~603~~3,526		~~2,842~~258
Accrued non-cancellable purchase commitments	~~1,268~~—		~~5,303~~588
Accrued litigation costs	25,839		6,846
Accrued audit fees	2,888		419
Accrued restructuring costs	3,243		226
Accrued litigation costs	31,361		26,819
Other accrued expenses	5,641		9,110
Investment purchases payable	—		19,322
Total accrued expenses	$	38,718	$	25,645
Accrued restructuring costs	103		1,301
Other accrued expenses	5,671		4,032
Total accrued expenses	$	43,988	$	54,966

~~For~~As ~~the~~of ~~nine~~June 30, ~~months~~2024 ~~ended~~and ~~September~~December 3031, 2023, accrued litigation costs primarily ~~include~~included (i) $1.95 million related to settlement of the Brennan Action, (ii) $6.8 million related to the service provider demand, (iii) $1.95 million related to settlement of the Schwartz Action and (iv) the Company’s $14.875 million share of the settlement in the Merger Lawsuits, each as defined and/or further described in Note 12. Commitments and Contingencies.

23Prior to December 31, 2023, the Company (i) received $19.3 million of proceeds from the sale of a maturing available-for-sale security and (ii) reinvested the proceeds by purchasing an equal amount of new securities prior to such date. The Company uses trade-date accounting and, as such, the new securities position of $19.3 million is included in the balance of available-for-sale securities on the accompanying Condensed Consolidated Balance Sheet as of December 31, 2023, and a liability of $19.3 million presented as investment purchases payable is included in accrued expenses on the accompanying Condensed Consolidated Balance Sheet as of December 31, 2023. The funds were deducted from the Company’s account in early January 2024. Accordingly, the sum of the Company’s cash and cash equivalents as of December 31, 2023 is $19.3 million higher than it would have been had the funds been deducted from the Company’s account prior to year end.

11.DEBT

In connection with the HDW Acquisition, in July 2023 the Company issued to HDW’s stockholders as merger consideration $22.0 million aggregate principal amount of unsecured promissory notes (“Promissory Notes”). The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection with an event of default (including certain events of delisting from The Nasdaq Stock Market LLC (“Nasdaq”)) or change of control of the Company. As of December 31, 2023, the Company concluded that it was virtually certain the Promissory Notes would become payable within the upcoming 12 months due to the Company’s then-anticipated delisting from Nasdaq, which was an event of default with respect to the Promissory Notes. Consequently, the Company reclassified the debt obligation as current as of December 31, 2023, despite the event of default not yet occurring. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty in the amount of $23.9 million, including principal and accrued interest, to the holders of the Promissory Notes.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~settlement of the Schwartz Action and (iv) the Company’s $14~~12.~~875 million~~COMMITMENTS ~~share~~AND ~~of the settlement in the Merger Lawsuits, each as defined and/or further described in Note 10. Commitments and Contingencies.~~CONTINGENCIES

For the year ended December 31, 2022, (i) other accrued expenses includes $1.95 million related to settlement of the Brennan Action and (ii) accrued litigation costs include $6.8 million related to the service provider demand, each as defined and/or further described in Note 10. Commitments and Contingencies.

9.DEBT

In connection with the HDW Acquisition, in July 2023 the Company issued to HDW’s stockholders as merger consideration $22.0 million aggregate principal amount of unsecured promissory notes (“Promissory Notes”). The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. As of September 30, 2023, the Company concluded that it was virtually certain the Promissory Notes would become payable within the upcoming 12 months due to the Company’s then-anticipated delisting from Nasdaq, which was an event of default with respect to the Promissory Notes. Consequently, the Company reclassified the debt obligation as current as of September 30, 2023, despite the event of default not yet occurring. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty. The Company paid an aggregate of $23.9 million in principal and accrued interest to the holders of the Promissory Notes.

10.COMMITMENTS AND CONTINGENCIES

Purchase Commitments

The Company subcontracts with third-party contract manufacturers to build most Latch hardware products. During the normal course of business and consistent with industry practice, contract manufacturers procure components and build finished goods based upon a forecasted demand plan provided by the Company. Although the Company is allowed to cancel or reschedule orders, there are situations when orders cannot be cancelled, such as when a demand plan change occurs after a contract manufacturer has purchased the components or built the finished goods based on a previous demand plan. The Company materially reduced its demand plan in the second quarter of 2022 and started engaging in discussions with its contract manufacturers regarding the Company’s obligation to purchase inventory based on the original demand plan. As of ~~September~~June 30, ~~2023~~2024 and December 31, 2023, the Company had unfunded non-cancellable purchase commitments of ~~approximately~~zero ~~$1.3 million~~ and $0.6 million, respectively. See Note 10. Accrued Expenses.

The Company records a liability for non-cancellable orders to the extent it does not expect to be able to use the inventory related to such orders. As of September 30, 2023 and December 31, 2022, the Company accrued $1.3 million and $5.3 million, respectively, for non-cancellable inventory purchase commitments. See Note 8. Accrued Expenses.

Registration Rights Agreements

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

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Quarterly Report). Up to twice in any 12-month period, the Holders may request to sell all or any portion of their Registrable Securities in an underwritten offering so long as the total offering price is reasonably expected to exceed $25 million. The Company also agreed to provide customary “piggyback” registration rights to certain Holders designated as “Major Equityholders,” subject to certain requirements and customary conditions. The 2023 Registration Rights Agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the stockholders against certain liabilities. In the event the Company is unable to file a registration statement required by the 2023 Registration Rights Agreement, the Company is not required to repurchase or settle any Registrable Securities.

Legal Contingencies

Securities Litigation

On August 31, 2022, an alleged stockholder of Latch stock filed a purported securities class action complaint in the United States District Court for the Southern District of New York (Brennan v. Latch, Inc., et al., Case No. 1:22-cv-07473, the “Brennan Action”). The complaint alleges that the Company and certain of its former officers violated Section 10(b) of the Exchange Act, Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by making false or misleading statements regarding the Company’s business, operations and prospects. The complaint includes claims for damages, including interest, and an award of reasonable costs and attorneys’ fees and expert fees to the putative class. On January 17, 2023, the court appointed VB PTC Establishment as Trustee of Gersec Trust as lead plaintiff. On November 12, 2024, the Company and lead plaintiff filed with the court a settlement agreement pursuant to which the Company agreed to pay the settlement class in the amount of $1.95 million in exchange for the dismissal of all claims against the defendants (including the Company). The court ~~preliminarily~~ approved the settlement on ~~January 17, 2025, and a final hearing has been set for~~ May 28, 2025. The Company paid the settlement amount in March 2025. The amount of the ~~proposed~~ settlement is reflected (i) in general and administrative expenses inon the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as of the date the complaint was filed and (ii) as accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2023. Under the terms of the proposed settlement, the defendants (including the Company) continue to deny any liability or wrongdoing. The Company does not expect insurers to contribute to the settlement amount.

On January 11, 2023, an alleged stockholder of Latch stock filed a purported securities class action complaint in the United States District Court for the District of Delaware (Schwartz v. Latch, Inc., et al., Case No. 1:23-cv-00027, the “Schwartz Action”). The complaint alleges that the Company and certain of its current and former directors violated Sections 11 and 15 of the Securities Act by making false or misleading statements regarding the Company’s business, operations and prospects. The complaint includes claims for damages, including interest, and an award of reasonable costs and attorneys’ fees and expert fees to the putative class. On April 24, 2023, the court appointed Scott Schwartz as lead plaintiff. In May 2023, the parties agreed to stay the action pending completion of the Restatement, and to allow the lead plaintiff a period of 21 days following completion of the Restatement in which to file an amended complaint. On September 27, 2024, the Company filed a motion to transfer the complaint to the United States District Court for the Southern District of New York. The motion was denied on November 13, 2024. In December 2024, the parties agreed in principle to a settlement and entered into a binding memorandum of understanding pursuant to which the Company agreed to pay the settlement class in the amount of $1.95 million in exchange for the dismissal of all claims against the defendants (including the Company). The amount of the proposed settlement is reflected (i) in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as of the date the complaint was filed and (ii) as accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2023. The settlement remains subject to a final stipulation of settlement and approval by the court. The defendants continue to deny any fault, liability, wrongdoing or damages in connection with the allegations raised in the Schwartz Action. The Company does not expect insurers to contribute to the settlement amount. 26

On May 9, 10 and 19, 2023, three alleged stockholders of Latch stock filed purported class action complaints in the Court of Chancery of the State of Delaware: Kilari v. TS Innovation Acquisitions Sponsor, LLC, et al., C.A. No. 2023-0509; Subramanian v. TS Innovation Acquisitions Sponsor, LLC, et al., C.A. No. 2023-0514; and Garfield v. Speyer, et al., C.A. No. 2023-0504 (together, the “Merger Lawsuits”). On July 6, 2023, the court consolidated the Merger Lawsuits under the caption In re TS Innovation Acquisitions Sponsor, LLC Stockholder Litigation, No. 2023-0509-LWW (Del. Ch.) and appointed Phanindra Kilari, Subash Subramanian and Robert Garfield as co-lead plaintiffs. The Merger Lawsuits allege that TSIA’s directors and officers, and alleged entity and individual controllers, breached their fiduciary duties by making false or misleading statements in connection with the merger between Latch and TSIA and by approving a merger unfair to TSIA’s stockholders. The Merger Lawsuits include claims for unjust enrichment, damages and an award of costs and attorneys’ fees

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

toexpenses ~~the~~on ~~putative class. Pursuant to~~ the ~~TSIA~~accompanying ~~Merger~~Condensed ~~Agreement,~~Consolidated ~~Latch~~Balance ~~has~~Sheets ~~agreed~~as ~~to indemnify and hold harmless, to the fullest extent permitted by law, TSIA and each~~ of ~~its directors and officers (present and former) named as defendants in the Merger Lawsuits against any costs or expenses~~June 30, ~~reasonable attorneys’ fees, losses, damages or liabilities incurred in connection with these actions. In April~~ 2024, ~~Latch~~ and ~~TS Innovation Acquisitions Sponsor~~December 31, ~~LLC~~2023. ~~agreed~~Under ~~to share~~ the ~~costs~~terms of the settlement ~~amount equally. On December 2~~, ~~2024,~~ the defendants ~~and~~(including ~~lead plaintiffs filed with~~ the court a settlement pursuant to which the defendants agreed to pay the settlement class in the amount of $29.75 million in exchange for the dismissal and release of all claims against the defendants and the Company.) ~~While the settlement remains subject to approval by the court, in accordance with the settlement agreement, the full settlement amount of $29.75 million was paid in January 2025. The defendants~~ continue to deny any ~~fault,~~ liability, ~~wrongdoing~~ or ~~damages in connection with the allegations raised in the Merger Lawsuits~~wrongdoing. ~~Of the $29.75 million, the Company’s insurers paid $10.0 million and Latch paid $4.875 million.~~ The ~~net amount of the~~ Company’s ~~share~~does ofnot ~~the~~expect ~~proposed~~insurers ~~settlement~~to ~~($4.875 million)~~contribute isto ~~reflected in general and administrative expenses in~~ the ~~accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as of the date the complaint was filed. The Company’s share of the~~ settlement amount ~~of $14~~.875 million is reflected as accrued expenses in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2023. The expected insurance contribution of $10.0 million is reflected as prepaid and other current assets in the accompanying Consolidated Balance Sheet as of September 30, 2023.

On January 11, 2023, an alleged stockholder of Latch stock filed a purported securities class action complaint in the United States District Court for the District of Delaware (Schwartz v. Latch, Inc., et al., Case No. 1:23-cv-00027, the “Schwartz Action”). The complaint alleges that the Company and certain of its current and former directors violated Sections 11 and 15 of the Securities Act by making false or misleading statements regarding the Company’s business, operations and prospects. The complaint includes claims for damages, including interest, and an award of reasonable costs and attorneys’ fees and expert fees to the putative class. On April 24, 2023, the court appointed Scott Schwartz as lead plaintiff. In May 2023, the parties agreed to stay the action pending completion of the Restatement, and to allow the lead plaintiff a period of 21 days following completion of the Restatement in which to file an amended complaint. On September 27, 2024, the Company filed a motion to transfer the complaint to the United States District Court for the Southern District of New York. The motion was denied on November 13, 2024. In December 2024, the parties agreed in principle to a settlement and entered into a binding memorandum of understanding pursuant to which the Company agreed to pay the settlement class in the amount of $1.95 million in exchange for the dismissal of all claims against the defendants (including the Company). The amount of the proposed settlement is reflected (i) in general and administrative expenses on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as of the date the complaint was filed and (ii) as accrued expenses on the accompanying Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023. The parties filed a final stipulation of settlement in June 2025, which was preliminarily approved by the court in August 2025 and remains subject to final approval. The Company expects to pay the settlement amount before December 31, 2025. The defendants continue to deny any fault, liability, wrongdoing or damages in connection with the allegations raised in the Schwartz Action. The Company does not expect insurers to contribute to the settlement amount.

On May 9, 10 and 18, 2023, three alleged stockholders of Latch stock filed purported class action complaints in the Court of Chancery of the State of Delaware: Kilari v. TS Innovation Acquisitions Sponsor, LLC, et al., C.A. No. 2023-0509; Subramanian v. TS Innovation Acquisitions Sponsor, LLC, et al., C.A. No. 2023-0514; and Garfield v. Speyer, et al., C.A. No. 2023-0540 (together, the “Merger Lawsuits”). On July 6, 2023, the court consolidated the Merger Lawsuits under the caption In re TS Innovation Acquisitions Sponsor, L.L.C. Stockholder Litigation, No. 2023-0509-LWW (Del. Ch.) and appointed Phanindra Kilari, Subash Subramanian and Robert Garfield as co-lead plaintiffs. The Merger Lawsuits allege that TSIA’s directors and officers, and alleged entity and individual controllers, breached their fiduciary duties by making false or misleading statements in connection with the merger between Latch and TSIA and by approving a merger unfair to TSIA’s stockholders. The Merger Lawsuits include claims for breach of fiduciary duty, unjust enrichment, damages and an award of costs and attorneys’ fees to the putative class. Pursuant to the TSIA Merger Agreement, Latch has agreed to indemnify and hold harmless, to the fullest extent permitted by law, TSIA and each of its directors and officers (present and former) named as defendants in the Merger Lawsuits against any costs or expenses, reasonable attorneys’ fees, losses, damages or liabilities incurred in connection with these actions. In April 2024, Latch and the Sponsor agreed to share the costs of the settlement amount equally. On December 2, 2024, the defendants and lead plaintiffs filed with the court a settlement pursuant to which the defendants agreed to pay the settlement class in the amount of $29.75 million in exchange for the dismissal and release of all claims against the defendants and the Company. The full settlement amount of $29.75 million was paid in January 2025, and the court approved the settlement in July 2025. The defendants continue to deny any fault, liability, wrongdoing or damages in connection with the allegations raised in the Merger Lawsuits. Of the $29.75 million, the Company’s insurers paid $10.0 million and Latch paid $4.875 million. The net amount of the Company’s share of the settlement ($4.875 million) is reflected in general and administrative expenses on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as of the date the complaint was filed. The Company’s share of the settlement amount of $14.875 million is reflected as accrued expenses on the accompanying Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023. The insurance contribution of $10.0 million is reflected as prepaid expenses and other current assets on the accompanying Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023.

Derivative Litigation

On February 15 and July 13, 2023, two alleged stockholders of Latch stock filed derivative actions purportedly on behalf of Latch in the United States District Court for the Southern District of New York: Manley v. Latch, Inc., et al., Case No. 1:23-cv-01273 (the “Manley Action”) and Gottlieb v. Latch, Inc., et al., Case No. 1:23-cv-07473 (the “Gottlieb Action”). The complaints generally allege that certain directors and former officers of the Company breached their fiduciary duties and violated Section 14(a) of the Exchange Act by making false or misleading statements regarding the Company’s business, operations and prospects. Both complaints seek orders permitting plaintiffs to maintain each action derivatively on behalf of the Company, awarding unspecified damages allegedly sustained by the Company, awarding restitution from the individual defendants, requiring the Company to make certain reforms to its corporate governance and controls and awarding costs and attorneys’ fees. The Gottlieb Action includes additional claims for unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets and contribution against certain individual defendants named in the Brennan Action and Schwartz Action. At this time, the Company is unable to estimate potential losses, if any, related to these actions. The Company does not believe the allegations are meritorious and intends to vigorously defend against them. On August 1, 2023, the court consolidated the Manley Action and Gottlieb Action under the caption In re Latch Inc. Derivative Litigation, Case No. 1:23-cv-01273. The parties agreed to stay the action until 21 days following the resolution of any and all motions to dismiss both the Brennan Action and the Schwartz Action. The parties are in discussions regarding a potential resolution.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

the Company, awarding unspecified damages allegedly sustained by the Company, awarding restitution from the individual defendants, requiring the Company to make certain reforms to its corporate governance and controls and awarding costs and attorneys’ fees. The Gottlieb Action includes additional claims for unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets and contribution against certain individual defendants named in the Brennan Action and Schwartz Action. At this time, the Company is negotiating a potential settlement and has estimated a potential loss and accrued $0.1 million of expenses on the accompanying Condensed Consolidated Balance Sheet as of June 30, 2024. The Company does not believe the allegations are meritorious and intends to vigorously defend against them. On August 1, 2023, the court consolidated the Manley Action and Gottlieb Action under the caption In re Latch Inc. Derivative Litigation, Case No. 1:23-cv-01273. The parties agreed to stay the action until 21 days following the resolution of any and all motions to dismiss both the Brennan Action and the Schwartz Action. The parties are in discussions regarding a potential resolution.

Service Provider Demand

The Company is in discussions with a service provider related to a demand for payment under a prior agreement. The Company does not believe that the service provider is entitled to any fees under the prior agreement. However, the Company believes it is probable that an agreement with the service provider will be reached and that the amount the Company will pay the service provider in connection with the dispute and the resolution thereof can be reasonably estimated. As of ~~September~~June 30, ~~2023~~2024 and December 31, ~~2022~~2023, the Company had accrued approximately $6.8 million in connection with the dispute. The Company believes it is reasonably possible that this potential exposure may change based on the resolution of the ongoing discussions. No legal proceedings have been initiated with respect to this demand for payment or the prior agreement with the service provider.

SEC Investigation

Since being contacted by the Staff of the SEC in March 2023, the Company has been cooperating with the Staff’s investigation into issues related to the Company’s key performance indicators and revenue recognition practices that led to the Restatement and related issues (the “SEC Investigation”). The Company cannot predict the duration or outcome of the SEC Investigation or whether the SEC will bring an enforcement action against the Company.

Other

The Company is and may become, from time to time, involved in other legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at June 30, 2024 (other than detailed above), will not materially affect the Company’s condensed consolidated results of operations, financial position or cash flows. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company’s financial results.

2613.EQUITY

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at September 30, 2023 (other than detailed above), will not materially affect the Company’s consolidated results of operations, financial position or cash flows. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company’s financial results.

11.EQUITY

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

Common Stock Reserved for Future Issuance

AsThe ~~of September 30, 2023, the~~ Company’s reserved shares for future issuance included the following:

September 30, 2023

December 31, 2022

June 30, 2024

December 31, 2023

Stock options issued and outstanding

12,~~528~~513,~~211~~799

12,~~863~~516,~~797~~060

Restricted stock units issued and outstanding

86,~~842~~043,~~511~~372

116,~~573~~126,~~764~~062

Public warrants outstanding

9,999,967

Private placement warrants outstanding

5,333,334

2021 Incentive Award Plan available shares

2038,~~962~~010,~~262~~970

1729,~~895~~116,~~423~~354

Total

5771,~~666~~901,~~285~~442

5763,~~666~~091,~~285~~777

~~Warrants~~28

As part of the Closing of the Business Combination, 10.0 million public warrants sold during the TSIA IPO converted into 10.0 million public warrants to purchase up to 10.0 million shares of common stock of the Post-Combination Company, which are exercisable at $11.50 per share. The Company accounts for warrants as required under ASC 815 and has concluded that equity classification would be met for the public warrants as the Company has a single class of equity, and thus all holders vote 100% on all matters submitted to the Company’s stockholders and receive the same form of consideration in the event of a change of control (thus qualifying for the exception to the net cash settlement model), and the other conditions of equity classification would be met.

Fair Valuation Methodology - Private Placement Warrants

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

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~12.EARNINGS~~Public ~~PER SHARE~~Warrants

As part of the Closing of the Business Combination, 10.0 million public warrants sold during the TSIA IPO converted into 10.0 million public warrants to purchase up to 10.0 million shares of common stock of the Post-Combination Company, which are exercisable at $11.50 per share. The Company accounts for warrants as required under ASC 815, Derivatives and Hedging, and has concluded that equity classification would be met for the public warrants as the Company has a single class of equity, and thus all holders vote 100% on all matters submitted to the Company’s stockholders and receive the same form of consideration in the event of a change of control (thus qualifying for the exception to the net cash settlement model), and the other conditions of equity classification would be met.

Private Placement Warrants

As part of the Closing of the Business Combination, Legacy Latch assumed the private placement warrants that were originally issued in connection with TSIA’s initial public offering (the “Private Placement Warrants”). In response to SEC guidance, the Company determined to classify the Private Placement Warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings.

14.EARNINGS PER SHARE

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

	Three months ended September 30,				Nine months ended September 30,
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	2024		2023		2024		2023
Net loss	$	(2716,~~278~~937)	$	(3430,~~809~~876)	$	(9130,~~078~~574)	$	(~~133~~63,~~257~~800)
Basic weighted average common shares(1)	172,989,593		144,590,030		154,173,496		143,280,949
Basic weighted-average common shares(1)	156,386,470		144,609,513		156,386,470		144,609,513
Effect of dilutive securities	—		—		—		—
Diluted weighted average common shares(1)	172,989,593		144,590,030		154,173,496		143,280,949
Diluted weighted-average common shares(1)	156,386,470		144,609,513		156,386,470		144,609,513
Basic and diluted net loss per common share	$	(0.1611)	$	(0.2421)	$	(0.5920)	$	(0.9344)

(1)The basic and diluted weighted-average common shares exclude ~~738,000~~(i) ~~shares~~the ~~subject~~Sponsor Shares and (ii) with respect to ~~vesting~~the ~~requirements~~three and six months ended June 30, 2024, shares held by ~~the~~Jamie ~~Sponsor~~Siminoff, ~~related~~who towas the ~~Business~~Company’s ~~Combination~~Chief asStrategy ~~the~~Officer, ~~performance~~that ~~conditions~~were ~~have~~subject ~~not~~to ~~been~~a ~~met~~right of repurchase held by the Company.

The table below sets forth the number of potential common shares underlying outstanding common stock options, restricted common stock, RSUs and common stock warrants that were excluded from diluted net loss per share as the Company had net losses ~~for the three and nine months ended September 30~~, ~~2023~~ and ~~2022, and~~ their inclusion would be anti-dilutive:

	2023	2022
	June 30, 2024	June 30, 2023
Stock options	12,~~528~~513,~~211~~799	12,~~960~~709,~~843~~960
Restricted stock units(1)	8,842,511	12,981,926
Restricted common stock held by the Sponsor	738,000	738,000
Restricted common stock held by Jamie Siminoff	19,075,675	—
Restricted stock units(1)	6,043,372	9,821,726
Warrants	15,333,301	15,333,301
Total	3653,704,~~023~~147	4138,~~276~~602,~~070~~987

(1) Amount includes 23,~~837~~685 ~~and 6,224~~ liability-based RSUs as of ~~September~~June 30, 2023 ~~and 2022, respectively,~~ that the Company ~~settles~~settled in cash. As a result, the shares of common stock underlying the liability-based RSUs were not issued upon vesting and were returned to the 2021 Incentive Award Plan as available shares.

~~13.INCOME TAXES~~29

The income tax provision for the three and nine months ended September 30, 2023 was zero and $0.01 million, respectively. The income tax provision for the three and nine months ended September 30, 2022 was $0.01 million and $0.04 million, respectively.

For the three and nine months ended September 30, 2023 and 2022, the Company’s effective tax rate was different from the U.S. federal statutory rate. This difference is primarily attributable to the effect of foreign, state and local income taxes and permanent differences between expenses deductible for financial reporting purposes offset by the valuation allowances placed on the Company’s deferred tax assets.

As of September 30, 2023, no liability for unrecognized tax benefits was required to be recorded by the Company. Management does not expect any significant changes in its unrecognized tax benefits in the next 12 months.

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

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

1415.STOCK-BASED COMPENSATION

~~For~~The ~~the three and nine months ended September 30, 2023 and 2022, the~~ components of stock-based compensation expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	2024		2023		2024		2023
Stock options	$	~~108~~49	$	~~261~~122	$	~~548~~107	$	~~2,086~~440
Restricted stock units	7,413		5,552		15,871		24,642
Restricted common stock(1)	1,386		—		2,772		—
Capitalized costs(1)	(18)		(737)		(636)		(2,376)
Restricted stock units	544		4,096		1,219		8,458
Total stock-based compensation expense	$	7,503	$	5,076	$	15,783	$	24,352
Capitalized costs(2)	(61)		(204)		(110)		(618)
Total stock-based compensation expense	$	1,918	$	4,014	$	3,988	$	8,280

(1) ~~Included~~See ~~in internally-developed software on~~ the ~~Condensed~~section ~~Consolidated~~entitled ~~Balance~~“—HDW ~~Sheets.~~Acquisition” below.

~~Stock-based~~(2) Included ~~compensation expense is included~~ in ~~cost~~internally-developed ofsoftware ~~revenue, research and development, sales and marketing and general and administrative~~ on the accompanying Condensed Consolidated ~~Statements~~Balance ~~of Operations and Comprehensive Loss as follows:~~Sheets.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenue	$	(124)	$	107	$	(12)	$	469
Research and development	1,583		2,095		5,981		10,292
Sales and marketing	116		916		1,494		4,906
General and administrative	5,928		1,958		8,320		8,685
Total stock-based compensation expense	$	7,503	$	5,076	$	15,783	$	24,352

Stock-based compensation expense is included in cost of revenue, research and development, sales and marketing and general and administrative on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Cost of revenue	$	—	$	58	$	3	$	112
Research and development	201		2,270		535		4,398
Sales and marketing	4		644		3		1,378
General and administrative	1,713		1,042		3,447		2,392
Total stock-based compensation expense	$	1,918	$	4,014	$	3,988	$	8,280

Stock Incentive Plans

In January 2016, Legacy Latch adopted the Latch, Inc. 2016 Stock Plan (the “2016 Plan” and, together with the Latchable, Inc. 2014 Stock Incentive Plan, the “Prior Plans”). Under the 2016 Plan, Legacy Latch’s board of directors was authorized (i) to grant either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”) to purchase shares of the Company’s common stock to its employees and (ii) to grant NSOs to purchase shares of the Company’s common stock to outside directors and consultants. When the 2021 Plan (defined below) became effective, 22,797,955 shares (adjusted for the exchange ratio of the Business Combination (the “Exchange Ratio”)) had been authorized for issuance under the 2016 Plan. Stock options under the 2016 Plan were granted with an exercise price equal to the stock’s fair market value at the grant date. Stock options outstanding under the 2016 Plan generally have ten-year terms and vest over a four-year period starting from the date specified in each award agreement. Since the effectiveness of the 2021 Plan, no additional awards have been or will be granted under the 2016 Plan. Upon the effectiveness of the Business Combination, all outstanding stock options under the Prior Plans, whether vested or unvested, converted into options to purchase a number of shares of common stock of the Post-Combination Company based on the Exchange Ratio. Awards previously granted under a Prior Plan remain subject to the provisions of such Prior Plan.

The Latch, Inc. 2021 Incentive Award Plan (the “2021 Plan”) was approved by the TSIA stockholders on June 3, 2021 and became effective upon the Closing of the Business Combination. The 2021 Plan provides for the grant of stock options, including ISOs and NSOs, stock appreciation rights, restricted stock, RSUs and other stock-based and cash-based awards. The 2021 Plan has a term of ten years. The aggregate number of shares of the Company’s common stock available for issuance under the 2021 Plan is equal to (i) 22,500,611 shares plus (ii) an annual increase for ten years on the first day of each calendar year beginning on January 1, 2022, equal to the lesser of (Aa) 5% of the aggregate number of shares of the Company’s common stock outstanding on the last day of the immediately preceding calendar year and (Bb) such smaller amount of shares as determined by the ~~Company’s board of directors (the “~~Board”). Effective January 1, 2022, 2023 and ~~2023~~2024, the number of shares reserved for future issuance under the 2021 Plan increased by 7,116,177, ~~and~~ 7,267,376, and 8,810,007 shares, respectively. As of ~~September~~June 30, ~~2023~~2024, ~~24,359,792~~there ~~shares~~were ~~had~~

2930

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~been~~38,010,970 ~~granted~~shares available for future grants under the 2021 Plan. Effective January 1, ~~2024 and~~ 2025, the number of shares reserved for future issuance under the 2021 Plan increased by 8,~~810,007 and 8,~~241,264 shares~~, respectively~~.

Stock Options

A summary of the status of ~~employee and non-employee~~ stock options as of ~~September~~June 30, ~~2023~~2024, and changes during the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, is presented below:

	Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term(1)	Aggregate Intrinsic Value
Balance at December 31, 2022	12,863,797	$	0.71
Balance at December 31, 2023	12,516,060	$	0.68
Options forfeited	(335,586)	$	1.59
Options expired	—	$	—
Options exercised	—	$	—
Balance at September 30, 2023	12,528,211	$	0.69	4	$	4,334,150
Options forfeited	(2,261)	$	1.01
Exercisable at September 30, 2023	12,418,274	$	0.68	4	$	4,334,150
Options expired	—	$	—
Balance at June 30, 2024	12,513,799	$	0.68	3	$	512,499
Exercisable at June 30, 2024	12,497,543	$	0.68	3	$	512,499

(1) Approximately 3.47 million outstanding and exercisable stock options have been excluded from the computation of the weighted average remaining contractual term. The remaining contractual term of such options could not be reasonably estimated as the term end date will not be known until the suspension of the S-8 Registration Statement (as defined below) lapses.

No stock options were granted during the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 or the year ended December 31, ~~2022~~2023.

~~The Company records stock-based compensation expense on a straight-line basis over the vesting period.~~ As of ~~September~~June 30, ~~2023~~2024, total compensation expense not yet recognized related to unvested stock options was $0.0801 million, which was expected to be recognized over a weighted-average period of 0.92 years. ~~Additionally,~~Stock ~~the~~options ~~Company~~granted ~~records~~prior ~~forfeitures~~to as2024 ~~they~~had ~~occur~~no material impact on the consolidated financial statements.

Restricted Stock Units

During 2022 and 2021, the Company granted RSUs to employees, independent directors and consultants under the 2021 Plan. The equity-based RSUs are settled in shares of common stock after vesting and the liability-based RSUs are settled in cash after vesting. The RSUs vest over a period of one to four years. The Company has the option, but not the obligation, to treat a participant’s failure to provide timely payment of any withholding tax arising in connection with RSUs as such participant’s election to satisfy all or any portion of the withholding tax by requesting the Company retain shares otherwise issuable pursuant to the RSU. In connection with the Restatement, the Company suspended use of its registration statement on Form S-8 under the Securities Act (the “S-8 Registration Statement”) on August 10, 2022. Since such date, the Company has not granted any RSUs.

Equity-based

A summary of equity-based RSU activity ~~for the nine months ended September 30, 2023~~ is presented below.

	Number of RSUs	Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2022	11,568,387	$	4.17
Balance at December 31, 2023	6,126,062	$	3.90
Granted	—	$	—
Vested and released	—	$	—
Forfeited	(282,~~728,713~~690)	$	4.9599
Balance at September 30, 2023	8,839,674	$	3.93
Balance at June 30, 2024	6,043,372	$	3.88

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Stock-based compensation expense is recognized on a straight-line basis through the vesting date of the RSUs. The unrecognized stock-based compensation expense related to unvested RSUs was $4.7 million as of September 30, 2023 and will be expensed over a weighted-average period of 10.2 years. In addition, approximately 50.32 million and 2.5 .6 million RSUs vested during the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 and the year ended December 31, ~~2022~~2023, respectively, but were not released upon vesting due to the suspension of the S-8 Registration Statement.

Liability-based

ALiability-based ~~summary~~RSU expense is recognized on a straight-line basis through the vesting date of the RSUs. The Company did not have any liability-based ~~RSU~~RSUs ~~activity~~as ~~for~~of June 30, 2024. For the ~~nine~~three months ended ~~September~~June 30, 2023, isthe ~~presented~~Company ~~below~~recognized $0.001 million of bonus expense within cost of hardware revenue on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. The unrecognized expense related to the unvested liability-based RSUs was $0.004 million as of June 30, 2023 and will be expensed over a weighted-average period of 0.9 years. The Company settled 846 liability-based RSUs for $0.001 million in cash for the three months ended June 30, 2023.

						Number of RSUs
Balance at December 31, 2022						5,377
Granted						—
Vested						(2,540)
Forfeited						—
Balance at September 30, 2023						2,837

Modification of Equity Instruments

~~Liability-based~~There ~~RSU~~were ~~expense~~no ismodifications ~~recognized~~of onequity ainstruments ~~straight-line~~during ~~basis~~the ~~through~~three ~~the~~and ~~vesting~~six ~~date~~months ofended ~~the~~June 30, ~~RSUs~~2024. ~~For~~During the three months ended ~~September 30~~March 31, 2023, the Company ~~recognized~~modified ~~$0.001~~the ~~million~~stock option and RSU awards of ~~bonus~~five ~~expense~~former ~~within~~employees ~~cost~~and ofservice ~~hardware~~providers ~~revenue~~to inextend the ~~Condensed~~post-termination ~~Consolidated~~exercise ~~Statements~~window of ~~Operations~~2,647,440 vested options and ~~Comprehensive~~to ~~Loss~~accelerate the vesting of 35,150 unvested RSUs that were improbable of vesting as of the modification date. The ~~unrecognized~~modification ~~expense~~of ~~related~~the tovested ~~the~~options ~~unvested~~resulted ~~liability~~in an increase in stock-based ~~RSUs~~compensation ~~was~~expense of $0.~~002~~2 million. asThe modification of ~~September 30,~~the ~~2023~~unvested ~~and~~RSUs ~~will~~was betreated ~~expensed~~as ~~over~~ a ~~weighted~~Type III modification in accordance with ASC 718, Compensation -~~average~~ ~~period~~Stock Compensation, which is accounted for as the cancellation of ~~0.7~~the ~~years~~original award and the issuance of a new award under the modified terms. The ~~Company~~modification ~~settled~~of ~~848~~the ~~liability~~unvested RSUs led to the reversal of previously recognized stock-based ~~RSUs~~compensation ~~for~~expense of $0.~~001~~04 million, offset by the fair value of the new awards of $0.03 million as of the modification date, resulting in ~~cash~~a ~~for~~net reversal of $0.004 million to stock-based compensation expense. For the ~~three~~six months ended ~~September~~June 30, 2023, these modifications of vested options and unvested RSUs resulted in a net increase in stock-based compensation expense of $0.2 million on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

Modification of Stock Options and RSUs

During the three months ended March 31, 2023, the Company modified the option and RSU awards of five former employees and service providers to extend the post-termination exercise window of 2,647,440 vested options and to accelerate the vesting of 35,150 unvested RSUs that were improbable of vesting as of the modification date. The modification of the vested options resulted in an increase in stock-based compensation expense of $0.2 million. The modification of the unvested RSUs was treated as a Type III modification in accordance with ASC 718, which is accounted for as the cancellation of the original award and the issuance of a new award under the modified terms. The modification of the unvested RSUs led to the reversal of previously recognized stock-based compensation expense of $0.04 million, offset by the fair value of the new awards of $0.03 million as of the modification date, resulting in a net reversal of $0.004 million to stock-based compensation expense. For the nine months ended September 30, 2023, these modifications of vested options and unvested RSUs resulted in a net increase in stock-based compensation expense of $0.2 million in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

During the three months ended September 30, 2023, the Company commenced the July 2023 RIF. As a result, the Company modified the option and RSU awards of approximately 40 former employees and service providers to extend the post-termination exercise window of 1,003,562 vested options and to accelerate the vesting of 702,689 unvested RSUs that were improbable of vesting as of the modification date. The modification of the vested options resulted in an increase in stock-based compensation expense of $0.05 million for the three and nine months ended September 30, 2023. The modification of the unvested RSUs was treated as a Type III modification in accordance with ASC 718, which is accounted for as the cancellation of the original award and the issuance of a new award under the modified terms. The modification of the unvested RSUs led to the reversal of previously recognized stock-based compensation expense of $0.01 million, offset by the fair value of the new awards of $0.8 million as of the modification date, resulting in a net increase of $0.8 million to stock-based compensation expense for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2023, these modifications of vested options and unvested RSUs resulted in a net increase in stock-based compensation expense of $0.9 million in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

HDW Acquisition

AsOn ~~discussed in Note 1. Description of Business, on~~ the HDW Closing Date, the Company issued to HDW’s stockholders as merger consideration approximately 29.0 million shares of the Company’s common stock (the “Consideration Shares”). These Consideration Shares consisted of (i) approximately 3.8 million shares of the Company’s common stock issued to holders of HDW common stock (excluding Mr. Siminoff, the “HDW Common Holders”), (ii) approximately 19.1 million shares to Mr. Siminoff, who was also a holder of HDW common stock (the “Siminoff Shares”), and (iii) approximately 6.1 million shares to holders of HDW preferred stock.

31In connection with and immediately prior to the HDW Acquisition, HDW’s board of directors modified certain shares of HDW common stock held by HDW Common Holders and Mr. Siminoff that were unvested as of the HDW Closing Date to accelerate vesting upon the change in control. As a result, at closing, the original shares of HDW common stock were exchanged for shares of the Company.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

(excluding Mr. Siminoff, the “HDW Common Holders”), (ii) approximately 19.1 million shares to Mr. Siminoff, who was also a holder of HDW common stock (the “Siminoff Shares”), and (iii) approximately 6.1 million shares to holders of HDW preferred stock.

In connection with and immediately prior to the HDW Acquisition, HDW’s board of directors modified certain shares of HDW common stock held by HDW Common Holders that were unvested as of the HDW Closing Date to accelerate vesting upon the change in control. As a result, at closing, the original shares of HDW common stock were exchanged for shares of the Company.

The modification of the HDW common stock and subsequent exchange for the Company’s common stock is treated in accordance with the guidance for replacement awards prescribed by ASC 805. Pursuant to the guidance, the fair value of the “replacement awards” is allocated between consideration transferred and post-combination compensation expense.

The Company determined the total fair value of the 3.8 million shares of the Company’s common stock issued to the HDW Common Holders on the HDW Closing Date was $5.3 million based upon the $1.40 closing price of the Company’s common stock on the HDW Closing Date. Of the $5.3 million, (i) $1.4 million was attributable to pre-combination service and included in the consideration transferred and (ii) $3.9 million was attributable to post-combination service and recognized as stock-based compensation expense by the Company in the post-combination financial statements immediately upon the closing of the HDW Acquisition.

InUpon ~~connection~~issuance ~~with~~by ~~and~~the ~~immediately~~Company, ~~prior~~the toSiminoff ~~the~~Shares ~~HDW~~were ~~Acquisition,~~subject ~~HDW’s~~to ~~board~~vesting ofconsiderations ~~directors~~and ~~modified~~restrictions ~~certain~~on ~~shares~~transfer ofpursuant ~~HDW~~to ~~common~~a stock ~~held~~restriction byagreement ~~Mr.~~dated May 15, 2023 (the “Original Siminoff ~~that~~Stock ~~were~~Restriction ~~unvested~~Agreement”). asThe Company estimated the fair value of the Siminoff Shares on the HDW Closing Date to ~~accelerate~~be ~~vesting~~$26.7 million based upon the ~~change~~$1.40 inclosing ~~control~~price of the Company’s common stock on the HDW Closing Date. AsOf athe ~~result~~$26.7 million, at$5.7 ~~closing,~~million was attributable to pre-combination service and included in the ~~original~~consideration ~~shares~~transferred ofand ~~HDW~~$21.0 ~~common~~million was attributable to post-combination service to be recognized as stock-based ~~were~~compensation ~~exchanged~~expense ~~for~~over ~~shares~~the estimated service period of ~~the~~3.8 ~~Company~~years.

Upon issuance by the Company, the terms of the 19.1 million Siminoff Shares were subject to vesting considerations and restrictions on transfer pursuant to the Original Siminoff Stock Restriction Agreement. The Company estimated the fair value of the Siminoff Shares on the HDW Closing Date to be $26.7 million based upon the $1.40 closing price of the Company’s common stock on the HDW Closing Date. Of the $26.7 million, $5.7 million was attributable to pre-combination service and included in the consideration transferred and $21.0 million was attributable to post-combination service to be recognized as stock-based compensation expense over the estimated service period of 3.8 years. The estimated service period was determined using the Monte Carlo method, which considered the likelihood of the occurrence of a release from the transfer restrictions, including as a result of the Company’s delisting from Nasdaq and the achievement of the Share Price Thresholds.

In the post-combination financial statements for the three and nine months ended September 30, 2023, $1.4 million of the $21.0 million of Siminoff Shares attributable to post-combination service was recognized as stock-based compensation expense by the Company for the post-combination service rendered. Total unrecognized stock-based compensation expense as of September 30, 2023 was $19.6 million and is expected to be recognized over a period of 3.5 years.

The approximately 6.1 million Consideration Shares issued to holders of HDW preferred stock did not result in the Company’s recognition of any stock-based compensation expense as the Consideration Shares were not subject to any vesting terms or other restrictions.

In total, during the three and nine months ended September 30, 2023, the Company recorded $5.4 million in stock-based compensation expense related to the HDW Acquisition, which was allocated to general and administrative in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

15.RELATED-PARTY TRANSACTIONS

The Company has a customer who is an affiliate of a member of the Board. The Company charges market rates for products and services that are offered to such customer. As of September 30, 2023 and December 31, 2022, the Company had $0.04 million and $0.04 million, respectively, of receivables due from this customer, which is included within accounts receivable on the Condensed Consolidated Balance Sheets. For the three and nine months ended September 30, 2023, the Company had zero and $0.1 million, respectively, of hardware revenue from this customer, and $0.04 million and $0.12 million, respectively, of software revenue from this customer, which was included within the Condensed Consolidated Statements of Operations and Comprehensive Loss. For the three and nine months ended September 30, 2022, the Company had $0.01 million and $0.02 million, respectively, of hardware revenue from this customer, and $0.04 million and $0.1 million,

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~respectively~~The estimated service period was determined using the Monte Carlo method, which considered the likelihood of ~~software~~the ~~revenue~~occurrence of a release from ~~this~~the ~~customer~~transfer restrictions, ~~which~~including ~~was~~as ~~included~~a ~~within~~result of the ~~Condensed~~Company’s ~~Consolidated~~delisting ~~Statements~~from Nasdaq and the achievement of ~~Operations~~the ~~and~~applicable ~~Comprehensive~~share ~~Loss~~price thresholds.

16For the three and six months ended June 30, 2024, an additional $1.~~ACQUISITION~~4 million and $2.8 million, respectively, of the $21.0 million of Siminoff Shares attributable to post-combination service was recognized as stock-based compensation expense by the Company for the post-combination service rendered. Total unrecognized stock-based compensation expense as of June 30, 2024 was $15.5 million and was expected to be recognized over a period of 2.8 years.

OnThe ~~July~~approximately 3,6.1 ~~2023,~~million ~~the~~Consideration ~~Company~~Shares ~~completed~~issued ~~its~~to ~~acquisition~~holders of HDW inpreferred ~~order~~stock todid ~~acquire~~not ~~HDW’s~~result ~~technology~~in ~~assets to accelerate~~ the ~~development of the~~ Company’s ~~platform,~~recognition ~~enable~~of ~~the~~any ~~Company~~stock-based tocompensation ~~offer~~expense ~~resident~~as ~~services and incorporate HDW’s team members. As a result of~~ the ~~HDW~~Consideration ~~Acquisition,~~Shares ~~the~~were ~~Company~~not ~~acquired~~subject ~~all~~to ofany ~~the~~vesting ~~voting equity interests of HDW~~terms.

The ~~HDW~~income ~~Acquisition~~tax ~~qualified~~provision asfor athe ~~business~~three ~~combination~~and insix ~~accordance~~months ~~with~~ended ~~ASC 805~~June 30, ~~Business~~2024 ~~Combinations, and the Company~~ was ~~determined~~zero toand ~~be the acquirer~~$0. ~~Accordingly~~002 million, ~~total~~respectively. ~~consideration~~The ~~was~~income ~~first~~tax ~~allocated~~provision tofor the ~~fair~~three ~~value~~and ofsix ~~assets~~months ~~acquired~~ended ~~as of the date of acquisition~~June 30, ~~with~~2023 ~~the~~was ~~excess~~zero ~~being recorded as goodwill. The Company incurred~~ and ~~expensed approximately~~ $10.1 01 million ~~related to the transaction. The acquisition date fair value of the purchase consideration was $37.7 million~~, ~~comprised of the following:~~respectively.

	As of July 3, 2023
Cash paid or payable	$	23
Value of Latch common stock issued to holders of HDW preferred stock	8,567
Fair value of replacement awards	7,060
Unsecured promissory notes	22,000
Fair value of total consideration transferred	$	37,650

For the three and six months ended June 30, 2024 and 2023, the Company’s effective tax rate was different from the U.S. federal statutory rate. This difference is primarily attributable to the effect of foreign, state and local income taxes and permanent differences between expenses deductible for financial reporting purposes offset by the valuation allowances placed on the Company’s deferred tax assets.

OnAs ~~the HDW Closing Date, the Company issued to HDW’s stockholders as merger consideration approximately 29.0 million shares~~ of ~~the Company’s common stock. These Consideration Shares consisted of (i) approximately 3.8 million shares of the Company’s common stock issued to the HDW Common Holders~~June 30, ~~which excludes Mr. Siminoff~~2024, ~~(ii)~~no ~~approximately~~liability ~~19.1~~for ~~million~~unrecognized ~~shares~~tax tobenefits ~~Mr. Siminoff, who~~ was ~~also~~required ~~a holder of HDW common stock, and (iii) approximately 6.1 million shares~~ to ~~holders~~be ofrecorded ~~HDW preferred stock. As discussed in Note 15. Stock-Based Compensation - HDW Acquisition, the shares of HDW common stock, including the Siminoff Shares, were modified~~ by the ~~HDW board of directors in connection with the HDW Acquisition and subsequently exchanged for the Consideration Shares~~Company. ~~The~~Management ~~modification~~does ofnot ~~the~~expect ~~HDW~~any ~~common~~significant ~~stock~~changes ~~and~~in ~~subsequent~~its ~~exchange~~unrecognized ~~for~~tax ~~the~~benefits ~~Consideration Shares is treated~~ in ~~accordance with~~ the ~~guidance~~next ~~for~~12 ~~replacement awards prescribed by ASC 805~~months. ~~Pursuant to the guidance, the fair value of the “replacement awards” is allocated between consideration transferred and post-combination compensation expense.~~

~~The~~To ~~Company~~date, ~~determined~~ the ~~total~~Company ~~fair~~has ~~value~~incurred ofcumulative ~~the~~net ~~3.8~~losses ~~million~~and ~~shares~~maintains ofa ~~the~~full ~~Company’s~~valuation ~~common~~allowance ~~stock issued to the HDW Common Holders~~ on ~~the~~its ~~HDW~~net ~~Closing~~deferred ~~Date~~tax ~~was~~assets ~~$5.3~~as ~~million based upon~~ the ~~$1.40 closing price of the~~ Company’s ~~common~~has ~~stock~~determined onthat ~~the~~it ~~HDW~~is ~~Closing~~more ~~Date.~~likely Ofthan ~~the~~not ~~$5.3~~that ~~million,~~these ~~(i)~~assets ~~$1.4~~will ~~million~~not ~~was~~be ~~attributable~~fully ~~to pre-combination service and included in the consideration transferred (presented within the fair value of replacement awards in the table above) and (ii) $3~~realized.9 million was attributable to post-combination service and recognized as stock-based compensation expense by the Company in the post-combination financial statements immediately upon the closing of the HDW Acquisition.

~~Upon issuance by the Company, the terms of the 19~~17.1 million Siminoff Shares were subject to vesting considerations and restrictions on transfer pursuant to the Original Siminoff Stock Restriction Agreement. The Company estimated the fair value of the Siminoff Shares on the HDW Closing Date to be $26.7 million based upon the $1.40 closing price of the Company’s common stock on the HDW Closing Date. Of the $26.7 million, $5.7 million was attributable to preRELATED-~~combination~~PARTY service and included in the consideration transferred (presented within the fair value of replacement awards in the table above) and $21.0 million was attributable to post-combination service to be recognized as stock-based compensation expense over the estimated service period of 3.8 years.TRANSACTIONS

33The Company has a customer who is an affiliate of a member of the Board. The Company charges market rates for products and services that are offered to such customer. As of June 30, 2024 and December 31, 2023, the Company had $0.01 million and $0.02 million, respectively, of receivables due from this customer, which is included within accounts receivable on the accompanying Condensed Consolidated Balance Sheets. For the three and six months ended June 30, 2024, the Company had $0.001 million and $0.003 million, respectively, of hardware revenue from this customer, and $0.04 million and $0.1 million, respectively, of software revenue from this customer, which was included on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. For the three and six months ended June 30, 2023, the Company had zero and $0.1 million, respectively, of hardware revenue and $0.04 million and $0.08 million, respectively, of software revenue from this customer, which is included on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

The purchase consideration allocation of the acquired assets, based on their respective estimated fair values as of the date of the HDW Acquisition, is as follows:

	As of July 3, 2023
Cash and cash equivalents	$	8,107
Prepaid expenses and other current assets	5
Intangible assets(1)	5,111
Accrued expenses	(895)
Total identifiable net assets	12,328
Goodwill	25,322
Fair value of net assets acquired	$	37,650

The goodwill recognized as a result of the HDW Acquisition represents (i) the combined synergistic value of cost savings by leveraging HDW’s offshore engineering team and downsizing Latch’s U.S.-based engineering team; (ii) the ability to generate additional revenue by selling HDW platform services to Latch app users; and (iii) the value of the human capital being acquired, including HDW’s experienced leadership team.

There is no expected tax deduction related to the acquired goodwill.

Following are the supplemental consolidated financial results of the Company on an unaudited pro forma basis, as if the HDW Acquisition had been consummated on January 1, 2022:

	Three Months Ended September 30, 2023				Nine Months Ended September 30, 2023
	2023		2022		2023		2022
Total revenue	$	9,673	$	8,839	$	31,001	$	32,225
Net loss	$	(26,998)	$	(35,332)	$	(102,459)	$	(133,780)

The supplemental pro forma information presents the combined results of operations for the three and nine months ended September 30, 2023 and 2022 as if the HDW Acquisition was completed on January 1, 2022. The supplemental pro forma financial information presented above is not necessarily indicative of the financial position or results of operations that would have been realized if the HDW Acquisition had been completed on January 1, 2022. The supplemental pro forma financial information does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position.

For business combinations occurring in the current reporting year, applicable accounting guidance requires disclosure of the amount of revenue and earnings of the acquired entity since the acquisition date that is included in the condensed consolidated income statement. For the three months ended September 30, 2023, HDW had no active products, customers or sales contracts and therefore had no revenue. The acquisition contributed $6.7 million to net loss, primarily related to the compensation expense of the team members that joined as a result of the acquisition.

17.RESTRUCTURING

Latch completed a reduction in force (“RIF”) in May 2022 (the “May RIF”) to better align staffing and expense levels with sales volumes and the then-current macroeconomic environment. The May RIF impacted approximately 130 employees, or approximately 27% of the Company’s full-time employees at the time. The Company completed an additional RIF in August 2022 (the “August RIF” and, together with the May RIF, the “2022 RIFs”) to create further operating efficiencies. The August RIF impacted approximately 115 employees, or approximately 37% of the Company’s full-time employees at the time.

In July 2023, the Company commenced the July 2023 RIF in order to streamline business operations, reduce costs and complexities in the business and create further operating efficiencies. The July 2023 RIF, substantially completed in the

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

fourth quarter of 2023, impacted approximately 95 employees, or approximately 70% of the Company’s full-time employees at the time. The Company’s Denver facilities were closed due to the July 2023 RIF. The Company vacated the premises in November 2023 but retained the lease through November 2024. The Company’s restructuring costs by major cost-type incurred were as follows:

	Three Months Ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Severance and termination benefits	$	5,121	$	2,526	$	5,611	$	8,637
Lease abandonment charges	49		—		49		—
Professional fees and other costs	(7)		80		—		195
Total restructuring costs	$	5,163	$	2,606	$	5,660	$	8,832

Restructuring costs are recorded in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:

	Three Months Ended September 30,				Nine months ended September 30,
	2023		2023		2023		2023
Cost of revenue	$	206	$	46	$	206	$	46
Research and development	2,786		1,066		2,926		2,387
Sales and marketing	1,357		923		1,565		5,278
General and administrative	814		571		963		1,121
Total restructuring costs	$	5,163	$	2,606	$	5,660	$	8,832

The following table summarizes the changes in the accrued restructuring balance, which is included in accrued expenses in the accompanying Consolidated Balance Sheets.

	Severance and Termination Benefits		Professional Fees and Other Costs		Total
Balance at December 31, 2021	$	—	$	—	$	—
Restructuring charges	8,452		121		8,573
Payments	(8,226)		(121)		(8,347)
Balance at December 31, 2022	226		—		226
Restructuring charges	5,611		—		5,611
Payments	(2,594)		—		(2,594)
Balance at September 30, 2023	$	3,243	$	—	$	3,243

18.SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of these financial statements and determined that there have been no events that have occurred that would require adjustments to its disclosures in the condensed consolidated financial statements, except for the following:

~~Delisting~~HelloTech Merger and Loan Agreement

On ~~August~~June 821, ~~2023~~2024, the Company ~~received~~and aLS ~~notice~~HT ~~from~~Merger ~~Nasdaq~~Sub, ~~stating~~Inc., ~~that~~a itwholly-owned ~~had~~subsidiary ~~determined to suspend trading~~ of the Company’s ~~securities~~(“HT onMerger ~~August 10~~Sub”), ~~2023~~entered ~~and~~into ~~commence~~an ~~delisting~~Agreement ~~procedures~~and ~~because~~Plan of ~~the~~Merger ~~Company’s failure to regain compliance~~ with ~~its periodic filing obligations by the August 4~~HelloTech, ~~2023~~Inc. ~~deadline previously set by Nasdaq~~(“HelloTech”). On ~~March~~July 211, 2024, ~~Nasdaq~~HT ~~filed~~Merger aSub ~~Form~~merged 25 with ~~the~~and ~~SEC~~into ~~notifying~~HelloTech, ~~the~~with ~~SEC~~HelloTech ofcontinuing ~~Nasdaq’s~~as ~~determination to remove~~ the ~~Company’s~~surviving ~~securities~~corporation ~~from~~and ~~listing~~a onwholly-owned ~~Nasdaq.~~subsidiary ~~The~~of ~~delisting~~the ~~was~~Company ~~effective~~(the ~~April~~“HelloTech ~~1, 2024~~Merger”).

35As consideration for the HelloTech Merger, the Company (i) as further specified below, assumed HelloTech’s outstanding borrowings under its existing term loan of approximately $6.9 million as of July 1, 2024 (the “Prior Loan”) with Customers Bank and (ii) paid $0.3 million of HelloTech’s merger-related expenses. HelloTech’s stockholders and other equity holders

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~Headquarters~~(including option holders, warrant holders and holders of simple agreements for future equity) did not receive any consideration in connection with the HelloTech Merger.

Effective November 1, 2023, the Company relocated its headquarters to Olivette, Missouri occupying approximately 49,000 square feet of leased warehouse and office space. In January 2024, the Company entered into an amendment to the lease agreement, expanding the premises by approximately 13,000 square feet. The term of the lease agreement commenced March 1, 2024 and continues through June 1, 2029. The total commitment of approximately $2.1 million is payable monthly with escalating rental payments over the approximate five year lease term.

HelloTech Merger and Loan Agreement

On June 21, 2024, the Company and LS HT Merger Sub, Inc., a wholly-owned subsidiary of the Company (“HT Merger Sub”), entered into an Agreement and Plan of Merger with HelloTech, Inc. (“HelloTech”). On July 1, 2024, HT Merger Sub merged with and into HelloTech, with HelloTech continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “HelloTech Merger”).

As consideration for the HelloTech Merger, the Company (i) as further specified below, assumed HelloTech’s outstanding borrowings under its existing term loan, which had outstanding borrowings of approximately $6.9 million as of July 1, 2024 (the “Prior Loan”) with Customers Bank and (ii) paid $250,000 of HelloTech’s merger-related expenses. HelloTech’s stockholders or other equity holders (including option holders, warrant holders or holders of simple agreements for future equity) did not receive any consideration in connection with the HelloTech Merger.

On July 15, 2024, the Company, Latch Systems, Inc., a wholly-owned subsidiary of the Company (“Latch Systems”), and HelloTech (collectively with the Company and Latch Systems, the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Customers Bank.

Pursuant to the Loan Agreement, Customers Bank issued the Borrowers a term loan in the principal amount of $6.0 million (the “New Loan”). The Loan Agreement, which amended and restated the terms of the Prior Loan, did not result in the Borrowers receiving any additional loan proceeds. Interest is payable on the New Loan at a rate equal to the greater of (a) the prime rate published in The Wall Street Journal or (b) 6.0%. The New Loan matures on July 15, 2029 (the “Maturity Date”).

The Borrowers were only required to pay interest on the New Loan monthly until January 15, 2025. Thereafter, the Borrowers are required to pay equal monthly installments of principal plus accrued interest until the Maturity Date. There is no penalty for prepayment of the New Loan.

Pursuant to the Loan Agreement, the Borrowers have granted Customers Bank security interests in substantially all of the Borrowers’ assets, other than intellectual property. HelloTech is required to maintain an operating account with Customers Bank with a sufficient balance to support monthly payments. Additionally, the Borrowers are collectively required to maintain a liquidity ratio of at least 4.00, tested monthly, which is calculated as the quotient of unrestricted cash and cash equivalents of the Company and its subsidiaries (subject to certain limitations with respect to cash of foreign subsidiaries), divided by all outstanding indebtedness owed to Customers Bank. As of December 31, 2024, the Company was in compliance with the ~~liquidity~~covenants ~~ratio~~under ~~covenant~~the Loan Agreement.

Compensation Program and Executive Officer Appointment

On August 11, 2024 (the “Program Effective Date”), the Board approved an extension of its temporary cash-based leadership compensation program that was established in 2023 to provide certain cash compensation to the Company’s officers and key employees during the course of the Restatement. The leadership compensation program is described in more detail below.

In addition, on the Program Effective Date, the Board approved a performance-based equity incentive program (the “Performance Equity Program”) pursuant to which awards of performance-vesting stock options (“Performance Options”) and performance-vesting restricted stock units (“PSUs”) would be granted to Company officers and service providers, and the Company granted Performance Options to certain officers and key service providers. The Performance Equity Program is described in more detail below.

On the Program Effective Date, the Board also appointed Jason Mitura as the Company’s Chief Product Officer beginning August 16, 2024. On August 12, 2024, the Company entered into an employment agreement with Mr. Mitura in connection with his appointment.

36Under the Company’s cash-based leadership compensation program, Company officers and other participants receive an additional amount of cash compensation, payable in semi-monthly installments alongside their regular base salary, and are not eligible for any other cash incentive compensation or annual bonuses while the leadership compensation program is in place. On the Program Effective Date, the Board extended this program, originally scheduled to expire on July 31, 2024, until the earlier of (i) the listing of the Company on a national securities exchange or (ii) the date the Board determines in its discretion to terminate it. The annualized amounts payable under the program to Mr. Siminoff, David Lillis, Senior Vice President of Finance, and Mr. Mitura were $1,550,000, $475,000 and $650,000, respectively.

The Performance Equity Program provides for the Company to grant awards under the 2021 Plan that will become eligible to vest based on the Company’s common stock reaching specified market trading prices (based on a trailing 60-day daily VWAP) within seven years after the Program Effective Date. Awards under the Performance Equity Program were generally expected to be granted 50% in the form of PSUs that will become eligible to vest, or “earned,” in three equally-sized tranches upon attaining a $1, $2 and $3 stock price hurdle, and 50% in the form of Performance Options that will become earned in three equally-sized tranches upon attaining a $4, $5 and $6 stock price hurdle. Upon attainment of a stock price hurdle, 25% of the earned tranche of PSUs and Performance Options will vest, with the remaining 75% of such earned tranche vesting in three equal annual installments over the next three years, subject to the applicable participant’s continued service through the vesting date.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Under the Company’s cash-based leadership compensation program, Company officers and other participants receive an additional amount of cash compensation, payable in semi-monthly installments alongside their regular base salary, and are not eligible for any other cash incentive compensation or annual bonuses while the leadership compensation program is in place. On the Program Effective Date, the Board extended this program, originally scheduled to expire on July 31, 2024, until the earlier of (i) the listing of the Company on a national securities exchange or (ii) the date the Board determines in its discretion to terminate it. The annualized amounts payable under the program to Mr. Siminoff, David Lillis, Senior Vice President of Finance, and Mr. Mitura were $1,550,000, $475,000 and $650,000, respectively.

On the Program Effective Date, the Board granted Performance Options under the Performance Equity Program and the 2021 Plan to certain officers and key service providers, including to Messrs. Siminoff, Mitura and Lillis covering the following numbers of shares: Mr. Siminoff: 8,000,000 shares; Mr. Mitura: 7,500,000 shares; and Mr. Lillis: 3,000,000 shares (the “Initial Option Grant”). The Performance Options granted to Messrs. Siminoff and Mitura were forfeited on the executives’ respective separation dates.

As described above, the Performance Options are eligible to be earned in three tranches based on the Company’s common stock reaching market trading prices (based on a trailing 60-day daily VWAP) before the seventh anniversary of the Program Effective Date, as set forth in the following table:


Earned Tranche	Shares Subject to the Performance Option	Share Price Hurdle
1	33.33% of award	$4.00
2	33.33% of award	$5.00
3	33.34% of award	$6.00

Upon attainment of a stock price hurdle, 25% of each earned tranche of Performance Options will vest, with the remaining 75% of such earned tranche vesting in three equal annual installments over the next three years, subject to the applicable participant’s continued service through the vesting date. The Performance Options have an exercise price of $0.41 and a ten year term; however, any portion of the Performance Option corresponding to a tranche that has not become earned based on the achievement of a share price hurdle within seven years after the Program Effective Date will be cancelled and forfeited.

In addition to the performance-based and service-based vesting requirements described above, (i) the first tranche of the Performance Option will, to the extent vested, only become exercisable in four equal installments on the second, third, fourth and fifth anniversaries of the Program Effective Date, (ii) the second tranche of the Performance Option will, to the extent vested, only become exercisable in four equal installments on the third, fourth, fifth and sixth anniversaries of the Program Effective Date, and (iii) the third tranche of the Performance Option will, to the extent vested, only become exercisable in four equal installments on the fourth, fifth, sixth and seventh anniversaries of the Program Effective Date.

On September 13, 2024, the Company granted approximately 8.6 million Performance Options under the Performance Equity Program to service providers, none of whom participated in the Initial Option Grant. Such Performance Options have an exercise price of $0.48 and are otherwise substantially identical to those granted in the Initial Option Grant.

November 2024 Executive Transitions

On November 18, 2024 (the “Siminoff Agreement Date”), the Company and Mr. Siminoff mutually agreed that Mr. Siminoff would step down as the Company’s Chief Strategy Officer on December 31, 2024 (the “Siminoff Separation Date”). ~~After~~Mr. Siminoff remained Chief Strategy Officer through the Siminoff Separation Date, after which he began serving in an advisory role that ~~will~~was expected to continue through December 31, 2026 (such advisory services, the “Advisory Services,” and such date, the “Advisory End Date”). Mr. Siminoff ceased to serve as an “executive officer” of the Company under Rule 3b-7 of the Exchange Act on the Siminoff Separation Date. Upon the Company’s request, in performing the Advisory Services, Mr. Siminoff was expected to, among other services, (i) meet with customers and stakeholders, (ii) assist or advise on product development, (iii) assist or advise on corporate development or strategic transactions and (iv) provide transition services. In May 2025, the Company terminated Mr. Siminoff’s Advisory Services.

37On the Siminoff Agreement Date, Mr. Siminoff and the Company entered into a Separation and Advisory Agreement and Release (the “Siminoff Transition Agreement”), pursuant to which the Company and Mr. Siminoff agreed to amend and restate the Original Siminoff Stock Restriction Agreement.

Pursuant to an amended and restated common stock restriction agreement, which was entered into between Mr. Siminoff and the Company on the Siminoff Agreement Date (the “Restated Restriction Agreement”), and in accordance with the terms of the Original Siminoff Stock Restriction Agreement, the Company exercised its repurchase option with respect to 15,260,540 Consideration Shares held by Mr. Siminoff (the “Repurchased Shares”) for $0.00005080 per share (the “Repurchase Price”), or a total payment of $775.24. The Repurchased Shares represent 80% of the 19,075,675 Consideration Shares received by Mr. Siminoff in connection with the HDW Acquisition.

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~services,~~Pursuant to the ~~“Advisory~~Restated ~~Services,”~~Restriction ~~and such date~~Agreement, the ~~“Advisory~~3,815,135 ~~End~~Consideration ~~Date”).~~Shares ~~Mr.~~that ~~Siminoff~~were ~~ceased~~not torepurchased ~~serve~~by ~~as an “executive officer” of~~ the Company ~~under Rule 3b-7 of~~ (the ~~Exchange~~“Remaining ~~Act~~Shares”) onwere ~~the~~subject ~~Siminoff~~to ~~Separation~~transfer ~~Date.~~restrictions ~~Upon~~and ~~the~~an ~~Company’s~~amended ~~request,~~repurchase inoption ~~performing~~ (the ~~Advisory~~“Amended ~~Services,~~Repurchase ~~Mr.~~Option”) ~~Siminoff~~pursuant ~~is expected~~ to, ~~among~~which ~~other~~the ~~services,~~Company ~~(i)~~had ~~meet~~the ~~with~~right ~~customers~~to ~~and~~repurchase ~~stakeholders,~~the ~~(ii)~~Remaining ~~assist~~Shares orat ~~advise~~the onRepurchase ~~product~~Price ~~development,~~to ~~(iii)~~the ~~assist~~extent ornot ~~advise~~released onfrom ~~corporate~~the ~~development~~transfer orrestrictions ~~strategic~~and ~~transactions~~the ~~and~~Amended ~~(iv)~~Repurchase ~~provide~~Option ~~transition~~by ~~services.~~the Infifth ~~addition,~~anniversary ~~Mr.~~of ~~Siminoff~~the ~~will~~effective nodate ~~longer~~of bethe ~~appointed~~Restated asRestriction Agreement (the ~~Company’s~~“Repurchase ~~Chief~~Trigger ~~Executive Officer~~Date”).

InThe ~~connection~~Remaining ~~with~~Shares ~~Mr.~~were ~~Siminoff’s~~split ~~transition~~into totwo ~~the~~tranches ~~advisory~~with ~~role~~different ~~described~~provisions ~~above,~~governing ontheir ~~the~~release ~~Siminoff~~from ~~Agreement Date, Mr. Siminoff and~~ the ~~Company~~transfer ~~entered~~restrictions ~~into a Separation~~ and ~~Advisory Agreement and Release (~~the ~~“Siminoff~~Amended ~~Transition~~Repurchase ~~Agreement”).~~Option: ~~Pursuant to~~ the ~~Siminoff~~Separation ~~Transition~~Shares ~~Agreement, the Company~~ and ~~Mr. Siminoff agreed to amend and restate~~ the ~~Original~~Advisory ~~Siminoff~~Shares ~~Stock~~(each ~~Restriction~~as ~~Agreement.~~hereafter ~~In addition, under the Siminoff Transition Agreement, the Company agreed to reimburse Mr~~defined). ~~Siminoff for certain legal expenses.~~

~~Pursuant~~The ~~to an amended and restated common stock restriction agreement, which was entered into between Mr. Siminoff and the Company on the Siminoff Agreement Date (the~~ “~~Restated~~Separation ~~Restriction Agreement~~Shares”), ~~and~~consisted ~~in accordance with the terms~~ of ~~the Original Siminoff Stock Restriction Agreement~~2, ~~the Company exercised its repurchase option with respect to 15~~861,~~260,540~~351 ~~Consideration~~shares ~~Shares~~(representing ~~held~~75% byof ~~Mr. Siminoff (~~the ~~“Repurchased~~Remaining Shares”) ~~for~~releasable ~~$0.00005080~~from ~~per share (~~the ~~“Repurchase~~transfer ~~Price”),~~restrictions orand athe ~~total~~Amended ~~payment~~Repurchase ofOption ~~$775.24.~~in ~~The~~equal ~~Repurchased~~tranches ~~Shares represent 80% of the 19~~(each,~~075,675~~ ~~Consideration~~a ~~Shares~~“Release ~~received~~Tranche”) byas ~~Mr. Siminoff in connection with the HDW Acquisition.~~follows:

~~Pursuant~~i.20% toof the ~~Restated~~Separation ~~Restriction~~Shares ~~Agreement,~~would ~~the~~be ~~3,815,135~~released ~~Consideration~~when ~~Shares~~the ~~that~~average ~~were~~final ~~not~~trading ~~repurchased~~price byof the Company’s ~~(the~~common ~~“Remaining~~stock ~~Shares”)~~for ~~are~~any ~~subject~~60-trading today ~~transfer~~period ~~restrictions~~prior ~~and~~to anthe ~~amended~~Repurchase ~~repurchase~~Trigger ~~option~~Date (the “~~Amended~~Threshold ~~Repurchase Option~~Price”) ~~pursuant~~is toequal ~~which the Company has a right~~ to ~~repurchase~~or ~~the~~exceeds Remaining Shares at the Repurchase Price to the extent not released from the transfer restrictions and the Amended Repurchase Option by the fifth anniversary of the effective date of the Restated Restriction Agreement (the “Repurchase Trigger Date”)$1.00;

~~The~~ii.20% ~~Remaining~~of ~~Shares are split into two tranches with different provisions governing their release from~~ the ~~transfer~~Separation ~~restrictions~~Shares ~~and~~would ~~the~~be ~~Amended~~released ~~Repurchase~~when ~~Option:~~ the ~~Separation~~Threshold ~~Shares~~Price ~~and~~is ~~the~~equal ~~Advisory~~to ~~Shares~~or ~~(each~~exceeds ~~as hereafter defined)~~$2.00;

~~The “Separation Shares” consist of 2,861,351 shares (representing 75~~iii.20% of the ~~Remaining~~Separation Shares) ~~and~~would ~~will~~ be released ~~from~~when the ~~transfer~~Threshold ~~restrictions~~Price ~~and~~is ~~the Amended Repurchase Option in~~ equal ~~tranches~~to ~~(each,~~or aexceeds ~~“Release Tranche”) as follows:~~$3.00;

iiv.20% of the Separation Shares ~~will~~would be released when the ~~average final trading price of the Company’s common stock for any 60-trading day period prior to the Repurchase Trigger Date (the “~~Threshold Price”) is equal to or exceeds $14.00 ~~(the “First Tier”)~~; and

iiv.20% of the Separation Shares ~~will~~would be released when the Threshold Price is equal to or exceeds $25.00 ~~(the “Second Tier”);~~.

iii.20% of the Separation Shares will be released when the Threshold Price is equal to or exceeds $3.00 (the “Third Tier”);

iv.20% of the Separation Shares will be released when the Threshold Price is equal to or exceeds $4.00 (the “Fourth Tier”); and

v.20% of the Separation Shares will be released when the Threshold Price is equal to or exceeds $5.00 (the “Fifth Tier” and, collectively with the other respectively named tiers, the “Price Tiers”).

The Restated Restriction Agreement also includes provisions governing the impact of a change in control on the release of certain Separation Shares.

The “Advisory Shares” ~~consist~~consisted of 953,784 shares (representing 25% of the Remaining Shares) ~~and~~releasable ~~will be released~~ from the transfer restrictions and the Amended Repurchase Option as follows:

i.All of the Advisory Shares ~~will~~would be released on the Advisory End Date, provided that a termination of the Advisory Services ~~has~~had not occurred prior to such date.

ii.In the event of a termination of the Advisory Services by Mr. Siminoff prior to the Advisory End Date other than due to the Company’s breach of its ongoing contractual obligations to Mr. Siminoff, subject to notice requirements, the Amended Repurchase Option ~~will~~would immediately apply to all of the Advisory Shares as of the date of such termination (the “Advisory Termination Date”), and the Company ~~will~~would be deemed to have automatically exercised such Amended Repurchase Option with respect thereto.

38iii.In the event of a termination of the Advisory Services by the Company as a result of Mr. Siminoff’s willful failure or refusal to perform the Advisory Services in good faith in accordance with the terms of the Siminoff Transition Agreement (a “Termination for Cause”), subject to notice requirements, the Amended Repurchase Option would immediately apply to all of the Advisory Shares as of the Advisory Termination Date, and the Company would be deemed to have automatically exercised such Amended Repurchase Option with respect thereto.

iv.In the event of a termination of the Advisory Services by the Company other than a Termination for Cause or a change in control prior to the Advisory End Date, or in the event Mr. Siminoff terminated the Advisory Services as a result of the Company’s breach of its ongoing contractual obligations to Mr. Siminoff, the Amended Repurchase Option would immediately apply to the portion of the Advisory Shares represented by the solution to the following equation:

(1 – X/730) * 953,784, with “X” equaling the number of days elapsed between the Siminoff Separation Date and the Advisory Termination Date, and the Company would be deemed to have automatically exercised such Amended Repurchase Option with respect thereto.

With respect to the Advisory Shares to which the Amended Repurchase Option did not apply, such Advisory Shares would be released from the Amended Repurchase Option and the transfer restrictions on the Advisory Termination Date.

On November 26, 2024, the Company and Mr. Mitura mutually agreed that Mr. Mitura would step down as the Company’s Chief Product Officer effective as of such date, at which time Mr. Mitura ceased to serve as an “executive officer” of the Company under Rule 3b-7 of the Exchange Act. Also on November 26, 2024, the Company and Mr. Mitura entered into a Separation and Transition Agreement and Release (the “Mitura Separation Agreement”). The Mitura Separation Agreement provides that the Company and Mr. Mitura’s affiliated entity would enter into a consulting agreement pursuant to which Mr. Mitura would assist the Company in product development. In addition, under the Mitura Separation Agreement, the Company

Latch, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

~~iii.In~~agreed ~~the~~to ~~event~~reimburse ~~of a termination of the Advisory Services by the Company as a result of~~ Mr. ~~Siminoff’s~~Mitura ~~willful~~for ~~failure~~certain orlegal ~~refusal~~expenses. Pursuant to ~~perform~~ the ~~Advisory~~consulting ~~Services~~agreement, inwhich ~~good~~terminated ~~faith~~March ~~in accordance with the terms of the Siminoff Transition Agreement (a “Termination for Cause”)~~23, ~~subject to notice requirements~~2025, the ~~Amended~~Company ~~Repurchase~~paid ~~Option~~Mr. ~~will~~Mitura’s ~~immediately~~related ~~apply~~entity toapproximately ~~all~~$0.7 million ofin ~~the~~each ~~Advisory Shares as~~ of ~~the~~2024 ~~Advisory Termination Date,~~ and ~~the Company will be deemed to have automatically exercised such Amended Repurchase Option with respect thereto~~2025.

iv.In the event of a termination of the Advisory Services by the Company other than a Termination for Cause or a change in control prior to the Advisory End Date, or in the event Mr. Siminoff terminates the Advisory Services as a result of the Company’s breach of its ongoing contractual obligations to Mr. Siminoff, the Amended Repurchase Option will immediately apply to the portion of the Advisory Shares represented by the solution to the following equation:

(1 – X/730) * 953,784, with “X” equaling the number of days elapsed between the Siminoff Separation Date and the Advisory Termination Date, and the Company will be deemed to have automatically exercised such Amended Repurchase Option with respect thereto.

With respect to the Advisory Shares to which the Amended Repurchase Option does not apply, such Advisory Shares will be released from the Amended Repurchase Option and the Transfer Restrictions on the Advisory Termination Date.

February 2025 Leadership Appointments

OnFollowing the December 2024 filing of the 2022 Annual Report and completion of the Restatement, on February 4, 2025, Jason Keyes, Interim Chief Executive Officer, and Marc Landy, Interim Chief Financial Officer, provided notice of their resignations from their positions with the Company effective as of February 6, 2025 (the “~~Appointment~~Transition Date”). Messrs. Keyes and Landy were serving in such capacities pursuant to an agreement between the Company and ~~AP Services, LLC,~~ an affiliate of AlixPartners LLP, a global consulting firm. On the ~~Appointment~~Transition Date, the Board appointed David Lillis as Chief Executive Officer, Jeff Mayfield as Chief Financial Officer and Priyen Patel as Chief Strategy and Legal Officer.

39In May 2025, the Company terminated Mr. Siminoff’s Advisory Services. In connection therewith, the Company repurchased 0.8 million of the Advisory Shares from Mr. Siminoff, with the balance released from the Amended Repurchase Right and the transfer restrictions. All of the Separation Shares remain subject to the Amended Repurchase Option. See Note 15. Stock-Based Compensation.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes of Latch, Inc. and its subsidiaries included elsewhere in this Form 10-Q. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section captioned “Risk Factors” in the ~~2022~~2024 Annual Report ~~and the 2023 Annual Report~~, which we expect to file concurrently with, or promptly after, the filing of this Form 10-Q, actual results may differ materially from those anticipated in these forward-looking statements. Unless the context otherwise requires, references in this subsection to “we,” “our,” “Latch,” “DOOR” and the “Company” refer to the business and operations of (i) Latch Systems, Inc. (formerly known as Latch, Inc.) and its consolidated subsidiaries prior to the 2021 merger by and among Latch, Inc. (formerly known as TS Innovation Acquisitions Corp. (“TSIA”)), Latch Systems, Inc. (formerly known as Latch, Inc.) and a wholly-owned subsidiary of TSIA (the “Business Combination”) and (ii) Latch, Inc. and its consolidated subsidiaries following the consummation of the Business Combination.

Overview

Latch is a technology company ~~primarily~~delivering ~~serving~~an ~~the~~integrated ~~multifamily~~ecosystem ~~rental~~of ~~home~~hardware, ~~market~~software ~~segment~~and ofservices ~~the~~designed ~~smart~~to ~~building~~enhance ~~industry~~operations ~~deploying~~and ~~hardware~~experiences ~~and~~within ~~software~~buildings, ~~technology~~primarily toserving ~~digitize~~the ~~otherwise~~multifamily ~~manual~~rental ~~processes~~market. In August 2025, ~~including~~we ~~building~~rebranded ~~and~~as ~~unit~~DOOR, ~~access~~although ~~and~~our ~~in-unit~~legal ~~device~~name ~~control~~remains Latch, Inc.

WeOur ~~combine~~core ~~hardware,~~offering ~~software~~is ~~and~~built ~~services~~around ~~into~~ a ~~system that enables smart access for users of a multifamily building~~proprietary, enabling easier, more modernized experiences for residents and visitors, more efficient operations for building owners and property managers and more convenient interaction for service providers. We designed and developed a cloud-based software-as-a-service (“SaaS”) platform (the “~~Latch~~DOOR Platform”), towhich ~~address~~powers ~~the~~and ~~access~~manages ~~requirements~~our suite of ~~modern~~smart ~~multifamily~~access ~~buildings.~~control ~~Our~~devices ~~customers~~(including ~~include real estate developers~~locks, ~~builders,~~readers ~~building~~and ~~owners~~intercoms) and ~~property~~smart ~~managers~~home indevices ~~the~~and ~~multifamily~~integrates ~~market~~with ~~segment~~other inconnected ~~the~~devices ~~United~~within ~~States~~a ~~and Canada~~building.

We provide solutions that streamline building management for property owners and operators, offer modern convenience and security for residents and simplify interactions for visitors and service providers. While our foundation remains smart access control, we are actively expanding the DOOR Platform and our device integrations to encompass broader smart home solutions, managing devices such as sensors, thermostats and lighting. This ongoing expansion leverages our established platform to create more connected and efficient buildings as we lay the groundwork for a building intelligence platform, automating and streamlining building operations, including work order management and automation, property maintenance and unit inspections and repairs.

Our customers, which include real estate developers, builders, owners and property managers in the United States and Canada, typically purchase our hardware devices (directly or indirectly through our channel partner network) and directly license our SaaS platform. Residents interact with the DOOR Platform through the DOOR mobile application and its predecessor Latch mobile application (together, the “DOOR App”). Through the DOOR App, residents access common areas and unlock residential doors, provide guest access, manage smart home devices and book services.

Our professional services offerings are integral to ensuring successful deployment of the DOOR Platform and ongoing support for our customers and their residents. This includes connecting our multifamily property customers with our partners for installation of Latch and third-party smart access and smart home hardware, ensuring that solutions are implemented efficiently and correctly.

Additionally, we offer a comprehensive property management service in and around Boston, Massachusetts.

We operate in one operating and reporting segment.

Investigation and Restatement

During the three months ended June 30, 2022, the audit committee (the “Audit Committee”) of the Company’s board of directors (the “Board”) commenced an investigation (the “Investigation”) of certain of the Company’s key performance indicators and revenue recognition practices, including the accounting treatment, financial reporting and internal controls related thereto. Following the Investigation, the Company completed a comprehensive review of its previously issued financial statements (the “Financial Statement Review”). The Company identified errors related to, among other items: (i) revenue recognition ofon hardware and software sales, (ii) revenue recognition and billing on software licenses, (iii) recognition of various expenses and (iv) errors in certain key performance indicators, including “bookings” and related metrics. As a result of the Investigation and Financial Statement Review, the Company restated certain of its financial statements (the “Restatement”) in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

~~As a result of the Investigation and Financial Statement Review, the Company restated certain of its financial statements in the 2022 Annual Report (the “Restatement”).~~38

Business Update

~~HDW~~On ~~Acquisition~~June 21, 2024, the Company and LS HT Merger Sub, Inc., a wholly-owned subsidiary of the Company (“HT Merger Sub”), entered into an Agreement and Plan of Merger with HelloTech, Inc. (“HelloTech”). On July 1, 2024, HT Merger Sub merged with and into HelloTech, with HelloTech continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “HelloTech Merger”).

OnHelloTech ~~May~~is ~~15,~~a ~~2023,~~service ~~the~~platform ~~Company~~delivering on-demand, LSlast-mile ~~Key~~installation, ~~Merger~~setup ~~Sub~~and 1,connected ~~Inc~~device support., aThe ~~wholly-owned~~HelloTech ~~subsidiary~~platform, ofin combination with the ~~Company,~~technology ~~and~~Latch LSacquired ~~Key~~in ~~Merger~~the ~~Sub~~HDW 2Acquisition, ~~LLC,~~is aexpected ~~wholly-owned~~to ~~subsidiary~~serve ofas the ~~Company,~~foundation ~~entered~~for ~~into~~DOOR anServices, ~~Agreement~~bringing ~~and~~full-service ~~Plan~~amenities ofto ~~Merger~~multifamily ~~with~~buildings ~~HDW.~~by ~~The~~enabling ~~HDW~~residents ~~Acquisition~~to ~~closed~~efficiently onshare ~~July~~and 3,book ~~2023.~~service ~~See~~providers, ~~Note~~such 1.as ~~Description~~dog ~~of Business~~walkers, inhouse ~~Part I~~cleaners, ~~Item~~and 1.tech ~~“Financial Statements~~support.”

Reduction in Force

In July 2023, we commenced a reduction in force (the “July 2023 RIF”) in order to streamline our business operations, reduce costs and complexities in the business and create operating efficiencies. The July 2023 RIF, substantially completed in the fourth quarter of 2023, impacted approximately 95 employees, or approximately 70% of the Company’s full-time employees at the time.

Delisting

On August 8, 2023, the Company received a notice from Nasdaq stating that it had determined to suspend trading of the Company’s securities on August 10, 2023 and commence delisting procedures because of the Company’s failure to regain compliance with its periodic filing obligations by the August 4, 2023 deadline previously set by Nasdaq. On March 21, 2024, Nasdaq filed a Form 25 with the SEC notifying the SEC of Nasdaq’s determination to remove the Company’s securities from listing on Nasdaq. The delisting was effective April 1, 2024.

Key Factors Affecting Our Performance

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

Evolving our go-to-market strategy. Our performance is dependent on evolving our go-to-market strategy to address the needs of our customers and facilitate efficient internal motions. We must continue to develop a go-to-market strategy that scales and allows higher sales volumes at lower incremental costs. Our ability to generate operating profits and grow our business depends, in part, on the success of our go-to-market strategy.

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

Category adoption, expansion of our total addressable market and market growth. Our future growth depends in part on the continued adoption of hardware and software products that improve resident experience and the growth of this market.

Key Business Metrics

We are presenting software revenue (prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”)), total revenue (GAAP), net loss (GAAP) and Adjusted EBITDA (non-GAAP) as key business metrics, as we believe each of those metrics is important in measuring our performance, identifying trends affecting our business, formulating business plans and making strategic decisions that will impact our future operational results.

Our key business metrics are as follows for the periods presented (in thousands):

	Three months ended September 30,
	Three months ended June 30,
	2023		2022		$ Change		% Change
	2024		2023		$ Change		% Change
GAAP Measures:
Software revenue	$	45,~~660~~022	$	34,~~403~~413	$	~~1,257~~609	3613.98	%
Total revenue	$	912,~~673~~938	$	810,~~839~~178	$	~~834~~2,760	927.41	%
Net loss	$	(2716,~~278~~937)	$	(3430,~~809~~876)	$	713,~~531~~939	(2145.61	%)
Non-GAAP Measure:
Adjusted EBITDA	$	(139,~~444~~908)	$	(2120,~~502~~112)	$	810,~~058~~204	(3750.57	%)

	Nine months ended September 30,
	Six months ended June 30,
	2023		2022		$ Change		% Change
	2024		2023		$ Change		% Change
GAAP Measures:
Software revenue	$	1310,~~046~~059	$	98,~~349~~386	$	31,~~697~~673	3919.59	%
Total revenue	$	3124,~~001~~973	$	3221,~~225~~328	$	(13,~~224)~~645	(317.81	%)
Net loss	$	(9130,~~078~~574)	$	(~~133~~63,~~257~~800)	$	4233,~~179~~226	(3152.71	%)
Non-GAAP Measure:
Adjusted EBITDA	$	(5817,~~000~~303)	$	(9644,~~716~~556)	$	3827,~~716~~253	(4061.02	%)

Adjusted EBITDA

To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we have presented in this Form 10-Q Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies.

We define Adjusted EBITDA as our net loss, excluding the impact of ~~stock-based~~the ~~compensation~~following ~~expense~~items, if applicable: (i) depreciation and amortization expense, (ii) net interest income, ~~interest~~or expense, (iii) provision for income taxes, ~~restructuring,~~(iv) ~~non-ordinary~~change ~~course~~in ~~legal~~fair ~~fees~~value ~~and~~of ~~settlement~~warrant ~~reserves~~liability, ~~loss~~trading onsecurities, ~~extinguishment~~or ofderivative ~~debt~~instruments, ~~gain~~(v) orrestructuring ~~loss~~costs, on(vi) ~~change~~transaction-related incosts, ~~fair~~(vii) ~~value~~net impairment of ~~derivative~~intangible ~~instruments~~assets, ~~warrant~~(viii) ~~liabilities~~non-ordinary ~~and~~course ~~trading~~legal ~~securities~~fees and ~~transaction~~settlement reserves, (ix) stock-~~related~~based ~~expenses~~compensation expense and (x) gain or loss on extinguishment of debt. The most directly comparable GAAP measure is net loss. We believe excluding the impact of these items in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. We monitor, and have presented in this Form 10-Q, Adjusted EBITDA because it is a key measure used by our management and Board to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we include in net loss. Accordingly, we believe Adjusted EBITDA provides useful information to investors, analysts and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance.

establish budgets and to develop operational goals for managing our business. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we include in net loss. Accordingly, we believe Adjusted EBITDA provides useful information to investors, analysts and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance.

Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net loss, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. In addition, the expenses and other items that we exclude in our calculations of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results.

In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA as a tool for comparison. The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	2024		2023		2024		2023
Net loss	$	(2716,~~278~~937)	$	(3430,~~809~~876)	$	(9130,~~078~~574)	$	(~~133~~63,~~257~~800)
Depreciation and amortization	1,~~856~~814		1,~~386~~696		53,~~375~~710		3,~~897~~519
Interest (income) expense, net(1)	(808)		702		(1,620)		2,802
Interest income, net(1)	(521)		(543)		(967)		(812)
Provision for income taxes	—		10—		112		4411
Change in fair value of warrant liability	(~~553~~53)		~~(389)~~245		~~(218)~~1		~~(9,355)~~335
Change in fair value of trading securities	—		1,960		—		3,460
Restructuring costs(2)	(10)		(37)		65		497
Restructuring costs(2)	5,163		2,606		5,660		8,832
Transaction-related costs	—		1		—		1
Transaction-related costs(3)	—		6		1		516
Non-ordinary course legal fees and settlement reserves(3)	3,881		5,388		6,472		7,413
Non-ordinary course legal fees and settlement reserves(4)	673		1,950		8,086		1,993
Stock-based compensation expense(4)	1,918		4,014		3,988		8,280
Stock-based compensation expense(5)	7,503		5,076		15,783		24,352
Adjusted EBITDA	$	(9,908)	$	(20,112)	$	(17,303)	$	(44,556)
Adjusted EBITDA	$	(13,444)	$	(21,502)	$	(58,000)	$	(96,716)

(1)As a result of significant discounts provided to our customers on certain long-term software contracts paid in advance, the Company has determined that there is a significant financing component related to the time value of money and has therefore broken out the interest component and recorded it as a component of interest income ~~(expense)~~, net on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Interest income, net includes interest expense associated with the significant financing component ~~included~~of ~~in interest (income) expense, net was~~ $10.19 million and $31.69 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024, respectively, and $1.32 million and $32.75 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively.

(2)~~Reflects~~The ~~restructuring~~Company ~~costs~~does ~~primarily~~not ~~associated~~anticipate ~~with~~incurring ~~the~~any ~~July~~restructuring ~~2023~~costs ~~RIF~~during ~~for~~ the ~~three~~year ~~and~~ending ~~nine~~December ~~months ended September 30~~31, ~~2023 and with the 2022 RIFs for the three and nine months ended September 30, 2022~~2025.

(3)~~Transaction~~For ~~costs~~2024, the amounts primarily represent legal fees related to securities and derivative litigation and the ~~Business~~SEC’s ~~Combination~~investigation into issues related to the Company’s key performance indicators and revenue recognition practices (the “SEC Investigation”). While the Company is involved in various litigation and legal disputes in the ordinary course of its business, the Company believes the non-ordinary course legal fees and settlement reserves included in our calculation of Adjusted EBITDA do not represent normal operating expenses. See Note 12. Commitments and Contingencies, in Part I, Item 1. “Financial Statements.” These costs are included within general and administrative on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

42(4)See Note 15. Stock-Based Compensation, in Part I, Item 1. “Financial Statements.”

(4)Non-ordinary course legal fees and settlement reserves incurred in connection with non-ordinary course litigation and disputes. For the three and nine months ended September 30, 2023, the amount includes (i) the Company’s $14.875 million share of the settlement amount related to the Merger Lawsuits, as defined and described in Note 10. Commitments and Contingencies, in Part I, Item 1. “Financial Statements,” offset by (ii) the $10.0 million contribution insurers provided to such settlement. While the Company is involved in various litigation and legal disputes in the ordinary course of its business, the Company believes the non-ordinary course legal fees and settlement reserves included in our calculation of Adjusted EBITDA do not represent normal and recurring operating expenses. See Note 10. Commitments and Contingencies, in Part I, Item 1. “Financial Statements.” These costs are included within general and administrative within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

(5)See Note 14. Stock-Based Compensation, in Part I, Item 1. “Financial Statements.”

Components of Results of Operations

Revenue

Hardware Revenue. We generate hardware revenue primarily from the sale of our portfolio of devices for our smart access and smart ~~apartment~~home solutions. We sell hardware to customers, which include real estate developers, builders, building owners and property managers, directly or through our channel partners, who act as intermediaries, installers or wholesalers. The Company recognizes hardware revenue when there is evidence a contract exists and control has been transferred to the customer. The Company provides warranties that its hardware will be substantially free from defects in materials and workmanship, generally for a period of one or two years for electronic components depending on the hardware product, and ~~five years for mechanical components. The Company determines in its sole discretion whether to replace, repair or refund warrantable devices.~~

From time-to-time, industry-wide supply chain disruptions have created shortages of certain construction materials and other products. Additionally, our customers have also experienced trade labor availability constraints and delays. These factors have caused our customers to experience construction delays, which have delayed and may continue to delay the timing of the installation of our products and our recognition of hardware and software revenue.40

~~Software~~five ~~Revenue.~~years Wefor ~~generate~~mechanical ~~software revenue primarily through the license of our SaaS over our cloud-based platform on a subscription-based arrangement~~components. ~~Subscription fees vary depending on the features selected by customers. SaaS arrangements generally have term lengths between one and ten years.~~ The ~~SaaS provided by the~~ Company ~~are~~determines ~~considered~~in ~~stand-ready~~its ~~performance~~sole ~~obligations~~discretion ~~where~~whether ~~customers~~to ~~benefit~~replace ~~from the services evenly throughout the service period. Revenue is generally recognized ratably over the subscription period beginning when~~ or asrefund ~~control~~warrantable ~~of the promised services is transferred to the customer~~devices.

~~Installation~~Software ~~Services~~ Revenue. We generate software revenue primarily through the license of our SaaS over our cloud-based platform on a subscription-based arrangement. Subscription fees vary depending on the features selected by ~~facilitating~~customers. ~~hardware~~SaaS ~~installation~~arrangements generally have term lengths between one and ~~activation~~ten ~~services~~years. toThe ~~select~~SaaS provided by the Company are considered stand-ready performance obligations where customers. ~~This~~benefit ~~revenue~~from the services evenly throughout the service period. Revenue is recognized ratably over ~~time~~the onsubscription aperiod ~~percentage~~beginning when or as control of ~~completion~~the ~~basis.~~promised services is transferred to the customer.

Professional Services Revenue. We generate professional services revenue in two primary ways: (i) by facilitating project-based hardware installation and activation services for enterprise customers and (ii) through property management services performed by DPM for its multifamily building customers.

We facilitate hardware installation and activation services to select customers. The revenues associated with these services are recognized over time based on a percentage of installation performed and completed and represent a transfer of services to a customer under contract.

DPM’s property management activities include operating DPM customers’ buildings, which involves maintenance and repair, construction supervision, leasing and administrative services. Property management service revenues are recognized ratably over the service period.

Cost of Revenue

Cost of hardware revenue consists primarily of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging costs, warranty costs, assembly costs and warehousing costs, as well as other non-inventoriable costs, including personnel-related expenses associated with supply chain logistics and direct deployment and outsourced labor costs. We expect hardware cost of revenue to move in-line with our hardware revenue. Our hardware costs have been and may continue to be impacted by any supply chain constraints, shipping cost volatility and changes in import tariffs.

Cost of software revenue consists primarily of outsourced hosting costs, other outsourced cloud-based service costs and personnel-related expenses associated with monitoring and managing outsourced hosting service providers.

Cost of ~~installation~~professional services revenue consists primarily of (i) third-party installation labor costs, and parts and materials ~~and personnel-related expenses~~ associated with deployment of our hardware and (ii) costs related to third-party property service providers.

Cost of revenue excludes depreciation and amortization shown in operating expenses.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, general and administrative and depreciation and amortization expenses. As part of a July 2023 reduction in force, we reduced headcount, resulting in the forfeiture of equity grants and the associated recognition of negative stock-based compensation expense. We have not granted any RSUs since the suspension of our registration statement on Form S-8 under the Securities Act (the “S-8 Registration Statement”) on August 10, 2022. However, we expect to resume granting RSUs pursuant to the S-8 Registration Statement once we are current in our SEC filings. Any such grants will increase the Company’s stock-based compensation expense.

43R&D Expenses. R&D expenses consist primarily of personnel and related expenses for our employees working on our product, design and engineering teams, including salaries, bonuses, benefits, payroll taxes, travel and stock-based compensation. Also included are non-personnel costs such as amounts paid to our third-party contract manufacturers for tooling, engineering and prototype costs of our hardware products, fees paid to third-party consultants, R&D supplies and rent.

~~R&D~~Sales and Marketing Expenses. ~~R&D~~Sales and marketing expenses consist primarily of personnel and related expenses for our employees working on our ~~product~~sales, ~~design~~customer success, deployment and ~~engineering~~marketing teams, including salaries, bonuses, benefits, payroll taxes, travel and stock-based compensation. Also included are non-personnel costs such as amounts paid to our third-party contract manufacturers for tooling, engineering and prototype costs of our hardware products, fees paid to third-party consultants, R&D supplies and rent. We expect our R&D expenses to decrease for the remainder of 2023 as a result of restructuring initiatives, including reductions in force conducted in 2022 (the “2022 RIFs”) and July 2023 (the “July 2023 RIF”).

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of personnel and related expenses for our employees working on our sales, customer success, deployment and marketing teams, including salaries, bonuses, benefits, payroll taxes, travel, commissions and stock-based compensation. Also included are non-personnel costs such as marketing activities (trade shows and events, conferences and digital advertising), professional fees, rent and customer support. We expect our sales and marketing expenses to decrease for the remainder of 2023 as a result of restructuring initiatives, including the 2022 RIFs and the July 2023 RIF.41

General and Administrative Expenses. General and administrative expenses consist primarily of personnel and related expenses for our executive, legal, human resources, finance and IT functions, including salaries, bonuses, benefits, payroll taxes, travel, commissions and stock-based compensation. ~~Additional~~Also ~~expenses~~ included ~~in this category~~ are non-personnel costs such as ~~legal~~marketing ~~fees,~~activities ~~rent,~~(trade ~~professional~~shows ~~fees,~~and ~~audit fees~~events, ~~bad~~conferences ~~debt expense~~ and ~~insurance~~digital ~~costs. We expect our general and administrative expenses to increase at least through 2024~~advertising), ~~due to~~ professional ~~services costs related to the Investigation~~fees, ~~the~~rent ~~ongoing investigation of the Company by the SEC (the “SEC Investigation”), the Restatement~~ and ~~remediation~~customer ~~activities~~support.

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

Other Income ~~(Expense)~~, Net

Other income ~~(expense)~~, net consists of interest expense associated with the significant financing component of our longer-term software contracts, interest expense associated with our ~~previous~~ debt financing arrangements, interest income on highly liquid short-term investments, gain or loss on extinguishment of debt and gain or loss on change in fair value of derivative liabilities, warrant liabilities and trading securities.

Interest income, net is summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Interest income	$	1,621	$	1,775	$	3,623	$	3,281
Interest expense	(1,100)		(1,232)		(2,656)		(2,469)
Interest income, net	$	521	$	543	$	967	$	812

Income Taxes

The provision for income taxes consists primarily of income taxes related to ~~state and~~ foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized.

4442

Results of Operations

The following tables and accompanying information set forth our historical operating results for the periods indicated. The period-to-period comparison of operating results is not necessarily indicative of results for future periods.

Comparison of three months ended ~~September~~June 30, ~~2023~~2024 and ~~September~~June 30, ~~2022~~2023

	Three months ended September 30,
	Three months ended June 30,
(in thousands, except share and per share data)	~~2023~~2024		~~2022~~2023		$ Change		% Change
Revenue
Hardware	$	35,~~215~~583	$	4,~~027~~263	$	~~(812)~~1,320	~~(20~~31.20	%)
Software	45,~~660~~022		34,~~403~~413		~~1,257~~609		3613.98	%
Installation services	1,798		1,409		389		27.6	%
Professional services	2,333		1,502		831		55.3	%
Total revenue	912,~~673~~938		810,~~839~~178		~~834~~2,760		927.41	%
Cost of revenue(1)
Hardware	14,~~393~~352		4,~~739~~381		(~~3,346~~29)		(700.67	%)
Software	~~546~~573		~~462~~524		8449		189.24	%
Installation services	1,640		1,604		36		2.2	%
Professional services	2,081		1,373		708		51.6	%
Total cost of revenue	37,~~579~~006		6,~~805~~278		~~(3,226)~~728		~~(47~~11.46	%)
Operating expenses
Research and development	102,~~236~~940		108,~~991~~660		(~~755~~5,720)		(666.91	%)
Sales and marketing	32,~~819~~252		74,~~028~~378		(32,~~209~~126)		(4548.76	%)
General and administrative	1816,~~791~~726		1520,~~077~~517		(3,~~714~~791)		24(18.65	%)
Depreciation and amortization	1,~~856~~814		1,~~386~~696		~~470~~118		337.90	%
Total operating expenses	3423,~~702~~732		3435,~~482~~251		~~220~~(11,519)		0(32.67	%)
Loss from operations	(2817,~~608~~800)		(3231,~~448~~351)		313,~~840~~551		1143.82	%
Other income (expense), net
Other income, net
Change in fair value of warrant liability	~~553~~53		~~389~~(245)		~~164~~298		42(121.26	%)
Change in fair value of trading securities	—		(1,960)		1,960		100.0	%
Interest income, net	521		543		(22)		(4.1	%)
Interest income (expense), net	808		(702)		1,510		215.1	%
Other income, net	289		177		112		63.3	%
Other income (expense), net	(31)		(78)		47		60.3	%
Total other income, net	863		475		388		81.7	%
Total other income (expense), net	1,330		(2,351)		3,681		156.6	%
Loss before income taxes	(16,937)		(30,876)		13,939		45.1	%
Loss before income taxes	(27,278)		(34,799)		7,521		21.6	%
Provision for income taxes	—		—		—		N.M.
Provision for income taxes	—		10		(10)		100.0	%
Net loss	$	(16,937)	$	(30,876)	$	13,939	45.1	%
Net loss	$	(27,278)	$	(34,809)	$	7,531	21.6	%
Other comprehensive income (loss)
Other comprehensive loss
Unrealized (loss) gain on available-for-sale securities	(9)		468		(477)		(101.9	%)
Unrealized gain (loss) on available-for-sale securities	238		257		(19)		(7.4	%)
Foreign currency translation adjustment	(4)		2		(6)		(300.0	%)
Foreign currency translation adjustment	—		12		(12)		100.0	%
Comprehensive loss	$	(16,950)	$	(30,406)	$	13,456	44.3	%
Comprehensive loss	$	(27,040)	$	(34,540)	$	7,500	21.7	%
Net loss per common share:
Basic and diluted net loss per common share	$	(0.1611)	$	(0.2421)	$	0.0810	3347.36	%
Weighted average shares outstanding:
Basic and diluted	~~172~~156,~~989~~386,~~593~~470		144,~~590~~609,~~030~~513

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

N.M.: Not meaningful

4543

Revenue

Revenue increased by $02.8 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022.~~2023 ~~The increase was~~ driven by a $1.3 million increase in ~~software~~hardware revenue, ~~and a~~ $0.48 million increase in ~~installation~~professional services revenue, ~~partially~~and ~~offset~~$0.6 bymillion aincrease in software revenue. The $01.83 million ~~decrease~~increase in hardware revenue. ~~Increased~~was ~~software~~driven ~~revenue~~by ~~reflects~~an ~~the~~increase ~~continued~~in ~~growth~~hardware shipments in ~~subscriptions~~2024 ascompared ato ~~result~~2023, partially offset by the impact of the ~~continued~~Restatement, ~~increases~~which inshifted ~~cumulative~~a ~~delivered~~higher ~~hardware~~level ~~units~~of revenue from previous periods into 2023 compared to 2024. The ~~decrease~~$0.8 million increase in ~~hardware~~professional services revenue was ~~primarily~~attributable ~~driven~~to byan ~~lower~~increase ~~units~~in ~~delivered,~~property ~~including~~management. ~~higher~~The ~~units~~$0.6 ~~returned,~~million ~~which~~increase ~~negatively~~in ~~impacted~~software ~~net~~revenue ~~delivered~~is ~~units,~~due ~~partially~~to ~~offset~~the bycontinued ~~higher~~growth ~~average~~in ~~selling~~subscriptions ~~prices~~as a result of increases in delivered hardware units.

Cost of Revenue

Cost of revenue ~~decreased~~increased by $30.27 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022~~2023. The ~~decrease~~increase was primarily a result of $~~3.3 million in lower hardware expenses driven by (i) $1.2 million decrease in inventory purchase commitments liability, (ii) $~~0.~~9 million of fewer units delivered, net of units returned, (iii) a $0.~~7 million ~~reduction~~ in ~~excess~~professional ~~and~~services ~~obsolete~~related ~~reserves~~costs ~~and~~attributable ~~(iv) a $0.4 million decrease due~~ to aincreases ~~reduction~~ in ~~the~~installations ~~size~~and ofproperty ~~the supply-chain team~~management.

Research and Development Expenses

Research and development expenses decreased by $05.87 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022~~2023. The decrease was primarily due to: (i) $24.08 million decrease in personnel-related expenses, comprised of $12.48 million of decreased compensation expense and $02.60 million of decreased stock-based compensation expense; (ii) $0.15 million decrease in software license expense; ~~due to decreased headcount~~ and (iii) $0.12 million decrease in ~~travel~~product ~~expenses.~~development ~~These decreases were partially offset by a $1.7 million increase in restructuring~~ costs.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $3.2.1 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022~~2023. The decrease was primarily due to: (i) $21.2 million decrease in personnel-related expenses, comprised of $10.46 million of decreased compensation expense and $0.86 million of decreased stock-based compensation expense; (ii) $0.5 million decrease in professional fees; and (iiiii) $0.64 million decrease in ~~marketing~~software license expense.

General and Administrative Expenses

General and administrative expenses ~~increased~~decreased by $3.78 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022~~2023. The ~~increase~~decrease was primarily due to a (i) $4.2 ~~million increase in personnel-related expenses comprised of (a) $0~~.26 million ~~of increased compensation expense and (b) $4.0 million of increased stock-based compensation expense, which was comprised of a $1.4 million~~ decrease related to the ~~2022~~Investigation ~~RIFs~~ and ~~the~~Restatement; ~~July~~(ii) ~~2023 RIF, offset by a~~ $51.45 million ~~increase~~decrease ~~of stock-based compensation expense~~ in ~~connection~~other ~~with~~professional ~~the~~fees ~~HDW~~related ~~Acquisition;~~to ~~(ii)~~accounting ~~$0.2~~services ~~million increase in restructuring costs;~~ and (iii) a $01.63 million ~~increase~~decrease in ~~professional~~litigation ~~fees~~expenses. ~~This~~The ~~increase~~decrease ~~in professional fees~~ was ~~due~~partially tooffset by (i) ~~an increase of~~ $10.8 million ~~related to outsourced management; and (ii) an~~ increase ~~of $1.6 million~~ in ~~audit~~personnel-related ~~fees~~expenses, ~~partially~~comprised ~~offset by (iii) a decrease~~ of $10.51 million ~~related~~of toincreased ~~the~~compensation ~~Investigation~~expense and ~~the Restatement; and (iv) a decrease of~~ $10.37 million inof ~~litigation~~increased ~~expenses.~~stock-based ~~These~~compensation ~~increases~~expense, ~~were partially offset by a~~ (iii) ~~$0.5~~an ~~million~~increase ~~decrease~~in ofaudit ~~insurance~~fees ~~expenses;~~of ~~(ii)~~ $0.47 million ~~decrease of IT~~ and ~~software license expense and~~ (iii) $0.52 million ~~decrease~~increase in ~~impairment~~bad ofdebt ~~long-lived assets~~expense.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by $0.51 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022~~2023. The increase was primarily due to the increased amortization of capitalized internally-developed software.

Total Other Income ~~(Expense)~~, Net

Total other income, net increased by $30.74 million for the three months ended ~~September~~June 30, ~~2023~~2024 compared to the three months ended ~~September~~June 30, ~~2022~~2023. The increase was primarily due to: (i) a $10.53 million ~~increase in interest income related to higher interest rates; (ii) a $2.0 million~~ favorable ~~variance~~change in the ~~change in~~ fair value of ~~trading securities driven by~~ the ~~Company~~private ~~ceasing~~placement towarrants ~~own~~liability ~~any trading securities as of December 31, 2022~~ and (~~iii~~ii) a $0.21 million ~~favorable~~increase ~~change~~ in ~~the~~other ~~fair value of the private placement warrants liability due to a greater decrease in the price of our common stock during the three months ended September 30~~income, ~~2023 compared to the three months ended September 30, 2022~~net.

4644

Comparison of ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 and ~~September~~June 30, ~~2022~~2023

	Nine months ended September 30,
	Six months ended June 30,
(in thousands, except share and per share data)	~~2023~~2024		~~2022~~2023		$ Change		% Change
Revenue
Hardware	$	1210,~~823~~226	$	189,~~025~~608	$	~~(5,202)~~618	~~(28~~6.9)4	%
Software	1310,~~046~~059		98,~~349~~386		31,~~697~~673		3919.59	%
Installation services	5,132		4,851		281		5.8	%
Professional services	4,688		3,334		1,354		40.6	%
Total revenue	3124,~~001~~973		3221,~~225~~328		(13,~~224)~~645		(317.8)1	%
Cost of revenue(1)
Hardware	177,~~363~~377		2715,~~591~~970		(108,~~228~~593)		(3753.18)	%
Software	~~1,489~~930		~~1,123~~943		~~366~~(13)		32(1.64)	%
Installation services	4,646		5,115		(469)		(9.2)	%
Professional services	4,280		3,006		1,274		42.4	%
Total cost of revenue	2312,~~498~~587		3319,~~829~~919		(107,~~331~~332)		(3036.58)	%
Operating expenses
Research and development	277,~~959~~141		4617,~~523~~723		(1810,~~564~~582)		(3959.97)	%
Sales and marketing	124,~~753~~751		418,~~275~~934		(284,~~522~~183)		(6946.18)	%
General and administrative	5428,~~502~~575		4235,~~898~~711		11(7,~~604~~136)		27(20.10)	%
Depreciation and amortization	53,~~375~~710		3,~~897~~519		~~1,478~~191		375.94	%
Total operating expenses	~~100~~44,~~589~~177		~~134~~65,~~593~~887		(3421,~~004~~710)		(2533.30)	%
Loss from operations	(9331,~~086~~791)		(~~136~~64,~~197~~478)		4332,~~111~~687		3150.7	%
Other income (expense), net
Other income, net
Change in fair value of warrant liability	~~218~~(1)		~~9,355~~(335)		~~(9,137)~~334		~~(97~~99.7)	%
Change in fair value of trading securities	—		(3,460)		3,460		100.0	%
Interest income, net	967		812		155		19.1	%
Interest income (expense), net	1,620		(2,802)		4,422		157.8	%
Other income, net	253		212		41		19.3	%
Other income (expense), net	181		(109)		290		266.1	%
Total other income, net	1,219		689		530		76.9	%
Total other income (expense), net	2,019		2,984		(965)		(32.3)	%
Loss before income taxes	(30,572)		(63,789)		33,217		52.1	%
Loss before income taxes	(91,067)		(133,213)		42,146		31.6	%
Provision for income taxes	2		11		(9)		(81.8)	%
Provision for income taxes	11		44		(33)		(75.0)	%
Net loss	$	(30,574)	$	(63,800)	$	33,226	52.1	%
Net loss	$	(91,078)	$	(133,257)	$	42,179	31.7	%
Other comprehensive income (loss)
Other comprehensive loss
Unrealized (loss) gain on available-for-sale securities	(44)		1,148		(1,192)		(103.8)	%
Unrealized gain (loss) on available-for-sale securities	1,386		(1,642)		3,028		184.4	%
Foreign currency translation adjustment	2		—		2		N.M.
Foreign currency translation adjustment	—		13		(13)		100.0	%
Comprehensive loss	$	(30,616)	$	(62,652)	$	32,036	51.1	%
Comprehensive loss	$	(89,692)	$	(134,886)	$	45,194	33.5	%
Net loss per common share:
Basic and diluted net loss per common share	$	(0.5920)	$	(0.9344)	$	0.3424	3654.65	%
Weighted average shares outstanding:
Basic and diluted	~~154~~156,~~173~~386,~~496~~470		~~143~~144,~~280~~609,~~949~~513

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

N.M.: Not meaningful

4745

Revenue

Revenue ~~decreased~~increased by $13.26 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The ~~decrease~~increase was driven by a $51.27 million ~~decrease~~increase in ~~hardware~~software revenue, ~~partially offset by~~ a $31.74 million increase in ~~software~~professional services revenue and a $0.36 million increase in ~~installation~~hardware ~~services~~ revenue. The ~~decrease~~$1.7 million increase in software revenue reflects the continued growth in subscriptions as a result of increases in delivered hardware units. The $1.4 million increase in professional services revenue was ~~primarily~~attributable ~~driven~~to byincreases ~~lower~~in ~~units~~direct ~~delivered,~~deployments ~~including~~and ~~higher~~property ~~units~~management. ~~returned~~Hardware revenue increased by $0.6 million, which ~~negatively~~was ~~impacted~~driven ~~net~~by ~~delivered~~an ~~units,~~increase ~~partially~~in ~~offset~~hardware byshipments ~~higher~~in ~~average~~2024 ~~selling~~compared ~~prices.~~to ~~Increased~~2023, ~~software~~partially ~~revenue~~offset ~~reflects~~by the ~~continued~~impact ~~growth~~of inthe ~~subscriptions~~Restatement, aswhich shifted a ~~result~~higher level of ~~the~~revenue ~~continued~~from ~~increases~~previous inperiods ~~delivered~~into ~~hardware~~2023 ~~units~~compared to 2024.

Cost of Revenue

Cost of revenue decreased by $107.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The decrease was primarily ~~due~~a toresult aof an $108.26 million decrease in hardware ~~sales~~costs, ~~related~~partially ~~costs~~offset ~~and~~by a $01.53 million ~~decline~~increase in ~~installation~~professional services related costs. ~~The~~attributable ~~decrease~~to inan ~~hardware~~increase ~~sales~~in ~~related~~installations ~~costs~~and ~~was~~property ~~driven by (i) $8~~management.8 ~~million~~The ofdecrease ~~fewer~~in ~~units~~hardware ~~delivered,~~costs ~~net~~was ofprimarily ~~units~~driven ~~returned,~~by ~~(ii) a~~ $7.7 million decrease inof ~~inventory~~expense ~~purchase~~for ~~commitments~~excess ~~liability~~ and ~~(iii)~~obsolete areserves ~~$2.0~~and ~~million~~a decrease due to ~~a reduction in~~ the ~~size~~impact of the ~~supply-chain team~~Restatement, ~~and~~which ~~(iv)~~shifted a ~~smaller~~higher ~~adjustment~~level inof ~~the~~ cost offrom ~~inventory~~previous toperiods ~~its~~into ~~net~~2023 ~~realizable~~compared ~~value~~to of2024, ~~$0.7~~despite ~~million.~~hardware ~~The~~shipments ~~decrease~~increasing in ~~hardware~~2024 ~~sales~~compared ~~related~~to ~~costs was partially offset by a $9~~2023.~~3 million increase of expense for excess and obsolete reserves.~~

Research and Development Expenses

Research and development expenses decreased by $1810.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The decrease was primarily due to: (i) $168.76 million decrease in personnel-related expenses comprised of $124.39 million of decreased compensation expense and $43.47 million of decreased stock-based compensation expense; ~~due~~(ii) to$1.0 ~~lower~~million ~~headcount~~decrease in software license expenses; and (iiiii) $10.25 million decrease in ~~other~~product ~~research and~~ development ~~expenses~~costs.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $284.52 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The decrease was primarily due to: (i) $182.04 million decrease in personnel-related expenses, comprised of $141.64 million of decreased stock-based compensation expense and $31.41 million of decreased ~~stock-based~~ compensation expense ~~due to lower headcount~~; (ii) $30.78 million ofdecrease ~~decreased~~in ~~restructuring~~professional ~~costs~~fees ~~due~~related to ~~the~~outsourced ~~2022~~brand ~~RIFs;~~and ~~(iii)~~website ~~$3.4~~refresh ~~million decrease in marketing expense~~initiatives; (iviii) $10.15 million decrease in software license expense; ~~due to decreased headcount~~ and (viv) $1.0.2 million decrease in ~~travel~~restructuring ~~expenses~~costs.

General and Administrative Expenses

General and administrative expenses ~~increased~~decreased by $117.61 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The ~~increase~~decrease was ~~primarily~~ due to ~~a $20.5 million increase in professional fees, including~~ (i) $76.93 million ~~related~~decrease toin ~~the~~ Investigation and Restatement; costs, (ii) $50.68 million decrease in litigation expenses;, (iii) $40.86 million ~~related~~decrease ~~to outsourced management; and (iv) an increase of $1.9 million~~ in ~~audit~~other ~~fees. This increase in~~ professional fees ~~was~~related ~~partially~~to ~~offset~~accounting byservices, (iiv) $30.56 million decrease in ~~personnel-related~~bad ~~expenses~~debt ~~comprised of (a) $3.1 million of decreased compensation~~ expense and (bv) $0.4 million ofdecrease ~~decreased~~in ~~stock~~personnel-~~based~~related ~~compensation expense~~expenses, ~~which was~~ comprised of a $51.75 million ~~decrease~~of ~~related~~decreased tocompensation ~~the~~expense ~~2022~~partially ~~RIFs and the July 2023 RIF,~~ offset by a $51.41 million ~~increase~~ of increased stock-based compensation expense ~~in connection with the HDW Acquisition; (ii) $1~~.7 ~~million~~These ~~decrease~~decreases inwere ~~bad~~partially ~~debt~~offset ~~expense~~by ~~primarily~~a ~~related to software; (iii)~~ $1.~~8 million decrease in insurance expenses; (iv) $1.1 million decrease in IT and software license expenses; (v) $0.~~4 million ~~decrease~~increase in ~~recruiting~~audit ~~expense as a result of certain key hires in 2022 and (vi) $0~~fees.~~2 million decrease in impairment of long-lived assets.~~

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by $10.52 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The increase was primarily due to the increased amortization of capitalized internally-developed software.

Total Other Income ~~(Expense)~~, Net

Total other income, ~~decreased~~net increased by $1.0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The ~~decrease~~increase was primarily due to (i) a $90.13 million ~~unfavorable~~favorable change in the fair value of the private placement warrants liability ~~during~~and ~~these~~(ii) ~~periods due to~~ a ~~smaller~~$0.2 ~~decrease~~million increase in ~~the~~interest ~~price of our common stock during the nine months ended September 30~~income, ~~2023 compared to the nine months ended September 30, 2022~~net. ~~This decrease was~~

partially offset by (i) a $4.4 million increase in interest income related to higher interest rates; (ii) a $3.5 million favorable variance in the change in fair value of trading securities driven by the Company ceasing to own any trading securities as of December 31, 2022 and (iii) a $0.3 million favorable change other miscellaneous income and expense.

Liquidity and Capital Resources

We have incurred losses since our inception. AsPrior ofto ~~September 30,~~the ~~2023~~Closing ~~and~~of ~~December~~the ~~31,~~Business ~~2024~~Combination, ~~the~~our ~~Company’s~~operations ~~unrestricted~~were ~~cash~~financed ~~and~~primarily ~~cash~~through ~~equivalents~~net ~~and~~proceeds ~~current~~from ~~and~~the ~~non-current~~issuance ~~available-for-sale~~of ~~securities~~redeemable ~~were~~convertible ~~approximately~~preferred ~~$170.5 million~~stock and ~~$75.5 million,~~convertible ~~respectively. The Company’s available-for-sale securities investment portfolio is primarily invested in highly rated securities~~notes, ~~with~~as ~~the~~well ~~primary~~as ~~objective~~borrowings ofunder ~~minimizing~~our ~~the~~term ~~potential~~loan. ~~risk~~We ofreceived ~~principal~~approximately ~~loss~~$450.0 million ~~The~~in ~~Company’s~~cash ~~investment~~proceeds, ~~policy~~net ~~generally~~of ~~requires~~fees ~~securities to be investment grade~~ and ~~limits~~expenses ~~the amount of credit exposure to any one issuer.~~

Historically, our short-term liquidity needs have primarily included working capital for salaries, including sales and marketing and research and development, as well as component inventory purchases from our contract manufacturers. 46

Tofunded ~~better~~in ~~align~~connection ~~staffing and expense levels~~ with ~~sales volumes and~~ the ~~macroeconomic environment and create operating efficiencies~~Closing, wewhich ~~incurred~~included approximately $8192.6 million ~~in restructuring costs during the year ended December 31, 2022 resulting~~ from the ~~2022~~sale ~~RIFs (excluding the impact~~ of ~~stock-based~~approximately ~~compensation)~~19.3 million Innewly-issued ~~2023,~~shares weof ~~conducted~~common ~~the~~stock ~~July 2023 RIF~~ in ~~order~~connection towith ~~further~~the ~~streamline~~Business ~~our~~Combination. ~~business~~To ~~operations~~date, ~~reduce costs and complexities in~~ the ~~business~~Company’s ~~and~~principal ~~create~~sources ~~additional~~of ~~operating~~liquidity ~~efficiencies.~~have Inbeen ~~connection with~~ the ~~July~~net ~~2023~~proceeds ~~RIF,~~received weas ~~incurred~~a ~~$5.7 million~~result inof ~~restructuring costs (excluding~~ the ~~impact~~Business ofCombination ~~stock-based~~and ~~compensation)~~payments asreceived offrom ~~September 30,~~our ~~2023~~customers.

~~Beginning~~As ~~in the second quarter~~ of ~~2022~~September ~~and~~30, ~~continuing through~~ 2025, ~~we have incurred,~~ and ~~may continue to incur~~June 30, ~~significant professional fees~~2024, ~~primarily~~the ~~consisting~~Company’s ofunrestricted ~~legal,~~cash ~~forensic~~and ~~accounting,~~cash ~~management~~equivalents ~~consulting~~ and ~~related~~current ~~advisory~~and ~~services~~non-current asavailable-for-sale asecurities ~~result~~were ofapproximately ~~the~~$44.1 ~~Investigation~~million and ~~the~~$110.0 ~~SEC Investigation~~million, asrespectively. ~~well~~The asCompany’s ~~accounting~~available-for-sale ~~related~~securities ~~consulting~~investment ~~services,~~portfolio ~~independent~~is ~~registered~~primarily ~~accounting~~invested ~~firm~~in ~~fees~~highly ~~and~~rated ~~advisory services related to the Restatement and Financial Statement Review. Additionally~~securities, ~~we have incurred significant costs in connection~~ with ~~various~~the ~~pending~~primary ~~litigation.~~objective ~~See~~of ~~Note~~minimizing ~~10.~~the ~~Commitments~~potential ~~and~~risk ~~Contingencies,~~of inprincipal ~~Part I, Item 1~~loss. ~~“Financial~~The ~~Statements.”~~Company’s ~~Such~~investment ~~litigation~~policy ~~involves~~generally ~~significant~~requires ~~defense~~securities ~~and other costs and, if decided adversely~~ to usbe orinvestment ~~settled,~~grade ~~has resulted or could result in significant monetary damages or expenditures. Although we maintain insurance coverage in amounts~~ and ~~with~~limits ~~deductibles~~the ~~that~~amount weof ~~believe~~credit ~~are~~exposure ~~appropriate~~to ~~for~~any ~~our~~one ~~operations, our insurance coverage does not cover all claims that have been or may be brought against us~~issuer.

InAs ~~connection with the HDW Acquisition, in July 2023 the Company issued to HDW’s stockholders as merger consideration $22.0 million aggregate principal amount~~ of ~~unsecured~~September ~~promissory notes (the “Promissory Notes”). The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3~~30, 2025, ~~unless~~and ~~earlier accelerated in connection with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. On April 26~~June 30, 2024, the Company ~~repaid~~also ~~the~~had ~~Promissory~~approximately ~~Notes in full without penalty~~$29.2 ~~The~~million ~~Company~~and ~~paid an aggregate of~~ $23.9 million in ~~principal~~net ~~and~~inventory, ~~accrued interest to the holders of the Promissory Notes~~respectively.

WePrior ~~contract~~to ~~with~~December ~~third-parties~~31, to2023, ~~manufacture~~the ~~our~~Company ~~products~~(i) received $19.3 ~~During~~million ~~the~~of ~~normal~~proceeds ~~course~~from the sale of ~~business,~~a wematuring available-for-sale security and ~~our~~(ii) ~~contract~~reinvested ~~manufacturers~~the ~~procure~~proceeds ~~components~~by ~~based~~purchasing ~~upon~~an aequal ~~demand~~amount ~~plan~~of new securities prior to such date. ~~During~~The ~~the~~Company ~~year~~uses ~~ended~~trade-date ~~December 31,~~accounting ~~2022~~and, weas ~~materially~~such, ~~reduced~~the ~~our~~new ~~original~~securities ~~demand~~position ~~plan~~of ~~and~~$19.3 ~~started~~million ~~engaging~~is included in ~~discussions~~the ~~with~~balance ~~our~~of ~~contract~~available-for-sale ~~manufacturers~~securities ~~regarding~~on ~~our~~the ~~obligation~~accompanying toCondensed ~~purchase~~Consolidated ~~the~~Balance ~~inventory~~Sheet ~~based~~as onof ~~our~~December ~~original~~31, ~~demand~~2023, ~~plan.~~and Ina ~~2022,~~liability weof ~~purchased~~$19.3 ~~and~~million ~~received~~presented ~~excess~~as ~~inventory~~investment ~~for~~purchases ~~certain~~payable ~~products~~is ~~based~~included in accrued expenses on ~~our~~the ~~original~~accompanying ~~demand~~Condensed ~~plan.~~Consolidated ~~Additionally,~~Balance Sheet as aof ~~result~~December of31, ~~these~~2023. ~~discussions~~The funds were deducted from the Company’s account in early January 2024. Accordingly, wethe ~~agreed~~sum toof ~~prepay~~the ~~certain~~Company’s ~~contract~~cash ~~manufacturers~~and ~~approximately~~cash equivalents as of December 31, 2023 was $1219.3 million ~~for~~higher ~~material~~than ~~and~~it ~~component~~would ~~obligations~~have been had the funds been deducted from the Company’s account prior to year end. AsSee Note 2. Summary of ~~September 30,~~Significant ~~2023~~Accounting Policies - Cash and Cash Equivalents, weand ~~had~~Note ~~unfunded~~10. ~~non-cancellable~~Accrued ~~purchase~~Expenses, ~~commitments~~in ofPart ~~approximately~~I, $Item 1.~~3 million~~ “Financial Statements.”

Our short-term liquidity needs have primarily included working capital for salaries, including sales and marketing and research and development, as well as component inventory purchases from our contract manufacturers.

Beginning in the second quarter of 2022 and continuing through the date of this Form 10-Q, we have incurred, and may continue to incur, significant professional fees, primarily consisting of legal, forensic accounting, management consulting and related advisory services as a result of the Investigation and the SEC Investigation, as well as accounting related consulting services, independent registered accounting firm fees and advisory services related to the Restatement and Financial Statement Review. Additionally, we have incurred significant costs in connection with various pending litigation. See Note 12. Commitments and Contingencies, in Part I, Item 1. “Financial Statements.” Such litigation involves significant defense and other costs and, if decided adversely to us or settled, has resulted or could result in significant monetary damages or expenditures. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance coverage does not cover all claims that have been or may be brought against us.

Our future capital requirements will depend on many factors, including our business plans, our levels of revenue, the expansion of sales and marketing activities, market acceptance of our products, the results of business initiatives, the timing of new product introductions and overall economic conditions.

Based on our current business plan, we expect to be able to use our current cash and cash equivalents and available-for-sale securities to fund our operational cash requirements for at least 12 months from the date of this Form 10-Q. For more information about our liquidity position as of the date of this Form 10-Q, see Part II, Item 7. “Management’s Discussion and Analysis - Liquidity and Capital Resources” in the ~~2023~~2024 Annual Report, which we expect to file concurrently with, or promptly after, the filing of this Form 10-Q.

Other significant factors that affect our overall management of liquidity include certain actions controlled by management such as capital expenditures and acquisitions. See Note 1012. Commitments and Contingencies, in Part I, Item 1. “Financial Statements.”

4947

Commitments and Contractual Obligations

We are obligated to make payments as part of certain contracts that we have entered into during the normal course of business. Following the Property Management Acquisitions, in February 2024 we entered into a three-year advisory agreement with a partner pursuant to which the partner provides DPM with certain management and advisory services related to DPM’s property management business. Pursuant to such agreement, we are required to pay the partner $0.5 million annually.

Indebtedness

~~Revolving~~As ~~Credit~~discussed ~~Facility~~above, in July 2023 in connection with the HDW Acquisition, the Company issued to HDW’s stockholders as merger consideration $22.0 million aggregate principal amount of Promissory Notes. The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. As of December 31, 2023, the Company concluded that it was virtually certain the Promissory Notes would become payable within the upcoming 12 months due to the Company’s then-anticipated delisting from Nasdaq, which was an event of default with respect to the Promissory Notes. Consequently, the Company reclassified the debt obligation as current as of December 31, 2023, despite the event of default not yet occurring. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty. The Company paid an aggregate of $23.9 million in principal and accrued interest to the holders of the Promissory Notes.

On July 1, 2021, we executed a new revolving credit facility replacing a matured facility with a freight forwarding and customs brokerage company. The revolving credit facility, which was subsequently amended in May 2022, had a credit limit of $6.0 million with no stated maturity date. Installment plan agreements were executed for each financing request, which included the interest rate. The revolving credit facility had no financial or other covenants. As of December 31, 2022, no amount was outstanding under the revolving credit facility, which we cancelled in January 2023.

Promissory Notes

As discussed above, in July 2023 in connection with the HDW Acquisition, the Company issued to HDW’s stockholders as merger consideration $22.0 million aggregate principal amount of Promissory Notes. The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. As of September 30, 2023, the Company concluded that it was virtually certain the Promissory Notes would become payable within the upcoming 12 months due to the Company’s then-anticipated delisting from Nasdaq, which was an event of default with respect to the Promissory Notes. Consequently, the Company reclassified the debt obligation as current as of September 30, 2023, despite the event of default not yet occurring. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty. The Company paid an aggregate of $23.9 million in principal and accrued interest to the holders of the Promissory Notes.

Term Loan with Customers Bank

Following the closing of the HelloTech Merger, on July 15, 2024, Latch Systems, Inc. and HelloTech, as the borrowers (the “Borrowers”), entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Customers Bank.

Pursuant to the Loan Agreement, Customers Bank issued the Borrowers a term loan in the principal amount of $6.0 million (the “New Loan”). The Loan Agreement did not result in the Borrowers receiving any additional loan proceeds. Interest is payable on the New Loan at a rate equal to the greater of (a) the prime rate published in The Wall Street Journal or (b) 6.0%, and the New Loan matures July 15, 2029 (the “Maturity Date”).

The Borrowers were required to pay interest on the New Loan monthly until January 15, 2025. Thereafter, the Borrowers are required to pay equal monthly installments of principal plus accrued interest until the Maturity Date. There is no penalty for prepayment of the New Loan.

The Loan Agreement contains various covenants that, among other things, limit the Borrowers’ ability to:

• engage in certain asset dispositions;

• permit a change in control;

• merge or consolidate;

• incur indebtedness or grant liens on its assets;

• declare or pay dividends, distributions or redemptions;

• make loans or investments; and

• engage in certain transactions with affiliates.

If an event of default exists under the Loan Agreement, Customers Bank will be able to accelerate the maturity of the New Loan and exercise other rights and remedies. Events of default include, but are not limited to, the following events:

• failure to pay any principal or interest within three business days of the due date;

• failure to perform or otherwise comply with the covenants and obligations in the Loan Agreement, subject, in certain instances, to certain grace periods;

• bankruptcy or insolvency events involving the Borrowers; or

• the rendering of judgments against a Borrower that remain undischarged, unvacated, unbonded, unsatisfied or unstayed for a certain period.

Cash Flows

The following table sets forth a summary of our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 and ~~2022~~2023 (in thousands):

	Nine months ended September 30,
	Six months ended June 30,
	2023		2022
	2024		2023
Net cash used in operating activities	$	(7344,~~934~~483)	$	(~~113~~45,~~558~~285)
Net cash provided by investing activities	2059,~~419~~238		~~107~~55,~~189~~328
Net cash used in financing activities	—(22,000)		~~(6,039)~~—
Effect of exchange rates on cash	~~(15)~~29		(5421)
Net change in cash and cash equivalents	$	(537,~~530~~216)	$	~~(12~~10,~~462)~~022

Operating Activities. Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 decreased by $390.68 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023. ~~primarily~~The asdecrease aresulted ~~result~~from of(i) a decrease in net loss of $4228.25 million, aafter ~~decrease~~adjusting infor ~~inventories,~~non-cash ~~net of $31.6 million~~items, (ii) a ~~reduction~~decrease in ~~the~~prepaid ~~change~~expense inand ~~the~~other ~~fair~~current ~~value~~assets of ~~warrant liability and trading securities of~~ $514.79 million, a(iii) ~~net~~an increase in ~~accrued expenses and~~ accounts payable of $62.08 million, and an(iv) ~~increase~~a decrease in ~~depreciation~~other ~~and~~non-current ~~amortization~~assets of $1.51 million. These sources of cash were partially offset by an(i) ~~increase~~a decrease in ~~prepaid~~accrued ~~expense~~expenses ~~and other current assets~~ of $1828.27 million, aprimarily ~~decrease~~due into ~~deferred~~the ~~revenue of~~ $1119.83 million, aaccrual ~~decrease~~of an investment security in ~~stock-based~~2023, ~~compensation~~which ~~expense~~was ofsubsequently ~~$8.6~~settled ~~million~~in 2024, a(ii) ~~decrease~~an increase in ~~non-cash~~net ~~interest~~inventories ~~expense~~ of $37.5 million, (iii) an increase in accounts receivable of $25.49 million, (iv) a decrease in ~~the~~deferred ~~provision~~revenue ~~for doubtful accounts~~ of $13.87 million and (v) a decrease in other current and non-current liabilities of $10.57 million.

Investing Activities. Net cash ~~used~~provided inby investing activities ~~was~~increased by $203.49 million for the ~~nine~~six months ended ~~September~~June 30, ~~2023~~2024 compared to ~~net cash provided by investing activities of $107.2 million for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023. The ~~net~~increase ~~change of $86.8 million~~ was primarily due to ana ~~increase~~decrease in purchases of available-for-sale securities of $5931.92 million, offset by (i) a decrease in proceeds from sales and maturities of available-for-sale and trading securities of $4024.04 million, (ii) an increase of $8.1 ~~million cash received, net of cash paid, related to the HDW Acquisition, a decrease of $2~~.87 million in ~~capitalized~~capitalization of internally-developed software and a(iii) ~~decrease of~~ $21.02 million inrelated ~~purchases~~to ofbusiness ~~property and equipment~~acquisitions.

Financing Activities. ~~The~~For ~~Company~~the ~~did~~six ~~not~~months ~~conduct~~ended ~~any~~June 30, ~~financing~~2024, ~~activities~~net incash ~~the~~used ~~nine~~in ~~months~~financing ~~ended~~activities ~~September 30,~~decreased ~~2023~~by $22.0 Inmillion compared to the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023 ~~net~~related ~~cash~~to ~~used~~the ~~in financing activities primarily consisted of (i) a~~ $322.40 million ~~net~~ repayment of ~~our~~the ~~revolving~~Promissory ~~facility~~Notes. ~~and~~The ~~(ii)~~Company adid ~~$3.4~~not ~~million~~conduct ~~payment~~any ~~for~~financing ~~tax~~activities ~~withholding~~during onthe ~~net~~six ~~settlements~~months ofended ~~RSUs~~June 30, 2023.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of ~~September~~June 30, ~~2023~~2024 and December 31, ~~2022~~2023 that had, or were reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.

5148

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates as disclosed in the ~~2022~~2023 Annual Report.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Background

In 2022, the Audit Committee, with the assistance of independent legal and accounting advisors, conducted an internal investigation of matters relating to the Company’s key performance indicators and revenue recognition practices for certain transactions, including the accounting treatment, financial reporting and internal controls related to such transactions.

As a result of the accounting, financial reporting and internal control deficiencies identified by the Investigation and their material impact on the Company’s current and historical financial statements and related disclosures, the Audit Committee determined that the Company’s financial statements for 2019, 2020, 2021 and the first quarter of 2022 would be restated. Following the Investigation, the Company completed a comprehensive review of its previously issued financial statements. As a result, in the 2022 Annual Report, the Company restated those financial statements to correct the errors identified. As further detailed below, the Company identified ~~errors~~the Legacy Material Weaknesses (as defined and further described below) related to, among other items: (i) revenue recognition on hardware and software sales, (ii) revenue recognition and billing on software licenses, (iii) recognition of various expenses, (iv) internally developed software, (v) stock-based compensation and (vi) errors in certain key performance indicators, including “bookings” and related metrics.

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

Evaluation of Disclosure Controls and Procedures

Our current management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, in connection with the preparation of this Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of ~~September~~June 30, ~~2023~~2024 because of material weaknesses in our internal control over financial reporting, as described below.

Notwithstanding that conclusion, based on review, analysis and inquiries conducted subsequent to ~~September~~June 30, ~~2023~~2024, management believes that the condensed consolidated financial statements and related financial information included in this Form 10-Q fairly present in all material respects the Company’s financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.

Previously Disclosed Material Weakness

In our Annual Report on Form 10-K for the year ended December 31, 2021, we initially identified a material weakness related to the selection and development of control activities, including over information technology related to certain account balances (the “2021 Material Weakness”). During 2022, the Company completed multiple reductions in force that impacted approximately 51% of the Company’s full-time employees in addition to the transition of the Company’s Chief Financial Officer in March 2022. We believe these personnel changes hindered our ability to fully remediate the 2021 Material Weakness, which continued to exist as of June 30, 2024, and contributed to additional material weaknesses identified as of December 31, 2022 in the 2022 Annual Report.

In our Annual Report on Form 10-K for the year ended December 31, 2021, we identified a material weakness related to the selection and development of control activities, including over information technology related to certain account balances (the “2021 Material Weakness”). Beginning in 2021, with the oversight of the Audit Committee, the Company began implementing a remediation plan to address the 2021 Material Weakness.49

~~During~~In ~~2022,~~light ~~the~~of ~~Company~~these ~~completed~~material ~~multiple reductions in force that impacted approximately 245 employees~~weaknesses, ~~or approximately 51%, of~~ the Company’s ~~full-time~~has ~~employees.~~taken ~~The~~steps ~~Company~~to ~~also~~redesign ~~experienced~~and ~~management~~reestablish ~~changes, including~~ the ~~March~~overall ~~2022~~control ~~transition of the Company’s Chief Financial Officer~~environment. WeThis ~~believe~~process ~~these~~requires ~~personnel~~adequate ~~changes~~time ~~hindered our ability~~ to ~~fully~~plan ~~remediate~~and ~~the~~implement ~~2021~~revised ~~Material~~or ~~Weakness~~new ~~and~~controls. ~~contributed~~Additionally, to ~~additional~~validate ~~material~~operating ~~weaknesses~~effectiveness, ~~identified~~we asmust ofdemonstrate ~~December~~consistent ~~31,~~control ~~2022.~~execution ~~The~~and ~~2021~~satisfy ~~Material~~audit ~~Weakness~~testing ~~continued~~requirements toover ~~exist~~multiple ~~as of September 30, 2023~~periods.

In 2022, ~~Material~~the ~~Weaknesses~~Company identified a material weakness related to the tone from executive management, which was determined to be insufficient to create the proper environment for effective internal control over financial reporting (“Tone at the Top”). Since identifying the material weakness, the Company has undertaken considerable remediation efforts, including:

In •the ~~2022~~January ~~Annual~~2023 ~~Report,~~appointment weof ~~identified additional material weaknesses~~Messrs. ~~The~~Keyes ~~Company~~and ~~did~~Landy ~~not~~as ~~maintain~~interim ~~controls~~Chief toExecutive ~~execute~~Officer ~~the~~and ~~criteria~~interim ~~established~~Chief inFinancial ~~the~~Officer, ~~Internal~~respectively, ~~Control-Integrated~~to ~~Framework~~improve ~~(2013)~~tone ~~issued~~from byexecutive ~~the~~management, ~~Committee~~reinforce ofour ~~Sponsoring~~commitment ~~Organizations~~to ofintegrity ~~the~~and ~~Treadway~~promote ~~Commission~~accurate ~~(the~~record ~~“COSO Framework”) for (i) the control environment~~keeping, ~~(ii)~~ethical ~~risk~~values ~~assessment, (iii) control activities, (iv) information~~ and ~~communication~~proper ~~and~~business ~~(v) monitoring activities.~~ practices;

~~Each~~•undertaking ofvarious ~~the~~personnel ~~control~~changes, ~~deficiencies~~including ~~identified~~voluntary ~~below~~and ~~constitute~~involuntary ~~material~~terminations ~~weaknesses,~~within ~~either individually or in~~ the ~~aggregate~~Company’s ~~that~~sales ~~were identified as of December 31, 2022~~ and ~~continued~~finance ~~to exist as of September 30, 2023.~~departments;

53•in June and July 2023, establishing a new leadership team, including the hiring of our present Chief Executive Officer and Chief Financial Officer, and restructuring our sales department. All remaining salespersons were terminated as part of this new strategy;

~~Control~~•regularly ~~Environment.~~communicating ~~The~~information ~~Company~~effectively ~~did~~across ~~not maintain an effective control environment and identified~~ the ~~following~~organization ~~material~~in ~~weaknesses:~~a ~~(i)~~manner ~~the~~that ~~tone~~establishes ~~from~~a ~~executive~~strong ~~management~~overall ~~was insufficient to create the proper environment for effective internal~~ control ~~over financial reporting~~environment; and (ii) the Company lacked appropriate policies and resources to develop and operate effective internal control over financial reporting, which contributed to the Company’s inability to properly analyze, record and disclose accounting matters timely and accurately.

~~These~~•in ~~control~~February ~~environment~~2025, ~~material~~following ~~weaknesses~~completion ~~also~~of ~~contributed~~the Restatement, appointment of our present Chief Executive Officer, Chief Financial Officer and Chief Strategy and Legal Officer, who have continued to reinforce the ~~other~~improved ~~material~~tone ~~weaknesses~~set ~~identified~~by ~~below~~the outgoing interim executive officers.

While management believes these remediation efforts have meaningfully enhanced the Company’s control environment and strengthened the Tone at the Top, the Company cannot conclude this material weakness has been remediated until evidence of the long-term effectiveness of the control environment is available. As a result, management concluded that the Tone at the Top material weakness was not fully remediated as of June 30, 2024.

The additional, previously disclosed material weaknesses that remained as of June 30, 2024 (collectively with Tone at the Top, the “Legacy Material Weaknesses”) are as follows:

Control Environment. The Company lacked appropriate policies and resources to develop and operate effective internal control over financial reporting, which contributed to other Legacy Material Weaknesses and the Company’s inability to properly analyze, record and disclose accounting matters timely and accurately.

Risk Assessment. The Company did not design and implement an effective risk assessment and identified a material weakness relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, and (iii) identifying and assessing changes in the business that could impact the system of internal controls.

Control Activities. The Company did not design and implement effective control activities and identified the following material weaknesses, which are in addition to the 2021 Material Weakness:

•Ineffective design and operation of certain control activities to respond to potential risks of material misstatement of revenue. In particular, the Company failed to: (i) ensure that relevant terms sales representatives had negotiated with customers were identified and communicated to the accounting department, resulting in a failure to properly account for such terms, (ii) fully consider the impact of certain terms of sales agreements on the amount and timing of revenue to be recognized and (iii) identify and account for extended payment terms. As a result of these control design deficiencies, the policies and controls related to revenue recognition were not effective in ensuring that (a) revenue was recorded at the correct amount and in the correct period and (b) the accounting department was informed of all elements and deliverables of certain arrangements. These design deficiencies led to inaccuracies in amounts and timing of revenue recognition and allowances for uncollectible accounts that contributed to material accounting errors in 2022 and prior years.

•Ineffective design and operation of certain control activities due to the significant 2022 personnel changes discussed above. Control deficiencies, which aggregate to a material weakness, occurred within the following areas: order to cash, inventory, financial close, sales commissions, procure-to-pay, capitalized software and information and technology general controls.

Information and Communication. The Company did not design and implement effective information and communication activities and identified the following material weakness: the Company did not have adequate processes and controls for communicating information among the accounting, finance and sales departments, including the customer success team, necessary to support the proper functioning of internal controls impacting revenue-related accounts.

Monitoring Activities. The Company did not design and implement effective monitoring activities and identified the following material weaknesses: (i) failure to adequately monitor compliance with accounting policies, procedures and controls related to revenue recognition, including accounts receivable and reserves; and (ii) failure to properly select, develop and perform ongoing evaluations of various components of internal controls.

Management’s Report on Internal Control over Financial Reporting

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, based upon the criteria established in the COSO Framework. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the overriding of controls or fraud. Because of these inherent limitations, internal control over financial reporting may not prevent or detect all misstatements and can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

Management conducted an evaluation of the effectiveness of internal control over financial reporting and based upon the criteria set forth in the COSO Framework. Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2023 due to the material weaknesses described above.

Remediation Plan and Status

The Company is committed to remediating the ~~material~~Legacy ~~weaknesses~~Material ~~identified above~~Weaknesses, fostering continuous improvement in internal controls and enhancing its overall internal control environment. Since identifying the ~~above~~Legacy ~~material~~Material ~~weaknesses~~Weaknesses, the Company has corrected the errors in the financial statements for 2022 and prior and has begun implementing the remediation activities described above and below. The Company believes that these activities, when fully implemented, should remediate the ~~identified~~Legacy ~~material~~Material ~~weaknesses~~Weaknesses and strengthen its internal control over financial reporting. These remediation efforts remain ongoing, and additional remediation initiatives may be necessary.

A material weakness cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time such that management can conclude, through testing, that the controls are operating effectively.

Accordingly, as management continues to monitor the effectiveness of our internal control over financial reporting, the Company will continue to perform additional procedures prescribed by management, including the use of certain manual mitigating control procedures and the employment of additional tools and resources deemed necessary, to ensure that our future consolidated financial statements are fairly stated in all material respects. ~~The~~In addition to the remediation activities identified with respect to the Tone at the Top material weakness, the following remediation activities highlight the Company’s commitment to remediating the ~~identified~~Legacy ~~material~~Material ~~weaknesses~~Weaknesses:

•In January 2023, appointed an interim Chief Executive Officer and an interim Chief Financial Officer to improve tone from executive management, reinforce our commitment to integrity and promote accurate record keeping, ethical values and proper business practices. We also undertook various personnel changes, including voluntary and involuntary terminations within the Company’s sales and finance departments.

•In June and July 2023, established a new leadership team and transitioned to a St. Louis-based, in-person, sales department. All remaining remotely working salespersons were terminated as part of this new strategy. As of July 2023, substantially all of the sales and accounting department members were co-located in our St. Louis office.

•Hired finance and accounting professionals with the appropriate level of experience and training necessary to develop, maintain and improve our accounting policies, procedures and internal controls and continue to hire other qualified finance and accounting professionals.

•Provided, and continue to provide, training for employees regarding their responsibilities related to the performance or oversight of internal controls.

•Reinforced the importance of communication between the sales, accounting and finance departments regarding key terms of, and changes or modifications to, sales transactions, including by establishing controls requiring finance department approval of certain non-standard terms.

•Updated operative sales contracts to clarify that no transactional terms exist outside of the signed agreements and no oral agreements are valid and enforceable. Legal department approval is required prior to execution of such contracts.

•Developed an intranet for employees to reference, which includes an organizational chart and access to Company-wide policies and other resources, including the Code of ~~Business Conduct and~~ Ethics, the Whistleblower Policy and access information for our anonymous reporting hotline.

•~~Began~~Actively ~~implementation of a process to reevaluate~~reviewing, ~~revise~~reevaluating and ~~improve~~improving our Sarbanes-Oxley compliance program, including governance, risk assessment, testing methodologies and corrective action. ~~The Company plans to enhance our risk assessment procedures and conduct a comprehensive risk assessment with a particular focus on the issues identified in the Investigation.~~

•Reestablished an enterprise risk committee, meeting regularly.

•Enhanced procedures to perform an updated, comprehensive enterprise risk assessment, including a focus on the issues identified in the Investigation.

•Implemented an internal control compliance software to assist with the ongoing monitoring of control performance, streamline internal control management and allow for enhanced reporting of the status of our Sarbanes-Oxley compliance program.

•Developed, and continue to develop, internal control documentation over ~~certain~~ financial processes and related disclosures. The Company plans to continue to design and implement control activities to mitigate risks identified and test the operating effectiveness of such controls.

•Revised policies and procedures related to our revenue recognition process, including revisions to the assessment, approval matrix and exception handling processes. The Company intends to conduct a similar review annually, including review and assessment of revenue recognition-related controls and information technology system configurations.

5551

•In February 2025, following completion of the Restatement, appointed a new Chief Executive Officer, Chief Financial Officer and Chief Strategy and Legal Officer, and will continue to reinforce the improved tone set by the outgoing interim executive officers.

Changes in Internal Control Over Financial Reporting

Other than described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended ~~September~~June 30, ~~2023~~2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5652

Part II - Other Information

Item 1. Legal Proceedings

We are and may become, from time to time, involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at ~~September~~June 30, ~~2023~~2024, will not materially affect the Company’s condensed consolidated results of operations, financial position or cash flows, except as set forth in Note 1012. Commitments and Contingencies, in Part I, Item 1. “Financial Statements.” Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on our financial results.

Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. For a discussion of such risks and uncertainties, please see the section in the ~~2022~~2023 Annual Report filed with the SEC on ~~December 19~~March 26, ~~2024~~2025 titled “Risk Factors.” There have been no material changes to the risk factors disclosed therein. Additionally, see the section titled “Risk Factors” in the ~~2023~~2024 Annual Report, which we expect to file concurrently with, or promptly after, the filing of this Form 10-Q.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

No director or officer adopted or terminated a trading arrangement for the purchase of Company securities for the quarterly period ended ~~September~~June 30, ~~2023~~2024 that is either (1) a contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), or a “Rule 10b5-1 trading arrangement,” or (2) a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

5753

Item 6. Exhibits

Incorporated by Reference

Exhibit

Exhibit Description

Form

Exhibit

Filing Date

2.1*

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

S-4/A

2.1

5/12/2021

2.2

Agreement and Plan of Merger, dated as of May 15, 2023, by and among Latch, Inc., LS Key Merger Sub 1, Inc., LS Key Merger Sub 2, LLC and Honest Day’s Work, Inc.

8-K

2.1

5/16/2023

2.3

Amendment to Agreement and Plan of Merger, dated as of June 23, 2023, by and among Latch, Inc., LS Key Merger Sub 1, Inc., LS Key Merger Sub.

10-K

2.3

12/19/2024

2.4*

Agreement and Plan of Merger, by and among Latch, Inc., LS HT Merger Sub, Inc. and HelloTech, Inc., dated as of June 21, 2024.

8-K

2.1

6/24/2024

3.1

Second Amended and Restated Certificate of Incorporation.

8-K

3.1

6/10/2021

3.2

Amended and Restated Bylaws.

8-K

3.2

6/10/2021

4.1

~~Form~~Amendment ofto Promissory ~~Note~~Notes, dated April 14, 2024.

8-K

4.1

54/1615/~~2023~~2024

4.2

~~Amendment to Promissory Notes~~Warrant, dated ~~April~~as 14of July 15, 2024, by and between the Company and Customers Bank.

8-K

4.1

47/15/2024

4.3

Warrant, dated as of July 15, 2024, by and between the Company and Customers Bank.

8-K

4.1

7/15/2024

10.1*

Amended and Restated Loan and Security Agreement, by and among the Company, Latch Systems, Inc., HelloTech, Inc. and Customers Bank, dated as of July 15, 2024.

8-K

10.1

7/15/2024

10.1

Registration Rights Agreement, dated as of July 3, 2023, by and among Latch, Inc. and the other parties thereto.

8-K

10.1

7/03/2023

10.2†

Employment Agreement, dated as of August 16, 2024, by and between Latch, Inc. and Jason Mitura.

8-K

10.3

8/13/2024

10.2†

Employment Agreement, dated as of July 3, 2023, by and between Latch, Inc. and David Lillis.

8-K

10.1

7/10/2023

10.3†

Separation and Advisory Agreement and Release, dated as of November 18, 2024, by and between Latch Systems, Inc. and Jamie Siminoff.

8-K

10.1

11/19/2024

10.3†

Transition and Separation Agreement, dated as of July 10, 2023, by and between Michael Brian Jones and the Company.

8-K

10.2

7/10/2023

10.4†

Amended and Restated Common Stock Restriction Agreement, dated as of November 18, 2024, by and between Latch, Inc. and Jamie Siminoff.

8-K

10.2

11/19/2024

10.4*

Amended and Restated Loan and Security Agreement, by and among the Company, Latch Systems, Inc., HelloTech, Inc. and Customers Bank, dated as of July 15, 2024.

8-K

10.1

7/15/2024

10.5*†

Separation and Transition Agreement and Release, dated as of November 26, 2024, by and between Latch Systems, Inc. and Jason Mitura.

8-K

10.1

11/27/2024

10.5†

Employment Agreement, dated as of August 16, 2024, by and between Latch, Inc. and Jason Mitura.

8-K

10.3

8/13/2024

10.6†

Amended and Restated Employment Agreement, dated as of February 5, 2025, by and between the Company and David Lillis.

8-K

10.1

2/06/2025

10.6†

Separation and Advisory Agreement and Release, dated as of November 18, 2024, by and between Latch Systems, Inc. and Jamie Siminoff.

8-K

10.1

11/19/2024

10.7†

Amended and Restated Employment Agreement, dated as of February 5, 2025, by and between the Company and Jeff Mayfield.

8-K

10.2

2/06/2025

10.7†

Amended and Restated Common Stock Restriction Agreement, dated as of November 18, 2024, by and between Latch, Inc. and Jamie Siminoff.

8-K

10.2

11/19/2024

10.8†

Amended and Restated Employment Agreement, dated as of February 5, 2025, by and between the Company and Priyen Patel.

8-K

10.3

2/06/2025

10.8*†

Separation and Transition Agreement and Release, dated as of November 26, 2024, by and between Latch Systems, Inc. and Jason Mitura.

8-K

10.1

11/27/2024

10.9†

Amended and Restated Employment Agreement, dated as of February 5, 2025, by and between the Company and David Lillis.

8-K

10.1

2/06/2025

10.10†

Amended and Restated Employment Agreement, dated as of February 5, 2025, by and between the Company and Jeff Mayfield.

8-K

10.2

2/06/2025

10.11†

Amended and Restated Employment Agreement, dated as of February 5, 2025, by and between the Company and Priyen Patel.

8-K

10.3

2/06/2025

31.1

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

31.2

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

32.1

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

32.2

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

101

The following financial information from Latch, Inc.’s Quarterly Report on Form 10-Q for the three months ended June 30, 2024, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets - Unaudited, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss - Unaudited, (iii) the Condensed Consolidated Statements of Stockholders’ Equity - Unaudited, (iv) the Condensed Consolidated Statements of Cash Flows - Unaudited and (v) the Notes to Condensed Consolidated Financial Statements - Unaudited (submitted electronically herewith).

104

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

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

†

Indicates a management contract or compensatory plan or arrangement.

5854

101

The following financial information from Latch, Inc.’s Quarterly Report on Form 10-Q for the three months ended September 30, 2023, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets - Unaudited, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss - Unaudited, (iii) the Condensed Consolidated Statements of Stockholders’ Equity - Unaudited, (iv) the Condensed Consolidated Statements of Cash Flows - Unaudited and (v) the Notes to Condensed Consolidated Financial Statements - Unaudited (submitted electronically herewith).

104

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

†

Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

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

LATCH, INC.
By:			/s/ David Lillis
			David Lillis
			Chief Executive Officer
			March 26, 2025
			November 5, 2025
By:			/s/ Jeff Mayfield
			Jeff Mayfield
			Chief Financial Officer
			March 26, 2025
			November 5, 2025

6055

Filing Compare · Latch, Inc.