Latch, Inc. (LTCH) on Q2 2021 Results - Earnings Call Transcript
Operator: Hello. Thank you for standing by, and welcome to Latch Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and answer-session. Please be advised that today's conference may be recorded. I would now like to turn the conference over to your speaker today, Sean Henin , Investor Relations. Please go ahead.
Unidentified Company Representative: Thank you, operator. Good afternoon and thank you for joining us today to review Latch’s second quarter 2021 financial results. With me on the call today are Luke Schoenfelder, Chief Executive Officer, Co-Founder, and Chairman of the Board of Directors; and Garth Mitchell, Chief Financial Officer. After prepared remarks, we will open up the call for a question-and answer-session. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance but rather subject to a variety of risks and uncertainties. Our actual results could differ materially from these expectations reflected in any forward-looking statements. Forward-looking statements made today speak only to our expectations as of today and we undertake no obligation to publicly update or revise them. For a discussion of material risks and other important factors that could affect our actual results, please refer the risk factors section in our SEC filings, available on the SEC's Edgar system and our website, as well as other risks and other important factors discussed in today's results. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer the tables in our earnings release and the investor relations portion of our website for reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Chief Executive Officer, Luke Schoenfelder. Luke?
Luke Schoenfelder: Thanks so much, Sean. And I'd like to start by thanking all of you for joining us today on our second earnings call as a public company. Latch began trading as LTCH on NASDAQ on June 7th, and we're very grateful to our long standing and new stockholders, employees, customers and partners for making this possible. We're also very excited to share results for the second quarter. In Q2, our total bookings grew substantially by 102% year-over-year to $95.8 million, an acceleration from 89% growth in Q1. Our attach rates of non-access LatchOS software modules increased again from 81% just a quarter ago in Q1 to 90% in Q2, which gives us continued confidence that our robust 2021 product roadmap and release schedule will drive high adoption and sustained the lifetime value expansion. Despite unprecedented supply chain constraints and construction delays due to labor and material shortages, we continue delivering for our customers, growing our revenue in Q2 by 227% year-over-year, up to $9 million, a sharp acceleration from 143% year-over-year growth in Q1. Garth, our CFO will talk in a few moments to Q2 results in detail. As this is only our second earnings call, we'd also like to take a moment to remind everyone about who we are, what we do, our value proposition, market opportunity and business model. I am one of the Co-Founders of Latch, and beginning in 2014, we embarked on our journey to make buildings better spaces to live, work and visit, creating a product company focused on the biggest challenges that we saw on the market. From the beginning, we recognize the powerful opportunity to transform the world's oldest subscription product, renting and space and the world's largest asset class, real estate, our flagship product LatchOS provides real estate operators, residents, and service providers the capabilities they need to solve the problems they face every day in their spaces, and we provide tailored solutions through our LatchOS modules. Smart access, delivery and guest management, smart home, connectivity and personalization and services. Our average building customer installs Latch in partner devices across new and existing buildings in their portfolio, and then pays Latch between $7 and $12 per apartment per month for the software features that they need. And this range is expected to continue to increase as we solve more customer problems with future products. Typically, our customers prepay for the LatchOS software contract for a period greater than six years, which benefits them and their ability to capitalize the expense, while also benefiting us with powerful cash generation. And once installed Latch app users interact with our app an average of 4.6 times per day. This engagement is something we're super proud of, and we're excited to continue to expand the availability of LatchOS to more users and deepen engagement with each stakeholder that interacts with our products. As we look forward, we want to highlight some of the growth pillars that make us most excited. First, the market for an apartment building operating system is massive, with an estimated 47 million rental homes in the US alone, representing a $54 billion TAM, while Europe as another $90 billion TAM. Second, LatchOS is defining the full-building operating system category by continuing to develop innovative products that are constantly improving and evolving, our products both enhance revenue generation for our customers, as well as reduce their operating expenses, and our robust and modular system architecture also allows us to rapidly innovate on the platform, ensuring that the value that LatchOS delivers to its customers will grow and can adapt to customer needs more rapidly than other products in the market. And third, LatchOS is integrated with the best partners in the market, including Google Nest, Apple, ecobee, Yardi, Entrata, RealPage and more are focused on the highest levels of user experience, data security and user privacy provides us the opportunity to partner with the highest quality companies and products, all while pushing our total ecosystem forward. Fourth, this robust platform approach allows us to deliver new products and features to take advantage of the rapidly growing and evolving market, because of the strong foundation that LatchOS provides, we can expand deeper into existing customer portfolios with new and existing features, as well as expand into adjacent markets, such as commercial office market space, which we're entering starting with our pilot deployment sites that include the Empire State Building, Rockefeller Center and Brookfield Place. And fifth, since our inception in 2014, we've had incredibly strong customer attraction, demonstrated by our zero churn rate and high lifetime customer value, both of which were further exemplified in our second quarter financial results. Again, which Garth will discuss in more detail shortly. And now, I'd like to turn to a few exciting product and marketing updates specifically from Q2 that we believe demonstrate our commitment to serving our customers with an ever evolving set of products and experiences, all while enhancing our broader ecosystem, and driving long-term growth. In Q2, we expanded our property management software integrations, adding both Yardi and Entrata to LatchOS. This follows our previous integration of RealPage, resulting in LatchOS now integrating with the three largest ePMS providers in the United States. With LatchOS is growing roster of ePMS integrations, property managers can save on average over four hours of their time for every 100 residents. You'll be ongoing net operating income savings for our customers across asset classes and markets. In Q2, we also officially launched our strategic direct sales and deployment efforts, which allow us to provide a unified experience and a single point of contact for customers across fulfillment, installation, support coordination and third-party vendors. Besides the critically improved customer experience for our key and enterprise accounts, direct sales will drive long-term improvements to hardware and software margins and give us more direct control over the customer relationship for renewals and upsells of existing and future products. This quarter in addition to other deployments, we took our personal building live successfully with AvalonBay through this new direct deployment model. We also hired Justina Omokhua, as our Chief Marketing Officer, furthering our investment in the expansion of our enterprise customer base and the ways we serve the personalized needs of individual users on our platform. Justina’s marketing career has included experience at some of the world's most powerful brands and a recent roles include, Senior Vice President of Brand Marketing at Endeavor and Global Head of Content and Lifestyle strategy at Apple. Reflecting on our second quarter results, the first thing is that our strong and expanding product offering is driving a very powerful bookings engine that exceeded even our internal expectations for the quarter. Bookings growth specifically accelerated in Q2 to the 102% year over year growth I stated earlier, which is a powerful testament to increase product category adoption, demand from our customers and accelerating sales velocity. Let me take a moment to illustrate our momentum with a couple of Q2 vignettes that reflect how we go to market and how customers find value working with Latch. In Q2 we welcome to another one of the largest owners of apartment buildings in United States as a new customer with a direct deployment deal, including LatchOS Smart Access and smart home modules. This customer chose Latch due to Latch Electrics high uptime, relative to another vendor they been using. Our industry leading engagement levels, our automation benefits for their property management teams and our deep integrations with EPMS platforms. We also signed our second deal with a preeminent Chicago developer for the remainder of the residential portfolio. This customer had already installed Latch in one retrofit and one new building in their portfolio, and is currently completing a third building with Latch, as we speak. Now, having experienced firsthand the functionality, reliability and customer demand for Latch, this customer has come back and now signed up the remainder of their portfolio with Latch. We're excited to continue to build out our relationship with this customer with new deployments and products to come. We're also very excited to welcome a large mixed income housing developer, who focuses on the acquisition, redevelopment and management of affordable housing projects in the Northeast. This customer was initially looking for just a Smart Access product to reduce their operating expenses and they chose Latch based on positive feedback regarding tenant experience, functionality and operating cost reduction from other reputable players in the industry. Now, they signed up a mix of retrofit and new projects with a variety of LatchOS modules including Smart Access, Smart Home and Latch Delivery Assistant. Beyond just these examples, the second theme is our durable and sustainable revenue growth driven by again that strong bookings engine. We experienced significant revenue acceleration to 227% year over year growth in second quarter. We delivered the strong growth without an increase in ramp sales capacity and while dealing with the direct and indirect effects of global supply chain shortages and construction delays that are emerging as a result of the global pandemic. We're particularly proud of our engineering and supply chain teams as these teams have continued to deliver our products and serve our customers, despite the direct headwinds caused by these challenges. We're also proud of our direct deployment teams, who despite significant indirect construction material and labor shortages delivered in Q2, working hand in hand with our customers to ensure that they got as many of their spaces, up and running with LatchOS as possible. Setting aside our strong Q2 performance, the most powerful driver of our business remains the secular shift towards technology in the real estate industry, which has been woefully underserved by technology companies and which we believe has never been served by a product company approached like ours. A lack of focus innovation for real estate has led to exceptionally low technology penetration rates in what is the world's largest asset class. This historic underutilization of technology is a long term driver of our business and we remain steadfast in our focus on delivering the products and experiences our customers and their tenants deserve, right now and going forward, layering in richer and more valuable experiences in every space where we operate. I've never been more excited about what we're going to continue to deliver to the market. With that, let me turn the call over to Garth Mitchell, Latch's CFO. Garth?
Garth Mitchell: Thanks, Luke. It's great to connect with our existing and prospective shareholders and Latch's second public earnings call. The second quarter was a record quarter for the company once again, and I'm excited to share these results and provide an update on our third quarter and fiscal year 2021 guidance. Before diving into our financial results, I wanted to first provide a reminder of the important aspects of our business revenue model as some of you maybe new to the Latch’s story. Since our launch in summer 2017, we've not lost a single customer, leading to 100% gross dollar retention. Our direct sales model enables high repeat customer bookings, larger deal sizes and strong up-sell and cross-sell activity resulting in growing customer value. Our go-to-market model and long software contract terms drive remarkable sales and marketing efficiency as measured by our LTV to CAC ratio. We've previously stated that our fourth quarter 2020 LTV to CAC was 6.8x or 4x, after factoring in initial hardware costs. Strong new product attach rates in the second quarter of 2021 of 90% continue to expand our LTV to CAC ratio. Note that LTV CAC does not take into account, up-sells for renewals, which leaves room for expansion on the initial ratio. When we win a new account and a customer begins to deploy Latch’s across their portfolio, we see significant LTV expansion as sales and marketing expenses tend to be lower on future deals or new product up-sells. Furthermore, scale efficiencies in next-generation access products improve our hardware profitability. And because we consider hardware losses to be a cost of deploying our highly sticky high margin software products, improvements in hardware profitability effectively lower our customer acquisition costs. Year-to-date, these dynamics have allowed us to continue to drive bookings growth, while improving hardware profitability, despite lingering COVID-related global macro environment volatility. Equally important, Latch is very compelling upfront unit economics, on average software contracts are more than six years in length, and around 97% of our customers, elect to prepay their full contract on day one, which creates highly attractive upfront cash profitability and efficiencies. Before diving into our second quarter results, I thought it might be helpful to walk through our sales process and get some color on the seasonality in our business. We do bookings is the primary measure of customer adoption of LatchOS, Latch’s sales velocity. Bookings represent signed customer LOIs to purchase Latch hardware and software services, not reflecting term or promotional discounts with a target delivery date, no later than 24 months following signature. Bookings are the sum of the total hardware revenue commitment and the total software revenue commitment over the total life of the software agreement. Each booking is associated with a specific building, including pricing for the specific software and hardware products for each unit, and includes explicit target delivery dates, upon which the customer expects delivery and deployment. The total hardware revenue commitment is recognized net of promotional discounts as Gap hardware revenue at the time of shipment software revenue is recognized net promotional discounts over the course of the contract, starting from software contract signature through contract end. And thus, there is a greater lag between software bookings and the recognition of Gap software revenue than with hardware bookings, to Gap hardware revenue. While a deals target delivery date is no further out than 24 months, the average initial delivery timelines range from six to 18 months, retrofit deals tend to fall on the shorter end of this scale, while new construction deals, deals with bigger customers or larger full portfolio deals, tend to fall on the longer end of the scale, due to extend construction timelines and increased complexity. As installation timelines are largely dependent on real estate schedules and activity, we do experience some seasonality in the business. Most notably, delivery volumes in the first and fourth quarters tend to be relatively lighter than second and third quarters, due primarily to construction seasonality in colder climate zones, and slowdowns due to end of the year holidays. We also note that some quarters can be back end loaded, which is a dynamic we experienced in the second quarter this year, macro events can delay our delivery timelines. For example, construction sites shutdowns during the 2020 pandemic quarantines extended our average delivery timelines. These delays tend to be short term drivers, as we saw catch ups in delayed deliveries as construction sites reopened early in 2021 Post pandemic macro normalization has been choppy. As we began to see June 2021 construction materials and labor shortages drive similar delays to what we saw in 2020. From talking with our customers and monitoring industry data, we are confident these are only short term drivers like those experienced in 2020. Finally, as we continue to scale the business, we expect to see some lumpiness in bookings, as we are increasingly closing larger multi building deals that can have an outsized impact on the quarterly bookings cadence. Now, let me turn to our second quarter results. I'd like to quickly point out that we'll be discussing some non-GAAP metrics going forward. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables, included in the earnings release we issued earlier today. For the second quarter, bookings were $95.8 million, up 102% year-over-year growth and cumulative booked home units also accelerated to a total of 451,000 units, up 108% year-over-year. Finally, booked ARR grew to $48.8 million, up 122% year-over-year. Booked home units represent the total number of apartment units, or similar dwellings installed cumulatively, as well as committed to the installed with lash products. Booked ARR is defined as the cumulative value of annual recurring revenue from Latch Software subscriptions that are under a signed LOI. The acceleration in growth across all bookings metrics is reflective of increased adoption of Latch’s unique product offering. Second quarter sales and marketing expenses grew 77% year-over-year. As we began to invest in sales capacity to meet accelerating growth and customer demand and take advantage of our huge untapped market. Importantly, we drove this accelerating growth with no year-over-year growth and Latch’s sales capacity, which demonstrates the robust and growing market demand for our products. We saw attach rates of non-access LatchOS modules grow up to 90% in the second quarter, a 9 percentage point increase versus attach rates of 81% just a quarter ago. This increase demonstrates robust customer demand for incremental LatchOS modules as they become available, and support increased investments in R&D, which will accelerate the time to market as several new modules. We expect these modules will drive higher customer or allies and accelerate customer LTV expansion. Now turning to revenue. We're pleased to announce revenues of $9 million in the quarter, up 227% year-over-year. We're very proud of this result as this again demonstrates the strong customer demand for our products. Revenues were at the lower end of our second quarter guidance range as we began to see some of the impact of labor and building materials shortages at the end of the quarter, most notably in the month of June. Given our products are typically among the final materials installed before completion and construction and related upgrades, completion delays can have an outsized impact in particular periods. We deliver a strong improvement in hardware margin to negative 12% for the second quarter compared to negative 65%, in the second quarter of 2020 and up from negative 20% a quarter ago. This was largely driven by scale efficiencies and more cost effective next generation access products. Our priority remains meeting our customer needs and we are extremely proud of our differentiated ability to simultaneously deliver accelerating second quarter revenue growth and greater than 5,000 basis points of year-over-year hardware margin improvement. During these unprecedented global supply chain and electronics shortages, which have impacted almost every company that distributes physical products. Our global supply chain team is tactically sourcing components to meet our customer demand, enabling us to continue to drive greater than 100% year over year revenue growth. Though this macro environment may slow or erode some of our expected margin improvements for the remainder of the year. We have high confidence that this temporary market dynamic will not impede long-term hardware margin improvements. Our software gross margin was 90% for the second quarter, a marginal difference compared to 93% in the second quarter of 2020. We believe these software margins continue to demonstrate the strength of Latch’s business model and highlight our scalable and modular software stack, which enables all of LatchOS functionality, including integrating first and third party hardware devices. Over time, we expect software revenues to increase as a percentage of our revenue mix, a key driver for long-term gross margin expansion. Operating expenses were $22.7 million in the second quarter up 61% year-over-year compared to a 227% year-over-year increase in second quarter revenues. Adjusted EBITDA on the second quarter was a loss of $17.4 million, as compared to a loss of $13.4 million in the second quarter of 2020. Net loss was $40.1 million in the second quarter of 2021, as compared to a loss of $15 million in the second quarter of 2020. The primary reason for the GAAP between adjusted EBITDA and net loss was an increase in non-operating and non-recurring expenses, largely related to the closing of our merger and public listing. Turning now to our balance sheet. As of June 30, we had cash and cash equivalents of $472 million compared with $60.5 million as of December 31, 2020. The increase in cash and cash equivalents was primarily due to proceeds received in connection with the closing of the business combination with TS innovation. At the end of the second quarter, we had debt of $800,000. Now let me turn to guidance. Because of the accelerating growth in demand for our products and our strong year-to-date execution, we're now raising our full-year total bookings expectations to the range of $325 million to $340 million reflecting 97% to 105% year-over-year growth, compared to our previous guidance range of $290 million to $325 million. For the third quarter, we are now raising our total bookings expectations to the range of $85 million to $90 million reflecting 149% to 164% year-over-year growth. Our bookings are the single best indicator of market adoption of our products, and the performance of our business. And we are excited about the long-term implications of such strong year today bookings outperformance. While we still expect revenue growth of well over 100% year-over-year in the second half of 2021, we are adjusting our guidance to reflect the construction industry supply and labor shortages we saw in June. Industry data suggests that the industry could experience some relief before the end of the year, but we are currently assuming the construction delays process for the remainder of 2021. As such, we now expect full year revenue in the range of $38 million to $42 million, reflecting 110% to 133% year-over-year growth compared to the prior range of $47 million to $51 million. We expect third quarter revenues to be in the range of $10 million to $11 million, reflecting 96% to 116% year-over-year growth. We delivered north of 5,000 basis points of hardware margin improvement in the second quarter and an accelerating global electronic supply chain shortage, which highlights the long-term drivers of hardware margin improvement. Despite these electronics shortages, we will continue to prioritize meeting customer demand for our products and will tactically source supply to maximize the delivery of our long-term high margin software agreements. We assume this macro disruption will persist for the remainder of the year, impacting hardware margins, which in combination with our updated revenue guidance will impact our forecasted EBITDA for the year. We now expect full year 2021 adjusted EBITDA losses to be in the range of $115 million to $90 million, as compared to the prior range of losses of $95 million to $75 million. Third quarter adjusted EBITDA losses are expected to be in the range of $32 million to $28 million. The long-term drivers of hardware margin expansion discussed earlier, remain in place, despite short-term macro disruption. In summary, we're very pleased with our performance in the second quarter, and look forward to continuing to deliver long term sustainable growth. We remain proud of our team's ability to continue to deliver such high growth rates despite the volatile macro environment. While supply chain issues have marginally affected our short-term results, we've seen a huge increase in customer demand as shown by our unprecedented second quarter bookings of $95.8 million. With the massive and growing market opportunity ahead of us, incredible products in market and in development, and a strong market leadership position, we believe we are uniquely positioned for sustained long-term success. With that, we will now open the call up for questions. Operator?
Operator: Thank you. Our first question comes from Rod Hall with Goldman Sachs. You may proceed with your question.
Max Gamperl: Hi, Tim. This is Max Gamperl on for Rod. We have a couple of questions. First one is on the mix of your booked units this quarter, and particularly looking at multi-family retrofits, looks like you've booked about 82,000 new units this quarter, and we understand that retrofits are very important for Latch’s expansion in the future, and it'd be good for us to get a bit of sense for the ability for Latch to deploy at retrofit buildings, maybe you can even give us a percent of booked units that came from retrofits this quarter? And maybe even touched on the market share of new builds, and then I have a follow up
Luke Schoenfelder: Garth, I don't know if you want to because I'm happy to, sort of, take the first passing, you can fill me in or fill in for me at any point there?
Garth Mitchell: Hi. Thanks so much for the question. We are not at this point breaking out retrofit versus new construction data in the quarter. We think it's important, but what we've said before is that we're trending towards 50-50 mix between retrofit and new construction, because of the, large deals skewing in a particular quarter, potentially skewing the mix. You know, I think the best way to think about it is sort of trending towards 50-50 between the two and at any given period of time and we're really excited to see super strong retrofit growth, some of which we highlighted in the customer vignette. But we're not going to break out specifics at this point in time. I don't know, Garth, do you have anything to add to that?
Garth Mitchell: Yeah, Max, we're -- good question. We're not providing the specific mix of retrofit new construction in the quarter. So like Luke said, historically, we have actually been closer to 50:50 in the mix. What I would note is that, we've seen a very, very large percentage of our both deliveries and bookings and the C2, which is a product that was built specifically to serve customers that have older doors, that are common in retrofit environments. So, we make -- we continue to make great progress on deploying successfully into retrofit environments, and we look forward to updating you on our progress for our next -- on our next earnings call.
Max Gamperl: Okay. Okay, great, thank you. And then as a follow up, just on the supply shortages. Did the supply charges, mainly affect your customers or did they also affect the manufacturing and sourcing of your products as well?
Luke Schoenfelder: Yes, so we're -- I can take that one. Thanks so much for the question. We're very proud of our supply chain team's ability to continue to deliver. And so we have continued to be able to deliver all of our products. There are instances, specifically towards the end of the quarter, where it costs us more to purchase components to make our products, but being in the position that we are and having so invested in our supply chain relationships, we've been able to continue to deliver when so many other companies have not been able to. So we see this again as a real source of competitive differentiation going forward. Worth noting, so the National Multifamily Housing Council did a survey in June, and the construction material shortages are affecting 86% of NMHC surveyed numbers. So I think that gives you kind of a good sense of where the shortages are really hitting, most specifically for the market right now.
Max Gamperl: Great. Thank you, so much.
Operator: Thank you. Our next question comes from Mark Schappel of Benchmark. You may proceed with your question.
Mark Schappel: Hi, thank you for taking my question and congratulations on the good bookings spreads. Look, just want to dig a little bit deeper into the supply chain issues and construction delays that you began to see in the quarter and just to build on the earlier question, are you seeing the supply chain issues with respect to pretty much all of your products or is it just limited to certain ones.
Luke Schoenfelder: Yeah. So, Mark, to be very specific, we look at on the direct side -- appreciate the question. Thank you so much. We looked on our products and our ability to manufacture our products. We have been able to continue to manufacture all of our products. There have been increased costs, and in some instances, which Garth referenced during his remarks, and we've perceived increased costs to deliver our products throughout the year. But we're -- our number one priority is continuing to deliver for our customers, which we've been able to do. And so, the delays and construction material shortages that are broad across the industry are more indirectly affecting us, because they're affecting our customers. Instead I give a very tangible example, because our products are often, some of the last products to be installed before a person moves into the space. If there is a shortage in paint, or there's a shortage in painters, that actually can affect the delivery timeline in this in this pandemic pocket. And so we've really been focused on, making sure, we can always deliver for our customers and trying to support them through any of the shortages that they're facing, and our move into direct deployment couldn't have come at a better time, because now, we're actually able to help with some of the sourcing challenges and use our supply chain and operational prowess there to help, even serve our customers, deliver spaces that perhaps they wouldn't have been able to otherwise deliver without both Latch products and Latch direct deployment.
Mark Schappel: Okay. That's helpful. Thank you. And then, Luke, just want to get a few more details around some of the direct sales efforts in the quarter. Granted you're building up that organization, it's still very early, but maybe you can just give us a few more details there and also remind us of your plans for headcount growth this year in that group?
Luke Schoenfelder: Absolutely. So, at the highest level, the way that we sort of think about our sales organization is, we look at the top 1,000 accounts, which represent about 60% of the market, and we have an account based selling motion that targets those top accounts. We since in the quarter have not actually had any growth in ramp sales capacity. So while we've added an incredible team under Chris Lee, as our Chief Revenue Officer, who joined the company in Q1, none of the folks that have sort of joined the team, since his arrival and even with his arrival, are ramped. And so, our results that we delivered in Q2 were without any growth in sales capacity -- ramped sales capacity. So we're extremely excited for that ramped sales capacity to come online and to be able to sort of scale throughout the year and beyond. Garth, have we broken out specific headcount there?
Garth Mitchell: No. No, we haven't. But, Mark, I can give you a little bit of background on this. We've transitioned parts of our operations organization to focus on managing direct deployments for our customers. We're building the organization, off of a base that still -- that exists already, and we expect to see meaningful headcount growth in that department. We are not getting sort of department by department headcount growth targets, but you should expect to see more Latch pros being supported by Latch field installation managers, who are going to manage everything from quoting, all the way down to ensuring that the deployments happen successfully at the building level for our key and enterprise account customers, who elect to have us manage the deployment process for them.
Mark Schappel: Okay. Thanks. And then, one final question Luke, with respect to the recent entrance into the emerging commercial office market. Could you just give us a quick update on the pilots for Latch Visitor Express, and maybe the progress you're seeing or where they're at?
Luke Schoenfelder: Yeah. Absolutely. So we're moving forward, exactly the sort of pace that we're anticipating. We'll have more sort of announcements, as those buildings are officially announced, is going live. But we're very excited. And I can tell you that I was walking through a turnstile in our office yesterday. Using the installed Latch products and so, we're very excited about being able to deliver that and we’ll of course give official updates as those products become commercially available to the commercial office market.
Mark Schappel: Thank you.
Luke Schoenfelder: Thanks, Mark.
Operator: Thank you. Our next question comes from Stephen Sheldon with William Blair. You may proceed with your question.
Stephen Sheldon: Hey, guys. Thanks for taking my questions. I wanted to ask two questions about the updated 2021 guidance. Clearly, some mix trends there. So, one, can you share any more detail on where booking expectations have been exceeding your expectations? Is it traction with new developments or retrofits or the better module attach rates? And then, two, on the push-out in revenue generation due to delays. Has that mainly been in new developments or were there -- have there been any notable delays or push outs in retrofits going live too?
Luke Schoenfelder: Great questions. I'll start with the second one first. So what we -- again, sort of, going back to that NMHC, National Multifamily Housing Council survey from June, 47% of members were experiencing labor shortages and 86% were experiencing construction material shortages. So for us, even when we're installing in a retrofit environment, there needs to be people to install the product and to retrofit the unit. And so those shortages are definitely affecting both. It's not just a new construction challenge. And then you sort of on the, I guess a broader -- the broader sort of market that we're seeing there and what we're seeing on the booking side, it's very broad based. We're very excited to see 90% attach rate of two or more LatchOS modules. Just as a reminder, that's up from in Q4 of last year that was 44% so over doubling in less than a year. So that's obviously very exciting, and I think speaks to the broader needs of our customers but also the broader problems that we're solving for them, which is super exciting. And then we're just seeing broad based growth across retrofitting and new construction. And again, we've said before, sort of hover around 50-50 and we're excited to continue to see that growth in software adoption across the board. And then also that uptake in both retrofit and new construction.
Garth Mitchell: Yeah, Steven. Let me just add something there. I think I point you back to some of the customer stories that we provided in the prepared remarks, what we're seeing from a lot of our customers is that they have both retrofit and new construction opportunities in their portfolios. The crux of a lot of the activity that we saw in the second quarter resembled some of the stories that we talked about earlier where a customer has installed a building or two, had a good experienced, realize the ROI of LatchOS and their buildings and have decided to deploy Latch more broadly into their portfolio, oftentimes taking more incremental LatchOS modules. So I think I understand the question, and we're excited to talk more about the development of Latchs direct deployment capabilities for the retrofit market. But I'd urge you to think about this more at the customer level and recognize that customers think about customer portfolios include both retrofit opportunities and existing buildings and opportunities with new construction, we are going to grow with our customers growth, as they, again, experience the ROI that latter LatchOS can provide to their buildings.
Stephen Sheldon: Got it. Makes sense. And then just I guess one follow-up. I think, on the installation side, I wanted to kind of ask about capacity there. I know you have licensed and kind of trained contractors if you call them the Latch pros, but just how -- as we think about maybe moving past the supply chain issues and maybe construction getting completed, I guess what's your capacity like on the installation side with the Latch pros and with channel partners?
Garth Mitchell: Yeah. So what's interesting about that is the Latch pro program is something that the market is really excited about. Our customers really want to be served holistically and this allows us to really provide a better experience for the customer, which is really important, but also it allows us to have even better margins on our installed products, which is super exciting for us. In terms of capacity, if you think about the labor base that we're working with, we have a very differentiated brand and a very exciting brand. And so our ability to attract the best talent to work with Latch products is very high, and that initially started and we were aware of that as folks from the industry continue to join our team. But now as we go and we build out our Latch pro network, people just really excited about our products and are excited to get to be associated with Latch and taking on that Latch Pro mantle.
Luke Schoenfelder: Yes, and just to add on that. The development of our Latch program is one component of an evolution of the way Latch interacts with channel partners of all kinds. We are not just going to them and asking exclusively to do the direct employment work for Latch, on Latch’s direct sales, we're also offering them incremental incentives co-marketing opportunities, and all kinds of other opportunities for them to really grow their businesses with Latch. So it is an output of us building a deeper relationship with our nationwide network of Latch pros that we think will help us meet our customers demands for direct employment opportunities, but also use those channel partners demand to drive more broad demand for LatchOS and deeper deployments into our customer portfolios.
Stephen Sheldon: Great, thanks for taking my questions.
Luke Schoenfelder: Thanks, Steven.
Operator: Thank you. Our next question comes from Ben Sherlund with Cantor Fitzgerald. You may proceed with your question.
Ben Sherlund: Hey, guys. Thanks for taking my question. I'm kind of thinking a little bit longer term. With regards to the residential experiences, how big of an install base, do you think you have to see before you're able to really start monetizing there?
Luke Schoenfelder: Hey Ben, thanks so much for the question. Yes, I think what we're really focused on is making sure the experience is really fantastic when we begin that monetization and in my mind that sort of threshold, minimum threshold was about 100,000 units, and we're very excited to be in a position now where we can really start to look at those opportunities and as we've said before, we are continuing to be excited about the products we have on the roadmap to deliver differentiated experiences for the resident, a better product experience for the resident, a better service experience for the resident and monetize that. And so we don't have any specific updates to make on this call, but we are still making progress on the product side, and are really excited to be able to launch those features for our residents.
Ben Sherlund: Okay, great. Thank you.
Luke Schoenfelder: Thank you, Ben.
Operator: Thank you. Our next question comes from Joe Vruwink with Baird. You may proceed with your question.
Joe Vruwink: Great. Hi, everyone. Maybe to begin I was hoping just to get a little more detail on the quarter itself. It seems like the upside and booked revenue, there was definitely a unit component, healthier sequential growth in booked units. I'm just curious is there any particular drivers to that and then maybe from a seasonality standpoint, because I think the guy probably entails a sequential step down in units, is that just the normal course of business or is anything else happening in the second half?
Luke Schoenfelder: I'll take – I'll take this one. So Joe, it's good, it's good to hear from you. On the second part, our guidance range assumes that we see that we – that the macro disruption that we saw in June, that persisted into July, persist for the remainder of the year, and our ranges account for a scenario in which there's further macro disruption. If to the extent that the macro environment improves at all, I would expect meaningful outperformance on the guidance ranges that we've just provided. The fourth quarter as we discussed previously, is one of the seasonally lower demand quarters for Latch, given a lot of our customers are on holidays, but we still expect – we still expect to be able to deliver outperformance relative to these ranges, should we see any improvement in the macro – the macro environment.
Joe Vruwink: Okay, and then, maybe just more from a high level so, I'm thinking about the financial projections, Latch provided at the start of the year at this point, it does seem like quite a bit has changed about the business, substantial number of new software products have been launched. You referenced the C2 earlier so that's retrofit. But I think it also has a slightly lower price points in the grand-scheme of your product lineup. I'm just wondering, as you think about the projections and you start to appreciate, yeah, in some cases the unit opportunity is seems better because of retrofits. The price point with software and getting attached rates is higher so that's good. There's maybe some offsets in that. Retrofits maybe lower price point on hardware, where I'm going with this, as you think about again just high level. How do you think that businesses tracking, relative to some of those projections? And where might there be slight deviations, either good or bad?
Luke Schoenfelder: Yeah. So thank you so much for the question. Yeah. And I think what's important to emphasize as you did is we're delivering a totally new product ecosystem into a massive market in a way that hasn't been done before. And there's incredible opportunities all across all across the board. You referenced several products that we announced in this year, sort of, post-announcing that we were going to go public. We typically have a two year sort of product development cycle. And so if you think about that, the products that we're going to deliver next year were planned many -- a very long time ago. The efficiencies that we've got from the C2 were two years before we announced them. And so, we saw and anticipated many of the opportunities that we're capturing right now, and also some of the challenges. And so if you look at the C2 design, it was really about retrofit. And it was really about taking the best aspects of our earlier products and being able to provide an even higher functionality product at a lower price point that was even better for again that retrofit customer. And so I think you'll continue to see us look long-term on product roadmap. And continue to surprise and delight with new experiences, and new capabilities that were not initially contemplated. And so we feel very excited about continuing to grow our product offering and scaling into this incredibly large and exciting market. I don't know Garth if you have anything you want to add to that.
Garth Mitchell: Yeah, just to add to that to that Luke. Joe, as we've discussed in the past, but the customer LTV, that we get on a on a on a Booked Home Unit is really the lowest it's going to be on day one, because that doesn't account for renewals, it doesn't account for up-sells, it doesn't account for a number of different opportunities for us to increase the customer LTV overtime. Because of that, the outperformance that you're referring to on the Booked Home Unit growth is really what we're focused on to create the foundation for long-term revenue growth in the business. So the outperformance that you just described during the increase and cumulative flux home unit additions really is the best parameter for the health of this business and for market adoption of our product. Given that over the long-term, we will continue to release, incremental LatchOS modules, driving higher LTVs for each individual Home Unit we bring on the platform. I actually forgot actually missed. I missed your first question; I would refer you back to the customer stories to get an understanding of what's actually driving some of the growth in the home units. We're starting to see a lot of our customers, that may have had a really good experience with a building our flow of Latch start to come back to us and think about much larger deals that that spread much more broadly across their portfolios. That's what's driving the underlying acceleration and Booked Home Units. And again, we believe that sets the best foundation for us to grow those customer LTVs over time. So, as a barometer of the business, we actually feel extremely confident about our about the opportunity ahead of us as presented by the performance year-to-date.
Joe Vruwink: And then just one quick follow-up on this. So, obviously, we're discussing macro disruptions in 2021 that's impacting your customers' ability to complete your deliveries of product, ultimately, and then the beginning of software recognition, but when we're thinking about booked units, that's more about this cumulative backlog that's in place, the backlog still exists and so the question is, at some point, the hope would be all these supply chain disruptions are going to normalize. Do you ultimately have a catch-up period, therefore, as things kind of comeback online and you get back to what may have been the original trajectory you hoped for?
Garth Mitchell: Absolutely Joe. I think 20 -- into the next -- into 2022, we're going to have a bunch of new sales and marketing, investments that we've made over the course of this year, and the backlog the reference of the incremental booked home units that are going to deliver in periods that we've discussed with our customers, give us again really high confidence about our ability to deliver sustainable long-term high growth rates and sustained hardware margin, and particular improvements over time.
Joe Vruwink: Okay, great. Thank you very much.
Garth Mitchell: Thanks Joe.
Operator: Thank you. Our next question comes from Jason Celino with KeyBanc Capital Markets. You may proceed with your question.
Jason Celino: Hey Garth, hey Luke. Thanks for fitting me in. The supply chain and construction delays units enrolled documented in the media, so not a total surprise here, but how have these trends maybe trended maybe compare this quarter the last quarter? And then any thoughts on maybe when the market corrects itself?
Luke Schoenfelder: Hey, thanks so much, Jason. So this, was really something we started to see in June and in fact, the sort of, industry survey data really suggests that June was the month where this really started to affect a lot of our customers and I think, for us, it's hard for us to predict things that are outside of our control. What we've been most focused on is always delivering for our customers and making sure that our products are not the long pole in the tent of delivering a space, and we've been able to continue to deliver for our customers, and I'm really excited and proud of the team for being able to continue to do that, and we see that as a continued source of competitive differentiation because we have these deep supply chain relationships, and actually manage these things. We have a lot more control and a lot more levers to pull than other folks that are sourcing materials, indirectly. And those indirect shortages that are affecting our customers now, those are -- that's evidence of just having less control over that -- of their own supply chain, and we're really proud of -- for our products having control over the supply chain. And so I think we are continue to be optimistic about be able to maintain the supply of our products to meet our customer demand and that's what we're focused on. And then we're also working with our direct deployment teams to try to also help our customers deliver more spaces with Latch as well, getting a little bit further into some of the sourcing for the ancillary components around our products as well.
Jason Celino: Okay, great. No, that makes sense. And then, sorry, if this was already discussed, but was this one of the first quarters where you saw the uptick in the software module attach rates? Thank you.
Luke Schoenfelder: Hey Jason. Yes, so actually in Q4, we reported 44% attach rate; in Q1, we reported 81% module attach rate; and in Q2, we’re now reporting 90% module attach rate of two or more LatchOS modules. So, it is a continued increase relative to both Q4 and Q1.
Jason Celino: Excellent. Thank you for the context.
Operator: Thank you. And I'm not showing any further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
