Q2 2021 Latch Inc Earnings Call
[music].
Hello, Thank you for standing by and welcome to last 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 to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference maybe recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Shawn Hannon Investor Relations. Please go ahead.
Thank you operator, good afternoon, and thank you for joining us today to review <unk> second quarter 2021 financial results with me on the call today are Luke Schoenfelder.
Keep executive Officer, co founder and Chairman of the board of Directors and Gartner 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.
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.
Looking statements made today speak only to our expectations as of today and we undertake no obligation to publicly update or revise them.
Discussion of material risks and other important factors that could affect our actual results. Please refer to the risk factors section in our SEC filings available on the SEC's Edgar system, and our website as well as other risks and other important factors.
Discussing today's results. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our website for reconciliation of these measures. The most directly comparable GAAP financial measure with that I'd like to turn the call.
Over to Chief Executive Officer, Luc Schoenfelder Luke.
Thanks, so much Shawn and I'd like to start by thanking all of you for joining US today, our second earnings call as a public company largely began trading as L. P. C. H on NASDAQ on June seven 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 our results.
In 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 nano access lots of what 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 a 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 guidance. Our CFO will talk in a few moments to Q2 results in detail and 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 did this model I am one of the key.
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 in the market from the beginning we recognized a powerful opportunity to transform the world's oldest subscription product renting that space and the world's largest asset class real estate.
Our flagship product <unk> 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 lateral west modules smart access delivery and guest management smart home connectivity and personalization of services, our average building customer.
Installs latch and partner devices across new and existing buildings in their portfolio and then paid latch between seven and $12 per apartment per month for the software features that they need and this range is expected to continue to increase as we saw more customer problems with future products typically our customers prepay for the lateral that 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 laptop users interact with our App an average of four six times per day. This engagement is something we're super proud of and we're excited to continue to expand the availability of <unk> to more users and deepen engagement with each stakeholder.
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 U S alone representing a $54 billion Tam while Europe as another $90 billion Tam.
Second lots of US 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 reduced their operating expenses and a robust and modular system architecture also allows us to rapidly innovate on the platform ensuring that the value.
What's your what's delivers to its customers will grow and can adapt to customer needs more rapidly than other products in the market and third lots of US is integrated with the best partners in the market, including Google mast Apple Eco B, you're already and tried to real page and more are focused on the highest levels of user experience data security and user privacy.
<unk> 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 lateral has provided we can expand deeper into existing customer portfolios with new and existing features as well as expand into adjacent markets such as the commercial office market space, which were entering.
Starting with our pilot deployment sites that include the Empire State building Rockefeller Center at Brookfield place and fifth since our inception in 2014, we've had incredibly strong customer traction demonstrated by our Europe churn rate and high lifetime customer value both of which were further exemplified in our second quarter financial results again, which guards 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 integration, adding both.
The Rd, and and Trotted latch was as follows our previous integration of real page, resulting in lateral is now integrating with the three largest E. P. EMS providers in the United States with lots of US is growing roster of Etfs integrations property managers can save on average over four hours of their time for every 100 residents yielding 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 but don't meant installation support coordination and third party vendors. Besides a critically improved customer experience for our key in enterprises.
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 deployment. We took our first full building lives successfully with Avalon Bay through this new direct deployment model. We also hired just you know all Macquarie 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. Justine is marketing career has included experience at some of the world's most powerful brands and our recent roles include senior Vice President of brand marketing at Endeavour and global head of content in lifestyle strategy at Apple.
Reflecting on our second quarter results. The first theme is that our strong and expanding product offering is driving a very powerful booking pension that exceeded even our internal expectations for the quarter bookings growth specifically accelerated in Q2 to 102% year over year growth Ive 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, then yes. They reflect how we go to market and how customers find value working with latch.
In Q2, we welcomed another one of the largest owners of apartment buildings in United States with a new customer with a direct deployment deal, including lateral as smart access and smart home modules. This customer chose latch due to lateral versus high uptime relative to another vendor and have been using our industry, leading engagement levels are automation benefits for their property management teams and a deep integrations with E P.
M S 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 our 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 customers.
Back in 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 in 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 justice 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 watchlist modules, including smart access smart home and watch delivery assistant.
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 the second quarter. We delivered this 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 <unk>.
You too working hand in hand, with our customers to ensure that they got as many of their space is up and running with lots of west 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 approach like ours.
Lack of focused innovation for real estate has led to exceptionally low technology penetration rates and 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 product 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 lots your CFO Gartner.
Thanks, Luke it's great to connect with our existing and prospective shareholders and latches second public earnings call.
The second quarter was a record quarter for the company once again and I am 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 may be new to the latch 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 upsell 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 eight acts for Forex. 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 to CAC does not take into account upsells renewals, which leaves room for expansion on the initial ratio.
When we win a new account in the customer begins to deploy latch across their portfolio, we see significant LTV expansion as sales and marketing expenses tend to be lower on future deals or new product upsells.
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-19 related global macro environment volatility.
Equally important latches very compelling upfront unit economics on average software contracts for 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 give some color on the seasonality in our business we.
We do bookings as the primary measure of customer adoption of lateral Wes and lack sales velocity books.
Bookings represent signed customer and otherwise to purchase latch hardware and software services, not reflecting term 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 GAAP hardware revenue at the time of shipment.
Software revenue is recognized net of promotional discounts over the course of the contract starting from software contract signature to contract and and thus there is a greater lag between software bookings and the recognition of GAAP software revenue than with hardware bookings to GAAP hardware revenue.
While it deals target delivery date is no further out in 24 months. The average initial delivery timelines range from six to 18 months.
Retrofit deals tend to fall on the shorter end of the scale, while new construction deals deals with bigger customers, where larger full portfolio deals tend to fall on the longer end of the scale due to extended construction timelines and increased complexity.
As installation timelines are largely dependent on real estate schedules and the 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 the second and third quarters due primarily to construction seasonality and colder climate zones and slowdowns due to end of year holidays.
We'd also note that some quarters can be backend loaded which is the dynamic we experienced in the second quarter. This year.
Macro events can delay our delivery timelines for example, construction site shutdowns during the 2020 pandemic quarantine extended our average delivery timelines.
These delays tend to be short term drivers as we saw catch ups and 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 our quarterly bookings cadence.
Now, let me turn to our second quarter results.
I'd like to quickly point out that I'll be discussing some non-GAAP metrics going forward.
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 in cumulative booked home units also accelerated to a total of 451000 units up 108% year over year.
Finally booked <unk> grew to $48.8 million up 122% year over year.
Booked home units represent the total number of apartment units are similar dwellings installed cumulatively as well as committed to the installed with <unk> products.
Booked IRR is defined as the cumulative value of annual recurring revenue from lapsed software subscriptions that are under a signed LOI.
The acceleration in growth across all bookings metrics is reflective of increased adoption of latches 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 in customer demand and take advantage of our huge untapped market.
Importantly, we drove this accelerating growth with no year over year growth and ramp sales capacity, which demonstrates the robust and growing market demand for our products.
We saw attach rates of non access launch of less modules grew up to 90% in the second quarter, a nine percentage point increase versus attach rates of 81% just a quarter ago.
This increase demonstrates robust customer demand for incremental lateral Wes modules as they become available and support increased investments in R&D, which will accelerate the time to market of several new modules.
We expect these modules will drive higher customer rois and accelerate customer LTV extension.
Now turning to revenue.
These two announced revenues of $9 million in the quarter up 227% year over year. We're very proud of this result is 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 delivered a strong improvement in hardware margins 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 5000 basis points of year over year hardware margin improvement during these.
Precedented 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 had 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.
We believe these software margins continued to demonstrate the strength of <unk> business model and highlight our scalable and modular software stack, which enables all of last year, Wes functionality, including integrating first and third party hardware devices.
Overtime, we expect software revenues to increase as a percentage of our revenue mix are key drivers for long term gross margin expansion.
Operating expenses were $22.7 million in the second quarter up 61% year over year compared to 227% year over year increase in second quarter revenues.
Adjusted EBITDA in 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 nonoperating and nonrecurring 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 $800000.
Now, let me turn to guidance.
Because of the accelerating growth in demand for our products and our strong year to date execution, where <unk>.
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.
So 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.
And we are excited about the long term implications of such strong year to date 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 released before the end of the year.
We are currently assuming the construction delays persist 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 5000 basis points of hardware margin improvement in the second quarter, and then accelerating global electronics 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 we'll tactically source supply and 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 have seen a huge increase in customer demand as shown by our unprecedented second quarter bookings of $95.8 million.
With a 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.
Of that we want.
Now open the call up for questions operator.
Okay.
Thank you.
Minder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Rod Hall with Goldman Sachs. You May proceed with your question.
Hi, Tim this is smashed and pearl on for Rod.
A couple of questions.
First one is on the mix of your booked units this quarter.
So you're really looking at multi family retrofits and it looks like you booked about 82000, new units this quarter and we understand that retrofits are very important for this expansion in the future and it would be good for us are doing a bit of a sense for the ability for large to deploy with retrofits building. So maybe you can.
Can you give us the percent of booked units came from retrofits This quarter and maybe you can touch on the market share of new builds.
Then I have a follow up.
Garth.
I don't know if you were to speak to that I'm happy to sort of take a first ethylene Gartner again, you can fill them in our fill in for me at any point there.
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, a 50.50 mix between retrofit and new construction because of the.
Large deals skewing in a particular quarter potentially skewing the mix.
The best way to think about it is sort of trending towards 50.50 between the two in any given period of time and we're really excited to be super strong retrofit.
Growth some of which we highlighted in the customer had been yet.
But we're not going to break out specifics at this point in time I don't know, Greg do you have anything to add to that.
Yes Max.
It's a good question, we're not providing the specific mix of retrofit and new construction in the quarter, but like Luke said historically, we have actually been closer to 50.50 in the mix, but I would note is that we've seen a very very large percentage of our both deliveries and bookings and the <unk>, which is a product that was built.
Strictly 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 at our next on our next earnings call.
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 does it also affect to manufacturing and sourcing of your products as well.
Yes.
I can take that one Mike. 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.
Typically towards the end of the quarter, where it cost us more to purchase components to make our products, but being in a position that we are having.
Having 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 Nmfc's surveyed members. So I think that gives you kind of a good sense of where the.
The shortages are really hitting on most specifically at FERC for the market right now.
Great great. Thank you so much.
Thank you. Our next question comes from Mark Chappell with Benchmark you May proceed with your question.
Hi, Thank you for taking my question and congratulations on the good bookings print.
Just wanted to dig a little bit deeper into the supply chain issues and construction delays that you cannot see in the quarter end.
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.
Yes.
Mark to be very specific we look at on the direct side I. Appreciate the question. Thank you so much.
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 cost and in some instances, which you know gartner referenced during his remarks.
We foresee increased cost to deliver our products throughout throughout the year.
But where our number one priority is continuing to deliver for our customers, which we've been able to do and so the delays in construction material shortages that are broad across the industry are more indirectly affecting us because they are affecting our customers and sort of give a very tangible example, because our products are often some of the last product to be installed.
For a person moves into the space. If there is a shortage in paint or there is 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 are facing and our move into.
Direct deployment I Couldnt 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 EBIT, though of our customers deliver spaces that perhaps they would have been able to otherwise deliver without both large products and lot strep deployment.
Okay. That's helpful. Thank you and then.
Just wanted to get a few more details around.
Some of the direct sales efforts in the quarter granted Youre building up that organization is still very early but maybe you could just give us a few more details there and also remind us of your plans for head count growth this year in that group.
Absolutely.
At the highest level the way that we sort of think about our sales organization is we look at the top thousand accounts, which represent about 60% of the market and we have an account based selling motion that target those top accounts we.
Since.
In the quarter have not actually had any growth and 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 event with his arrival our ramp and so our resolve.
So we delivered in Q2 without any growth in sales capacity ramped up capacity. So we're extremely excited.
For that ramp sales capacity to come online and to be able to sort of scale.
Throughout the year and beyond Gartner have we broken out specific head count there.
No no we haven't but mark I can give you a little bit of background on this transition.
Transitions parts of our operations organization to focus on managing direct deployments for our customers. We are building the organization off of a base that still exist already and we expect to see meaningful head count growth in that department, we are not giving sort of department by Department head count growth targets, but you should expect to see more latch.
<unk> is being supported by large field 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 Archaean enterprise account customers, who elect to add to have us manage the deployment process for them.
Okay. Thanks, and then one final question with respect to the recent entrants into the emerging commercial office market could you just give us a quick update on the <unk>.
Pilots for lunch visit or express and maybe the progress you're seeing.
Or where they're at.
Yeah, absolutely. So we're we're moving forward exactly the sort of pace that we are anticipating will have more sort of announcements.
Those buildings are officially announced that's going live.
We're very excited and I can tell you that I was.
Walking through return style in our office yesterday.
Using the installed <unk> products and so we're very excited about being able to deliver that and we will.
Of course give our official updates as those products become commercially available to the commercial office market.
Thank you.
Thanks Mark.
Thank you. Our next question comes from Stephen Sheldon with William Blair. You May proceed with your question.
Hey, guys. Thanks for taking my questions.
I have two questions about the updated 2021 guidance clearly some mixed trends there so one.
Can you share any more detail on where bookings 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 is that mainly been in new developments are there have there been any notable delays.
Or push outs and retrofits Glenn <unk>.
Great question I'll start with the second one first so what we again sort of going back to that NMFC National multifamily housing Council survey from June 14, 47% of members, we're experiencing labor shortages and.
86% were experiencing in construction materials shortages, so for us even when we're installing a retrofit environment there needs to be people to install the product and to retrofit the units and so those shortages are definitely affecting both its not just a new construction challenge and then sort of on the 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 are very excited to see 90% attach.
Attach rates of.
Two or more lateral west module, just as a reminder, that's up from in.
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 bottom broader problems that we're solving for them, which is super exciting and then we're just seeing broad based growth across retrofit 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.
Yes, Steven let me just add something there.
I'd 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 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 but building or two had a good experienced realized the ROI of last year the loss in their buildings and have decided to deploy latch more broadly into their portfolio oftentimes, taking more incremental lateral loss modules. So.
I understand the question.
We're excited to talk more about the development of latches direct deployment.
The capabilities for the retrofit market.
Urge you to think about this more at the customer level and recognize the customers think about customer portfolios include both retrofit opportunities within existing buildings and opportunities with new construction, we are going to grow with our customers growth as they again experienced the ROI of that lateral loss can provide to their buildings.
Got it makes sense.
And then just I guess one follow up.
I think on the installation side I wanted to ask about capacity there I know you have <unk>.
License and kind of trained contractors I think you call them the latch pros, but just.
How.
As we think about maybe moving past the supply chain issues.
Maybe.
Construction is getting completed I guess, what's your capacity like on the installation side with the latter.
The last program with channel partners.
Yes, so what's interesting about that is the last pro program.
That market is really excited about all of 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 on our installed product, 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.
Work with latch product is 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 last CRO network people, just really excited about our product and are excited to get to be associated with.
With with latch and taking on that last pro mantle.
Yeah, and just to just to add on that the development of our <unk> Pro 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 them exclusively to do direct deployment work for latch on latches 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 lash. So it is an output.
Building, a deeper relationship with our nationwide network of Black pros that we think will help us meet our customers' demands for direct deployment opportunities, but also use those channel partners demand to drive more broad demand for lateral loss.
And deeper deployments into our customer portfolio.
Great. Thanks for taking my questions.
Thanks Steven.
Thank you. Our next question comes from Ben Sherlund with Cantor Fitzgerald You May proceed with your question.
Hey, guys. Thanks for taking my question.
I'm thinking a little bit longer term.
With regards to the residential experiences how big of an installed base do you think you have to see before you are able to really start monetizing there.
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 in my mind that sort of threshold minimum threshold was about 100000 units and we're very excited.
Excited to be in a position now where we can really start to look at those opportunities as we can.
You said before.
We are continue to be excited about the products, we have on our 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.
Okay, great. Thank you.
Thank you Ben.
Thank you. Our next question comes from Joe <unk> with Baird.
Eric You May proceed with your question.
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 in booked revenue there was definitely a unit component in health there is sequential growth and book to units.
I'm just curious.
There were any particular drivers to that and then maybe.
From a seasonality standpoint, because I think the guy who probably entails a sequential step down in <unk>.
Is that just the normal course of business or is there anything else happening in the second half.
Got it.
I'll take this one so Joe.
That's good to hear from you.
On the second part our guidance range assumes that we see that we have.
Macro disruption that we saw in June that persisted into July persists for the remainder of the year and our ranges account for a scenario in which there's further macro disruption.
To the extent that the macro environment improves at all I would expect a meaningful outperformance on the guidance ranges that we've just provided the fourth quarter as we've 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.
Okay.
Then.
Maybe just more from a high level so.
Thinking about the financial projection flach provided at the start of the year at this point it.
It does seem like quite a bit has changed about the business.
Substantial number of new software products have been launched you reference the seat to earlier, so that's retrofit, but I think it also has a slightly lower price point in the Grand scheme of your product lineup.
Just wondering as you think about the projections when you started to appreciate and in some cases the unit opportunity seems better because of retrofits, the price point, where software and getting attach 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 is how do you think about again just high level.
Do you think that business is tracking relative to some of those projections and where might there be slight deviations either good or bad.
So thank you so much for the question, Yeah, and I think what's important to emphasize as you did it we're delivering a totally new product ecosystem into a massive market in a way that hasn't been done before and there is incredible opportunities all across all across the board.
You referenced several product that we announced.
This year sort of.
Post.
I'm, saying, we're going to go public.
We typically have a two year sort of product development cycle and.
So if you think about that the product that we're going to deliver next year were planned many very long time ago and the efficiencies that we've got from the <unk>.
Two years before we announce that and so we saw an anticipated many of the opportunities.
We're capturing right now and also some of the challenges and so if you look at the <unk> designed it was really about retrofit and it was really about taking the best aspects of our earlier products and being able to provide even higher functionality product at a lower price point that was even better for again that retrofit customer and so on.
I think youll continue to see us.
Look long term on the 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 incredible.
Incredibly large and exciting market.
If you have anything you want to add to that.
Yes, just to add to that to that Joe.
Joe as we've discussed in the past.
Customer LTV that we get on a booked home unit is really the lowest it's going to be on day, one because it doesn't account for renewals doesn't account for up sells it doesn't account for a number of different opportunities for us to increase the customer LTV over time because of that the outperformance that you're referring to on the brookstone 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.
Increase in cumulative looked home unit additions really is the best barometer 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 actual loss modules driving higher ltvs for each individual opinion that 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 home units.
We're starting to see a lot of our customers that may have had a really good experience with a building or two a flat start to come back to us and think about much larger deals.
But 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 that's 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 this about the opportunity ahead of us as <unk>.
Rented by the performance year to date.
And then just one quick follow up on that so obviously, we are discussing macro disruptions in 2021.
That's impacting your customers ability to complete your deliveries of product ultimately end than the beginning of software recognition, but when we're thinking about it.
<unk>.
That's more about this came out of backlog that's in place the <unk>.
Backlog still likes us and so the question is at.
At some point the hope would be all of the supply chain disruptions are going to normalize.
Hi.
Do you ultimately have a catch up period, therefore, as things kind of come back online and you get back to what May have been the original trajectory you hope for.
Absolutely Joe I think.
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 that you referenced some of the incremental about home units that are going to deliver.
And 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 in particular improvements over time.
Okay, great. Thank you very much.
Thanks, Joe.
Thank you and as a reminder, it's asked a question you will need to press star one on your telephone. Our next question comes from Jason <unk> with Keybanc capital markets. You May proceed with your question.
Hey, guys, Hey, Luke Thanks for fitting me in.
The supply chain and construction delays.
All documented in the media so not a total surprise here, but how are these trends maybe trended maybe compare this quarter to last quarter and then any thoughts on maybe when the market kind of corrects itself.
Hey, Thanks, so much Jason.
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 too.
Predict things that are outside of our control while 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 is 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 and then.
Other folks that are sourcing materials indirectly.
And those indirect shortages that are affecting our customers know that 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 being 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 lots as well.
A little bit further into some of the source.
For the ancillary components around our products as well.
Okay, Great no that makes sense and then sorry, if this was already discussed.
Was this one of the first quarter is where you saw the uptick in this software module attach rates. Thank you.
Hey, Jason Yeah, So actually in Q4, we reported 44% attach rate in Q1, we reported 81% fungible attach rate and then in Q2, we are now reporting 90% module attach rate of two or more <unk> modules. So it is it is a continued increase.
Relative to both Q4 and Q1.
Excellent. Thank you for the context.
Yeah.
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.
Okay.
[music].
[music].
[music].
[music].