Q3 2021 Latch Inc Earnings Call

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Good day, and thank you for standing by and welcome to the next third quarter.

Onions conference call at this time, all participants are in a listen only mode asked me to speak his presentation they'll be a question and answer session to ask a question. During this session you'll need to press started wondering your telephone as a reminder, this conference is being recorded.

Requiring any further assistance. Please press star Eczema I would now like to hear the conference over to Shawn Hannidy with Investor Relations. Please go ahead.

Thank you operator.

Thank you for joining us today to review Latches third quarter 2021 financial results with me on the call today, a loot show, it's older Chief Executive Officer, Cofounder and chairman of the board of Directors Garth Mitchell Chief Financial Officer. After prepared remarks, we will open up the call for question and answer session.

During this call we may make statements related to a business that are forward looking statements under federal Securities laws. These statements are not guarantee future performance, but rather subject to a variety of risks uncertainties are actual results could give her materially from these expectations reflected in any forward looking statements.

Looking statements made today speak only to our expectations also today and we wanted to take no obligation to publicly update will advise them.

The discussion of material risks and other important stop yourself.

Actual results. Please refer to the risks after section in <unk> filings available on the F. C. C is 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 and our earnings release any 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, Luke show on television Luke.

Thanks, Sean and I'd like to start by thanking all of you for joining us today for our third quarter earnings call. We are very excited to share results for the quarter, despite unprecedented supply chain constraints and construction delays due to labor and material shortages, we continue delivering for our customers growing our revenue of 120% year over year to 11.

$2 million above the top end of the revenue guidance, we gave for the quarter, we had another record bookings quarter to latch as well and we saw substantial acceleration in bookings growth up 181% to 96 million and we also saw Grunted book there are up 126% to 59.8 million guards are CFO, we'll talk in a few.

Moments to Q3 results in detail as this is our third earnings calls a public company. 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'm one of the co founders of latch and beginning of 2014, we embarked on our journey to make buildings better spaces to live work and visit creating a product comes.

<unk> focused on the biggest challenges we saw in the space.

From the beginning we recognized a powerful opportunity to transform the world's oldest subscription product renting a space and the world's largest asset class real estate, our flagship product Lasser less 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 to.

Lucian through our last week modules smart access delivery and guest management smart home connectivity and personalization and services.

I'd like to turn now to the current quarter and the new and exciting product and marketing updates from Q3 that we believed demonstrate our commitment to survey our customers with an ever evolving set of product features and experiences while enhancing our product portfolio and driving long term growth in Q3, we announced the new latch at which is our latest more just lock built per retrofits and new construction.

The product is designed to be easy to install without any added infrastructure and brands all the benefits of the new latch led to the more disk format. This further broadens lapses ability to provide more buildings of all shapes and sizes with the experience of lots of west are full building operating system software products and services also in Q3, we hired.

<unk>, Oh death, as general manager of new market development to help strengthen our focus on new markets. Lee is a proven leader in the industry with nearly 20 years of experience driving sales growth product innovation and geographic expansion for leading companies in this mark device and security space, including Lutron resolved and Allegiant immediately prior to joining.

He was a founder and CEO of group 337, a consulting and content firm specializing in the security access control and Iot space leased team of industry experts has also joined latch and their combined expertise will be invaluable as we continue to innovate and provide scalable technology products to our customers operating problems.

[noise], reflecting on our third quarter results. We are excited to share two key themes. The first thing is that our revenue growth continues to be under an impressive trajectory with 120% growth year over year to $11.2 million in the third quarter. We are particularly proud of delivering these revenue results. Despite the widespread supply chain and unprecedented constructed industry.

Challenges the most powerful driver of our business remains the secular shifts towards more technology and the real estate industry, which has been woefully underserved by technology companies.

A focus product innovation for real estate has led to exceptionally low technology penetration rates and what is the world's largest asset class. This 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 residents deserve let me take a moment to illustrate our momentum with a couple of customer stories. The request how are we going.

The market and how customers find value working with latch versus other providers.

We're excited to continue our relationship with Middelburg communities are leading south eastern multifamily owner and developer we booked our first apartment community with Middelburg in queue to where we delivered hardware within a month of booking since the first project Middelburg has been so impressed with our comprehensive solution in particular, our ability to enable unintended touring and Lisa.

Through two or 24 Ah last links partner, who refer to the Middelburg Middelburg has now signed a large additional agreement to further solidify latches the preferred smart access partner. This deal demonstrates how are open platform and API access great differentiated experiences for our customers our partners as well as our partners customers this shared value creation.

It is a core focus for latch as we grow our partner ecosystem using our flexible API strategy.

We were also very excited to expand our relationship with the related group after deploying latching one of its buildings and it's Florida portfolio. They signed up the rest of their upcoming multifamily portfolio with lack the related group was previously working with a variety of points solution hardware and middleware providers, but after seeing the benefits of the comprehensive Lotto is platform they've decided to Lina.

Matches Fullstack of hardware software and services as the basis for their smart building design.

Another new customer that joined US this quarter was met a real estate partners southeast real estate developer. The company was highly impressed with our offerings and was originally planning to install a competitor before being introduced to the latch suite of products meta decided to make the swap to latch because they were particularly impressed with our unique ability to serve as a single solution for every state.

There at the building.

The second theme is the state of the global electronics supply chain, we're really pleased by the flexibility focus and commitment of our supply chain team and prioritizing media our customers demand and we are proud of our team's ability to have driven 120% year over your revenue growth and light a very challenging supply chain dynamics and the difficulties, we're seeing much larger companies sleeping in the <unk>.

We're also very grateful to our engineering teams for being able to quickly and effectively execute engineering changes that allow us to rapidly incorporate alternative components in our products without compromising functionality. These dynamics that are continued privatization of meeting customer demand led to a sequential step back in the third quarter and hardware margins due to stop buying an elevated.

Costs, which card will discuss shortly the constraints apply for several electronics components and latching partner product is also persistent and our sourcing challenges is increased however, we remain cautiously optimistic about our ability to continue to remain agile to meet demand and we're excited to leverage our unique supply chain in engineering core competencies to gain market share while keeping.

An eye towards unit economics at the bottom line in closing we are very pleased with our Q3 performance, where a product oriented company with a unique perspective and vision for this space and we've been pleasantly surprised by the number and quality of M&A opportunities that have emerged since formalising, our corporate development efforts earlier this year point solutions and features being <unk>.

Old indoor and markets today could immediately be more valuable leveraging our deep industry relationships and scaling go to market organization. The expansiveness of our vision makes longterm customer and resident lifetime value on the last platform where much more than if the same users were unlimited points solutions. We look forward to discussing these growth opportunities more as needed.

<unk> and we continue to look at inorganic opportunities as a very real and very tangible driver of long term growth and value creation for lack shareholders. As always will continue to focus on our long term strategy, while executing day in and day out to deliver the long term value that our customers and shareholders expect finally I'd like to thank our global team for their.

Unwavering focus and commitment on delivering the best product and experiences to our customers and residents to our shareholders. The work. This team is doing is incredible and I've never been more excited for what's to come with that let me turn the call over to Garth Mitchell Latches CFO Guard.

Thanks look it's great to connect with both our existing and prospective shareholders in our third quarter of 2021 earnings call Q3 was a record quarter for the company once again on many fronts and I'm excited to share. These results. In addition to providing an update to our fiscal year and 242021 guidance.

Before diving into our third quarter results I thought it might be helpful to provide a reminder of our sales process and give some additional color on bookings in revenue recognition.

Bookings represents signed customer loi's 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 some of the total gross hardware revenue commitment and the total gross 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.

We adjust our cumulative and period bookings metrics for bookings that do not shipped within a 36 month timeframe.

This standard allows for a 12 month period. Following the 24 month booking window to account for construction industry delays, which have become much more common in this macro environment, while ensuring our cumulative metrics correlate most closely to the timing of our deployments.

Although we expect some of the 36 month, an older bookings to eventually convert we make these adjustments as a good hygiene measure for a reporting.

The total hardware revenue commitment because you recognized net a promotional discounts as gap hardware revenue at the time of shipment software revenue is recognized a promotional discounts over the course of the contract starting from software contract signature their contract and and thus there is a greater lag between software bookings and the recognition of gap software revenue.

Then with hardware bookings to gape hardware revenue.

There's been some confusion regarding our term discounting policy and its impact on our revenue recognition, though we have detailed this in our public filings I thought it would be helpful to add more color in these remarks we've.

We benefit greatly from a customer's willingness to pay upfront for upwards of 10 year software agreements. The large upfront cash collection has helped finance our growth and therefore, we incentivize customers to do this by offering tiered discounts based off of our estimated annual cost of capital.

The upfront discount increases accordingly, based on the term length for which the customer is creeping.

Because the purpose of the discounting as to Incentivise customers to prepaid finance our growth in accordance with AFC six O. Six we determined that just sounds to be a form of customer financing.

Because of this we recognize our revenue net a promotional discounts only an expense that term discount as interest expense.

The term discount represents substantially all of Q3 reported interest expense and we provide further detail about this in our public filings.

Pricing isn't always evolving topic for our business and we're exploring ways to better align our pricing strategy with the companies present cost of capital and liquidity position.

Some pricing changes will lead to differences in the relationship between our reported revenues and interest expense we.

We do not anticipate any near term policy changes, but we also do not expect the term discount to make up the same percentage of software revenue as shorter term length Alachua West module revenues grow as a percentage of total revenue and we evolve our pricing strategy to reflect changes in our cost of capital.

We will be short of detail any material changes to this going forward.

Now, let me turn to our third quarter results I'd like to quickly point out that I'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 early earlier today.

For the third quarter bookings were $96 million up 181% year over year.

Growth in cumulative booked home units also accelerated to a total of 531000 units up 101% year over year.

Finally booked IRR group of $59.8 million up 126% year over year.

Well Tony units represent the total number of apartment units or similar dwellings installed cumulatively as well as committed to be installed with latch products booked.

Both IRR is defined as the cumulative value of annual recurring revenue from last software subscriptions that are under assigned to LOI dig.

The acceleration and growth across all bookings metrics is reflective of increase adoption of latches product offering.

And the third quarter, we saw tache rates of non access <unk> modules of 83% versus 90% in queue to visit.

This attach right demonstrates robust customer demand for our incremental Latschar west modules is may become available in support increased investments in R&D, which will accelerate the time to market of several new modules.

As we have discussed the attached right metric is becoming less meaningful since it only accounts for the percentage of in period booked units with a latch O S module other than access attached.

Since we are seeing an increasing number of deals including more than two <unk> modules. We are working to provide a better metric to capture per unit module attach rates and will no longer provide the symmetrical going forward.

This dynamic is a good one for the business as we expect these modules to drive higher customer our lives and accelerate customer LTV expansion.

Now turning to revenue, we're pleased to announce revenues with $11.2 million in the quarter up 120% year over year.

We're proud of this result, as this again demonstrates the strong customer demand for our products, but also our team's rigorous execution given the challenging macro and supply chain environment revenues were just above the high end of our third quarter guidance range. Despite the impacts of labor and building material shortages through the quarter.

Our priority remains meeting our customer needs and our team should be proud of our differentiated ability to simultaneously deliver 120% year over year third quarter revenue growth and greater than 21 percentage points of year over year hardware margin improvement during these unprecedented global supply chain and electronics shortages, which have been pack.

That 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.

The annual hardware margin improvement was largely driven by scale efficiencies improved distributor cuts and more cost effective next generation access products.

We did experience a sequential quarter over quarter decline in hardware margin for negative 12% to negative 21% largely due to spot buying an elevated shipping costs as mentioned earlier by Luke.

Though this macro environment may continue to challenge our margin performance for the remainder of the year, we have high confidence that this temporary market dynamic will not impede longterm hardware margin improvements.

Our software margin was 91% for the third quarter, a marginal difference compared to 93% in the third quarter of 2020, we've.

We believe the software margins continue to demonstrate the strength of latches business model and highlight are scalable and modular software stack, which enables all have lots of west functionality, including integrating first and third party hardware devices.

Over time, we expect software revenues to increase as a percentage of our revenue mix, which is a key driver for long term gross margin expansion.

Operating expenses were $34 $4 million in the third quarter up 135% year over year, primarily due to hire people costs as a result of successful hiring efforts primarily in sales and engineering.

In particular third quarter sales and marketing expenses grew 210% year over year as we continue to invest in sales capacity to meet accelerating growth in customer demand and take advantage of our huge untapped market.

Since joining this year are Ciara, Chris Lee has been focused on growing infrastructure training operations and sales capacity.

We are excited to continue to invest in our sales and go to market functions to support accelerating growth in customer demand.

Adjusted EBITDA in the third quarter was a loss of $26.2 million as compared to a loss of $46 million in the third quarter of 2020.

Turning now to our balance sheet as.

As of September 30th, we'd cash and cash equivalents of $243 million compared to $65 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 T. S innovation.

At the end of the third quarter, we had no debt.

Now, let me turn to guidance because of the accelerating growth in demand for our products and our strong year to date of execution. We're excited to raise our annual total bookings guide to $355 million to $365 million from our previous guide of $325 million to $340 million, which reflects a one.

Hundred 15% to 121% year over year increase in total bookings thus in the fourth quarter, we expect a total bookings to be in the range of $91.5 million to $101.5 million, a 102% to 124% year over year increase.

Despite seeing accelerating customer demand post pandemic macro normalization has been shopping and we've experienced impacts from a global supply chain and labor shortages that has been widely reported and referenced earlier by Luke I.

I am sure. This has been a consistent theme throughout earnings of the season.

The latest and it makes the construction survey found that 93% of multifamily construction projects up from 83%. The prior quarter are now experiencing delays only 2% of canceled upcoming projects down from 3% in the prior quarter.

This is a situation that we will continue to monitor closely as the challenges persist.

Despite the challenging environment, we've never experienced more robust customer demand and are confident in our differentiated ability to deliver despite the challenging global supply chain environment.

Because of this we are reiterating our full year revenue guidance of $38 million to $42 million, a 111% to 133% year over year increase this guidance assumes no meaningful improvement to the current global macro and supply chain environment and implies a fourth quarter revenue guidance range of $11.2 million to $15 2 million.

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Despite the supply chain shortages, we will continue to prioritise meeting customer demand for our products and will continue to tactically sore 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, though the long term drivers of our hardware margin expansion discussed earlier remain in place. Despite the short term macro disruption.

We're also excited about our continued work with Lakshamanan's partners with this program latch partners will be making latched certified products that support lactose via their own differentiated supply chains.

These partnerships act as a force multiplier for lapses supply in engineering core competencies.

That said, we are seeing some efficiencies elsewhere in the business and as a result, we are decreasing are expected adjusted EBITDA losses guidance for the year, two $105 million to $90 million from $115 million to $95 million. This implies guidance for the fourth quarter of $47.5 million to $32.5 million.

In summary, we're very pleased with our performance in the third 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 macroenvironment.

While supply chain issues have marginally affected our short term results. We are seeing sustained accelerating growth in customer demand, which is reflected in our accelerating revenue growth with a massive and growing market opportunity ahead of us category defining products and market and development and a strong market leadership position. We believe we are uniquely posish.

<unk> for sustained long term success with that we will now open the call up for questions operator.

Okay.

Thank you.

As a reminder to ask a question you'll need to press star one on your telephone.

Sorry. Your question. Please press the pound key we ask that you keep it to one question with one follow up.

Stand by while we compiled the Q&A roster.

And our first question comes from Steve from Sheldon with William Blair. Your line is now okay.

Hi, everyone. This is actually map file a gone for Stephen Sheldon. Thank you for taking my questions and.

And the prepared remarks, you talked about reporting bookings on a gross basis and was wondering if you could talk through the reasoning for that and if you have considered reporting the bookings that a promotional discounts.

Absolutely do you want to take that one.

Yeah sure. Thanks look and thanks for the question that.

I think I need to know about latches that we don't sell into just one type of customer for example, a handful of large on our operators. We <unk>, we sort of a very broad customer base and our discounts vary based on the size of the customer how many projects they have with us mix of products building pipes and region. Among several other important factors because of this we believe.

That it wouldn't service, while the publishing average discount that said the range of promotional discounts range from 15% to 20% and turn discounts for almost all of the interest expense in our third quarter results, which would give you a pretty clear sense of what the net amounts are in.

Importantly, nothing has changed our discounting practices since we first discussed this back in 2021 analyst day, and if we expect any material changes will be sure to let you know.

Thanks for that commentary that's helpful. And then consider the elongated construction timelines are you seeing any changing dynamics in the current backlog book business.

Hey, look I'll jump all jumping on that one so just as we as we mentioned on the macro environment has led to delays on all projects, including new construction and retrofit projects and.

And we have seen instances in which delays have been over a year. We're really pleased however, about our ability to deliver 120% year over year revenue growth and reiterate our full year revenue guidance. Despite those delays that are a result of this challenging macro environment. Most importantly, it's really early days for customer adoption of our products and market penetration for latch.

We have never been more confident about our position in the market opportunity and again have high confidence that once we get through these lingering COVID-19 driven macro disruption or delivery timelines timeline really quickly revert back to what we've seen previously.

Thank you for that I will jump back in the queue.

Thank you.

And our next question comes from Ben Sherlin, Let's Cantor Fitzgerald. Your line is open.

Hey, guys. Thanks for taking my question. So looking at the fourth quarter guidance. The top line range is much larger than in prior quarters.

Maybe help provide a little context around the volatility of expected revenue versus prior quarters just.

Related to a a large project that might fall in <unk> any color that would be helpful in them and I have to follow up too. Thanks.

Okay do you want to take the first part there.

Sure Yeah.

We're.

Like Luke mentioned were prioritizing and our customer demand and we're really pleased about our ability to source and then sort of supply and deliver for our customers given some of the supply and labor shortages that we've talked about previously in the fourth quarter, we've seen some opportunities to deliver products for our customers who've been waiting for them in certain instances for over a couple of quarters.

Because of that we look directly in our pipeline and that gives us high confidence in our ability to deliver that is high growth rates. Despite the macro disruption. We're currently experiencing so it's it's no individual deal, it's really our ability largely because of our supply chain flexibility to deliver for our customers on some deals with they expect on some projects they expect to deliver on the fourth quarter.

Okay, Great and then I'm looking at the <unk> of the bookings in the quarter you know it looks like you guys had some some pretty nice sequential growth there J b provide some some color on.

How the average discounts of trended throughout the year or maybe relative.

Two Q.

Look I'll jump in on that one as well.

Then there's been no material change in art and sort of a promotional discount rings. We've talked about previously 15 20 per cent.

I think what you'll see in the <unk> number is that we had several deals that actually included a lot of common area doors and our our series software's meaningfully more expensive than our unit entry software because of that that drove a sequential change in the <unk> in the quarter.

It is a reflection however.

Really high tax rates are include incremental actuation modules as well, which we consider to be a long term driver of <unk> expansion for the business.

Okay, great. Thanks, guys.

Thank you and next question comes from patients Helena with Keybanc.

Capital markets. Your line is open.

Great. Thank you guys for taking my questions you know maybe the first one.

That growth and occupancy.

It's been in the news that continues to climb occupancy.

All time back to your account I'll pretend to mankind.

How do you view this as a as a positive trend for your owner and property manager.

Customers.

What is their kind of confidence level and looking at.

Building.

Wow.

Hey, Jason Thanks, so much for the question yet I think what we're seeing is that there's a real excitement on the part of users and residents to return to cities.

Get back to you know the environment that they're in Prepandemic I think you're also saying just continued in historic growth in the multifamily segment and have spoken about this before and I think what we're most excited about is that these macro trends really played a lot just favor, but I think the important part is that we are still such a small.

All percentage of the overall market into such such a.

Underpenetrated technology and market that we're very excited to see whatever sort of tailwinds that these sorts of chips bring about but we're very confident in our ability to grow.

And a wide variety of different macroenvironment because of the Underpenetration and so we're excited to continue to provide better and better experiences for building operators, helping them to be more efficient drive more value of the property and then also just make life better for residents, which we think will have the effect of large buildings and buildings were last products or adult bean.

Desirable.

So we're super excited about we're seeing other Jason.

Okay, Perfect and then maybe one more.

<unk> I've include because we're going to talk about some of the opportunities.

The line, maybe remind us on how you think about you know the make first by decision when it comes to adding functionality.

The internal absolutely.

Oh, Yeah, absolutely, Jason I think for US we have a very clear sort of product vision that we're executing against and for US. It's about doing whatever we can to Bray those product. The most fantastic experiences to our users as quickly as we can as efficiently as we can and we are always looking at on way.

To improve the speed with which we can deliver new products to market and we see M&A is it really important strategy to bringing new products to market and surfing new markets and so we're continuing to prioritize that we formalized our corporate development efforts earlier this spring and are excited.

Continue to to make an outfit as.

Things come to pass, but we're seeing a lot out there I think there is a lot of interest in Proptech until you see a lot of venture funding going into the space, but it's a really hard and market, it's very difficult to build the right product, it's very difficult to build the right distribution and we could we have a very unique advantage to offer to companies who are who are maker.

<unk> <unk> solutions to join a platform that already has an audience and an installed base with the largest donors in the world and we're very excited about how corporate development can be used to accelerate our product vision and our product roadmap it.

From us on that in the future for sure. Thanks, Jason.

Thank you. Our next question comes from right Huh.

Goldman Sachs gelatinous okay.

Hey, guys. Thanks for the question My I guess my starting point question would be Garth you've talked about this.

36 months adjustment to the booking could you is there any way you could elaborate on how much of the booking then adjusted that way and then any color you could give us on how you are adjusting as it sounds like you are impairing it a little bit, but I wasn't clear on exactly how you're adjusting that and then I have a follow up.

Thanks for the question around this is something that we've done as good hygiene measure in order to give investors the best tools to understand our business.

I think we're we're really pleased to be able to deliver 181% year over year growth rates bookings after making the adjustments to both the cumulative and period bookings metrics. The 36 months policy gives us 12 months after our after the 24 months booking window to account for construction industry delay.

Since we've talked about it become more comment on this macro environment, but we're really pleased by our ability again to grow at Brookings at such high growth rates, despite making those types of adjustments and despite a lot of the macro disruption that we're seeing which is really just a reflection of our customer adoption of this product category, which we expect to continue for many years to come because of.

The relative underpenetration of technology, and our customers portfolios.

Okay. Thanks, and then I wanted to check the the interest expense the proportion of the software revenue, 36% this quarter.

38% last quarter.

Those if we were average does is that a pretty good guesstimate for what the.

What the term discount sort of looks like or or the reasons, we shouldn't do that as a rule of thumb for how to think about having kidney translated into revenue only Kelly.

Yeah, Rochester, referring back to my of my prepared remarks, I think that that is a pretty good rule of thumb for where they where they sit today, but as I mentioned as we introduced more lateral S module set of shorter term length. It is likely that the percentage of a reported software revenues.

The term discount makeup goes down over time, so I would expect to see more information about them into 2022, but for now that is a reasonable assumption.

Okay great.

Thank you and our next question comes from Tom White with David Your line is open.

Great cause thanks for taking my questions too if I could I was hoping you could just maybe double click on your comments around.

How are you approaching pricing and I guess, specifically kind of as.

As we enter next year and.

If we're faced with the possibility of that's kind of.

Relation on inputs and supply chain delays and stuff like that how does your view of kind of pricing change and then just secondly on the on the guidance commentary of course, I think you mentioned that.

You called US some operating expense efficiencies that were offsetting some of the hardware gross margin pressure can you just give a little more color on exactly what those are are those kind of like durable permanent inefficiencies or or things that uhm that my.

Kind of re ramp again thanks.

And I'll start on that I think are funny and it over to you.

Thanks, So much for the question I think for US what we're focused on continuing to deliver.

Hardware for our customers because that is the vehicle that we deliver our north of 90% margin software.

Through through that initial installation that initial distribution process.

While we're absolutely keep an eye towards the bottom line and trying to make sure that we minimize hardware costs wherever possible or play the long game for the.

Effectively deploy the software as widely as possible. So it's an important nuance to just understand about our hardware pricing is that we look at it as.

An important input into acquiring the software.

Long tail revenue stream and so for us it doesn't have as big of an impact as it does for a company that make that are derived.

The majority of their profit from Italian device itself, we're really focused on the devices enable her for the software business. There's just an important thing to keep in mind.

And then I'll hand, it over to you for any new up on that and then also for the second part of the question.

Thankfully.

Thanks again for your question, we are confident that the value our products delivered to our customer a customer's meaningfully exceeds the price. We charge, then which we believe gives us decent flexibility to adjust pricing if we need to that said our customers depend on stable and consistent pricing, which we believe to be a competitive differentiator in market, particularly.

In times like these where the supply chain challenges are making it difficult to suppliers of all kinds because of this we don't feel the need to adjust pricing right now, which we think will help us help us accelerate our share games and we'll be sure to keep you updated entrants changes on upcoming earnings calls.

Okay.

Can follow your comment on the operating expenses after.

Yeah go ahead dark.

Okay. So just on the operating expenses efficiency. Some we saw some improvements on the G&A side relative to what we expected, which we'd certainly how can we actually do expect that to continue also we thought we had some small adjustments to product roadmap, which led us to deliver some upgrades without some planned investments I'd again.

The G&A improvements to continue we're always looking for ways to make the other parts of the organization more efficient, which gives us pretty high confidence in our ability to deliver on the improved adjusted EBITDA guidance, we provided today.

Great. Thanks, guys.

Thank you.

And this concludes today's conference call you may now disconnect everyone have a wonderful day.

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