Q1 2022 Latch Inc Earnings Call
[music].
Okay.
Good day, and thank you for standing by and welcome to the Latches first quarter 2022 earnings.
Paul at this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised this call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today, Kevin Toomey Latches director of Investor Relations.
You may begin.
Thank you operator, good afternoon, and thank you for joining us today to review <unk> first quarter 2022 financial results with me on the call today are Luke Schoenfelder, Chief Executive Officer and co founder.
Barry Shaper interim Chief Financial Officer, Garth Mitch.
Mitchell transitioning 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 security laws.
Statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from these expectations reflected.
Any forward looking statements.
Forward looking statements made today speak only to our expectations as of today, and we assume no obligation to publicly update or revise them.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the risk factors section in our annual report on Form 10-K available on the SEC's Edgar system, and our website as well as other risks and other important factors discussed on today's call.
Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure with that I'd like to turn the call over to Chief Executive Officer Luc Schoenfelder.
Thank you Kevin it's great to be here to discuss <unk> first quarter 2020 results and provide an update on the progress we've made on our strategic priorities last continued its strong growth trajectory. This quarter, we delivered software revenue growth of 88% year over year to $3 million in Q1, which exceeded the high end of our guidance range as we are experiencing shorten timelines between <unk>.
Our sales and the initiation of software agreements, our total revenue guidance for the full year implies a 112% year over year growth at the midpoint now in addition to reporting and guiding to software revenue on a quarterly and annual basis going forward. We are now reporting each quarter and providing guidance on an annual basis.
<unk> is defined as annualized value of our active software contract.
Promotional term and any other discounts or <unk> at the end of the first quarter was $7 9 million, representing a 137% year over year growth. We are also now reporting a new metric spaces, which is defined as the quantity of units with active software contracts and building that generate IRR where units represent apartments other dwelling units or commercial spaces.
The building, we now have almost 127000 spaces at the end of the first quarter up 129% year over year or 22% sequentially.
This metric is an important concept to latch as it is the leading indicator and factor in our resident engagement strategy and the revenue potential that it brings to both <unk> and our building owner customers. We're excited about the growth in <unk> software business demonstrated by these metrics and Barry is going to speak more about our full year guidance in his prepared remarks.
We continue to see opportunities to better serve our customers' needs across the lifecycle of a project activation and ongoing operation direct deployment contributed over $1 $5 million of revenue from these activities that first quarter alone. Despite its recent introduction accounting for 10% of our total revenue in the quarter. Our investments here helped us win more business better square off with competitors that.
Previously offered a deeper level of infield installation support and now set up a foundation for more service offerings going forward the market for our products and services remains incredibly exciting and we continue to see increased demand from real estate owners, increasing buyer sophistication and increase recurring monetization opportunities that drive our confidence in the market opportunity, we have created hardware software and services.
That our customers love and the market is expanding.
Now I'd like to speak to progress on some of our strategic initiatives outlined last quarter. We continue to see 2022 is a high growth year in our core North American multifamily market with lots of opportunities for the expansion of watches initiatives to make more spaces better places to live work and visit we're focused on executing on this massive market opportunity and we've made and will continue to make.
The required changes to continue to be successful in February we I wanted a number of these strategic initiatives and I'd like to quickly speak to supply chain organizational changes sales compensation partnerships and product progress.
I'll start first with construction delays and supply chain as we look back on the first quarter. Our teams continued to deliver products for our customers. Despite a challenging macroeconomic backdrop.
We have not seen significant changes in our customers' construction timeline due to their own supply chain constraints with extended shutdowns internationally due to COVID-19 and ongoing geopolitical conflicts, adding more uncertainty, but our own teams have continued to deliver with improved efficiency in the first quarter, we made fewer spot purchases in the short term electronics market and we are able to recognize improvement.
And our hardware gross margin in the first quarter as a result, while we were pleased to see these positive results and over the long term the trend in margins will be positive we expect spotlighting the current environment, but pressure on hardware margin for at least the remainder of 2022.
Turning to organizational changes in Q1, we announced the key changes to the leadership team after more than three years Garth Mitchell transitioned out of the company to pursue other opportunities and launch as senior Vice President of Finance very Shaper was appointed as interim Chief Financial Officer, and we're excited to continue with his expertise in the business. We're in the midst of an ongoing search process for a new CFO to support.
<unk> continued growth as.
As part of this organizational evolution Junji Nakamura also assumed a new role as Chief Accounting Officer, while Latches, Chief Operating Officer Ali Hussein stepped down as an executive officer and principal operating officer enable him to focus his efforts on special projects and strategic initiatives across the company at this important inflection point.
These changes are an important part of this next phase of our growth and I am extremely grateful to have worked with Ali and garden in their roles.
Turning now to our sales compensation structure, we made a move early in the year towards compensating our sales teams on what we believe matters most to our growth continuing to increase recurring software and services revenue and delivering for our shareholders and customers in 2022.
Software revenue exceeding the high end of our guidance range today and as a result, we are raising our outlook for full year software revenue and introducing full year <unk> guidance, we're making continuing improvements to our go to market motion to continue to deliver a great experience around our existing products for our customers, but also find more efficient ways to deliver new products to them as well, we look forward to continuing to provide updates.
Around our sales progress throughout the year.
Turning to partnerships, we've made enormous progress in finding ways for our customers to get the benefits of <unk> through an expanded set of hardware software and service partnerships. This includes many of the partnerships announced at the end of 2021 and more that we expect to announce later this year in Q1, we had more than $1 million of revenue from second party devices and associated software.
Excited to see this strategy begin to contribute in the first quarter. The combined effect of the <unk> program and our active support of the open matter device standard will allow us to continue to rapidly scale latch enabled spaces through second party and third party products that are brought to life with differentiated latch software and services building on a trusted high experience high quality ecosystem.
First second and third party devices provides us the ability to drive recurring software per space without having to incur the cost of first party product development for each of our spaces. This broader strategy is particularly helpful. In the retrofit market as it allows labs to more flexibly pursue the activation of a wider set of spaces through the addition of partner products.
Further push into the retrofit market is having a positive impact on our near term results as retrofit projects are less subject to construction delays, we expect to continue to build on this strategy throughout the year and grow the ecosystem of partners for <unk> as we spoke about on our last earnings call. We have reorganized our product and engineering organization to get back to the basics of buildings.
Shipping and selling amazing products to our customers.
At our core latch has always been a product company delivering hundreds of product and feature releases over our lifetime with our work, resulting in a 131 pending or granted patents worldwide through this recent reorganization. We've returned to our foundation and are poised to deliver consistent and increasing value to all of our stakeholders through our products this year and beyond.
Two years ago in September of 2020, we announced the first version of our full building operating system, <unk>, which now powers over 100000 spaces and we're excited to release our first major update later this year built in close partnership with some of the world's leading real estate companies. The products and features of this next lateral less release, many of which we spoke.
About last quarter will once again push the industry forward solving customer problems and delivering on an enhanced user experience from payments for rent and experiences to open standard matter based smart home sensor management to new capabilities around deliveries and living services, and new integrations and collaborations to a conversational interface between residents in their spaces.
Lastly, west will further bridge the needs of real estate operators their residents and all of the partners and services that operate in spaces to complement the expansion of <unk> to more spaces. We will also be releasing two new retrofit products, specifically tailored to the needs of the more than $30 million existing apartments in the U S. It will help us land and expand at new <unk>.
It looks like when I joined latch in early 2019, we were a private company with about 100 employees for people in finance, some exceptional products and a lot of enthusiasm.
Today, we're a public company with a global base of employees over 100000 spaces and hundreds of thousands of the world's best real estate owner operators on the platform.
Although I've decided to leave the company to pursue other opportunities the market opportunity and differentiated products have only become clearer and the same enthusiasm remains.
I'm extremely grateful to have been a part of this team and for the opportunity to have built world-class public company finance organization ready to support the companies continued growth I'm proud to him the reins of the team over to Bury Schaefer, whose decades of finance experience. It fast growing technology companies in hardware and software and collaborative leadership style give me high.
Confidence that I'm, leaving the company and CFO role and very capable and prepared hands.
Thank you to our customers shareholders and teammates it latch for the opportunity to serve the company for more than three years I will be cheering for your continued success and I can't wait to see what's next with that I'll turn it over to latches interim CFO bird.
Thanks, Garth and thank you Luke Q.
Q1 was another quarter of strong growth with the company.
I am going to share our first quarter results. In addition to providing an update on our fiscal year 2022, and Q2 2022 guidance.
I'd like to quickly point out that I'll be discussing some non-GAAP metrics going forward for.
The reconciliation of gap two non-GAAP financial measures has been provided in the financial statements tables included in the earnings release, we issued earlier today.
Today in addition to quarterly software in total revenues, we reported two new K P. I E. R. R. Net a promotional term and any other discounts and spaces that are active on the platform.
These metrics most closely reflects the scale and revenue generating potential of our platform and the recurring cash collected from our customers to provide our services.
The company reported a R. R. A seven $9 million up 137% year over year, and almost 102000 70000 spaces.
129% year over year.
Strong growth in a R R and spaces in the quarter was primarily the result of latch software going live in more units.
In the case of are are we have also seen strong attach rates of intercom smart home and latched delivery assistant, which gives us confidence in our potential to grow customer lifetime value as we launch new products and services.
Beginning today, we have also provided full year 2022 guidance for air or introducing a range of $11.1 million to $11.9 million and spaces guidance of 182000 to 194000.
We believe the growth we've seen an error and spaces best represents the opportunity of our business, although macro headwinds leading to construction delays for our customers may in turn cause variability these metrics.
Turning now to our first quarter results.
Elsewhere revenue of $3 million grew 88% year over year in the first quarter and total revenue of $13.7 million was up 106% year over year.
Software revenue beat the midpoint of our guidance by 11% and exceeded the high end of our guidance driven by acceleration of software contracts.
In total revenue, which includes hardware was in line with the midpoint of our first quarter guidance range.
There are a number of differences between air our growth and software revenue growth, including timing of large deals timing of when we recognize revenue in that software revenue includes term discounts. While are are is net of such discounts.
Adjusting for these items in the quarter hour software revenue growth with more closely reflect our air are in spaces growth.
Moving now to hardware revenue as.
As we told you last quarter, we have a meaningful amount of books hardware revenue in the pipeline.
It can be difficult to predict the timing of hardware revenue recognition in any given quarter due to ongoing macros supply chain challenges, which may lead to construction delays also given our relatively low base of revenue any change in the mix of hardware products soul or a shift towards the second and third party hardware at the <unk>.
<unk>, our software can impact hardware revenue.
We are also breaking out services revenue for the first time this quarter as we mentioned last quarter, we have historically undermonetized customer success support an activation and we see direct appointment activation in training has all presenting real opportunities for growth and services revenue in 2022.
Services now represent over 10% of our total revenue in the quarter and we anticipate that magnitude continuing into the second quarter.
Turning now to margins.
First on software margin.
Our software margin was 89% for the first quarter fairly consistent with both the first and fourth quarters of 2021, we.
We believe latches high software margin demonstrates the scalability and positive impact on our overall gross margin from our hardware agnostic software.
Now on the hardware side.
And the first quarter, we saw a solid quarter over quarter improvements in hardware margin from negative 50% to negative 21%.
<unk> volatile supply chain environment may cause temporary fluctuations in hardware margins and any particular quarter. Although we believe our hardware margins will improve over time, we expect spot buying in the current components environment to put pressure on hardware margin for at least the remainder of 2022.
Over time, we expect software revenue to increase as a percentage of our revenue mix, which along with improving hardware margin will be a key driver for long term gross margin expansion.
Operating expenses for $51 $2 million for the first quarter down 10% versus Q4 2021, two primarily to one time items in queue for <unk>.
Justin EBITDA in the first quarter was a loss of $36 $8 million as compared to a loss of $44.4 million in the fourth quarter of 2021.
Adjusted EBITDA result was better than are regarded loss range with higher hardware gross margin driving much of the sequential improvement.
Turning now to our balance sheet.
As of March 31, 2022, we had total cash plus marketable securities $335 million, including cash and cash equivalents of $91 million and $244 million and marketable securities, which compared with $46.5 million total cash.
Plus zero and marketable securities as of March 31, 2021, the increase in cash and cash equivalents and marketable securities was primarily due to proceeds received in connection with the June 2021 closing of the business combination with T. S innovation.
Now, let me turn to guidance.
We are introducing full year 2022, a our our guidance of $11.1 million to $11.9 million, representing 74% to 87% year over year growth.
And spaces guidance of 182000 to 194000, representing 75% to 86% year over year growth.
We are raising our full year recurring software revenue guidance to arrange a $14.3 million to $15.3 million, a 74% to 86% year over year increase.
For our second quarter software revenue guidance, we are protecting a range of $3.3 million to $3.4 million and 82% to 88% year over year increase.
For our full year total revenue guidance, we are maintaining a range of $75 million to $100 million and 81% to 142% year over year increase.
This is unchanged from our guidance provided in February .
Or our second quarter total revenue guidance, we are projecting a range of $16.5 million to $18.5 million and 83% to 105% year over year increase.
We are updating our adjusted EBITDA guidance for full year 2022 to a loss of $176 million to $156 million, which represents a $4 million improvement over our previous guidance.
For our second quarter, we expect an adjusted EBITDA loss of $40 million to $36 million.
We are continuously evaluating operating efficiencies and believe there are opportunities to continue to improve.
You can expect that we will move quickly to implement improvements while balancing efficiency with growth.
Our guidance continues to reflect no meaningful change in supply chain challenges at the start of 2022 and reflects a cautiously optimistic ramp and go to market investments and software lunches.
Addition, as we ramp up on second and third party hardware, we anticipate that this could have a downward impact on hardware revenue. Accordingly, we are maintaining our wider implied range of hardware revenue outcomes in our provided guidance pages.
In summary, we delivered strong growth in the first quarter inch.
Introduce a R orange basis guidance.
And raised our software revenue and adjusted EBITDA guidance for the full year.
We remain committed to delivering sustainable growth for the long term and a massive and expanding market.
With that we will now open up the call for questions.
<unk>.
And thank you.
We will now open the call for question and answer session.
C E O Luke Schoenfelder interim CFO Barry safer.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press. The pound key please stand by we compiled the Q&A roster and we do ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question and one follow up and our first question comes from <unk>.
So for rink with bird.
Mine is now open.
Hello, everyone. This is Peter on on for Joe Tonight. My My first question would be when you think of just I know, it's it's pretty early on it's been about a month, but when you think about the communication and the planning of the roll out of a new compensation alignment for sales how has it gone first of all and any early proof points.
Having the desired effect that you've talked to us last quarter about.
Hey, Peter Thanks, so much for the question.
As we reported in the quarter, we obviously saw it we exceeded the high end of our software guidance range and actually raised our software for the year, we're really focused on making sure that we continue to compensate our sales teams to deliver on that I'm margin recurring software services that we offer and we're excited about continuing to see that.
Developed throughout the year.
Okay, Great and then just one on on the macro clear with the guide it sounds like you're still expecting mostly the same but anything kind of incrementally more positive more word worst you're seeing it in the market versus last quarter and what what are you kind of looking for for it to.
Get better throughout the year, maybe to perform those expectations and then on just retrofit versus new you spoke to retrofit being a little stronger there and you got one of those factors.
Yeah. Thanks, Peter Yeah, So I think as our guidance sort of implies we expect no real change over our annual sort of guide at those provided meeting the sort of supply chain environment in construction environments days about that as well we did see you know.
A positive.
Positive movement fewer spot buying it activities on it within the first quarter. It would be great. If we see an opportunity to do that in the future, but we're not planning for that to be the case as we look at the sort of retrofit growth.
We continue to be excited about our growth and retrofit for our existing products, but also for the growth of second and third party products and our ability to serve more spaces. We also have some exciting new products that are specifically tailored for the retrofit market that it will be able to speak in more detail about later this year that are already piloting with customers. So expect to hear more from us on the retrofits.
We're very excited about that market opportunity [noise].
Awesome. Thank you.
And thank you.
And our next question comes from Steven Sheldon Vermillion Blur the line is.
Now open.
Hey, guys. Congrats on a nice forwarded this is actually Pat on for Steven today.
Just a couple of questions here so.
My first one a few quarters ago, you you guys announced integrations with some of the other property management software.
Software providers some of the major ones security and then tried I believe and mentioned plans to deepen those connections over time I just wanted to ask at this point, how those have progressed and given what you know it can be somewhat fragmented tech stocks and if you've seen any incremental sales traction from those capabilities.
Hey, Thanks, Pat Yeah, So we announced over the last series of quarters Realpage, you're already in <unk> and we're always looking for ways to expand the ways that we can work with partners work deeply committed to it and opened partner ecosystem approach and so I think as we think about the problems that we're trying to solve the building lots of the product.
Company, and we want to create the best possible experience for folks who manage large amounts of spaces and for people who live in spaces and we've seen numerous opportunities to improve the experiences by integrating with the best in class partners. Some of whom you you you mentioned that we've spoken about before and more that we haven't yet announced and so you'll continue to see partner announcements from.
Throughout the year and we're very excited about continuing to expand our ecosystem and increased functionality over time through partnerships.
[noise] got it thanks, and then as a follow up you mentioned this quarter. Some pilots for the new retrofit products I think last quarter, you talked about some pilots that you were running on the commercial side.
Related to commercial office space, just wanted to ask how those of progress and if you can talk a little bit of generally about how you were thinking about the opportunity there.
Absolutely Yeah, we remain excited about the commercial office market. We continue to have pilots in that space. We don't have anything new to announce today, but we continue to do that as a large opportunity on top of our focus in the multifamily North American market and so we'll continue to focus deeply in the multifamily north American market, but.
Look opportunistically for commercial office and European expansion opportunities with the right partners in the right pilot customers.
Understood. That's helpful. Thanks for the time.
Thank you.
And our next question comes from Rod Hall from Goldman Sachs. Your line is now open.
Yeah, Hi, guys. This is Max entourage. Thank you for taking my questions and also a Garza best of luck in your next endeavor. It's been it's been very nice working with you.
Too much of my questions I wanted to start with I wanted to get some color on your initiatives with second and third party hardware providers and you did touch on this on the call, but you've previously mentioned that the latch M blocks. Your one of your flagship product goes for around $599 versus till actually.
<unk>, which is used along with a second party locks generally it goes between 50 to $100.
Tradeoff in hardware revenue, it's pretty substantial and I was wondering.
What percentage are an estimate maybe what percentage of fear deployed space going forward I expect it to come from second and third party locks and then the revenue implications of that and more importantly, the gross margin impact that'd be should expect.
And then I have a follow up.
Hey, Thanks, so much for the question Max So as we think about sort of continuing to grow the number of spaces that we served with our products and experience, where we really want to make sure. We do is continue to deliver for our customers with the right mix of products for their spaces and so if we think about the typical apartment building, there's going to be lots of different products that are required to complete.
The entire experience and so in some cases that will be the first party products in some cases there'll be a second party products, which is a product bill with the last one in some cases there'll be a product that doesn't include any latch hardware and so are implied full year guidance on the hardware side has a bit more range given that we want to be flexible and meeting the need.
<unk> of our customers and given that it's still relatively early in the rollout of second and third party products that work with lots of US we're not breaking out specific revenue there, but we did say in our prepared remarks that we drive over $1 million in hardware and associated software revenue from second and third party products in the first quarter. So we're excited to continue to see that over time.
As we focus.
<unk> you know continue to expand those efforts, we're always focused on maintaining our high margin a high value software and so you know continue to look at that as an area to focus on the number of spaces in the amount of software revenue do we derive from those spaces.
Got it got it. Thank you and then another question I I I think the the spaces units disclosure, that's very helpful disclosure and thank you for additional data appointment.
Having a little bit deeper on that.
You're in your guidance you noticed that you expect to have about 188000 total space I think that the mid point with your guidance, which is about 80% you're you're increase and then you ended the coupon with about 126000 units. So.
I I believe that points towards about roughly 22000 deployed units in the quarter, if I'm thinking about that correctly and then you.
That would imply I guess, an additional 60000 deployed units to be over over the course of the or for the remainder of the year or just 20000, new space a quarter. So that's actually a little bit.
Roughly in line or even slightly below your deployments in Q1. So I'm wondering if that's a conservative guidance going forward, if you're expecting some kind of slow down and deployed units.
Yeah that would be helpful. Thank you.
Yeah, Hi, Max sorry, I know it wasn't the right. So I just wanted to see what your name was saying that this is Barry.
Yeah. So the the guidance that we're giving for the rest of the year on spaces is.
Is we still see the macro headwinds and we just want to be cautious about the.
How the impact too.
Construction delays will be so.
This is the guidance that we feel most.
Confident with and so that's that's the Guy that's best for this reflects our best guess.
Got it thank you.
Thank you.
And our next question comes from Ryan Thomas Hello from K B W.
Is now open.
Hi, everyone. This is actually came out <unk>. Thank you so much for taking the question can you provide an update on your appetite for M&A and have you seen an increase in the number of opportunities with recent volatility what areas of the business do you think could benefit most from an acquisition. Thank you.
Hey, Kayla thanks for the question.
Latches, a product company and we always look at ways that we can solve our customers problems and so as we think about the tools in our tool kit to solve customer problems billed by and partner is really the lens that we approach every opportunity we've seen amazing.
He's over the last nine years to build great products for our customers. We've built partnerships with some of the leading technology companies and product companies in the space and we also think there'll be opportunities to acquire opportunistically going forward. We have continued to see strong.
Bound on the M&A opportunity side, and we're continuing to feel those I think those opportunities will persist, particularly as you see earlier stage technology companies that <unk> is a relatively new category a lot of folks have raised money in the last couple of years as the market dynamics change we think.
There will be opportunities to acquire and integrate smaller providers to complete.
<unk> full solution for our customer problems, but you know at the moment, we don't have anything specifically to announce.
Got it. Thank you and I just saw that is there any framework that you can provide it to bridge the past too casually breakeven maybe at what level of error or do you expect to drive profitability and maybe have you explored any cost right sizing initiative to celebrate the timeline.
Hey, Kayla, Yeah, we're really focused on operating the business as efficiently as possible and getting to free cash flow breakeven. We have a fully funded plan and we remain committed to continuing to balance growth in a massive massive market with the operating efficiency.
Required to continue to move forward effectively uhm, we're really excited about what we're seeing in the market growth. We're really excited about what we're seeing internally and we're really excited about how customers respond into our products and we look forward funded plan to make sure that we're here to serve spaces forever. So very excited to continue to before it and I appreciate the question Kayla.
Awesome. Thank you so much.
And thank you.
In our next question comes from Ben Sherlin from Cantor Fitzgerald.
Line is now open.
Then your your line may be on mute.
Hey, sorry about that guys. Thanks. Thanks, so much for taking the question and I. Appreciate the added out of disclosures using one of the disclosures from last quarter I Kinda accumulate brought home units you know it looks like you guys have.
Pretty big backlog of.
Book to units because you kind of you know give us any indication of what we should be looking for signals maybe supply chain. Your reason and then if there were to be easing pressure on supplies you and it's kinda what would that for settlement of that backlog look like.
Hey, Ben Thanks, so much for the question. So as we looked at the market historically as we were focused on new construction bookings allowed us to look 24 months into the future and sort of project our growth with our customers based on otherwise with the supply chain challenges that we've seen.
And our focus on driving ourselves seems to deliver and your software revenue. We really are excited to use that historic backlog of bookings as an important source of pipeline for us to continue to deploy over the coming years, we have not seen any material changes to sort of conversion rates, obviously, given what we are experiencing just what's the.
Apply chain in construction delays, it's hard for us to predict exactly when those things will land, but we remain confidence and are confident or pull your guidance and are excited to continue to deliver out of that backlog and have extensive pipeline coverage for our go forward growth.
Okay. Thank you and maybe a follow up.
I'm looking at the <unk> of the.
You're you're signing in the quarter and it looks like you know starting in four two and you started to see some reacceleration of that that are approved for newer units is there anything that you know is causing that was her a new product that we're seeing success any color you can provide there.
Hey, Ben Yeah, I think just speaking broadly we're always focused on making sure that we drive two things number of spaces on the platform and increase recurring revenue across the platform, they're going to be times. When you see higher tax rates of particular modules lead to higher perceived <unk>. There's also going to be times when we.
Add more spaces with lighter weights software solutions. So for US, we really think looking at <unk> and looking at spaces growth. Both is leading positive indicators is more important than trying to create a ratio between the two of those and that was something that you kind of spoke about last quarter uhm, but as we continue to accelerate some of our retrofit initiatives and also continue to add more.
We're modules the skew between the highest attach rate unit and the lowest attach rate unit is going to continue to be higher and so we don't think that that's sort of what we previously called <unk> calculation is necessarily as valuable as looking at the total number of spaces as the opportunity for upsell and then the total amount of recurring revenue kind of as two distinct lineups.
Okay. Thanks, so much guys.
Thank you.
And our next question comes from Lucy Mohan from Bank of America. You line is now open.
Hi, This is John on behalf of laundry Huh. Thanks for taking my question can you just give us some sense of the right multiplier between spaces and number of units with active for a contract and what do you think that multiplier will be exiting 2022.
Thank you.
Hey, John This is Barry Uhm. So the definition of spaces is it actually is the number of units with active software contract. So maybe you want to ask the question a different way if that doesn't capture it.
So it'd be one for one based on your exact question.
Might be asking something a little different.
Okay got it and then.
And then could you just.
Talk about maybe like some.
Macro uncertainty that's affecting the guide and how you see that playing out.
Yeah. So there's two probably the two biggest macro uncertainties that we've been talking about one is you know the impact of just the global supply chain or the global economic situation on construction delays and the other one would be on the margin seither beyond spot five so despite.
Despite the fact that we saw some favorable Spotify situations in Q1 and got hardware revenue margin upside Q1 in both those cases on construction delays and just overall supply chain and spot by situation. We are assuming no no.
Hannibal improvement.
Kind of from where we were when we entered F y 22.
And that's all baked into our guidance.
Business is available improvement.
Okay got it thank you.
And thank you.
And our next question comes from Tom White from da Davidson.
Your line is that okay.
Good afternoon, guys. Thanks for taking my question Uhm.
As you guys increase your supportive of two P M and three P hardware.
Presume that kind of more of the product would be going through the channel partners used by the end of the lock and access manufacturers can can you talk about how you guys might be able to kind of build on that and develop those relationships and whether that might be an effective way for you guys to kind of either upsell or additional products or or or <unk>.
<unk> and then I had to quit <unk>.
Hey, Tom Great question, Yeah, we haven't spoken specifically about sort of the <unk> strategy being also kind of having a in baked channel strategy, but I think it's an astute observation. We think there's a really unique opportunity to use those to pee and creepy relationships and their relationships with distributions to sort of distribute are soft.
We're on a wider basis. In addition to our direct selling efforts, we don't have anything specifically to comment on financially what that would look like but we also see that same opportunity and are excited about creating a larger base of spaces that we can then monetize with further software upsells overtime.
[noise], Okay, that's great and just to follow up uhm pulling up on one of the earlier questions about hardware mix.
Realize it's kind of still early in terms of the kind of revamps strategy around two P and three P. But.
Lucas if if you had a crystal ball in front of you and we look at you know 234 years out what do you think the the mix looks like kind of just broad strokes in terms of.
One P versus <unk>.
The answer is going to be somewhat unsatisfying and that I don't have a crystal ball, but you know as we think about serving a wide variety of spaces I think you're gonna see certain types of spaces that are gonna make sense with first party first party products and then you're going to see a lot of spaces, where there's a mix of the two I would say the trend over time will be more second and third party spaces, you know as we go.
Forward that that's going to be the trend and that sort of what we're planning for internally is that we will have a consistent software experience that serves all of the stakeholders at a building with a declining setup first party products.
Got it.
And thank you and if you have a question star one again, if you would like to ask a question and that is star one an hour next question concerns Brian Ruttenberg from Imperial capital. Your line is now open.
Yes. Thank you very much maybe you mentioned that a little bit, but with rising prices of potential risk.
Recession, I know historically security related companies have weathered recessionary environment very well can you talk about your plans and what you're seeing out there and if there is a slowdown.
Is your is your plan to pull back on the spending or continue on the current plan.
Hi, Brian . Thanks, so much for the question, Yeah, where of course managing the business.
With the market and looking with an eye towards what our customers me and what's best for you know continuing to operate with the right level of growth and the right level of efficiency and I think what you know.
What you said historically these types of products have continued to do well even in a recessionary environment and so you know we're cautiously optimistic that if the the north American market, what's to enter it more of a recession type territory that the macro trends, which are a dramatic shortage of housing the need for new multifamily units that need to.
Outfit buildings to make them more efficient better places to live will continue to work to our advantage and the needs for our products will persist and perhaps even increase in some instances. So at this point in time, we have no reason to be anything but optimistic about the massive opportunity to confront of us, but we will of course be responsive to what we need to do to make sure that our plan.
Remains fully funded and that we can <unk> balance our top line growth with operational efficiency going forward.
Okay and then thank you very much then as a follow up is there any restrictions are there any restrictions on you given where you are trading yo at or near cash to buying back stock aggressively I don't know what kind of restrictions you may be under given you.
How how you came public and and and when you can buy back stock.
It is a great question Bryan it's not something.
That we have any specific restrictions around we don't have anything in particular to announce at this point in time, but we are.
Fortunate to have a large cash position be operating in a very large market and are excited about our opportunities and we're excited to have more shareholders benefit from our growth in the years to comment understand that some companies have used a moment like this to buy back their own stock, but we don't have anything to announce today.
Thank you.
Thank you.
And I am showing no further questions I would now like to turn the call back over to Luke Schoenfelder for closing remarks.
Thank you so much everyone for joining today well look forward to speaking to many of you on the days to come I. Appreciate your support of latch and thanks again for the time today I Hope you have a great rest of the week.
This concludes today's conference call. Thank you for participating you may now disconnect.
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