LTCH US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes of Latch, Inc. and its subsidiaries included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in Part I, Item 1A. “Risk Factors,” actual results may differ materially from those anticipated in these forward-looking statements. Unless the context otherwise requires, references in this subsection to “we,” “our,” “Latch” and the “Company” refer to the business and operations of Latch Systems, Inc. (formerly known as Latch, Inc.) and its consolidated subsidiaries prior to the Business Combination and to Latch, Inc. (formerly known as TS Innovation Acquisitions Corp.) and its consolidated subsidiaries following the consummation of the Business Combination.

For a comparison of our financial condition and results of operations for the years ended December 31, 2022 and December 31, 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2022 Annual Report.

Overview

Latch is a technology company primarily serving the multifamily rental home market segment of the smart building industry deploying hardware and software technology to digitize otherwise manual processes, including building and unit access and in-unit device control.

We combine hardware, software and services into a system that enables smart access for users of a multifamily building, enabling easier, more modernized experiences for residents and visitors, more efficient operations for building owners and property managers and more convenient interaction for service providers. We designed and developed the Latch Platform, a cloud-based SaaS product, to address the access requirements of modern multifamily buildings.

Key Factors Affecting Our Performance

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

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

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

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

Key Business Metrics

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

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

Year ended December 31,

GAAP Measures:

Non-GAAP Measure:

Adjusted EBITDA

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

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

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

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

Year ended December 31,

Depreciation and amortization 7,201 5,504

Interest (income) expense, net(1) (2,309) 2,961

Provision for income taxes 30 89

Change in fair value of warrant liability (230) (9,558)

Change in fair value of trading securities — 3,460

Transaction-related costs(3) 1 468

Non-ordinary course legal fees and settlement reserves(4) 10,405 2,010

(1)As a result of significant discounts provided to our customers on certain long-term software contracts paid in advance, the Company has determined that there is a significant financing component related to the time value of money and has therefore broken out the interest component and recorded it as a component of interest expense, net on the Consolidated Statements of Operations and Comprehensive Loss. Interest (income) expense, net includes interest expense associated with the significant financing component of $4.6 million and $5.1 million for the years ended December 31, 2023 and 2022, respectively.

(2)Reflects restructuring costs primarily associated with the July 2023 RIF for the year ended December 31, 2023 and resulting from the 2022 RIFs for the year ended December 31, 2022.

(3)Transaction costs related to the Business Combination.

(4)Non-ordinary course legal fees and settlement reserves incurred in connection with non-ordinary course litigation and disputes. For the year ended December 31, 2023, the amount includes (i) the Company’s $14.875 million share of the settlement amount related to the Merger Lawsuits, as defined and described in Note 12. Commitments and Contingencies, in Part II, Item 8. “Financial Statements,” offset by (ii) the $10.0 million contribution insurers provided to such settlement. While the Company is involved in various litigation and legal disputes in the ordinary course of its business, the Company believes the non-ordinary course legal fees and settlement reserves included in our calculation of Adjusted EBITDA do not represent normal and recurring operating expenses. See Note 12. Commitments and Contingencies,in Part II, Item 8. “Financial Statements.” These costs are included within general and administrative within the Consolidated Statements of Operations and Comprehensive Loss.

(5)See Note 15. Stock-Based Compensation,in Part II, Item 8. “Financial Statements.”

Components of Results of Operations

Revenue

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

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

Software Revenue. We generate software revenue primarily through the license of our SaaS over our cloud-based platform on a subscription-based arrangement. Subscription fees vary depending on the features selected by customers. SaaS

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

Installation Services Revenue. We generate revenue by facilitating hardware installation and activation services to select customers. This revenue is recognized over time on a percentage of completion basis.

Cost of Revenue

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

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

Cost of installation services revenue consists primarily of third-party installation labor costs, parts and materials and personnel-related expenses associated with deployment of our hardware.

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

Operating Expenses

Operating expenses consist of research and development, sales and marketing, general and administrative and depreciation and amortization expenses.

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

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

General and Administrative Expenses. General and administrative expenses consist primarily of personnel and related expenses for our executive, legal, human resources, finance and IT functions, including salaries, bonuses, benefits, payroll taxes, travel and stock-based compensation. Additional expenses included in this category are non-personnel costs such as legal fees, rent, professional fees, audit fees, bad debt expense and insurance costs. We expect our general and administrative expenses to increase at least through 2024, due to professional services costs related to the Investigation, the SEC Investigation, the Restatement and remediation activities.

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

Other Income (Expense), Net

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

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Interest income (expense), net is summarized as follows:

Year ended December 31,

Interest income (expense), net $ 2,309 $ (2,961)

Income Taxes

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

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Results of Operations

The tables and period-to-period comparisons of operating results below summarize our Consolidated Statements of Operations and Comprehensive Loss data and are not necessarily indicative of results for future periods.

Comparison of years ended December 31, 2023 and December 31, 2022

Year ended December 31,

(in thousands, except share and per share data) 2023 2022 $ Change % Change

Revenue

Cost of revenue(1)

Operating expenses

Other income (expense), net

Change in fair value of trading securities — (3,460) 3,460 (100.0) %

Provision for income taxes 30 89 (59) (66.3) %

Other comprehensive loss

Unrealized loss on available-for-sale securities 1,515 (787) 2,302 (292.5) %

Foreign currency translation adjustment (7) 3 (10) (333.3) %

Net loss per common share:

Basic and diluted net loss per common share $ (0.68) $ (1.13) $ 0.45 (39.8) %

Weighted average shares outstanding:

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

N.M.: Not meaningful

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Revenue

Revenue increased by $2.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, driven by increases of $4.8 million in software revenue and $2.0 million in installation services revenue, partially offset by a $4.8 million decrease in hardware revenue. The decrease in hardware revenue was primarily driven by lower units delivered, including higher units returned, which negatively impacted net delivered units, partially offset by higher average selling prices. Increased software revenue reflects the continued growth in subscriptions as a result of the continued increases in cumulative delivered hardware units. Installation services revenue growth reflects continued expansion of the direct deployment program.

Cost of Revenue

Cost of revenue decreased by $14.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily a result of a $15.5 million decrease in hardware sales related costs, partially offset by a $0.8 million increase in cost of installation services revenue and a $0.5 million increase in software related expenses, which reflects the increased server costs associated with an expansion in licensed buildings. The decrease in hardware sales related costs was driven by (i) $9.5 million of fewer units delivered, net of units returned, (ii) an $8.8 million decrease in inventory purchase commitments liability, (iii) a $2.1 million decrease due to a reduction in the size of the supply-chain team and (iv) a $0.3 million smaller adjustment in the cost of inventory to net realizable value. The decrease was offset by a $5.7 million increase of expense for excess and obsolete reserves.

Research and Development Expenses

Research and development expenses decreased by $21.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to: (i) $18.8 million decrease in personnel-related expenses, comprised of $11.9 million of decreased compensation expense and $6.9 million of decreased stock-based compensation expense due to the impact of the 2022 RIFs and the July 2023 RIF; (ii) $0.9 million decrease in professional fees related to outsourced brand and website refresh initiatives; (iii) $0.4 million decrease in travel expenses and (iv) $1.1 million decrease in other research and development expenses. These decreases were partially offset by a $0.6 million increase in restructuring costs.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $30.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to: (i) $19.3 million decrease in personnel-related expenses, comprised of $15.1 million of decreased compensation expense and $4.2 million of decreased stock-based compensation expense due to the impact of the 2022 RIFs and the July 2023 RIF; (ii) $3.6 million decrease in paid marketing expense; (iii) $3.5 million decrease in restructuring costs due to the magnitude of the 2022 RIFs as compared to the July 2023 RIF; (iv) $0.7 million decrease in professional and consulting fees; (v) $1.0 million decrease in software license expense due to decreased headcount and (vi) $1.1 million decrease in travel expenses.

General and Administrative Expenses

General and administrative expenses increased by $10.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to (i) a $7.3 million increase in legal fees, including a $4.9 million increase in settlement reserves; (ii) an increase of $5.8 million in professional fees related to the Investigation and Restatement; (iii) $3.8 million in higher professional fees related to outsourced management; and (iv) an increase of $2.7 million in audit fees. These increases were partially offset by a (i) $2.2 million decrease in compensation expense; (ii) $0.4 million decrease in stock-based compensation expense, comprised of a $7.2 million decrease related to the 2022 RIFs and the July 2023 RIF, mostly offset by a $6.8 million increase related to stock-based compensation expense in connection with the HDW Acquisition; (iii) $2.2 million decrease in insurance expenses; (iv) $2.1 million decrease in bad debt expense related to software; (v) $0.4 million decrease in recruiting expense as a result of certain key hires in 2022; (vi) $1.3 million decrease in IT and software licenses expenses and (vii) $0.2 million decrease in impairment of long-lived assets.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by $1.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to the increased amortization of capitalized internally-developed software.

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Total Other Income (Expense), Net

Total other income (expense), net decreased by $0.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a smaller decrease in the price of our common stock during the year ended December 31, 2023 compared to the year ended December 31, 2022, which resulted in a $9.3 million unfavorable change in the fair value of the private placement warrants liability. The decrease was partially offset by (i) a $5.3 million increase in interest income related to higher interest rates; (ii) a $3.5 million favorable variance in the change in fair value of trading securities driven by the Company ceasing to own any trading securities as of December 31, 2022 and (iii) a $0.3 million favorable change in other miscellaneous income and expense.

Liquidity and Capital Resources

We have incurred losses since our inception. Prior to the Closing of the Business Combination, our operations were financed primarily through net proceeds from the issuance of our redeemable convertible preferred stock and Convertible Notes, as well as borrowings under our term loan. We received approximately $450.0 million in cash proceeds, net of fees and expenses funded in connection with the Closing, which included approximately $192.6 million from the sale of approximately 19.3 million newly-issued shares of common stock in connection with the Business Combination. See Note 1. Description of Business, in Part II, Item 8. “Financial Statements.”

As of December 31, 2023 and 2024, the Company’s unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $179.5 million and $75.5 million, respectively. The Company’s available-for-sale securities investment portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

Prior to December 31, 2023, the Company (i) received $19.3 million of proceeds from the sale of a maturing available-for-sale security and (ii) reinvested the proceeds by purchasing an equal amount of new securities prior to such date. The Company uses trade-date accounting and, as such, the new securities position of $19.3 million is included in the balance of available-for-sale securities of $84.9 million on the Company’s Consolidated Balance Sheets as of December 31, 2023, and a liability of $19.3 million presented as investment purchases payable is included in accrued expenses on the Company’s Consolidated Balance Sheets as of December 31, 2023. The funds were deducted from the Company’s account in early January 2024. Accordingly, the sum of the Company’s cash and cash equivalents as of December 31, 2023 is $19.3 million higher than it would have been had the funds been deducted from the Company’s account prior to year end. See Note 2. Summary of Significant Accounting Policies - Cash and Cash Equivalents,andNote 9. Accrued Expenses, in Part II, Item 8. “Financial Statements.”

Historically, our short-term liquidity needs have primarily included working capital for salaries, including sales and marketing and research and development, as well as component inventory purchases from our contract manufacturers. To better align staffing and expense levels with sales volumes and the macroeconomic environment and create operating efficiencies, we incurred $8.6 million in restructuring costs during the year ended December 31, 2022 resulting from the 2022 RIFs (excluding the impact of stock-based compensation). In 2023, we conducted the July 2023 RIF in order to further streamline our business operations, reduce costs and complexities in the business and create additional operating efficiencies. In connection with the July 2023 RIF, we incurred $5.8 million in restructuring costs (excluding the impact of stock-based compensation).

Beginning in the second quarter of 2022 and continuing through 2025, we have incurred, and may continue to incur, significant professional fees, primarily consisting of legal, forensic accounting, management consulting and related advisory services as a result of the Investigation and the SEC Investigation, as well as accounting related consulting services, independent registered accounting firm fees and advisory services related to the Restatement and Financial Statement Review. Additionally, we have incurred significant costs in connection with various pending litigation. See Note 12. Commitments and Contingencies, in Part II, Item 8. “Financial Statements.” Such litigation involves significant defense and other costs and, if decided adversely to us or settled, has resulted or could result in significant monetary damages or expenditures. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance coverage does not cover all claims that have been or may be brought against us.

In connection with the HDW Acquisition, in July 2023 the Company issued to HDW’s stockholders as merger consideration $22.0 million aggregate principal amount of unsecured Promissory Notes. The Promissory Notes accrued paid-in-kind interest at a rate of 10% per annum and were scheduled to mature on July 3, 2025, unless earlier accelerated in connection

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with an event of default (including certain events of delisting from Nasdaq) or change of control of the Company. On April 26, 2024, the Company repaid the Promissory Notes in full without penalty. The Company paid an aggregate of $23.9 million in principal and accrued interest to the holders of the Promissory Notes.

We contract with third parties to manufacture our products. During the normal course of business, we and our contract manufacturers procure components based upon a demand plan. During the year ended December 31, 2022, we materially reduced our original demand plan and started engaging in discussions with our contract manufacturers regarding our obligation to purchase the inventory based on our original demand plan. In 2022, we purchased and received excess inventory for certain products based on our original demand plan. Additionally, as a result of these discussions, we agreed to prepay certain contract manufacturers approximately $12.3 million for material and component obligations. As of December 31, 2023, we had prepaid approximately $11.7 million of such obligations, resulting in a net purchase obligation of $0.6 million. We may not be able to utilize such prepayments and inventory in the foreseeable future.

Near-Term Liquidity Position

As of the date of this Form 10-K (the “Filing Date”), the presence of the following risks and uncertainties associated with the Company’s liquidity position may adversely affect its ability to sustain its operations:

•The continued incurrence of significant expenses related to legal and other professional services in connection with the SEC Investigation and the possibility that the SEC may levy civil penalties or fines against the Company;

•Potential expenditures associated with defending, negotiating or resolving the service provider demand described in Note 12. Commitments and Contingencies, in Part II, Item 8. “Financial Statements;”

•Unexpected expenditures related to the Stockholder Lawsuits in the event the agreed-to settlements are not approved by the respective courts, or otherwise;

•The incurrence of significant expenses related to other legal or regulatory proceedings, whether actual or threatened;

•The failure of the Company to achieve its revenue expectations, including as a result of:

◦Pricing compression for the Company’s SaaS products;

◦Market adoption of the DOOR application;

◦The success of the HelloTech business;

◦The impact of elevated interest rates on the Company’s potential customers, who may eliminate or delay expenditures for the products or services the Company offers; and

◦Market perception of the Company and its offerings;

•Costs of revenue and operating expenses exceeding the Company’s expectations;

•The Company’s failure to maintain the liquidity ratio required by the Loan Agreement with Customers Bank;

•The Company’s inability to fully leverage its prepaid inventory; or

•The catastrophic loss of inventory due to theft, natural disaster or otherwise.

Due to the risks and uncertainties described above, the Company continues to monitor its liquidity position. The Company recognizes the challenge of maintaining sufficient liquidity to sustain its operations and remain in compliance with the liquidity ratio required by the Loan Agreement. However, notwithstanding its liquidity position as of the Filing Date, and while it is difficult to predict its future liquidity requirements with certainty, the Company currently expects it will be able to generate sufficient liquidity to fund its operations over the 12 months beyond the Filing Date.

In response to the risks and uncertainties described above, the Company may attempt to secure additional outside capital. However, the Company has not sought any commitments of additional outside capital and can provide no assurance it will be able to secure any outside capital in the future at all, or on terms that are acceptable to the Company. Additionally, the Company’s securities are currently traded on the OTC Expert Market. Because of applicable restrictions, there is a minimal public market for the Company’s securities, and the Company’s ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. The Company also plans to continue to closely monitor its cash flow forecast and, if necessary, may implement certain incremental cost savings measures to preserve its liquidity beyond the 2022 RIFs and the July 2023 RIF. See Note 20. Restructuring, in Part II, Item 8. “Financial Statements.”

As of December 31, 2023 and 2024, the Company’s unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $179.5 million and $75.5 million, respectively. Current financial information regarding the Company, including its results of operations and statement of cash flows, will not be available until we file our 2024 financial statements.

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Other significant factors that affect our overall management of liquidity include certain actions controlled by management such as capital expenditures and acquisitions. See Note 10. Leases, Note 11. Debt, and Note 12. Commitments and Contingencies, in Part II, Item 8. “Financial Statements.”

Indebtedness

Revolving Credit Facility

On July 1, 2021, the Company executed a new revolving credit facility replacing the matured facility described in Note 11. Debt, in Part II, Item 8. “Financial Statements.” The revolving credit facility, which was subsequently amended in May 2022, had a credit limit of $6.0 million with no stated maturity date. Installment plan agreements were executed for each financing request, which included the interest rate. The revolving credit facility had no financial or other covenants. As of December 31, 2023, no amount was outstanding under the revolving credit facility, which the Company cancelled in January 2023.

Promissory Notes

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

Term Loan with Customers Bank

Following the closing of the HelloTech Merger, on July 15, 2024, Latch Systems and HelloTech, as the Borrowers, entered into the Loan Agreement with Customers Bank.

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

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

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

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

• engage in certain asset dispositions;

• permit a change in control;

• merge or consolidate;

• incur indebtedness or grant liens on its assets;

• declare or pay dividends, distributions or redemptions;

• make loans or investments; and

• engage in certain transactions with affiliates.

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

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

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

• bankruptcy or insolvency events involving the Borrowers; or

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

Cash Flows

The following table sets forth a summary of our cash flows for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year ended December 31,

Net cash used in operating activities $ (65,586) $ (135,239)

Net cash provided by investing activities 50,479 126,356

Net cash used in financing activities — (6,039)

Effect of exchange rates on cash (46) (32)

Net change in cash and cash equivalents $ (15,153) $ (14,954)

Cash flows for the year ended December 31, 2023 compared to December 31, 2022

Operating Activities. Net cash used in operating activities in 2023 decreased by $69.7 million compared to 2022. This resulted primarily from a decrease in net loss of $54.8 million, a decrease in inventories, net of $36.3 million, a net increase in accrued expenses and accounts payable of $25.4 million, a reduction in the change in the fair value of warrant liability and trading securities of $5.9 million and an increase in depreciation and amortization of $1.7 million. These sources of cash were partially offset by an increase in prepaid expense and other current assets of $19.7 million, a decrease in deferred revenue of $13.8 million, a decrease in stock-based compensation expense of $12.1 million, a decrease in non-cash interest expense of $4.8 million, and a decrease in the provision for doubtful accounts of $2.2 million.

Investing Activities. Net cash provided by investing activities in 2023 decreased by $75.9 million compared to 2022, primarily due to an increase in purchases of available-for-sale securities of $47.0 million and a decrease in the proceeds from sales and maturities of available-for-sale securities of $42.4 million. These uses of cash were partially offset by $8.1 million cash received, net of cash paid, in connection with the HDW Acquisition, $3.3 million in lower capitalization of internally developed software costs and a decrease of $1.9 million in purchases of property and equipment.

Financing Activities. The Company did not conduct any financing activities in the year ended December 31, 2023. In the year ended December 31, 2022, net cash used in financing activities primarily consisted of (i) the net repayment of $3.4 million of our revolving credit facility and (ii) payments of $3.4 million for tax withholding on net settlement of equity awards. These uses of cash were partially offset by $0.7 million in proceeds from the issuance of common stock.

Off-Balance Sheet Arrangements

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

Critical Accounting Estimates

Our consolidated financial statements, which include estimates, have been prepared in accordance with GAAP. Our critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial condition or results of operations. In making these determinations, management makes subjective and complex judgments that frequently require

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estimates about matters that are inherently uncertain. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our consolidated financial statements. A summary of each of these critical accounting estimates follows.

Stock-Based Compensation

We record stock-based compensation expense related to stock options based upon the award’s grant date fair value. We estimate the fair value of stock options using the Black-Scholes-Merton option-pricing model, which requires us to estimate the risk-free interest rate, expected term, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of our stock options.

The expected term of stock options represents the period of time the stock options are expected to be outstanding based on the “simplified method.” Under the “simplified method,” the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. We use the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options.

Since we have minimal trading history of our common stock, the expected stock price volatility was derived from the average historical stock volatility of several unrelated public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the awards.

The assumptions used in calculating the fair values of stock option grants represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. If material changes in these assumptions occur, they could have a material impact on our stock-based compensation expense.

Inventory Valuation

We regularly monitor inventory quantities on hand and in transit and reserve for excess and obsolete inventories using estimates based on historical and projected sales trends, specific categories of inventory and age of inventory. If actual conditions or product demands are less favorable than our assumptions, additional inventory reserves may be required.

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

Both the one year and three year sales forecasts were lower as of December 31, 2023 than at December 31, 2022. The total excess and obsolete inventory reserve increased by $9.1 million as of December 31, 2023, $6.9 million of which was due to these lower forecasts and $2.2 million of which represents inventory the Company had determined had become obsolete during the period.

We also review our inventory to ensure that its carrying value does not exceed its net realizable value (“NRV”), with NRV based on the estimated selling price of inventory in the ordinary course of business, less estimated costs of completion, disposal and transportation. Each of these estimates requires management to make subjective and complex judgments. When our expectations indicate that the carrying value of inventory exceeds its NRV, we estimate the amount by which carrying value exceeds NRV and record additional cost of revenue for the difference. Should our estimates used in these calculations, such as sales forecasts, estimated selling prices or disposal costs, change, additional write-downs may occur.

Goodwill and Intangible Asset Impairments

The HDW Acquisition resulted in our recording of intangible assets, which primarily consist of developed technologies, trade names and goodwill. Key assumptions used in the valuation of these intangible assets include revenue growth rates, expectations of profitability and discount rates. We allocated the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Goodwill is generally attributable to the value of the synergies between the combined companies and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. At December 31, 2023, we recorded $25.3 million of goodwill and $4.8 million of other intangible assets on the Consolidated Balance Sheets.

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We test goodwill and indefinite-lived intangible assets for impairment annually, as of December 31 of each year, or more frequently if indicators arise. The Company operates as a single reporting unit, and, therefore, goodwill is assessed for impairment at this level.

Management evaluates whether events or circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of goodwill and other identifiable intangible assets. If the events or circumstances indicate that the remaining balance may be impaired, the potential impairment will be measured based upon the difference between the carrying amount of the intangible asset or goodwill and the fair value of such asset.

Determining the Fair Value

Per ASC 350, Intangibles – Goodwill and Other, the fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Quoted market prices in active markets are typically the best evidence of fair value and shall be used as the basis for the measurement, if available.

We utilize third-party valuation specialists to assist us in the determination of the most appropriate evaluation techniques and perform the calculation of fair value of the reporting unit in accordance with ASC 820, Fair Value Measurement (“ASC 820”). The valuation methodologies applied consider both entity-specific and observable market information under the fair value hierarchy in ASC 820, and changes in, or additions to, available information may affect the assumptions we use in estimating fair value. Our analysis was based upon both the income approach and the market approach, equally weighted. These approaches required significant assumptions, including: expected future revenue growth rates, profit margins, discount rate, terminal growth rate, the selection of guideline public companies and selected guideline public company revenue multiples. We performed the analysis retrospectively as of December 31, 2023, leveraging inputs that were both known and knowable as of such date.

In conducting our annual impairment test of goodwill as of December 31, 2023, we elected to perform a quantitative assessment without first considering qualitative factors. After adjusting for the Company’s cash and debt on the Consolidated Balance Sheets as of December 31, 2023, the Company determined its estimated fair value to be $204.0 million, which exceeded the carrying value of $169.1 million by $34.9 million, or 20.6%. Because the estimated fair value exceeded the carrying value, no impairment was recorded as of December 31, 2023.

We performed a reconciliation of our market capitalization to our implied total equity value and determined that the Company’s market capitalization as of December 31, 2023 was $118.1 million, which is approximately 73% less than the estimated fair value of $204.0 million. The company attributes this significant difference to various factors, including low trading volume, stock price volatility, net cash position as of the measurement date and the lack of information available to the public due to the Company’s non-current filing status.

Sensitivity Analysis

The fair value analysis requires significant assumptions, as noted above. We believe the assumptions and estimates made are reasonable and appropriate. Different assumptions and estimates, however, could materially impact our reported financial results. For instance, different assumptions regarding the Company’s anticipated performance could result in an impairment charge, which would decrease operating income and result in lower asset values on our Consolidated Balance Sheet. We performed a sensitivity analysis on the impairment test described above by applying two separate adjustments while holding all other assumptions constant. First, we reduced the selected terminal growth rate in the discounted cash flow analysis from 3% to 2%. Second, we reduced the selected guideline public company multiples from 0.40x next fiscal year (“NFY”) revenue and 0.30x NFY+1 revenue to 0.30x and 0.20x, respectively. The sensitivity analysis, while not predictive in nature, indicated a fair value of $192.5 million, exceeding the carrying value by $23.4 million, or 14%, confirming no goodwill impairment as of December 31, 2023.

Potential Future Impairment Risk

Our impairment analysis was performed retrospectively as of December 31, 2023, leveraging inputs that were both known and knowable as of such date. While we did not identify any impairment of our goodwill as of December 31, 2023, we continue to monitor Company performance, along with the risks related to our business and industry, to evaluate if the carrying value of the Company exceeds its estimated fair value. We expect that some or all of the goodwill on our consolidated balance sheet could be impaired during the year ended December 31, 2024 due to various factors, including lower revenue projections based on current business performance, a reduced cash position resulting from financing our ongoing operations and a decline in the trading price of our common stock during 2024. Because we have not completed the

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accounting, or finalized our financial statements, for the year ended December 31, 2024, including the quarterly periods therein, we have not yet determined the amount of any additional goodwill on our balance sheet as of December 31, 2024 related to any other business combinations, such as the HelloTech Merger, or any related impairment.

Business Combinations

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

Litigation

Latch is subject to various legal proceedings, investigations and claims. Latch routinely assesses the likelihood of any adverse judgments or outcomes of these matters, as well as ranges of probable losses. A determination of the amount of the accruals required, if any, for these contingencies is made after analysis of each known issue. The analysis, which involves the advice of counsel, includes consideration of various factors such as the amount and timing of any potential exposure, interpretations of applicable laws, regulations or contractual terms, the likelihood or status of proceedings, the merits of the arguments, negotiations or discussions with the applicable counterparties and results of similar fact patterns experienced by the Company or third parties. Accruals are subject to change based upon changes in the above factors. The accrued expenses on the Consolidated Balance Sheets as of December 31, 2023 associated with the Stockholder Lawsuits are based upon settlement amounts agreed to between the applicable parties that remain subject to court approval. However, in the event court approval does not occur, the expense amounts are subject to change.

Recent Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies, in Part II, Item 8. “Financial Statements” for information about recent accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

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Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 67

Consolidated Balance Sheets as of December 31, 2023 and 2022 71

Notes to Consolidated Financial Statements 76

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Latch, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Latch, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue recognized for hardware sold through channel partners, and the related accounts receivable, hardware inventory and cost of revenue, allowance for doubtful accounts and the reserves for returns — Refer to Note 2 and Note 5 to the financial statements

Critical Audit Matter Description

The Company generates hardware revenue primarily from the sale of its portfolio of devices. The Company sells hardware to customers, which include real estate developers, builders, building owners and property managers, directly or through its channel partners, who act as intermediaries, installers or wholesalers. Hardware shipped to channel partners is considered channel inventory until there is evidence control has passed to the customer. The Company recognizes hardware revenue when there is evidence a contract exists and control has been transferred to the customer.

The Company also provides certain customers a right of return for non-defective product, which is treated as a reduction of hardware revenue based on the Company’s expectations and historical experience.

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The Company recognizes an accounts receivable allowance based on estimates of expected credit losses. Accounts receivable are stated net of allowance for doubtful accounts and reserve for returns.

We identified revenue recognition for hardware sold through channel partners, and the related accounts receivable, hardware inventory, and cost of revenue, as a critical audit matter because of the judgments necessary for management to determine when a contract exists and when control has transferred to the customer. We identified the reserve for returns and the allowance for doubtful accounts related to hardware sold to channel partners as a critical audit matter because of the judgments necessary to determine estimated product returns and estimate of credit loss.

The audit procedures to evaluate that the Company recognized revenue when a contract exists and control has transferred to the customer, and to evaluate the Company’s expectations and historical experience for returns and estimate of credit loss involved a high degree of auditor judgment and an increased extent of audit effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to whether a contract existed, control had transferred to the customer, and to evaluate the Company’s expectations and historical experience for returns and credit loss included the following, among others:

•With the assistance of professionals in our firm having expertise in revenue accounting, we evaluated the Company’s conclusions regarding when revenue for hardware sold through the Company’s channel partners is to be recognized under accounting principles generally accepted in the United States of America.

•We selected a sample of hardware revenue transactions sold through channel partners and wholesalers. For each selection, we obtained evidence that a contract existed and control had transferred to the customer, which included purchase orders, invoices, bills of lading, packing slips and cash receipts. We also reconciled the discount recorded by management to the discount on the invoice.

•We selected a sample of hardware revenue transactions subsequent to year-end and obtained evidence that a contract existed, control had transferred to the customer and revenue was appropriately recognized subsequent to year-end, which included purchase orders, invoices, bills of lading, packing slips and cash receipts.

•We selected a sample of hardware contracts that did not meet the revenue recognition criteria and obtained evidence revenues were not recorded.

•We selected a sample of cash receipts subsequent to year-end and obtained evidence that revenue was recognized in the appropriate period.

•To evaluate the Company’s expectations and historical experience for returns and estimate of credit loss, we obtained the Company’s return reserve and credit loss analyses and performed procedures to determine the mathematical accuracy and reasonableness of the assumptions. We performed procedures to test the completeness and accuracy of the data used in the analyses.

Internally-developed software, net, and the related depreciation and amortization — Refer to Notes 2 and 8 to the financial statements

Critical Audit Matter Description

The Company capitalizes certain development costs incurred in connection with its internally-developed software, including specific software upgrades and enhancements when it is probable the expenditures will result in additional features and functionality. These capitalized costs primarily pertain to software that is hosted by the Company and the firmware in the Company’s devices. Costs incurred in the preliminary stages of development are expensed as incurred.

Once a project has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing, at which time amortization of the capitalized software begins. Costs are also expensed when the Company determines that a planned feature is discontinued.

We identified internally-developed software, net, and the related depreciation and amortization as a critical audit matter because of the judgments necessary for management (i) to begin amortizing software-in-development upon completion of all substantial testing and (ii) to expense software-in-development when the Company determines the planned feature is discontinued. The audit procedures to evaluate whether management began amortizing software-in-development upon completion of all substantial testing and expensed software-in-development when planned features were discontinued involved an increased extent of audit effort.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to evaluate whether management began amortizing software-in-development upon completion of all substantial testing and expensed software-in-development when planned features were discontinued included the following, among others:

•We selected a sample of capitalized software being amortized and obtained evidence the costs were capitalized appropriately and amortization began upon completion of all substantial testing performed by the Company to reach technical feasibility.

•We selected a sample of software-in-development and obtained audit evidence the costs were capitalized appropriately, and the software was not substantially complete and ready for its intended use and related to a planned feature that was not discontinued.

•We selected a sample of software-in-development costs that were expensed and obtained evidence that the costs were expensed when the planned feature was discontinued. This included obtaining evidence of the rationale for discontinuing the project and corroborating the discontinuation with project managers.

Software revenue and deferred revenue — Refer to Note 2 to the financial statements

The Company generates software revenue primarily through the license of its software-as-a-service (“SaaS”) cloud-based platform to customers on a subscription-based arrangement. SaaS arrangements generally have term lengths of one, two, five or ten years and include a fixed fee generally paid in advance, annually or monthly.

The Company recognizes software revenue ratably over the subscription period beginning when or as control of the promised services is transferred to the customer. The Company records contract liabilities as deferred revenue when it bills customers in advance of the performance obligations being satisfied.

We identified software revenue and deferred revenue as a critical audit matter because the audit procedures to determine when control of the promised services was transferred to its customers involved an increased extent of audit effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to evaluating when control of the promised services was transferred to the customer included selecting a sample of software revenue transactions and performing the following procedures, among others:

•We obtained the software contract and determined that it was executed.

•We obtained evidence from the Company’s operating software indicating the date that the property was added and the date the property administrator was added.

•We compared the date when control of the promised services was transferred to the date the Company began amortizing deferred software revenue and recognizing software revenue.

Acquisition of Honest Day’s Work — Refer to Notes 1, 2, 15 and 19 to the financial statements

On July 3, 2023 the Company completed its acquisition of Honest Day’s Work, Inc. (“HDW”). The total consideration transferred included cash, issuance of the Company’s common stock, and unsecured promissory notes. The HDW acquisition qualified as a business combination and the Company was determined to be the acquirer. Accordingly, total consideration was first allocated to the fair value of assets acquired as of the date of acquisition, with the excess being recorded as goodwill.

We identified the acquisition as a critical audit matter due to the significant judgment required in (a) accounting for the transaction, including the issuance of common stock, and (b) evaluating the forecasted revenues and discount rate used in estimating fair value of the developed technology intangible asset and resulting goodwill. This required a high degree of auditor judgment and increased extent of audit effort, including the involvement of professionals in our firm having expertise in accounting for business combinations and share based compensation and fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to accounting for the acquisition and the forecasted revenues and discount rate used in estimating fair value of the developed technology intangible asset and resulting goodwill included the following, among others:

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•With the assistance of professionals in our firm having expertise in accounting for business combinations and share based compensation, we evaluated the appropriateness of the Company’s accounting for the business combination and share based compensation.

•We evaluated the reasonableness of forecasted revenues by comparing assumptions to external market sources.

•We assessed the knowledge, skills, abilities, and objectivity of management’s valuation specialist.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:

◦Testing the source information underlying the discount rate and testing the mathematical accuracy of the calculations.

◦Developing a range of independent estimates and comparing those to the discount rate selected by management.

Goodwill Impairment — Refer to Note 2 to the financial statements

Goodwill is assessed for impairment annually, or more frequently if indicators arise. It was determined the Company operates as a single reporting unit. The Company's evaluation of goodwill for impairment involves the comparison of the fair value of the reporting unit to its carrying value. The Company uses a combination of the income and market approaches to develop an estimate of the reporting unit fair value. These approaches required significant assumptions, including (i) expected future revenue growth rates, (ii) profit margins, (iii) discount rate, (iv) terminal growth rate, (v) the selected guideline public companies and (vi) selected guideline public company revenue multiples. The fair value of the reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

We identified goodwill for the single reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of the reporting unit. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management's estimates and assumptions related to (i) expected future revenue growth rates, (ii) profit margins, (iii) the selected discount rate, (iv) the terminal growth rate, (v) the selected guideline public companies, and (vi) the selected guideline public company revenue multiples.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures for the selection of valuation methodologies and management's estimates and assumptions related to (i) expected future revenue growth rates, (ii) profit margins, (iii) selected discount rate, (iv) terminal growth rate, (v) the selected guideline public companies and (vi) the selected guideline public company revenue multiples to estimate the fair value of the reporting unit included the following, among others:

•With the assistance of our fair value specialists, we:

◦Evaluated the reasonableness of the valuation methodologies, the discount rate and the terminal growth rate, including testing the underlying source information and mathematical accuracy of the calculations and developing a range of independent estimates, and comparing those to assumptions selected by management.

◦Evaluated the selection of guideline public companies and guideline public company revenue multiples by developing an independent analysis of the guideline public companies and the guideline public company revenue multiples.

◦Evaluated the reconciliation of the fair value of the reporting unit to the market capitalization of the Company.

•We inquired of senior executives of the Company and inspected internal communications to corroborate strategic plans for growth that were known and knowable near the measurement date.

•We evaluated the reasonableness of management's expected future revenue growth rates and profit margins by comparing the assumptions to historical results and certain peer companies.

/s/ Deloitte & Touche LLP

New York, New York

March 26, 2025

We have served as the Company’s auditor since 2020.

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Latch, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

Assets

Current assets

Prepaid expenses and other current assets 34,757 12,333

Available-for-sale securities, non-current — 4,836

Internally-developed software, net 9,757 13,753

Liabilities and Stockholders’ Equity

Current liabilities

Warrant liability — 230

Other non-current liabilities 2,215 176

Commitments and contingencies (see Note 12)

Stockholders’ Equity

Accumulated other comprehensive income (loss) 48 (1,460)

Total liabilities and stockholders’ equity $ 294,432 $ 316,662

(1)Amount presented as of December 31, 2023 includes $19.3 million of cash required for a purchase of securities executed during the year ended December 31, 2023 but that was not deducted from the Company’s accounts until January 2024. See Note 2. Summary of Significant Accounting Policies - Cash and Cash Equivalents, and Note 9. Accrued Expenses.

(2)Shares issued and outstanding as of December 31, 2023 and December 31, 2022 exclude 738,000 shares subject to vesting requirements. See Note 1. Description of Business - Business Combination.

See accompanying notes to the consolidated financial statements.

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Latch, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

Year ended December 31,

Revenue

Cost of revenue(1)

Operating expenses

Other income (expense), net

Change in fair value of derivative liabilities — — (12,512)

Change in fair value of warrant liability 230 9,558 4,085

Change in fair value of trading securities — (3,460) 50

Loss on extinguishment of debt — — (1,469)

Other income (expense), net 219 (142) 1

Provision for income taxes 30 89 53

Other comprehensive income (loss)

Unrealized gain (loss) on available-for-sale securities 1,515 (787) (677)

Foreign currency translation adjustment (7) 3 (8)

Net loss per common share:

Basic and diluted net loss per common share $ (0.68) $ (1.13) $ (1.93)

Weighted average shares outstanding:

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

See accompanying notes to the consolidated financial statements.

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Latch, Inc. and Subsidiaries

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(in thousands)

Shares Amount Shares Amount

Exercises of common stock options — — 6,310 — 3,271 — — 3,271

Tax withholdings on settlement of equity awards — — (69) — (1,779) — — (1,779)

Conversion of Legacy Latch warrants — — 233 — 2,143 — — 2,143

Foreign currency translation adjustment — — — — — (8) — (8)

Unrealized gain (loss) on available-for-sale securities — — — — — (677) — (677)

Cumulative effect of adopting ASC 2016-13 — — — — — — (38) (38)

Exercises of common stock options — — 1,052 — 722 — — 722

Transaction costs related to reverse capitalization — — — — (25) — — (25)

Foreign currency translation adjustment — — — — — 3 — 3

Unrealized gain (loss) on available-for-sale securities — — — — — (787) — (787)

Tax withholdings on settlement of equity awards — — (659) — — — — —

Foreign translation adjustment — — — — — (7) — (7)

Unrealized gain (loss) on available-for-sale securities — — — — — 1,515 — 1,515

(1)Shares issued and outstanding as of December 31, 2023 and December 31, 2022 exclude 738,000 shares subject to vesting requirements. See Note 1. Description of Business - Business Combination.

See accompanying notes to the consolidated financial statements.

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Latch, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

Year ended December 31,

Operating activities

Adjustments to reconcile net loss to net cash used in operating activities

Change in fair value of derivatives — — 12,512

Change in fair value of warrant liability (230) (9,558) (4,085)

Change in fair value of trading securities — 3,460 (50)

Realized gains/losses on available-for-sale securities — 47 —

Impairment loss on long-lived assets 697 921 —

Loss on extinguishment of debt — — 1,469

Provision for doubtful accounts, net of recoveries (927) 1,296 1,080

Provision for credit losses on contract assets 134 — —

Changes in assets and liabilities

Prepaid expenses and other current assets (22,553) (2,877) (3,435)

Investing activities

HDW Acquisition, net 8,085 — —

Purchases of trading securities — (250) (4,250)

Purchase of property and equipment (327) (2,239) (1,541)

Capitalized internally-developed software (1,516) (4,774) (5,929)

Purchase of intangible assets — — (700)

Financing activities

Repayment of term loan — — (5,000)

Proceeds from issuance of common stock — 724 3,271

Proceeds from revolving credit facility — 1,345 7,934

Repayment of revolving credit facility — (4,714) (4,566)

Net cash provided by (used in) financing activities — (6,039) 447,794

Effect of exchange rates on cash (46) (32) (6)

Cash and cash equivalents

Supplemental disclosure of cash flow information

Cash paid during the year for:

See accompanying notes to the consolidated financial statements.

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Latch, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

Supplemental disclosure of non-cash investing and financing activities

Net assets acquired $ 4,221 $ — $ —

Promissory note issued as part of HDW Acquisition $ 22,000 $ — $ —

Common stock issued for HDW Acquisition $ 15,627 $ — $ —

Accrued fixed assets $ — $ — $ 480

Prepaid expense received as part of business combination $ — $ — $ 510

See accompanying notes to the consolidated financial statements.

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

1.DESCRIPTION OF BUSINESS

Latch, Inc. (referred to herein, collectively with its subsidiaries, as “Latch” or the “Company”) is a technology company primarily serving the multifamily rental home market segment of the smart building industry deploying hardware and software technology to digitize otherwise manual processes, including building and unit access and in-unit device control.

In May 2019, the Company incorporated Latch Taiwan, Inc., a wholly-owned subsidiary, in the state of Delaware. In October 2020, the Company incorporated Latch Insurance Solutions, LLC, a wholly-owned subsidiary, in the state of Delaware. In September 2021, the Company incorporated Latch Systems Ltd, a wholly-owned subsidiary, in England and Wales. The Company’s revenues are derived primarily from operations in North America.

On June 4, 2021 (the “TSIA Closing Date”), the Company consummated the previously announced merger pursuant to that certain Agreement and Plan of Merger, dated as of January 24, 2021 (the “TSIA Merger Agreement”), by and among the Company (formerly known as TS Innovation Acquisitions Corp. (“TSIA”)), Latch Systems, Inc. (formerly known as Latch, Inc. (“Legacy Latch”)) and Lionet Merger Sub Inc., a wholly-owned subsidiary of TSIA (“Merger Sub”), pursuant to which Merger Sub merged with and into Legacy Latch, with Legacy Latch becoming a wholly-owned subsidiary of the Company (the “Business Combination” and, collectively with the other transactions described in the TSIA Merger Agreement, the “Transactions”). In connection with the consummation of the Transactions (the “Closing”), the Company changed its name from TS Innovation Acquisitions Corp. to Latch, Inc. The “Post-Combination Company” following the Business Combination is Latch, Inc.

In May 2023, in connection with the HDW Acquisition (as defined and further described below), the Company formed two subsidiaries, one of which was the surviving entity of the HDW Acquisition and was renamed Honest Day’s Work, LLC. In January 2024, in connection with the acquisition of a property management business, the Company formed Door Property Management, LLC. In June 2024, in connection with the HelloTech Merger (as defined and further described below), the Company formed a subsidiary into which HelloTech, Inc. merged as the surviving entity of the HelloTech Merger.

Effective November 1, 2023, the Company relocated its headquarters to St. Louis (Olivette), Missouri. From 2020 through 2023, the Company operated offices in Denver, Colorado, New York, New York, Los Angeles, California and Taipei, Taiwan.

Business Combination

On January 24, 2021, TSIA entered into the TSIA Merger Agreement with Merger Sub and Legacy Latch. Legacy Latch’s board of directors unanimously approved Legacy Latch’s entry into the TSIA Merger Agreement.

On June 3, 2021, TSIA held a special meeting of its stockholders (the “Special Meeting”), at which the TSIA stockholders considered and adopted, among other matters, a proposal to approve the Business Combination, including (a) adopting the TSIA Merger Agreement and (b) approving the other Transactions contemplated by the TSIA Merger Agreement.

Upon the Closing the following occurred:

•The mandatory conversion feature upon a business combination was triggered for the convertible notes issued by Legacy Latch between August 11, 2020 and October 23, 2020 with a maturity date of April 23, 2022 for an aggregate principal amount of $50.0 million (the “Convertible Notes”), causing a conversion of the $50.0 million outstanding principal amount of the Convertible Notes and any unpaid accrued interest into equity securities at a specified price. The noteholders received approximately 6.9 million shares of common stock in the Post-Combination Company. The embedded derivative related to the Convertible Notes was extinguished as part of the Closing.

•The 71.1 million outstanding shares of redeemable convertible preferred stock were exchanged for 63.8 million shares of common stock in the Post-Combination Company.

•Legacy Latch repaid in full the outstanding principal and accrued interest on the term loan in the total amount of $5.0 million. The embedded derivative in the warrants issued in connection with the term loan was extinguished as part of the Closing.

•Holders of 5,916 shares of TSIA’s Class A common stock sold in its initial public offering (the “Initial Shares”) properly exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

proceeds from TSIA’s initial public offering (the “TSIA IPO”), calculated as of two business days prior to the consummation of the Business Combination, which was approximately $10.00 per share, or approximately $0.06 million in the aggregate.

•The shares of TSIA Class B common stock held by TS Innovation Acquisitions Sponsor, L.L.C. (“Sponsor”) automatically converted to 7.4 million shares of common stock in the Post-Combination Company. Of the 7.4 million shares of common stock held by the Sponsor, 738,000 are subject to vesting under certain conditions (the “Sponsor Earnout Shares”), including that the volume-weighted average price (“VWAP”) of the Post-Combination Company equals or exceeds $14.00 for any 20 trading days within a 30 trading day period on or prior to the five year anniversary of the Closing.

•Pursuant to subscription agreements entered into in connection with the TSIA Merger Agreement, certain investors agreed to subscribe for an aggregate of approximately 19.3 million newly-issued shares of common stock at a purchase price of $10.00 per share for an aggregate purchase price of approximately $192.6 million (the “PIPE Investment”). The PIPE Investment included approximately 0.3 million newly issued shares of common stock at a purchase price of $10.00 per share for an aggregate purchase price of $2.6 million of cash election funding. See Note 15. Stock-Based Compensation. At the Closing, the Company consummated the PIPE Investment.

•After giving effect to the Transactions, the redemption of Initial Shares as described above and the consummation of the PIPE Investment, there were approximately 140.5 million shares of common stock issued and outstanding (excluding the Sponsor Earnout Shares).

As noted above, an aggregate of $0.06 million was paid from TSIA’s trust account to holders that properly exercised their right to have Initial Shares redeemed, and the remaining balance immediately prior to the Closing of approximately $300.0 million remained in the trust account. The remaining amount in the trust account was used to fund the Business Combination. Latch received approximately $450.0 million in cash proceeds, net of fees and expenses funded in connection with the Closing of the Business Combination, which included approximately $192.6 million from the PIPE Investment mentioned above.

The following table reconciles the elements of the Business Combination to the Consolidated Statement of Cash Flows and the Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the year ended December 31, 2021.

Cash - TSIA trust and cash, net of redemptions $ 300,122

Cash - PIPE Investment including cash election funding 192,550

Less: transaction costs and advisory fees paid (36,783)

Less: cash election payment, net (2,313)

Less: issuance and other costs paid (5,621)

Net proceeds from Business Combination 447,955

Plus: prepaid expenses received as part of Business Combination 510

Reverse recapitalization, net of transaction costs $ 434,593

As a result of the Business Combination, each share of Legacy Latch redeemable convertible preferred stock and common stock was converted into the right to receive approximately 0.8971 shares of the common stock of the Post-Combination Company (the “Exchange Ratio”).

Based on the following factors, the Company determined under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, that the Business Combination was a reverse recapitalization.

•Legacy Latch stockholders owned approximately 60.0% of the shares in the Post-Combination Company and thus had sufficient voting rights to exert influence over the Post-Combination Company.

•Legacy Latch appointed a majority of the Post-Combination Company’s board of directors and maintained a majority of the composition of management at the time of the transaction.

•Legacy Latch was the larger entity based on historical revenues and business operations and comprised the ongoing operations of the Post-Combination Company.

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

•The Post-Combination Company assumed the name “Latch, Inc.”

The accounting for the transaction was similar to that resulting from a reverse acquisition, except that goodwill or other intangibles were not recognized, and the transaction was followed by a recapitalization.

In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the TSIA Closing Date to reflect the number of shares of the Company’s common stock, par value $0.0001 per share, issued to Legacy Latch’s stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Latch redeemable convertible preferred stock and Legacy Latch common stock prior to the Business Combination have been retroactively recast as shares reflecting the Exchange Ratio of 0.8971 established in the Business Combination.

Post-Combination Company common stock and warrants commenced trading on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “LTCH” and “LTCHW,” respectively, on June 7, 2021. Since the August 10, 2023 suspension of trading in the Company’s common stock and warrants on Nasdaq and subsequent delisting, the Company’s securities have been traded on OTC Markets Group Inc.’s Expert Market.

HDW Acquisition

On May 15, 2023, the Company, LS Key Merger Sub 1, Inc., a wholly-owned subsidiary of the Company (“Merger Sub I”), and LS Key Merger Sub 2, LLC, a wholly-owned subsidiary of the Company (“Merger Sub II”), entered into an Agreement and Plan of Merger (as amended, the “HDW Merger Agreement”) with Honest Day’s Work, Inc. (“HDW”). On July 3, 2023 (the “HDW Closing Date”), (i) Merger Sub I merged with and into HDW, with HDW continuing as the surviving corporation, and subsequently, (ii) HDW merged with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and a wholly-owned subsidiary of the Company (collectively, the “HDW Acquisition”). The Company concluded that the transaction was a business combination and that the Company was the acquirer.

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

The Consideration Shares were originally non-transferable until July 3, 2028 (the “Restricted Period”), subject to certain accelerated releases. As a result of the Company’s delisting from Nasdaq, the Restricted Period now terminates on April 15, 2027. In the event the Company’s 60 trading day VWAP exceeds the price thresholds set forth in the table below (the “Share Price Thresholds”), the applicable portion of the Consideration Shares set forth below will be released from transfer restrictions:

Share Price Threshold Percent of Consideration Shares Released

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

In connection with the HDW Acquisition, the Company and Jamie Siminoff entered into a stock restriction agreement, dated May 15, 2023 (the “Original Siminoff Stock Restriction Agreement”). Pursuant to the Original Siminoff Stock Restriction Agreement, which was amended and restated in connection with the execution of his separation agreement in November 2024, in the event Mr. Siminoff ceased to be an employee of the Company during the Restricted Period, the Company would have the right to repurchase, for nominal consideration, all of Mr. Siminoff’s Consideration Shares that had not already been

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

released from transfer restriction, subject to certain exceptions. In the event Mr. Siminoff was terminated without Cause or resigned for Good Reason (each as defined in the Siminoff Employment Agreement (as defined below)), or upon his death or disability (each, an “Exit”), his Consideration Shares would accelerate in an amount equal to the greater of (i) the number of Consideration Shares to which he was entitled pursuant to the Share Price Thresholds (with linear interpolation of Consideration Shares based on the 60 trading day VWAP as of the date of Exit) and (ii) the number of Consideration Shares equal to the product of (a) his total Consideration Shares multiplied by (b) the quotient of (x) the number of calendar days between July 3, 2023 and his Exit divided by (y) 1,825; provided, however, that in no event would the number of Mr. Siminoff’s Consideration Shares that accelerate in connection with an Exit be less than 40% of the total number of his Consideration Shares.

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

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

In connection with the HDW Acquisition, the Company and Mr. Siminoff entered into an employment agreement, dated May 15, 2023 (the “Siminoff Employment Agreement”). Pursuant to the Siminoff Employment Agreement, on the HDW Closing Date, Mr. Siminoff was appointed as the Company’s Chief Strategy Officer. At the time, Mr. Siminoff was expected to be appointed as Chief Executive Officer of the Company following the completion of the restatement of certain of the Company’s historical financial statements (the “Restatement”). As described below in Note 21. Subsequent Events, Mr. Siminoff ceased to serve as Chief Strategy Officer on December 31, 2024 and will no longer be appointed as the Company’s Chief Executive Officer.

Liquidity Position

The Company has incurred losses since the Company’s inception. Prior to the Closing of the Business Combination, the Company’s operations were financed primarily through net proceeds from the issuance of the Company’s redeemable convertible preferred stock and Convertible Notes, as well as borrowings under the Company’s term loan. The Company received approximately $450.0 million in cash proceeds, net of fees and expenses funded in connection with the Closing, which included approximately $192.6 million from the sale of approximately 19.3 million newly-issued shares of common stock in connection with the Business Combination.

As of December 31, 2023 and 2024, the Company’s unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $179.5 million and $75.5 million, respectively. The Company’s available-for-sale securities investment portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.

Historically, the Company’s short-term liquidity needs have primarily included working capital for salaries, including sales and marketing and research and development, as well as component inventory purchases from the Company’s contract

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

manufacturers. Beginning in the second quarter of 2022 and continuing through 2025, the Company has incurred, and may continue to incur, significant professional fees, primarily consisting of legal, forensic accounting, management consulting and related advisory services as a result of the Investigation and the SEC Investigation (each as defined below), as well as accounting related consulting services, independent registered accounting firm fees and advisory services related to the Restatement and the Company’s comprehensive financial statement review. Additionally, the Company has incurred significant costs in connection with various pending litigation. Such litigation involves significant defense and other costs and, if decided adversely to the Company or settled, has resulted or could result in significant monetary damages or expenditures. Although the Company maintains insurance coverage in amounts and with deductibles that it believes are appropriate for its operations, its insurance coverage does not cover all claims that have been or may be brought against it.

In light of the Company’s liquidity position described above, the Company may attempt to secure additional outside capital. However, the Company has not sought any commitments of additional outside capital and can provide no assurance it will be able to secure any outside capital in the future at all, or on terms that are acceptable to the Company. Additionally, the Company’s securities are currently traded on the OTC Expert Market. Because of applicable restrictions, there is a minimal public market for the Company’s securities, and the Company’s ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Principles of Consolidation

The consolidated financial statements include the accounts of Latch, Inc. and its wholly-owned subsidiaries as of December 31, 2023, Latch Systems, Inc., Latch Taiwan, Inc., Latch Insurance Solutions, LLC and Latch Systems Ltd. All intercompany transactions have been eliminated in consolidation.Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications would not have a material effect on the reported financial results.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expense during the reporting period. Significant estimates are used when accounting for stock-based compensation, inventory valuation, goodwill and intangible asset impairments, business combinations and litigation. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the consolidated financial statements; actual results could differ from those estimates.

Cash and Cash Equivalents

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

The Company’s cash balances exceed the limits that are federally insured. To date, the Company has not recognized any losses caused by uninsured balances.

Prior to December 31, 2023, the Company (i) received $19.3 million of proceeds from the sale of a maturing available-for-sale security and (ii) reinvested the proceeds by purchasing an equal amount of new securities prior to such date. The Company uses trade-date accounting and, as such, the new securities position of $19.3 million is included in the balance of available-for-sale securities of $84.9 million on the Company’s Consolidated Balance Sheets as of December 31, 2023, and a liability of $19.3 million presented as investment purchases payable is included in accrued expenses on the Company’s

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Consolidated Balance Sheets as of December 31, 2023. The funds were deducted from the Company’s account in early January 2024. Accordingly, the sum of the Company’s cash and cash equivalents as of December 31, 2023 is $19.3 million higher than it would have been had the funds been deducted from the Company’s account prior to year end. See Note 9. Accrued Expenses.

Marketable Securities

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

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at net realizable value, net of allowance for doubtful accounts and reserve for returns (see “Revenue Recognition” below for further information). The Company adopted Accounting Standards Update (“ASU”) 2016-13 effective January 1, 2022. Following the adoption, the Company recognizes an accounts receivable allowance based on estimates of expected credit losses. The Company estimates the total expected credit loss over the lifetime of the receivables using historical loss data and by applying a loss-rate method using relevant available information from internal and external sources, including historical write-off activity, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for changes in economic conditions. When certain amounts are deemed uncollectible, those balances are reserved in full.

The allowance for doubtful accounts is measured on a pooled basis when similar risk characteristics exist. When assessing whether to measure certain financial assets on a pooled basis, the Company considers various risk characteristics, including the financial asset type, size and historical or expected credit loss pattern. The Company has considered customer identity, customer type and product lines and determined that further segmentation of the accounts receivable would not yield a materially different credit loss allowance. The Company only segments its receivables based on the age of the outstanding balance.

As of December 31, 2023, 2022 and 2021, the allowance for doubtful accounts contains an estimate of credit losses for outstanding invoices related to (1) hardware accounts receivable when revenue was recognized for consideration received from the related software contract and (2) invoices related to software accounts receivable. The Company generally does not require any security or collateral to support its receivables.

The following table represents a roll-forward of the Company’s allowance for doubtful accounts:

Provision for doubtful accounts 1,296

Provision for doubtful accounts, net of recoveries (927)

Write-offs charged against the allowance (1,114)

Inventories, Net

Inventories consist of finished goods and component parts. Finished goods are manufactured by the Company or purchased from contract manufacturers and component suppliers. Inventories are stated at the lower of cost or net realizable value with cost being determined using the average cost method. The Company periodically assesses the valuation of inventory and writes down the value for estimated excess and obsolete inventory based upon estimates of future demand and market conditions, when necessary. As of December 31, 2023, net inventories in excess of one year of historical sales are classified as other non-current assets on the Consolidated Balance Sheets.

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Hardware shipped to channel partners is considered channel inventory until there is evidence a contract exists and control has passed to the customer. Channel inventory is included within inventory, net on the Consolidated Balance Sheets. Channel inventory is stated at the lower of cost or net realizable value with cost being determined using the average cost method.

Property and Equipment, Net

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

Useful lifein years

Office furniture 5

Computers and equipment 3 - 5

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

Internally Developed Software, Net

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

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

Goodwill

Goodwill represents the excess of purchase consideration over the fair value of identifiable net assets acquired in a business combination. As of December 31, 2023, the Consolidated Balance Sheet includes $25.3 million in goodwill, entirely from the HDW Acquisition.

Impairment Testing

Goodwill is assessed for impairment annually, as of December 31 of each year, or more frequently if indicators arise. Operating as a single reporting unit, the Company’s entire goodwill balance is subject to this assessment.

Fair Value Determination

According to ASC 350, Intangibles - Goodwill and Other (“ASC 350”), the fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company concluded the appropriate valuation approach was a combination of the income and market approaches.

The Company engaged third-party valuation specialists to determine the reporting unit’s fair value, using both income and market approaches, per ASC 820, Fair Value Measurement (“ASC 820”). The valuation methodologies applied consider both entity-specific and observable market information under the fair value hierarchy in ASC 820, and changes in, or additions to, available information may affect the assumptions the Company uses in estimating fair value. The Company’s analysis relied on significant assumptions, including: expected future revenue growth rates, profit margins, discount rate, terminal growth rate, the selection of guideline public companies and selected guideline public company revenue multiples. The analysis was performed retrospectively as of December 31, 2023, leveraging inputs that were both known and knowable as of such date.

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(in thousands, except share and per share data)

Impairment Test Results

The quantitative assessment, equally weighting the income and market approaches, estimated the Company’s fair value at $204.0 million, exceeding the carrying value of $169.1 million by $34.9 million, or 20.6%. Consequently, no goodwill impairment was recorded as of December 31, 2023.

The Company performed a sensitivity analysis by adjusting key assumptions in the analysis, reducing the terminal growth rate from 3% to 2% and lowering the guideline public company multiples from 0.40x next fiscal year (“NFY”) revenue and 0.30x NFY+1 revenue to 0.30x and 0.20x, respectively. The sensitivity analysis, while not predictive in nature, indicated a fair value of $192.5 million, exceeding the carrying value by $23.4 million, or 14%, confirming no goodwill impairment as of December 31, 2023.

Intangible Assets

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

Licenses 4 4

Developed technology 3,795 —

Less: accumulated amortization (679) (226)

Total intangible assets, net $ 4,791 $ 133

Total amortization expense related to intangible assets was $0.5 million, $0.2 million and $0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Total intangible impairment expense was zero, $0.5 million and zero for the years ended December 31, 2023, 2022 and 2021, respectively, and included in general and administrative expense on the Consolidated Statement of Operations and Comprehensive Loss.

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

Useful life in years

Domain names 3 - 13

Licenses 5

Developed technology 6

Leases

On January 1, 2022, the Company adopted ASU 2016-02, Leases (Topic 842) (“ASC 842”) using a modified retrospective approach recording a cumulative-effect adjustment to retained earnings. The Company elected to adopt the practical expedients that permit it to combine lease and non-lease components for all lease contracts and also elected not to recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms of 12 months or less.

ASC 842 requires that leases be evaluated and classified as operating or finance leases for financial reporting purposes. The lease liability is calculated as the present value of the remaining future lease payments over the lease term, including reasonably assured renewal options. The discount rates used in valuing the Company’s leases are not readily determinable and are based on the Company’s incremental borrowing rate (“IBR”) on a fully collateralized basis. In calculating its IBR, the Company considers observed debt rates and the significant financing component of longer-term software contracts.

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Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

In accordance with ASC 842, the Company determined the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter. The lease terms include any renewal options and termination options that the Company is reasonably assured to exercise, if applicable. The present value of lease payments is determined by using the implicit interest rate in the lease, if that rate is readily determinable; otherwise, the Company develops an IBR based on the information available at the commencement date in determining the present value of the future payments.

The Company determines if an arrangement contains a lease at the inception of the arrangement. As part of the lease determination process, the Company assesses several factors, including, but not limited to, whether there is a right to control and direct the use of the asset and whether the other party has a substantive substitution right. As the Company’s leases generally do not have identical or nearly identical contract provisions, the Company accounts for each of its leases at the contract level.

The Company has made the policy election to not separate lease and non-lease components for any of its leases within its existing classes of assets. The Company will evaluate this election for any new leases involving a new underlying class of asset. The Company has also made the policy election to not recognize a lease liability or an ROU asset for any leases with a term of 12 months or less. These lease payments are recognized on a straight-line basis over the lease term.

The Company has evaluated lease renewal options on a contract-by-contract basis to determine whether specific circumstances would result in the conclusion that any options are reasonably certain to be exercised. Generally, the Company does not enter into lease arrangements where the option to renew or terminate a lease is controlled by the lessor.

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

ROU assets represent the right to use an underlying asset for the term of the lease, and lease liabilities represent the obligation to make lease payments throughout the term of the lease. ROU assets and lease liabilities are recognized as of the commencement date of the lease based on the present value of contractual lease payments due over the term of the lease. The Company uses an incremental borrowing rate to determine the present value of the lease payments, as the leases do not state the rate implicit in the lease.

ROU assets resulting from operating leases are recorded within other non-current assets, and lease liabilities from operating leases are recorded within current liabilities and non-current liabilities, on the Consolidated Balance Sheets. The Company did not have any finance leases or subleases as of December 31, 2023 and 2022.

Rent expense is allocated among cost of revenue, research and development, sales and marketing, and general and administrative, based on headcount and the use of the underlying leased property.

Revenue Recognition

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identify contracts with customers; (ii) identify performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when (or as) the Company satisfies each performance obligation.

A performance obligation is a promise in a contract to transfer a distinct good or service to a customer and is the unit of account in ASC 606 and its related amendments (collectively known as ASC 606, Revenue from Contracts with Customers). Revenues are recognized when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company currently generates its revenues from three primary sources: (1) sales of hardware devices, (2) licenses of software products and (3) installation services related to the hardware devices.

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Table of Contents

Latch, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Performance Obligations

The Company enters into contracts that contain multiple distinct performance obligations: hardware, software and installation services. The hardware performance obligation includes the delivery of hardware, the software performance obligation allows the customer access to the software during the contracted-use term when the promised service is transferred to the customer and the installation services obligation includes the delivery of activation and installation of the hardware. The Company has determined that the hardware, software and installation services are individual distinct performance obligations because they can be and generally are sold by the Company on a standalone basis, and because other vendors sell similar technologies and services on a standalone basis.

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

Hardware

The Company generates hardware revenue primarily from the sale of its portfolio of devices. The Company sells hardware to customers, which include real estate developers, builders, building owners and property managers, directly or through its channel partners, who act as intermediaries, installers or wholesalers. The Company recognizes hardware revenue when there is evidence a contract exists and control has been transferred to the customer.

The Company generally provides warranties that its hardware will be substantially free from defects in materials and workmanship for a period of one or two years for electronic components depending on the hardware product, and five years for mechanical components. The Company determines in its sole discretion whether to replace, repair or refund warrantable devices. The Company determined these warranties are not separate performance obligations as they cannot be purchased separately and do not provide a service in addition to an assurance the hardware will function as expected. The Company records a reserve as a component of cost of hardware revenue based on historical costs of replacement units for returns of defective products. For the years ended December 31, 2023, 2022 and 2021, the reserve recorded for hardware warranties was approximately 2%, 2% and 2% of cost of hardware revenue, respectively. The Company also provides certain customers a right of return for non-defective product, which is treated as a reduction of hardware revenue based on the Company’s expectations and historical experience. For the years ended December 31, 2023, 2022 and 2021, the allowance for returns resulted in a recovery of revenue by $0.1 million and reduced revenue by $0.6 million and $0.3 million, respectively.

Software