Latch CFO Admits "Some Confusion" Over 38% "Non Cash" Software Revenue

By IPVM Team, Published Mar 08, 2022, 10:48am EST (Research)

*****'* ***** ** **** **.*% ** the **** ****, **** ********** ******** ********, ****** ********** **** *****'* *** ******** *** "some *********" **** *** **** ******* of "*** ****" ******** *******.

IPVM Image

*****'* ****-****** ******** ******** *** ******** for *** *******'* ****-**** *************, *** since ****, **% ** **** ******* is ***-**** *********. ***** *** **** touted ******* *******-***** ******* ******* ********* in ***** ***** *********.

***** ******** ** ******* *** **** article. ** **** ******, **** ******** how **** ******** ***** *** *** impact.

Latch **********

*********'***** ****, ******* ~$*** *******, ** exceptional ****** *** ****** *******, ** a ~$*.* ******* ********* (*** ****** at ~$*** *******).

IPVM Image

***** *** ********* **** **** ******** and *****-****-******** ***** ******,********* * *** **** ** $*** million*** **** ***** ******* ******* ***********; the ******* **** ********** *** **** revenue ********** ** ** ***** $** million.

Non-Cash "*********"

*** "*********" *** *********** **** **** how ***** ********** **** ** ********* as "***-****" *******. ***** ********* ********* for *********** ******* ** *** ******** years ** ******, ***** ********** ********* what *** ******* ******** ***** **** been, ** **** *** ******** **** money, *** **** **** "***-****" ** what *** ***** ******** ******* **.

Software **** ********* *********

*************"*********** ********* ******** ** *** ****** term ******** ********* **** *******." ***** CFO ***** **************** * **-**% ***** *** *** term ********* *** "* ****** **** rule ** ***** *** ***** **** sit *****". ** ******* ****, ******* Sachs***************'* ***** ***** ********** *** ******* sells *** ******** *** **% ***.

***** *** *** ******* ** ****'* question ***** **** *** ******* **** discounts ***.

Software ******* ********

****** ******** ******* ** * ******** metric *** ***** *** ** *** profitability: ******** ***** **** **** **% of *****'* **** *****, *** *** much ****** ****** (**% ** **) **** ******** (-**% ** ** 2021). ***** **** "** **** *** hardware ** * ******* *** *** delivery ** *** **** ****** ******** and ********",*** *** ***** ********.

Term ********* ********** *********

***** ** **** *** ************* *******************, ********* *** ********* ****** **** revenue. ** * ************ *******, * $100 ****** **** ***** * **% discount ** ******** ** $** ** revenue.

*******, ************ "****** **** ******** ********* **** upfront" *** * **** ** *********. Therefore, ******* ** ***** ****** **** revenue, ***** ********* *** ******** ** an ******** *******:

IPVM Image

** * ****** ** *********** ********* provided ** *** ****** **** ******** contracts **** *******, *** ******* *** determined **** ***** ** * *********** financing ********* *** ****therefore ****** *** *** ******** ********* *** ******** ** * ********* ** ******** ****** (*******), net on the Consolidated Statements of Operations and Comprehensive Income (Loss). [emphasis added]

**** **** *** ****** *** ***** 'net ******' (******) ******, *** **** increase '*******' ******** ******** ** * tactic **** ******** ****.

$4.6 ******* ** *********

** *********** ***** ********* * ********* expense ******* ** ******* **** **** revenue ** *** *****, *****'* ******* numbers *** ************* ******. ***************$*.* ******* ** **** ***-**** ******* interest ** ******* *** **** ($*.* million) *** **** ($*.* *******):

********** ********* ** *** *********** ***** the *********** ********* ******* ********* **** time. ******** ******* ********** **** *** significant ********* ********* ******** ** ******** (income) *******, *** *** $*.* ******* and $*.* ******* *** *** ***** months ***** ******** **, **** *** 2020, ************, *** $*.* ******* *** $1.5 ******* *** *** ***** ***** December **, **** *** ****, ************.

38% ** ******** ******** ******** *********

****** **% ** *****'* ******** ******** revenue, *********, ***** **** **** ********** practice, **** ** ~$*.* ** *** reported ~$** ******* ***** ** *** last * *****:

IPVM Image

Latch *** **** "**** *********"

**** ******** *** ****** "**** *********", Latch's ******** ************** * ** **** ******** ****:

IPVM Image

*****’* ****some ********* ********* *** **** *********** ****** *** *** ****** ** *** ******* ***********. Though, we have detailed this in our public filings, I thought it would be helpful to add more color in these remarks. We benefit greatly from our customers willingness to pay upfront for upwards of 10-year software agreements. The ***** ******* **** ********** *** ****** ******* *** ******. And therefore, we incentivize customers to do this by offering tiered discounts based off of our estimated annual cost of capital. [emphasis added]

** *** ** '** ****, ******** downplayed *** ****** ** *** *********, stating ** ******* ***** ********** ** go **** **** ****:

*** ** * *********, ** ** introduce **** ******* ******* **** **** shorter-term *******, ** ** ****** ****, that, **** *** ********** ** * reported ******** ******** ****, ****, **** the **** ********make ** **** **** **** **** [emphasis added]

***** ******* ********* *** "***-**** *********** financing *********" ******** *** ********** ***** **** ********** **** * ************ *******:

IPVM Image

**** * **** ********, *** ********** of "***-****" ******* *** **** ******** will ******** **** **** ** *** implicit **** ** **** ***.

Impacts **** *******-***** *******

*****'* ************ ********* **** **% ** '******' ******* (a ****** ***** *** ************) ** ******** *******, ******* ********** the *********** ********** ** ******** '*******' that ** **** **** ******* ********. The **** ******* **** ***** **% of ********* *********, ******* ********** *** large **** ********* **** **** ********** attractive:

IPVM Image

*** **** **** ***** ***** ****** a *.** ***/*** *****. *** ** the ******** ***** ** * ********, while *** ** **** ** ******* a ********. *******, ***** ** ** disclosure **** * *********** ******* ** revenue, ***** ** **** ** ********* LTV, ** "***-****":

IPVM Image

*** ******** **** ******* ***** *******. Latch **** *** ******** ******* *** 91% ** ** ** ****, *** the ******* **** ** **** *********** includes *** **** *********, ******* *** software ******* ***** ** ***** ******* the **** *********:

IPVM Image

** *** ********* ********** **** *****,***** ************** **** ** $***,*** **** ******** 'revenue' ** $*.* *******, ***** ****** a **% ***** ******:

IPVM Image

******* *** **** *********, ******, *****'* gross ******** ****** ***** ** **% i.e. $***,*** ** **** *** ** $5.1 ******* *******.

*** ****** *****, ****** *** ** is **** ****** "****" ***** ** taking ** **** *** ******** ***** versus **** *********** "***-****" ******* ********. For *******, ***** ******** $*.* ******* in ******** ******* ** ****, *** just $* ******* *** ****.

Cash ****

***** **** / ****** **** $*** million ** **** ** ****,*** ***** **** ********* *******. ***** *** ******* **** *** provide ******** ** **** **** **** for ****, **** *** ******* ******** EBITDA ** ** ** *** ***** of -$*** ** -$*** *******.

Practice ******** *** ****

**** *** ****** ** ******** * comparable **** ******* **** ********* ********* that **** *** **** ********** ******** (Significant ********* *********:)

  • **********: "None ** *** *******’* ********* ******* * *********** ********* *********... Our enterprise customers, which consist of customers that sign up for our Enterprise plan, enter into longer **** ********** ranging from one to three years, and they generally have no obligation to renew their subscriptions for our products"

  • *****: "***** ********* ******* * *********** of ******* ****** ** ** ** days. ** ********* ***** *** ****** of ******* *********** ******* **** *** timing ** *********, ** **** ********** our *********generally ** *** ******* * *********** ********* *********... An Enterprise Term License Agreement (****) ** ***** *** ****** *********** across *********** *************. *** ***** *** desktop ********* *** ****** **************over * *****-**** ****, with one annual payment due on the same date each year"
  • ******.***: "** **** ********** *** *********generally ** *** ******* * *********** ********* *********... Our subscription contracts are offered on a monthly or annual *****, and a large portion of the arrangements arepaid ** **** **-***** at the outset of the arrangement"

  • ***********: "None ** *** ********* ******* * *********** ********* *********... The typical subscription term isone ** ***** *****"

  • ******: "** **** ********** *** *********do *** ******* * *********** ********* *********... We are currently transitioning our business model to shift from sales of perpetual licenses in favor of sales of term licenses and subscription agreements for our cloud services." [emphasis added]

**** *** **** *** ***** *******,***********, * ****** **** **** **** about** ************ * ****** *** ** $** million, *************** ******* ********:

*** *********** *****may ******* * *********** ********* ********* ** ********* ***** ******* ****** ********* *** *********** ******** ** *** ****-**** *********

ASC *** *** **** **********

***** ********* **** ******** ********* ********** ********* ********** ********* ***** (****):

*** ******* ******** ********* *********** ***** on *** **** ****** *** ***** the ******** ** ******. ******* *** purpose ** *** *********** ** ** incentivize ********* ** ******, ** ******* our ****** ** ********** **** *** 606, ** ********** *** ******** ** be * **** ** ******** *********. Because ** ****, ** ********* *** revenue *** ** *********** ********* **** and ******* *** **** ******** ** interest *******.

*** **** ******** ** ******* ** this ****** ** ****, ****** *********** we ***** ** *** ******** ********* of ********* ****** *********** (*****), ****** the ***** ******** ** ******* ***** any ******** *******.

*** ******* **** ** * ****** is * ***** ** ********* ** asset *** ******** *****, ** ******* 29 *********:

** ****** ****** **** * ******** with * ******** ** **** ** asset. ******* ** ***asset **** ******** ** *** ******** ** *** ***** (that is, the performance obligation will be satisfied at a point in time). The contract includes 2 alternative payment options: payment ** $*,*** ** * ***** when the customer obtains control of the asset or payment ** $*,*** **** *** ******** ** ******. The customer elects to pay $4,000 when the contract is signed. [emphasis added]

** **** ********, *** **** **** to ********* ******** ** *********** ***-**** revenue, ******* ** **** ***** ** doing:

****** *** * ***** **** ******** inception ***** *** ******** ** *** asset,the ****** ******* *** ******** ****** of ************* (** ************** ********* ***-**-**-**) andaccretes *** ******** ********* **recognizing ******** ** $*,*** ** * ******* *** * *****.Interest expense $494 (a)Contract liability $494(a) $494 = $*,*** ******** ********* × (* ******* ******** ***year *** * *****)c. Recognize revenue for the transfer of the asset.Contract liability $4,494Revenue $4,494 [emphasis added]

*******, ** ** *** ***** **** Latch's ********* ** ******* ** **** example, ** *** ***** ** ********* to *** *********** ** *****'* *******.

Accounting ****** **********

**** ***** ******* ********** *******, *** majority ** **** **** ********* ***** this ********, ****** ********* *********** *** being ******** **** ***** ************:

*’* *** ******** **** *** ******* and ***’* **** **** ** **** into **, ** ** ****** ** just ***** ** **** *** ******** in *** *****. * *****’* **** that ********* ******. ** ***** **** they ****** ******** **** ********* **** revenue *** ********* *** ******* ** which **** *** ******** ** **** perform ** *** ******** **** *** customer. ******** ******* ******* * **** from *** ********, ***** ** ******* treatment ** * ***-******* **** ** it ***** **** ******** *******.

***:

* ***** **** ** ******* **** research ** ****** **** *********, ***** I ***’* **** **** *** ** the ******. ** ********** ****** **** Latch ** *************** ********* *** **** discounts ** ***** ********* ****** ***/** revenue. ‘********’ ******* *********** ******* *** contract ******* ***** ** *** ************ or ******** ****.

***:

**** *********** *********** ******** **** *** discounts ****** ** ********** **** *******. It ** *** ********* ****** ***** is * ******* ********. *** *** interest **** ** *** ******. *** inducement *** ******* ** *** * longer **** ** ***** * *********** expense, *** ********. *******, *** ******* can ***** **** *** ******** ****** be ********* ****** **** ** ********** to *** ********** ******* ** ******. This ***** ** ******* ** ********** an ********* ****** *********** **** **** the ********* ****** (* ***** ** 3 *****, * ****** ** * years, *** ** **). *** **** the ******* ** *** ******** ******* to **** ********** ****** ****** ** subtracted **** *******, *** ******* ** interest.

***:

*** ***** ***'* ** ******** ********* but ***** ** ** *************, ** is ****** *** ** ***** *** term ******** ** ******** *******. *** reason ** ** *** ** **** interest ******* ** * ********* ****, whereas *** ****** ** **** ******** is *********, ***** ** **** ** the ********* ****. *********, ** ** opinion, ******** **** ******** ** ******** expense ******* ** *** ********* **** with ********* **** *** ********* *************** the ********* ***********. *******, *** ****** line ** *** ****** ****** *** be ******** ** **** *****************.

*** ********** ****** ********* *****'* ******** saying:

***** **'* **** **** ********* *** immediate ****** ** *** **** ******* it's *** *** **** **** **** get *** ** *** ******* ***** away. *******, *** ******* ** ******** over **** (***, ************, *** ******* recognizes ******* **** ****). ***'* ****** the ******** ********** *** * *****. I ***** ***** ***** ** ** chunks: ***** *** ** ****** ** SaaS ******* *** ***** *** ***** month ** ******** ***** ****, *** last *** ** *** ***** ***, just **** ** *** ******* ** the ********** ******* (***, *** *** of ** ** * ***** *** so *** ********* ********* ** *******, that's *******, *** ************, * ***'* see * **********).

******* ***** *** *** ******* *******: pay $*** ***** ***** ** *** $2000 ** *** ********* ** *** 2-year ******. **, ****'* ********** ** a $*** ********. *** ******** **** implicit ** *** *********** ** ***** to **%. ***'* ****** *** *******'* incremental ********* **** ** ***** *% per **** ** *.**% *** *****. Then, *** ***** ***** ***** **** I ***** **** *** *** *** see **** *** ********** ******* ** again ******* **** *** $**** **** the ******** ****. **'* ******* ** the ********** ******** ******* ** $***.**.

Latch ******** *******

***** ******** ** ******* ** ****:

***** *** *** **** *******. ** are *** ********* *********** ***** **** what *** ******* **** ********* ** public ********* *** *******.

Impact ********

** *** **** **** *** *****, its ********** **** ********* **** *** company **** ****** *** *** **** quicker ** *********** **********. *******, *** atypical ******** ***** ***** ***** ******* confusing ********* ***** *** ****** ***** numbers *** ******* *******-***** *******.

** ***** ***** ********* **** **** expenses ********** ***************, * *** ******** *** ***** will ** ******* *** ********** ** its ******** ******** **** *** ******** term ********* ****** "**** **** **** time" ** *** *** ******.

Comments (2)

*******, **** *********!

****, **** ** *** **** ** report **** ***** ** **** ** the******** ******* ******** **** *****, ******* ** ******** * *********** amount ** **** ** ******** *** is ********* ** *** ** ********** and ********* ** **** *****. *** questions, *** ** ****.

Agree
Disagree
Informative: 2
Unhelpful
Funny

*** **** **** **** ***** ** a $*.** ********* **** ***** ******* is ********** ************ **** ******** **** should ** ********** ******** ********* *********.

Agree: 1
Disagree
Informative: 1
Unhelpful
Funny
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