LTCH 10-K & 10-Q changes, risk factors and insider trading

•Because our securities are traded on the OTC ExpertOTCID Market, there is a minimal public market for our securities, which negatively affects the value of our securities and may make it difficult or impossible for you to sell or buy them.

•Matters relating to or arising from the Restatement and the Company’s 2022 internal investigation of certain key performance indicators and revenue recognition practices (the “Investigation”) have had, and could continue to have, an adverse effect on our business and financial condition and reputation.

In addition, our Board,Board of Directors (the “Board”), management and employees have expended, and may continue to expend, a substantial amount of time on the SEC Investigation, diverting resources and attention that would otherwise be directed toward our operations and implementation of our business strategy, all of which could materially adversely affect our business, financial condition and results of operations. Publicity surrounding the foregoing, or any SEC enforcement action or settlement as a result of the SEC Investigation, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition and results of operations.

Because our securities are trading on the OTC ExpertOTCID Market, there is a minimal public market for our securities, which negatively affects the value of our securities and may make it difficult or impossible for you to sell them. We cannot assure you that our common stock and warrants will be traded on the OTCQX, OTCQBOTCQX or OTC PinkOTCQB markets or listed on Nasdaq or any other national securities exchange in the future.

Quotes in the OTC ExpertOTCID Market are “Unsolicited Only.Only” until a broker-dealer reviews the Company’s securities and submits an application under SEC Rule15c2-11. This meansapplication (the “Form 211”) is subject to review by the Financial Industry Regulatory Authority (“FINRA”). Until a Form 211 is accepted, broker-dealers may only use the OTC ExpertOTCID Market to publish unsolicited quotes representing limit orders from retail and institutional investors who are not affiliates or insiders of the Company. Quotations in OTC Expert Market securities are restricted from public viewing. Only broker-dealers and professional or sophisticated investors are permitted to view quotations in OTC Expert Market securities. Because of these restrictions, there is a minimal public market for our securities, which negatively affects the value of our securities and may make it difficult or impossible for you to sell them. We cannot assure you that our common stock and warrants will be traded on the OTC Pink markets or the OTCQX or OTCQB markets, which generally offer greater liquidity than the OTCID Market, or will not again trade at a lower level of the OTC Expert Market,markets, in the future.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis. We have concluded that our internal control over financial reporting was not effective as of December 31, 20242025 due to the existence of material weaknesses, and we have also concluded that our disclosure controls and procedures were not effective as of December 31, 20242025 due to material weaknesses in our internal control over financial reporting, all as described in Part II, Item 9A. “Controls and Procedures.” Our management has determined that we have material weaknesses in the Company’s internal control over financial reporting as of December 31, 20242025 related to (i) control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring activities. All of these material weaknesses existedwere identified as of December 31, 2023.2021 or December 31, 2022.

iii.Unexpected expenditures related to the StockholderDerivative LawsuitsActions;

▪The success of the HelloTech businessand DPM businesses;

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

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 andit 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 ExpertOTCID 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. See Note 21. Restructuring, in Part II, Item 8. “Financial Statements.”

As of December 31, 2024 and 2023,2025, the Company’s unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $75.4$34.6 million and $179.5 million, respectively. Current financial information regarding the Company, including its results of operations and statement of cash flows, will not be available until we timely file our financial statements for the applicable period.million.

We have experienced net losses in each year since inception, including a net loss of $57.6$53.7 million for the year ended December 31, 2024.2025. We believe we will continue to incur operating losses and negative cash flow in the near term as we continue to invest significantly in our business, in particular to enhance and develop new DOOR Platform features, services and products to position us for future growth. Additionally, we have incurred substantial losses and expended significant resources to market, promote and sell our solutions and products and expect to continue to do so in the future. We also expect to continue to invest for future growth, including for customer acquisition, technology infrastructure and services development. As noted above, we have also incurred significant costs in connection with the StockholderSEC LawsuitsInvestigation and SEClegal Investigation.proceedings.

We expect to continue to incur losses for the foreseeable future and will have to generate and sustain increased revenues to achieve future profitability. Achieving profitability will require us to increase revenues, manage our cost structure and avoid significant liabilities. Revenue growth may slow, revenues may decline or we may incur significant losses in the future for a number of possible reasons, including general macroeconomic conditions, increasing competition (including competitive pricing pressures), a decrease in the growth of the markets in which we compete or if we fail for any reason to continue to capitalize on growth opportunities. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and service quality problems or other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed and our stock price could be volatile or decline.

•the portion of our revenue attributable to SaaS versus hardware and other salesservices;

•the amount and timing of expenditures, including those related to expanding our operations, increasing research and development, introducing new services, solutions or products or paying litigation or similar expenses, including those related to the StockholderSEC Lawsuits andInvestigation, the SECDerivative InvestigationActions or other legal proceedings;

•the impact of the any economic disruption, such as those caused by disruptionsthe conflict in access to bank deposits or lending commitments due to bank failures, the Russian invasion of Ukraine,Iran, increasing interest rates, the implementation of tariffs on imports, inflationary pressures and the threat of a recession;

•changes in the fair values of our financial instruments (including certain warrants that we assumed in connection with the 2021 Business Combination); and

We depend on a small number of customers for a substantial portion of our business, and we expect that a small number of customers will continue to account for a significant part of our revenue and receivables in the future. As of December 31, 2025, the Company had one customer that accounted for 47% of gross accounts receivable. As of December 31, 2024, the Company had two customers that accounted for 48% of gross accounts receivable. AsFor ofthe years ending December 31, 2023,2025 and 2024, the Company had one customer that accounted for 43% of gross accounts receivable. For the years ending December 31, 202432% and 2023, the Company had one customer that accounted for 33% and 32%,33%, respectively, of total revenue.

If a key customer stops or slows its purchasing of our products for any reason, materially reduces its operations or its demand for our products, or suffers a material impairment of its operations for a significant period of time such that it is unable to receive or utilize our products, or pay its liabilities, our business would be materially adversely affected. For example, we believe thatexpect the volume of hardware purchases and installations for a key customer’s existing portfolio mayto substantially decrease beginning in the year ending December 31, 2027.2026. If the Company is unable to replace the associated revenues through addition to the key customer’s existing portfolio, expansion of our customer base, our product offerings or otherwise, the Company’s revenues would decrease, and our business would be adversely impacted.

Historically, ourOur channel partners have contractedcontract with building owners to own the full scope of installation and service of our smart access products. However, during 2021, we launchedalso use an integrated direct selling and deployment strategy targeted at certain larger enterprise accounts in which Latch directly owns the full scope of installation and service of our products with the building. Additionally, in 2023, we launchedoffer direct sales to customers through our e-commerce platform. These strategies involve significant risks and uncertainties, including distraction of management from other business operations, significant research and development, sales and marketing and other resources dedicated to the strategies at the expense of resources being dedicated to other business operations, generation of insufficient revenue to offset expenses associated with the strategies, inadequate return of capital, increased exposure to liability for improper installation (where applicable) and other risks that we may not have adequately anticipated. Because new strategies and initiatives are inherently risky, our direct selling strategy may not be successful and could materially adversely affect our business, results of operations and financial condition.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. For instance, in 2024, we launched DPM and acquired HelloTech. In addition, we will continue to make investments in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business or new products and services, we may invest significant time and resources. Initial timetables for the development and introduction of new lines of business or new products or services may not be achieved and price and profitability targets may not prove feasible. New regulatory and compliance regimes, such as those related to transportation,professional ride sharingservices or property management operations, may be found to apply to new lines of business, and we may not be in compliance. Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new lines of business or products and services. External factors, such as competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our information technology of introducing any new line of business or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

If we determine that our goodwill has become further impaired, we may incur additional impairment charges, which would negatively impact our operating results.

Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. AtWe recognized a goodwill impairment charge of $16.6 million for the year ended December 31, 2024,2025 wewithin hadoperating expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Following the impairment, approximately $30.2$13.6 million of goodwill remained recorded on the accompanying Consolidated Balance Sheet. We assess goodwill for impairmentSheet at leastDecember annually,31, and more frequently if events or circumstances indicate it is more likely than not that the carrying amount of the Company may not be recoverable.2025.

We assess goodwill for impairment at least annually, and more frequently if events or circumstances indicate it is more likely than not that the carrying amount of the Company may not be recoverable. Goodwill may be further impaired if there are adverse changes in expected future cash flows of a reporting unit, if we restructure or dispose of a portion of our business or if there are sustained negative trends in our industry or the economy. Our most recent impairment analysis was performed as of December 31, 2024, using information that was known or knowable as of that date, and no impairment was identified.

However, goodwill is particularly sensitive to changes in financial performance and liquidity and broader industry conditions. Factors such as lower-than-expected revenue growth, continued operating losses or reductions in our cash position from funding ongoing operations could materially reduce the fair value of the Company. 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. As a result, some or all of our goodwill recorded on the accompanying Consolidated Balance Sheets may be impaired during 2025 or in future periods.

•changes in tax laws and regulations and accounting principles, or interpretations or applications thereof (which could apply retroactively); and

Moreover, changes in applicable tax laws could increase our costs and adversely affect our operating results. TheFor example, in 2021, the OECD has announced an accord to set a minimum global corporate tax rate of 15%, which is being or may be implemented in many jurisdictions, including the United States. The OECD is also issuing tax-related guidelines that are different, in some respects, than current tax principles. If countries amend their tax laws to adopt all or part of the OECD guidelines, this may increase tax uncertainty and increase taxes applicable to us or our stockholders. We cannot predict whether the U.S. Congress or any other governmental body, whether in the United States or in other jurisdictions, will enact new tax legislation (including increases to tax rates), whether the U.S. Internal Revenue Service or any other tax authority will issue new regulations or other guidance, whether the OECD or any other intergovernmental organization will publish any further guidelines on taxation or whether member states will implement such guidelines, nor can we predict what effect such legislation, regulations or international guidelines might have.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize NOL carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who each own at least 5% of our common stock, increase their collective ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. Because the limitations on utilization of NOLs and other tax attributes that are triggered in connection with an ownership change are generally based on the value of the issuer at the time of the ownership change, if we have undergone an ownership change (whether in connection with the HelloTech Merger or any other changes in our ownership) at a time when the stock price of our common stock is limited in relation to the size of our NOLs, it could materially limit the future potential value of our NOLs. We have not completed a Section 382 analysis of the potentialany ownership changes that may have occurred prior to the date of this Form 10-K. Additionally, we are evaluatingor the impact of any Section 382 limitation on the utilization of acquired NOLs.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded U.S. corporations and certain other persons (a “covered corporation”). Because we are a Delaware corporation and our securities have traded on Nasdaq (and may in the future be listed on a stock exchange), we may be a “covered corporation” for this purpose. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Treasury Department has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, the excise tax. If we were to conduct repurchases of our stock or other transactions covered by the excise tax described above, we could potentially be subject to this excise tax, which could increase our costs and adversely affect our operating results.

We use open source software in our products and services and anticipate using open source software in the future. Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open source code on unfavorable terms or at no cost; and all open source software licenses contain conditions and restrictions. Some open source software may include generative artificial intelligence (AI) software or other software that incorporates or relies on generative AI. The use of such software may expose us to risks as the intellectual property ownership and license rights, including copyright, of generative AI software and tools has not been fully interpreted by U.S. courts or been fully addressed by federal, state or international regulations, and there is a risk that open source software licenses, including those that incorporate or rely on generative AI, could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we could face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce, or alleging copyright infringement on the basis that we have failed to comply with, the terms of the applicable open source license. These claims could result in litigation and statutory damages for copyright infringement and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require us to expend significant additional research and development resources, and we cannot guarantee that we would be successful.

We rely on a limited number of suppliers to manufacture and transport our products, including in some cases only a single supplier for some of our products and components. Our reliance on a limited number of manufacturers increases our risks, since we do not currently have alternative or replacement manufacturers. In the event of interruption of any of our manufacturers, we may not be able to increase capacity from other sources or develop alternate or secondary sources without incurring material additional costs and substantial delays. Furthermore, manyfrom oftime theseto manufacturers’time, we may engage manufacturers whose primary facilities are located in Asia. Thus, our business could be adversely affected if one or more of our suppliers is impacted by a natural disaster or other interruption at a particular location.

We depend upon, but have limited control overover, our suppliers, manufacturers and logistics partners, which subjects us to risks, such as the following:

•difficulties and costs incurred in establishing additional supplier, manufacturer or logistics partner relationships if we experience difficulties with our existing suppliers, manufacturers or logistics partners;

•the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, tariffs, including those imposed against China and Taiwan by the Trump Administration at various times in 2025,times, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; and

To ensure adequate inventory supply, we must forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and contract manufacturers based on our estimates of future demand for particular products and services. Our agreements may include minimum purchase commitments, deposits or obligations related to excess materials. Failure to accurately forecast our needs may result in manufacturing delays or increased costs. Our ability to accurately forecast demand could be affected by many factors, including changes in customer demand for our products and services, changes in demand for the software, services and products of our competitors, unanticipated changes in general market conditions and the weakening of economic conditions or customer confidence in future economic conditions. This risk will be exacerbated by the fact that we may not carry a significant amount of inventory for certain products and may not be able to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength of our brand. Lower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. Further, if we cancel all or part of our inventory or component orders, we may be liable to our suppliers and manufacturers for the cost of the unused component orders or components purchased by our manufacturers. Disputes, production delays, cessation of manufacturing activities or breakdowns in supplier relationships may limit our ability to recover prepaid balances or utilize committed components. If we are unable to negotiate favorable resolutions with a supplier or manufacturer, validate component inventories or redeploy materials into alternative production programs, we may incur additional losses.

In addition to the StockholderDerivative LawsuitsActions and the ongoing SEC Investigation described above, from time to time, we may be subject to claims, lawsuits, government investigations and other proceedings involving products liability, competition and antitrust, intellectual property, privacy, consumer protection, securities, tax, labor and employment, commercial disputes and other matters that could adversely affect our business operations and financial condition. As our business grows, we may see a rise in the number and significance of these disputes and inquiries. Litigation, regulatory proceedings and any intellectual property infringement matters that we could face may be protracted and expensive, and the results are difficult to predict. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, require us to modify our products or services, make content unavailable or require us to stop offering certain features, all of which could negatively affect our revenue growth.

We are subject to all of the operating hazards and risks normally incidental to the provision of our products and services and business operations. While we maintain insurance policies in such amounts and with such coverage and deductibles as required by law and that we believe are reasonable and prudent, such insurance is not adequate to protect us from all the liabilities and expenses that may arise from claims for personal injury, death or property damage arising in the ordinary course of our business, the SEC Investigation or the pendingDerivative Stockholder Lawsuits,Actions, and we may not be able to maintain our current levels of insurance at economical prices. We may choose to self-insure certain liabilities either by bearing such liabilities fully or by selecting a higher deductible in exchange for reduced premiums. If a significant liability claim is brought against us that is not covered by insurance, or we incur numerous smaller claims that do not meet applicable deductibles, then we may have to pay such claims with our own funds, which could have a material adverse effect on our business, financial condition, cash flows or results of operations.

Our revenue, results of operations and cash flows depend on the overall demand for our software, services and products. Negative conditions in the general economy both in the United States and abroad could cause a decrease in consumer discretionary spending and business investment and diminish growth expectations in the U.S. economy and abroad. Such conditions include those resulting from a pandemic or other global health crisis, the impact of disruptions in access to bank deposits or lending commitments due to bank failures, the Russianconflict invasionin ofIran, Ukraine, increasingelevated interest rates, inflationary pressures and the threat of a recession, changes in gross domestic product growth, financial and credit market fluctuations, construction slowdowns, energy costs, international trade relations and other geopolitical issues, the availability and cost of credit and changes in the global housing and mortgage markets.

During weak economic times, the pool of potential customers may decline as the prospects for multifamily apartment construction and renovation projects diminish, which may have a corresponding impact on our growth prospects. IncreasingElevated interest rates have significantly impacted the multifamily industry, particularly property owners or developers subject to variable rate loans. These property owners or developers may be unable to refinance loans at attractive rates, or at all, and may have to reduce their capital expenditures accordingly. In addition, there is a risk that a higher percentage of property developers will file for bankruptcy protection, which may harm our revenue, profitability and results of operations, and we may determine that the cost of pursuing any claim in bankruptcy outweighs the recovery potential of such claim.

RecentAt times, macroeconomic conditions have caused significant uncertainty and volatility in global markets, which has caused, and may continue to cause, consumer discretionary spending to decline. A prolonged economic slowdown and a material reduction in new multifamily apartment construction and renovation projects may result in diminished sales of our platforms and solutions. Further worsening, broadening or protracted extension of the economic downturn could have a negative impact on our business, revenue, results of operations and cash flows.

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,” “DOOR” and the “Company” refer to the business and operations of (i) Latch Systems, Inc. (formerly known as Latch, Inc.) and its consolidated subsidiaries prior to the Business Combination and (ii) Latch, Inc. (formerly known as TS Innovation Acquisitions Corp.) and its consolidated subsidiaries following the consummation of the Business Combination.subsidiaries.

For a comparison of our financial condition and results of operations for the years ended December 31, 20232024 and December 31, 2022,2023, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).2024.

Complementing our multifamily installation capabilities, our HelloTech business provides a scalable, nationwide network of skilled independent technicians. HelloTech connects these service providers with residents and property managers seeking a wide range of on-demand technical services, such as TV mounting and smart home device installation and set-up, as well as broader home services, such as furniture assembly,assembly and handyman services and home cleaning.services.

We define Adjusted EBITDA as our net loss, excluding the impact of the following items, if applicable: (i) depreciation and amortization expense, (ii) net interest income or expense, (iii) provision for income taxes, (iv) change in fair value of warrant liability, trading securities, or derivative instruments, (v) restructuring costs, (vi) transaction-related costs, (vii) net impairment of intangible assets,assets (viii) non-ordinary course legal fees and settlement reserves, (ix) stock-based compensation expense and (x) gain or loss on extinguishment of debt. 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.

(1)As a result of significant discounts provided to our customers on certain long-term software contracts paid in advance, the Company haswe determined that there is a significant financing component related to the time value of money and hashave therefore broken out the interest component and recorded it as a component of interest income, net on the accompanying Consolidated Statements of Operations and Comprehensive Loss. Interest income, net includes interest expense associated with the significant financing component of $3.5$2.5 million and $4.6$3.5 million for the years ended December 31, 20242025 and 2023,2024, respectively.

(52)See Note 17.24. Stock-Based Compensation,Restructuring, in Part II, Item 8. “Financial Statements.”

Hardware Revenue. We generate hardware revenue primarily from the sale of our portfolio of devices for our smart access and smart home 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. TheWe Company recognizesrecognize hardware revenue when there is evidence a contract exists and control of the hardware has been transferred to the customer. TheWe Company providesprovide warranties that itsour 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. TheWe Company determinesdetermine in itsour sole discretion whether to replace or refund warrantable devices. We record a reserve as a component of cost of hardware revenue based on historical costs of replacement units for returns of defective products.

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 arrangements generally have term lengths between one and ten years. TheWhen significant discounts are provided to customers on the longer-term software contracts paid in advance, we determined that there is a significant financing component related to the time value of money and therefore have recorded the interest expense in interest expense, net on the accompanying Consolidated Statements of Operations and Comprehensive Loss. Our SaaS provided by the Company areis considered a stand-ready performance obligationsobligation where customers benefit from the servicesservice evenly throughout the service period. Revenue is recognized ratably over the subscription period beginning when or as control of the promised services is transferred to the customer.

Professional Services Revenue. We generate professional services revenue in three primary ways: (i) by facilitating project-based hardware installation and activation services for enterprise customers, (ii) through fees generated by technology and home services performed for residents and consumers, and (iii) through property management services performed by DPM for itsour multifamily building customers.

DPM’s property management activities include operating DPM customers’ buildings, which involves maintenance and repair, construction supervision,management, leasing and administrative services. Property management service revenues are recognized ratably over the service period.

Operating expenses consist of research and development, sales and marketing, general and administrative and depreciation and amortization expenses. As part of a July 2023 reduction in force (the “July 2023 RIF”), we reduced headcount, resulting in the forfeiture of equity grants and the associated recognition of negative stock-based compensation expense. During the Suspension Period, weWe have not granted any RSUs.RSUs since the suspension of the S-8 Registration Statement on August 10, 2022. However, we expect to resume granting RSUs pursuant to the S-8 Registration Statement onceafter wethe arefiling currentof inthis ourForm SEC filings.10-K. Any such grants will increase the Company’s stock-based compensation expense.

R&DResearch and Development Expenses. R&DResearch and development 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&Dresearch and development supplies and rent.

Other (Expense) Income, Net

Other (expense) income, net consists of interest expense associated with the significant financing component of our longer-term software contracts, interest expense associated with our 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.

Research and development expenses decreasedincreased by $16.5$1.0 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The decreaseincrease was primarily due to: (i) $11.2a $3.6 million increase in compensation expense resulting from lower capitalization of internally-developed software costs, (ii) a $0.3 million increase in software license cost and (iii) a $0.2 million increase in compensation expense. The increases were partially offset by (i) a $0.9 million decrease in personnel-relatedthird-party expenses,expense comprisedassociated with overlapping costs related to the transition of $5.8engineering millioncontractors beginning in the second half of decreased2024 compensationthrough expensethe primarilyfirst due to higher capitalizationhalf of development costs and $5.4 million of decreased stock-based compensation expense;2025, (ii) $2.2 million decrease in restructuring costs; (iii) $1.7 million decrease in software license expense; (iv)a $0.8 million decrease in otherRSU research and development expenses andexpense, (viii) $0.3a $0.8 million decrease in rentseverance costs related to restructuring in 2024, and lease expense. These decreases were partially offset by(iv) a $0.4$0.6 million increasedecrease in professionalcontract andmanufacturing consulting fees.cost.

Sales and marketing expenses decreasedincreased by $2.8 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The decreaseincrease was primarily duerelated to: (i)HelloTech, $1.3including a $2.5 million decreaseincrease in restructuring costs; (ii) $1.1 million decrease in software licensecompensation expense; (iii) $0.8 million decrease in professional and consulting fees; (iv)a $0.7 million decreaseincrease in personnel-relateddigital expensesmarketing andexpense. (v)The increases were partially offset by a $0.3 million decrease in travelseverance expense. These decreases were partially offset by: (i) $1.1 million increase in marketing expensecosts related to HelloTech and (ii) $0.3 million increaserestructuring in customer support expense.2024.

General and administrative expenses decreased by $21.7$20.4 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The decrease was primarily due to: (i) $13.3a $9.7 million decrease in personnel-relatedinvestigation, expenses, comprised of (a) $9.2 million in expense related to the HDW Acquisition incurred in 2023legal and thesettlement repurchase of certain of Mr. Siminoff’s shares in 2024, (b) $2.3 million reduction of stock-based compensation expense and (c) $1.8 million of decreased compensation expense;fees, (ii) $9.0a $4.9 million decrease in audit fees, (iii) a $3.3 million decrease in professional and consulting fees comprised of (a) $7.2 million decrease in costsprimarily related to theaccounting Investigation, SEC Investigation and Restatement,services, (biv) a $2.3 million decrease in litigationcompensation expensesexpense, (v) a $0.8 million decrease in office and rent expense, (cvi) $1.7a $0.6 million decrease in lowertaxes feesand license expense related to outsourceda management,sales partiallytax offsetrefund byin 2025, (dvii) $2.5a $0.6 million increasedecrease in auditseverance feescosts related to restructuring in 2024;2024, and (iiiviii) a $0.5 million decrease in restructuringtravel costs.expense. TheseThe decreases were partially offset by a $0.4$1.8 million increase in insurancestock relatedcompensation expense and $0.5$0.6 million increase in bad debt expense.

Depreciation and amortization expenses remaineddecreased flatby at $7.2$1.9 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. AmortizationProperty and equipment depreciation expense increaseddecreased by $0.5$0.8 million, amortization expense decreased by $0.7 million in 20242025 related to intangible assets, which was offset by: (i) $0.3 million decrease in property and equipment depreciation expense and (ii) $0.2 million decrease in internal use depreciation expense.decreased by $0.5 million.

Total Other (Expense) Income, Net

Total other (expense) income, net decreased by $0.9$2.8 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The decrease was primarily due to $1.9a $4.3 million lowerdecrease in interest income relatedresulting tofrom lower cashaverage andprincipal investmentsinvestment in 2024 and a $0.3 million increase in realized losses on the sale of marketable securities. These decreases werebalances, partially offset by a $1.3$1.0 million reductiondecrease in interest expense related to the significant financing component of long-termlonger-term software contracts and a $0.4$0.5 million reductiondecrease in interest expense related to debt, as the Promissorypayoff Notesof (definedpromissory below) were paid offnotes in early 2024.

As of SeptemberDecember 30,31, 2025 and December 31, 2024, the Company’sour unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $44.1$34.6 million and $75.4 million, respectively. The Company’sOur 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’sOur investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.

As of SeptemberDecember 30,31, 2025 and December 31, 2024, the Companywe also had approximately $29.2$27.3 million and $30.5 million in net inventory, respectively.

Beginning in the second quarter of 2022 and continuing through the date of this Form 10-K, 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 Financialcomprehensive Statementreview Review.of our previously issued financial statements. Additionally, we have incurred significant costs in connection with thestockholder Stockholder Lawsuits.lawsuits. See Note 14.17. 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.

As mentioned above in Item 1A. “Risk Factors,” “The presence of various risks and uncertainties associated with the Company’sour liquidity position may adversely affect itsour ability to sustain its operations,” the following risks and uncertainties associated with the Company’sour liquidity position may adversely affect itsour ability to sustain itsour operations as of the Filing Date:

•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;

•Unexpected expenditures related to the StockholderDerivative LawsuitsActions;

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

◦Pricing compression for the Company’sour products;

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

Due to the risks and uncertainties described above, thewe Company continuescontinue to monitor itsour liquidity position. TheWe Company recognizesrecognize the challenge of maintaining sufficient liquidity to sustain itsour operations and remain in compliance with the liquidity ratio required by the Loan Agreement. However, notwithstanding itsour liquidity position as of the Filing Date, and while it is difficult to predict itsour future liquidity requirements with certainty, thewe Companyexpect currently expects it willto be able to generateuse sufficientour liquiditycurrent cash and cash equivalents and available-for-sale securities to fund itsour operationsoperational overcash therequirements for at least 12 months beyond the Filing Date. Other significant factors that affect our overall management of liquidity include certain actions controlled by management, such as capital expenditures and acquisitions. See Note 15. Leases, Note 16. Debt and Note 17. Commitments and Contingencies, in Part II, Item 8. “Financial Statements.”

In response to the risks and uncertainties described above, the Companywe may attempt to secure additional outside capital. However, the Company has not sought any commitments of additional outside capital andwe can provide no assurance itwe will be able to secure any outside capital in the future at all, or on terms that are acceptable to the Company.acceptable. Additionally, the Company’sour securities are currently traded on the OTC ExpertOTCID Market. Because of applicable restrictions, there is a minimal public market for the Company’sour securities, and the Company’sour ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. TheWe Company also plansplan to continue to closely monitor itsour cash flow forecast and, if necessary, may implement certain incremental cost savings measures to preserve its liquidity. See Note 21. Restructuring, in Part II, Item 8. “Financial Statements.”

We are obligated to make payments as part of certain contracts that we have entered into during the normal course of business. Following the Property Management Acquisitions, in February 2024 we entered into a three-year advisory agreement with a partner pursuant to which the partner provides DPM with certain management and advisory services related to DPM’s property management business. Pursuant to such agreement, we are required to pay the partner $0.5 million annually. As of December 31, 2024,2025, the Companywe had a remaining obligation of $1.1$0.6 million under the advisory agreement.

We are subject to various risks and uncertainties in the course of our business. For a discussion of such risks and uncertainties, please see the section in the 2025 Annual Report filed with the SEC on March 31, 20262026, titled “Risk Factors.” ThereExcept as set forth below, there have been no material changes to the risk factors disclosed therein.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and the related notes of Latch, Inc. and its subsidiaries included elsewhere in this Form 10-Q. 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 the section captioned “Risk Factors” in the 2025 Annual Report, as updated in this Form 10-Q, actual results may differ materially from those anticipated in these forward-looking statements. Unless the context otherwise requires, references in this subsectionForm 10-Q to “we,” “our,” “Latch,” “DOOR” and the “Company” refer to the business and operations of Latch, Inc. and its consolidated subsidiaries.

Additionally, we offer a comprehensive property management service in and around Boston, Massachusetts.Massachusetts, which we have announced plans to exit as part of the Restructuring Plan (as defined below).

We define Adjusted EBITDA as our net loss, excluding the impact of the following items, if applicable: (i) depreciation and amortization expense, (ii) net interest income or expense, (iii) provision for income taxes, (iv) change in fair value of warrant liability, trading securities, or derivative instruments, (v) restructuring costs, (vi) transaction-related costs, (vii) impairment of assets, (viii) non-ordinary course legal fees and settlement reserves, (ix) stock-based compensation expense; and (x) gain or loss on extinguishment of debt. 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-Q, 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.

Professional Services Revenue. We generate professional services revenue in three primary ways: (i) by facilitating project-based hardware installation and activation services for enterprise customers, (ii) through fees generated by technology and home services performed for residents and consumers,consumers; and (iii) through property management services performed by our subsidiary, Door Property Management, LLC (“DPM”),DPM, for our multifamily building customers.

Cost of professional services revenue consists primarily of (i) third-party installation labor costs and parts and materials associated with deployment of our hardware, (ii) labor costs associated with HelloTech independent technicians and credit card fees,fees; and (iii) costs related to third-party property service providers.

Operating expenses consist of research and development, sales and marketing, general and administrativeadministrative, and depreciation and amortization expenses. Stock-based compensation expense is included within these operating expense categories. We havedid not grantedgrant any restricted stock units (“RSUs”) since the suspension ofwhile our registration statement on Form S-8 under the Securities Act (the “Form S-8 Registration Statement”) onwas suspended from August 10, 2022.2022 However,through theApril 2, 2026. We resumed granting RSUs under our Form S-8 Registration Statement became effective again on April 2, 20262026, andafter we expectbecame tocurrent resumewith grantingour RSUs.SEC Any such grants will increase stock-based compensation expense.filings.

Comparison of three months ended MarchJune 31,30, 2026 and March 31, 2025

Revenue decreased by $0.1$3.4 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The decrease was primarily driven by a $2.5 million decrease in hardware revenue due to lower hardware shipment volumes in 2026 compared to 2025 reflecting softer demand in the multifamily market, a $1.4more cautious customer spending environment, longer customer purchasing cycles, and changes in the Company’s channel partner strategy and engagement. The decrease was also driven by a $1.8 million reductiondecrease in professional services revenuerevenue, relatedprimarily attributable to (i) a $0.7$1.6 million decrease in HelloTech services, (ii) a $0.4 million decline in hardware activation and installation services,services and (iiiii) a $0.3 million decrease in property maintenancemanagement services, partially offset by a $1.0modest increase in HelloTech services revenue. These decreases were partially offset by a $0.9 million increase in software revenue due to continued growthsubscription in subscriptions and a $0.3 million increase in hardware revenue due to higher hardware shipments in 2026 compared to 2025.growth.

Cost of revenue decreased by $0.8$2.9 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The decrease was primarily driven by a $2.2 million decrease in professional services costs, primarily attributable to (i) a $1.9 million decrease in hardware activation and installation services costs due to fewer installation projects and (ii) a $0.7$0.4 million decrease in property management services costs. The decrease was also driven by a $1.9 million reduction in professionalhardware servicescosts costdue to lower hardware shipment volumes. These decreases were partially offset by a $0.9 million increase in excess inventory charges related to aslow declinemoving in installation projects.product.

Research and development expenses decreased by $1.8$0.4 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The decrease was primarily duedriven to (i)by a $1.0$0.8 million reduction in third-party expense associated with the wind-down of overlapping costsengineering related to thecontractor transition ofcosts. engineering contractors beginning in the first half of 2025, (ii) a $0.8 millionThis decrease in expenses related to abandoned capitalized internally-developed software, and (iii) a $0.4 million decrease in personnel-related expenses. These decreases werewas partially offset by a $0.3 million increase in software license costs and(i) a $0.2 million increase in compensation expense resulting from lower capitalization of internally-developed software costs.costs, (ii) a $0.2 million increase in software license costs; and (iii) a $0.1 million increase in cloud processing costs associated with the DOOR app migration.

Sales and marketing expenses increaseddecreased by $0.7$0.3 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increasedecrease was primarily relateddriven toby (i) a $0.3$0.2 million increasedecrease in compensationmarketing expense due to expansionslower ofHelloTech theadvertising spend and (ii) a $0.1 million decrease in hardware sales teamcommission and a $0.2 million increase in digital marketing expense related to HelloTech.expense.

General and administrative expenses decreasedincreased by $3.1$0.1 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The decreaseincrease was primarily duedriven toby (i) a $1.7$0.8 million decreaseincrease in investigation,SEC legalsettlement expense, (ii) a $0.4 million increase in stock-based compensation expense; and settlement(iii) fees,a $0.3 million charge related to derecognition of intangible assets. These increases were substantially offset by (iii) a $0.7 million decrease in auditpersonnel-related fees,expenses resulting from operational efficiencies and lower bonus expense, (iiiii) a $0.7$0.4 million decrease in professionallegal and consulting fees primarily related to accounting services,fees, (iv) a $0.3 million decrease in insurance related expense, and (viii) a $0.2 million decrease in insurance expense; and (iv) a $0.1 million decrease in software license expense. These increases were partially offset by a $0.5 million increase in tax expense as a result of a sales tax refund in 2025.

Depreciation and amortization expenses decreased by $0.5$0.3 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The decrease was primarily due to lower amortization expense of capitalized internally-developed software and lower depreciation expense.

Total other expense, net increaseddecreased by $0.2$0.4 million for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025. The decreasedecreases waswere primarily due to a $0.4 million decrease in interest income resulting from lower average principal investment balances, partially offsetdriven by a $0.3$0.8 million gain on the Company’s investment in a privately held company and a $0.5 million decrease in interest expense related to the significant financing component of longer termlong-term software contracts. These decreases were partially driven by a $0.7 million decrease in interest income resulting from lower average principal investment balances and a $0.1 million loss on the payoff of debt.

We have incurred losses since our inception. For the six months ended June 30, 2026 and June 30, 2025, the Company generated a net loss of $12.8 million and $19.1 million, respectively. To date, our principal sources of liquidity have been the net proceeds received as a result of the 2021 business combination (the “2021 Business Combination”) and payments received from our customers.

As of MarchJune 31,30, 2026 and December 31, 2025, our unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $28.5$20.9 million and $34.6 million, respectively. Our available-for-sale securities investment portfolio is primarily invested in highlyU.S. ratedTreasury securities, withwhich theare primaryheld objectiveto of minimizing the potential risk ofpreserve principal loss.while Ourmaintaining investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.liquidity.

As of MarchJune 31,30, 2026 and December 31, 2025, we also had approximately $25.0$23.7 million and $28.9$27.3 million, respectively, in net inventory.

Beginning in the second quarter of 2022 and continuing through the date of this Form 10-Q,2022, we have incurred, and may continue to incur,incurred significant professional fees, primarily consisting of legal, forensic accounting, management consulting and related advisory services asin aconnection result ofwith our 2022-2023 internal investigation (the “Investigation”) and, the SEC Investigation, as well as accounting related consulting services, independent registered accounting firm fees and advisory services related to the Restatementrestatement and comprehensive review of our previously issued financial statements.statements, Additionally,and werelated haveaccounting and advisory services. We also incurred significant costs in connection with stockholder lawsuits.litigation. SeeDuring Note2026, 14.the Commitmentsmajority of these matters were resolved, and Contingencies,the inrelated Partprofessional I,fees Itemhave 1.declined “Financialsignificantly. Statements.”While Suchwe litigationmay involvescontinue significantto defenseincur professional fees associated with the resolution of remaining matters and other legal proceedings, we do not expect these costs and, if decided adversely to uscontinue orat settled,historical 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.levels.

The following risks and uncertainties associated with our liquidity position may adversely affect our ability to sustain our operations as of the Filingdate Dateof filing this Form 10-Q:

Due to the risks and uncertainties described above, we continue to monitor our liquidity position. We recognize the challenge of maintaining sufficient liquidity to sustain our operationsoperations. andHowever, remainafter ingiving complianceeffect withto the liquidityminimum ratiocash balance required byto be maintained under the LoanCredit Agreement. However,Facility, notwithstanding our liquidity position as of the Filingdate Date,of filing this Form 10-Q, and while it is difficult to predict our future liquidity requirements with certainty, we expectbelieve that our available unrestricted cash, cash equivalents, and available-for-sale securities, together with amounts available for borrowing under the Credit Facility and cash flows expected to be ablegenerated tofrom useoperations, ourwill currentbe cash and cash equivalents and available-for-sale securitiessufficient to fund our operationaloperating cash requirements for at least 12 months beyond the Filingdate Date.of filing of this Form 10-Q. This assessment is based on management’s current operating plan, which contemplates continued cost discipline, inventory management and liquidity preservation measures. However, this assessment is subject to significant uncertainty, and our actual liquidity needs may differ materially from our current estimates as a result of the risks and uncertainties described above and those described under the section in our 2025 Annual Report titled “Risk Factors,” as updated by Part II, Item 1A. “Risk Factors” in this Form 10-Q. If our available resources prove insufficient to fund our operations, we may need to seek additional financing, further reduce operating costs, or take other measures to preserve liquidity. Other significant factors that affect our overall management of liquidity include certain actions controlled by management, such as capital expenditures and acquisitions. See Note 13. Debt and Note 14. Commitments and Contingencies, in Part I, Item 1. “Financial Statements.”