Latch, the real estate technology company set to go public through a SPAC merger with TS Innovation Acquisition (TSIA +0.00%) generated about $18 million in revenue in 2020. However, the company thinks it is going to grow rapidly, with 2025 revenue expectations of $877 million -- roughly 50 times the current level.
In this Fool Live clip, recorded on March 8, Latch CEO Luke Schoenfelder tells Fool.com contributor Matt Frankel, CFP, how the company plans to achieve such an ambitious growth projection.
Matt Frankel: But you're projecting the revenue's going to roughly triple this year and will reach $877 million by 2025, I believe. That's some pretty big growth. How are you going to get there?
Luke Schoenfelder: It is, yes. A few things that are unique to our model -- if you look at our booked revenue, booked revenue is when a letter of intent has been signed for a specific project, that revenue we have signed contracts for. To map where our customers think about this, they're not waking up tomorrow and saying, I want to have a building next week. It's a multiyear process. Because of that, we sign these contracts to supply our products and our services to those buildings in the future up to 24 months out, which is actually not very long. It's long in one way, but mostly, these projects are actually being planned five years out. So two years out is what we look at as the bookings window. When you see our growth projected for next year, you're looking at GAAP revenue, which is totally reasonable. We have LOIs for a very large portion of that, which is what gives us that confidence. If you think about our bookings being here and then the deliveries being a lagging indicator, they always move together. Does that make sense? The growth, we have really good visibility on because we have visibility on the bookings.
Frankel: That actually gives you a lot of insight into what your next year's, and even the two years down the road, compared to what most companies can really predict.
Schoenfelder: It does. The bookings, to also be clear, that's not our sales pipeline. We have sales pipeline, which gives most companies visibility, then we have a signed contract, which gives us really good visibility, and then we have deliveries, which is when we recognize the revenue on a GAAP basis. So you can totally look at it and say, well, the revenue was small last year, and that's reasonable, but the reason why we have such confidence in our go-forward projections is because of the contracts that we have.
Frankel: OK. That makes a lot of sense. You have about 154% net dollar retention rate. I can explain that, but I'd like you to try to let our listeners know exactly what that statistic means. Because they hear it a lot of the tech show, no so much on ours, which is the financials edition.
Schoenfelder: Totally. Net dollar retention is basically how much purchasing your existing customers are doing. If you think about that, if they just bought one product, one time, it'd be at 100%. We already mentioned we have 100% customer retention, 154% actually represents that we've upsold new products and new services and new expanded locations with our existing customer base to the extent that, if you look at a snapshot of our existing customers, we have 154% net dollar retention, meaning that there was 54% growth on top of 100% retention, which is pretty exciting and fairly unusual.
Frankel: A lot of our best software-as-a-service companies that we follow are in the 120%-130% range, I'd say is pretty normal. Do you think that's sustainable, second of all?
Schoenfelder: The way that we think about and the way we organize everything on the product side is around modules. If you look at LatchOS, we deliver new modules over time. So as we scale new modules to existing customers, but then also just release net new modules, we'll have a much bigger menu of products that solve problems for our customers. Is it always going to be 154%? Hard to predict the future. But what I would say is that we expect to continue to have very strong net dollar retention and also customer retention going forward.
Frankel: Would you say your biggest growth opportunity is adding new products or continuing to grow your customer base? What's the more immediate growth potential?
Schoenfelder: Can I pick two?
Frankel: [laughs] I love that answer.
Schoenfelder: Those are the two things; it's grow the number of spaces that have LatchOS and then grow the things that LatchOS does at those spaces. That's what I wake up and I think about every day.
