Phone-activated-locks maker Latch reveals more accounting errors and replaces top management

BY AARON ELSTEIN

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Days after a number of its senior leaders departed, Latch, a maker of phone-activated locks that went public via a special-purpose acquisition company, said its accounting problems were more extensive than first thought.

The Chelsea-based company said last week that audited financial statements from 2019 and 2020 should no longer be relied on, as the result of “internal control deficiencies” and revenue-recognition errors. The disclosure came after Latch warned in August that financial statements for 2021 and the first quarter of 2022 contained material errors.

The company went public in 2021 by merging into a SPAC founded by Tishman Speyer CEO Rob Speyer, who remains a shareholder and board member.

Latch announced this month that co-founder and CEO Luke Schoenfelder resigned effective

Jan. 11. Its interim chief financial officer and chief accounting officer also departed.

Schoenfelder is entitled to $708,000 in severance, Latch said, and remains an adviser.

A turnaround specialist from AlixPartners, Jason Keyes, was named interim CEO.

Latch didn’t immediately respond to a request for comment.

Rosy forecast

Latch marketed itself as an unusually fast-growing enterprise when preparing to merge with the Speyer SPAC two years ago. It predicted revenue would grow from $18 million in 2020 to $877 million by 2025, for a 91% compounded annual growth rate that would dwarf the 59% rate produced by Facebook at the same stage. The rosy forecast didn’t come true, and, like many SPACs, Latch’s stock now trades for less than $1 per share.

Speyer’s investment remains profitable because he paid 0.003 cents per share for 8.6 million founder shares, according to a regulatory filing. That’s a typical arrangement in SPACs.

An investigation by the Latch board uncovered a series of errors pertaining to how the company recognized revenue. Management failed to adequately assess whether sales were collectible, and staff members didn’t disclose “relevant terms” negotiated with customers. The investigation also found errors in bookings and other key performance indicators.

“The description of the errors and issues is solely based on the results of the investigation conducted to date,” Latch said in a regulatory filing, “and the errors and issues are subject to further analysis as the company completes the restatement process.”

Working with accounting firm Deloitte & Touche, Latch said it will file amended financial statements “as soon as reasonably practicable.” ■