MTTR (2022 - Q1)

Hello and welcome to the Matterport Inc. Fiscal 2022 First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions [Operator Instructions] Please note, today's event is being be recorded. I would now like to turn the conference over to Soohwan Kim, Vice President of Investor Relations. Mr. Kim, please go ahead. Soohwan

Thank you. Before we begin, I'd like to remind you that today's call contains forward-looking statements within the meaning of Federal Securities laws including, but not limited to statements regarding Matterport's future financial results and management's expectations and plans for the business. These forward-looking statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from those discussed on today's call. Additional information regarding risks and uncertainties that could cause actual results to differ from forward-looking statements can be found in our filings with the SEC. Any forward-looking statements made on this call speak only as of today and Matterport assumes no obligation to update or revise them whether as a result of new developments or otherwise except as required by law. In addition today's call may include discussion of non-GAAP financial measures. These measures should be considered as a supplementary and not a substitute for GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's earnings deck, which is available on the company's website. Hosting today's call are RJ Pittman, Chairman and Chief Executive Officer of Matterport and JD Fay, Chief Financial Officer. Now, I'd like to turn it over to RJ to begin.

Thanks Soohwan. Good afternoon, everyone, and thank you for joining us today. I'm excited to share our first quarter financial results with you. We had another strong quarter delivering on our product strategy, market expansion, and key results. Total revenue for the quarter was $28.5 million, $1 million above the top end of guidance, and we delivered over $17 million in subscription revenue, up 24% from a year ago. We reported strong operating metrics with our subscriber base growing 70% to over 562,000 subscribers, with spaces under management increasing 49% to 7.3 million spaces. We believe we are still in the early stages of capturing this expansive market opportunity and our diverse enterprise end markets continue to thrive amidst the challenges of today's macro environment. The number of industry-leading companies that are embedding Matterport into their daily workflows to manage their real estate assets online is bigger than ever and expanding internationally. In fact, 22% of the Fortune 1000 uses Matterport today. These businesses are discovering that Matterport reduces operating expenses with every digital twin, critical to companies everywhere and especially, so in a constrained global economy. With each quarter, our total addressable market continues to grow. Real estate is the largest asset class in the world, now valued at an estimated $327 trillion, up from $230 trillion in recent years, driven by rising property values and more than 15,000 new buildings completed every day. The Built World is a growing market, ready for digitization. Matterport is the clear market leader with over 7 million digital twins for buildings in 177 countries, comprising more than 22 billion square feet of digitized space. In Cortex, our AI software engine automatically generates thousands more digital twins every day. This software breakthrough enabled Matterport to create a new level of precision and fidelity for digital twins that even the most demanding enterprises and building operators can trust. Our unique technology delivers the gold standard for dimensionally accurate photorealistic 3D digital twins that now anyone can create, with just the smartphone in their pocket. Our rapid pace of innovation continues to lead the industry, aimed at driving rapid adoption and ease of use for customers working with any type of building or space. We are in the early stages of real estate's digital transformation and Matterport is leading the way. We have a saying at Matterport, come for the digital twin stay for the platform because once you capture a digital twin of your space, our platform delivers many value-added services, tools and property insights that provide immediate cost savings and operational efficiencies for the space. Data-driven decisions in remote facilities management, virtual inspections and group collaboration in a virtual property save customers significant time and money. In a tight labor market, with rising rates and high commodity prices, it makes more sense than ever to go digital with their real property assets. It's never been easier and more cost-effective to create a digital twin. In fact, many customers choose the easy button with Matterport capture services to conveniently schedule a technician to professionally capture your property with our online service. Over the past several years, Matterport has been steadily expanding its market opportunity beyond US residential real estate to include additional growth verticals such as commercial real estate, travel and hospitality, architecture, engineering and construction, industrials and the public sector. Our diverse end markets enable Matterport to grow steadily amidst a challenging global economy. And as the world starts to emerge from the pandemic, the return to business and personal travel has sharply boosted the outlook for the travel and hospitality industry in the second half of the year. Matterport has become an invaluable solution for hotels, nightly rentals and even the airlines themselves to promote accommodations and streamline air travel. Our recent innovation, the Axis Motorized Mount works together with any smartphone to let property managers, Airbnb hosts and landlords increased bookings by more than 12% when they provide customers with an accurate virtual tour of their properties to better plan their stay. While property managers get a more convenient way to manage their properties online for virtual space planning, inspections, operations and maintenance. We see comparable traction and impact across our other end markets. Our enterprise customers are becoming more confident in the power of our digital twins and are scaling with Matterport and bringing new spaces online every day. This is fueled by the volume of real property essential to running these global corporations. Customers like VMware, Colliers, HealthTrust, Reckitt, Perry Ellis and Orangetheory all recognize the power of digitization and have recently joined our platform. Next, I'd like to provide an update to three strategic initiatives that demonstrate how our customers are incorporating Matterport into their enterprise workflows to achieve compelling new operating efficiencies. These are capture, platform and our geo expansion efforts. Then I'll hand the call over to JD Fay to discuss our financial results for the quarter in more detail. Capture Ubiquity is a critical initiative for the company. It was designed to enable precision 3D capture from any type of camera for any type of space. Today, customers can choose from a broad array of offerings to best suit their needs, starting with a range of powerful capture devices, including the Matterport Pro 2 camera and a variety of third-party devices to a one-click on-demand professional service and an easy DIY solution using just the smartphone in their pocket. Smartphone capture is an important part of our go-to-market strategy, and it continues to drive adoption across SMB, mid-market and enterprise. Many of our Fortune 1000 customers have embraced smartphone capture to quickly evaluate our solution with a simple, free software download, capable of digitizing an entire building. Last quarter, we introduced Matterport access to make smartphone capture even easier, faster and more precise. Axis is a revolutionary motorized mount that works with a smartphone to capture 3D digital twins of any physical space, just place a smartphone in the cradle, and our software handles the rest. Matterport access became available in April and quickly sold through our initial allocations worldwide. Early days, but we've seen very strong demand and an enthusiastic response from our customers so far. Matterport Access is great for professionals, small business and even bigger jobs. Enterprise companies across our verticals are turning to access to deploy an easy, cost-effective way to capture high-fidelity digital twins at multiple building locations with their own employees using their own smartphones and customers love it. Eberl is a top four insurance claims adjusting firm in the United States. Eberl recently deployed Matterport Access to quickly document insurance claims using the power of our digital twin. Adjusters reduce their time spent in the field, improving total claims cycle time by 15% and increased new customer acquisition by 200% with the convenience of Matterport access and their own smartphone. Adjusters are able to streamline complex claims when multiple digital twins are required. As a result, Emerald completes their assessments faster and with greater accuracy and consistency. At Consumer Cloud, an independent London-based real estate group specializing in sales, rentals and property management is deploying Matterport access to their employees and agents to quickly create the high-fidelity digital twin for each of their listings and publish it online for the clients in just minutes. That consumer cloud is able to reduce in-person visits by 50% because clients are able to determine in advance whether the home was right for them by exploring the digital to it as often as they like anytime, day or night. This accelerates the process to reach highly qualified buyers while doubling the visitors to the online listing. Next, I'd like to provide an update on our platform strategy. Matterport is the leading spatial data platform that helps companies bring their buildings online to design, build, promote and manage properties. Our 3D capture technology turns buildings into data, enabling partners and third-party developers to extend the power of our digital twin with integrations and vertical market add-ons like 2D floor plans, space planning tools, insurance claims, management tools and more. The power of our platform enables customers to get more out of their digital twins, using advanced technologies from some of the best companies in the industry. An important add-on we introduced to the platform last year is Matterport BIM file to open Matterports platform to the entire design, build and operate community. Building Information Modeling, or BIM brings together all of the information about every component of the building into one place. Project stakeholders can include information about behavior, performance, materials, cost and more, all within the BIM model. With the introduction of Matterport BIM file last year, we enabled teams to jump-start their BIM projects in half the time, at a fraction of the conventional cost of survey and creating as-built documentation, all while decreasing BIM modeling costs. Importing Matterport BIM files into Autodesk Construction Cloud, Procore and other software applications as a snap, making it faster, easier and more cost-effective than ever to visualize and utilize as build designs. Retail planners, architects, real estate and construction managers have told us, how excited they are to use the Matterport BIM file to dramatically speed up the time required to plan, measure and renovate their existing facilities. In Q1, we introduced BIM for Enterprise. The new offering is designed to meet the needs of enterprise customers that are looking to take BIM data a step further to produce analytics and key insights about a building in a business-friendly reporting format. BIM for Enterprise is designed to unlock data-driven business decisions and help teams better understand the operating environment in a building or across a group of buildings. For example, with the tap of a button, facilities managers can quickly locate and determine how many fluorescent lights exist in an office, that need to be retrofitted with LED bulbs. To enhance the offering, our capture services team is also developing specialized capture processes, to ensure the critical assets, unique to each facility are digitized with maximum precision for future analysis in the digital realm. BIM for Enterprise is our digital backbone for the built environment. The Warehouse Group is the largest retailer in New Zealand with more than 100 stores, currently piloting Matterport and BIM for Enterprise to bring spatial intelligence to the forefront of their retail planning business, using Matterport, they are able to identify every centimeter of shelf space and use location intelligence to plan and maximize product placement and store aisle layouts with greater precision, speed and efficiency. This, in turn, activates data-driven decision-making to improve sales, layout and workforce efficiency. Matterport solutions are specifically designed to help our customers reach their business goals. BIM for Enterprise allows retailers like the warehouse group to quickly analyze and better utilize every square foot of the store, to maximize sales and improve operating efficiencies. Finally, I'd like to share an update on the progress we're making with geo expansion. Matterport is a global company with digital twins in 177 countries around the world. The built world is widely distributed and the largest property markets can be found in the U.S., Asia and Europe, and these markets are steadily maturing. All three regions represent significant multibillion-dollar market opportunities for digitization, and we have successfully entered the top markets with a proven playbook that has been honed over the years. As part of our growth plan, we have increased our focus and execution in all three regions to more deliberately capture the growth opportunity in the international market. We are developing a meaningful presence in some of the largest international markets in the world, including Singapore, Japan, China and Brazil, along with much of Western Europe. Our enterprise business includes many multinational customers that look to standardize on Matterport for all their locations around the world, extending our global reach every quarter. Here are three examples from around the globe. Damen Shipyard Group is a Dutch owned shipbuilding company with operations in 120 countries. After the decision was made to standardize on Matterport, the workboat division deployed Matterport at its Netherlands headquarters and major shipyards in China, Turkey and Vietnam. With access to a 3D space in the planning stage, customers can examine the layout and placement of equipment and request modifications, if desired. Once a ship design is finalized, Damen shares its digital twin internally with their service department, enabling them to gain better understanding of the vessel when it is completed and delivered. Finally, Damen is using Matterport to build a 3D archive of all of the projects that has delivered to customers since the solutions deployed. The archive is particularly useful for supporting periodic vessel overhauls, equipment upgrades and knowledge transfer when long-time employees retire or leave the company. China is the largest property market in the world with more than 3 billion commercial and residential spaces ready to be digitized. During the quarter, we announced that Midland Holdings, one of the largest residential real estate brokerages in Greater China will become the first brokerage in the region to use Matterport digital twins for its entire portfolio of properties. Midland Holdings was the first publicly listed real estate group in Hong Kong, and they have over 600 branches and nearly 8,000 employees. Using Matterport, the company will provide its customers with immersive digital twins to better explore and purchase homes across the network of properties in China, Hong Kong and Macau, while also helping their employees realize significant operational improvements and cost savings with every listing. Lastly, Brazil is home to the largest property market in South America and also one of the largest in the world with more than 500 million physical spaces. During the first quarter, we expanded our presence in the Brazilian market with two of the top industry partners to bring Matterport to the enterprise market for architecture, engineering and construction. Guandalini Posicionamento is a leading technology distributor with a sales network extending across 85% of Brazil. PARS, part of Sonda Group, is the largest IT services network in Latin America, representing companies such as Adobe and Autodesk in Brazil. These partners are capable of driving scaled adoption across the country, while helping Matterport reach new customers and expand our business across industries in this pivotal market. Matterport access, BIM for Enterprise and our expanding global business are the results of our disciplined growth plan and focused execution. We are off to a great start in 2022, and I look forward to updating you throughout the year. I will now turn it over to JD Fay, who will discuss our financial performance for the first quarter of 2022.

Thank you, RJ. I am delighted to report that our Q1 was another solid quarter for Matterport, delivering a record first quarter revenue of $28.5 million. This is $1 million above the top end of our guidance range for the quarter. We delivered record subscription revenue of $17.1 million, up 24% from the year ago quarter. In addition, our annual recurring revenue grew to a record of $68.6 million for the quarter. The growth of subscription revenue results in more of our revenue becoming recurring with high gross margin. Subscription non-GAAP gross margin was 75% in the quarter, which was more than 2,400 basis points higher than the corporate gross margin this quarter. We had another outstanding quarter of customer acquisition, with total subscribers increasing 70% year-over-year to a record $562,000. At the end of the first quarter, we had 504,000 free subscribers and 58,000 paid subscribers. Subscription revenue grew to 60% of total revenue in the first quarter compared to 51% in the year ago period. Subscriptions are core to our growth strategy, and we leverage the other revenue lines, product, services and license to continue to build subscribers and subscription revenue over time. Our subscribers continue to increase their spend with us as well. Our net dollar expansion rate was 107% in Q1. We saw exceptionally strong expansion with our enterprise customers in the first quarter. On a combined basis, this strength was largely offset by unusually low expansion in our small and medium business customers in the first half of the quarter. The small and medium business customer cohorts, which started the year off tentatively influenced by volatility in the macroeconomic environment recovered to historical trends by the end of the quarter. License revenue was less than $100,000 in the quarter, as we have moved another solution to the subscription revenue line. I had previously discussed that our application programming interface and software development kits, enabling Matterport data to be integrated into customers' enterprise applications were presented as license revenue. Our strategy with licensing involves establishing product market fit with Lighthouse customers and then adjusting the go-to-market approach to offer the solution on a subscription basis. We are pleased that for the second year in a row, we have been able to execute this strategy successfully. Now, offering enterprises, API SDK integration as a subscription service beginning in the first quarter. Our product revenue was $7.4 million in the quarter compared to $8.2 million in the year ago period. While the business continues to be constrained by the supply chain challenges that we have been highlighting for the past couple of quarters, we were still able to deliver a 12% sequential increase in product revenue from Q4. We also ended the first quarter with a near record backlog of open orders. The demand for our high-definition commercial-grade Pro 2 cameras remains very strong, much higher than we can supply. For the go-forward periods, we are working to mitigate the impact of supply constraints for the Pro 2 camera with not only our procurement efforts, but also the launch of Matterport Axis and showing customers how to use the phone in their pocket with this inexpensive motor mount. We are also elevating our capture services offering with both enterprises and small customers to enable them to quickly and cost effectively capture their spaces even without purchasing a device. Accordingly, services revenue for the first quarter was $4 million, a 48% increase year-on-year. Capture Services continues to see strong growth as enterprise customers are beginning to take full advantage of this offering. Enterprise customers can get onto our platform quickly and at scale, leveraging the existing installed base of service providers who already own Pro 2 and other compatible cameras. Capture Services also allows us to provide end-to-end solutions to large enterprises, including customization of Matterport spaces, like the warehouse group in New Zealand, RJ referenced earlier. In -app purchases, which provide our customers additional digital assets such as schematic floor plans and Scan-to-BIM files also continued to contribute strong sequential growth in services revenue. Moving on to gross margin. Our total non-GAAP gross margin for the first quarter was 51%, while subscription margin remains relatively stable, quarterly volatility at the aggregate level comes largely from product revenue as well as the magnitude of extremely high margin but episodic license transactions. Our subscription gross margin was 75%, consistent with the prior year's gross margin. Subscription gross margin remains strong as we continue to make enhancements to our technology platform while we grow our spaces under management. As we have noted before, we expect subscription gross margin to vary by 100 to 200 basis points from quarter-to-quarter as we continue to invest in building out our subscription platform. Product gross margin was 2% as compared to 40% a year ago. As we have discussed in our recent conference calls, product gross margin continues to be impacted by higher costs to lock in supply as well as added freight costs to expedite materials for production. On a sequential basis, however, we were able to improve margin by 1,300 basis points. This was primarily due to better overhead cost recoveries on higher volume shipments in the quarter. Reviewing non-GAAP operating expenses in Q1, research and development expenses were $12.1 million, up from $5.9 million in the prior year period. The spending level was as planned and is primarily attributable to investments in headcount to increase our product development capabilities and throughput. SG&A expenses were $29.5 million as compared to $12.6 million a year ago. The increase was primarily due to investments in sales and marketing, which were also part of our growth plan. We continue to invest in global selling and marketing capacity to drive further growth. Investments in these areas are expected to begin bearing fruit in the second half of this year. Non-GAAP net loss was $27.9 million and diluted non-GAAP loss per share was $0.10 for the quarter, better than our guidance range of a $0.13 to $0.15 loss. Weighted average share count was roughly 275 million shares, slightly below the 277 million shares we provided in our guidance. There were three nonrecurring events that drove the changes in our share count during Q1. First, we called two million warrants for redemption, raising an additional $28 million. This represents the January portion of the $104 million in total warrant proceeds to the company, which stretched over Q4 and Q1. Second, we issued 21.5 million earn-out shares on February 1st. We issued fewer shares to employees than granted as we elected the net settlement method of this portion of the earn-out share issuance. And third, we net settled our vested restricted stock release in Q1 for employees. Under the net settlement method, we paid $33 million for the employee withholding taxes instead of selling those shares on the open market, reducing the total expected dilution relating to these issuances by 1.2% or 3.2 million shares. Moving on to our balance sheet. We ended the quarter with $600 million in cash and investments, and we do not have any debt. Our exceptionally strong balance sheet is a valuable asset as we evaluate and make investments, while continuing to be deliberate with capital allocations to further strengthen our technology and market-leading positions. Today, we are introducing financial guidance for the second quarter and reiterating full year 2022 financial guidance. While there is a high level of macroeconomic uncertainty as well as the continuing impact of supply chain challenges, we are maintaining our full year guidance from last quarter. We continue to expect full year 2022 total revenue to be in the range of $125 million to $135 million. We continue to expect subscription revenue to be in the range of $80 million to $82 million. For the second quarter, we expect total revenue to be in the range of $28.5 million to $30.5 million. We expect subscription revenue to be in the range of $18 million to $18.3 million. The balance of our revenue forecast is comprised roughly evenly between product revenue on the one hand and services and license revenue on the other. Consistent with our investment plans, we expect second quarter non-GAAP loss per share to be in the range of $0.13 to $0.15. License revenue is expected to be approximately $400,000 per quarter for the remainder of 2022. As noted on previous earnings calls, license revenue can be lumpy from quarter-to-quarter depending on the timing of completed transactions and any associated implementation work that we must perform to recognize revenue. I'm pleased to report that we have a new seven-figure contract against which we are working to deliver this year. We believe that we are on track for these deliveries. Accordingly, our expectation is we will be able to recognize revenue from this contract over the next three quarters. Regarding non-GAAP earnings per share, we continue to expect a $0.47 to $0.52 loss for the full year of 2022. Certain projects planned for the first quarter have moved to later in the year, but our full year OpEx is expected to be unchanged overall. We have recently made considerable investments in building a necessary team to position us for future growth. We expect that the growth in OpEx investment spend will moderate in the second half of this year as we begin to see returns on those investments. And we continue to monitor the productivity of all our growth investments to allocate our capital prudently. While we continue to focus on top-line growth, we have a robust, high-margin subscription business that has allowed us to operate profitably in the past. This gives us confidence in the long-term strength of this business today. Now I would like to turn the call back over to RJ.

Thank you, JD. The last 12 months of the company have been very productive as we delivered on our plan to scale operations for the next stage of growth. We have outperformed our timeline to achieve increased capacity and global reach for our business. We raised significant capital in the public markets to position the company for long-term growth and profitability with a considerable scale advantage. We have invested in the most important asset of our business, our team. We have sharpened our technology advantage with breakthrough innovations like Matterport access, BIM for Enterprise, our spatial data platform and much more. We are disciplined capital allocators and our operating plan for 2022 will enable us to stay focused on delivering for the business and helping our customers win. The built world continues to modernize through pivotal technology investments. We have heard from our customers over the years that linear shine in all market conditions, technology-led transformations are critical to the success of the property industry. Our cloud software solution helps businesses, property managers and building owners create value and reduce the operating cost of the world's most valued asset during a time when cost savings and capital preservation matter most. The path to transformative change is not a straight line, and Matterport is helping companies get there faster than ever before. Our success will continue to be measured in the years and decades ahead, as we lead the digital transformation of the built world. I'd like to thank our investors for joining us on this exciting journey. Operator, we are now ready for questions.

Yes. Thank you. And as mentioned at this time, we will begin the question-and-answer session [Operator Instructions] And the first question comes from John Walsh with Credit Suisse.

Hi. Good afternoon. And a nice start to the year...

Thanks, John.

Thanks, John. I guess the first question is around – it was nice to see the paid subscriber number accelerate here on a sequential basis, the rate of change. So can you talk a little bit more about that? You highlighted a lot of new verticals in your prepared remarks. But is this coming from kind of the core real estate business, or is there a difference between that and kind of some of these new verticals?

Sure. I'll start and JD, please feel free to add in as well. There's been some very marked progress in our expanding end markets without question. And one of the areas that, I repeat and reiterate on all of these calls is our intense focus on the enterprise. And enterprise is really continuing to bear fruit. This is where we put appointed investments in increasing our capacity, increasing our operations, specifically, E&D go-to-market functions, the sales and marketing functions that have been making great strides and great inroads in not only bringing on new business in all of these categories across the enterprise, but also seeing promising expansion and re-upping with our existing customers as well. And so it's really putting even further into balance the business operation as it continues to diversify from a very dominant share of our business coming from residential real estate, now evening out every quarter into the enterprise, into commercial real estate, into manufacturing operations, and travel and hospitality.

Great. Thank you.

Yeah, I'll just add to that quickly, John. This is JD. I just thought I'd add that. That's right. I mean, our subscription revenue coming from real estate is actually now about 60% of revenue. All other verticals are up to 40% and so that balance is continuing to occur, and it's been consistent over the last four quarters. And I think as a result, you're starting to see some of that paid subscriber growth coming from other verticals in addition to real estate.

Great. And then maybe another question, obviously, great to see the $600 million of cash and investments you referenced. But just wondering, if you could give us an update either on H1 versus H2 how you're thinking of uses of cash and when you think you kind of get to cash positive? Thank you.

Sure. The last three quarters was an intense growth period for Matterport. And as I mentioned on the call, we did a great job in cleaning up the organization, bringing that capacity and where we needed it, especially in these expanding markets. And that is where the bulk of our focus and attention has been sales, marketing and in the R&D function. And that was predominantly the last nine months activity, and we got where we needed to be. And so as we turn towards the second half of the year, it is all about activating and maximizing productivity from the increased capacity that we invested out. A lot of new folks join the company, as recently as the last three or four months. So we're still fleeting up for sure, and we're putting a lot of attention towards our go-to-market with that increased capacity. And what you'll see in the future is a shift from investment in head count to a shift in our go-to-market programs, building brand awareness and understanding in those geo expansion markets we talked about. And again, with a very point of interest in expanding in the enterprise. And so that's going to definitely be an investment shift, but also an overall OpEx tapering without question, right? As we've really achieved cruising altitude a little bit ahead of plan here. We can now go to work and just grow in that business and grow in the pipeline.

Great. Thank you for taking the questions.

Thank you. And the next question comes from Bhavin Shah with Deutsche Bank.

Great. Thanks for taking my question. Just focus on subscription revenue. If I look at your 1Q performance and Q2 guidance, it would imply a pretty material sequential growth in the back half of the year. Can you just talk about what are some of the drivers that are seeing that confidence and seeing the ability to kind of ramp up in 2H?

Absolutely. A couple of things, right? We've been laying the foundation for subscription growth really over the last 18 months. And there's a few really important forces at work that are just continuing to drive acceleration in this all-important part of the company. And first and foremost is, creating options to accelerate adoption, and that is our capture ubiquity strategy. And Matterport for mobile, Matterport access, in combination with Capture services, which J.D. spoke about seeing really strong acceleration as well, that's driving the adoption of digital twins, right? And of course, as you know, the more space under management, the faster we grow our subscription business. And so putting these very scalable ores in the water, particularly in an environment where we've discussed before, the challenges in the supply chain related to hardware and the manufacturability of our Pro2 camera this is giving us tremendous option value. We've seen great success out of the gates with Matterport Access and smartphone capture and capture services tend to be just extraordinary advantages for us to play in this constrained environment that we're in today. And that's what's given us the confidence even in today's environment to see that kind of acceleration in the back half of the year. So that's one. The other part of this, too, is we really now have the capacity in the organization to move much quicker in driving penetration in new geographic markets and across our newer end markets. And that's not just in the sales function, but also in the marketing investments we're making to create that market understanding and to shorten the sales cycles for our workforce out there. And then lastly, I would say is, datafication. This is specifically in the use case of our emerging customer base in the enterprise that looks to matter for to manage their facilities online in a more cost-effective and time-efficient manner. And getting building insights, remote building inspections and full property and asset audits from our software is generating tremendous upside for both the installed base, but also a very powerful use case that's bringing many of these new enterprises that I mentioned in the call on to our platform as well. So that's creating a compounding effect of additional subscription revenue and that's today working exactly to the plan that we put forward.

Super insightful. And I guess a follow-up on the first point, can you maybe help us better understand how the mix of maybe paid spaces under management breaks down between ones that may be leveraged a Pro2 camera versus something that a space that leverage maybe mobile or capital services and how that's trended overtime, just to help us better understand how big Capture Services can be overdone?

Sure. Well, I'll take the last question and then JD, I'll flip it back to you for the breakdown. But look, we think Capture Services has enormous potential because remember, today our Capture Services network reaches more than 40 countries. In fact, I think we're sensibly in more than 50, but squarely in at least 40 countries today and growing. And these Capture Service providers now have more options at their fingertips, limited not only to a Pro2 camera as the means of showing up to your property or your portfolio of properties and digitizing them, you can now use low-cost third-party Capture devices, the 360 cameras from our partners as well as, of course, a smartphone. And now with smartphone plus Matterport access, that's a pretty big deal because it's bridging a gap using sensibly a consumer device to create a professional-grade digital twin, but also increases basically the types of people who could become a Capture Service provider. That's as simple as just for any professional photographer or professional service person of any kind that could now very easily use their own smartphone in their pocket, plus a very low-cost device in Matterport Access to produce something that we're seeing, meeting the standard for mid-market and enterprise as much as it is for a small business. So that really puts a tremendous opportunity for acceleration in front for us. And then looking at just the early stages of the introduction of this new solution, we're very, very encouraged by its potential.

Yes. And I'll just add in, it is somewhat early in the Capture Services life compared to the Pro2, of course, the Pro2 has been around for nearly five years now, I think at least five years now and Capture Services has been delivering revenue here for about 1.5 years. And so notwithstanding that, we've seen Capture Services in terms of space creation grow well over 50% year-over-year. So, while we don't give about that specific number itself, the growth rates actually have been in that 50% range ending this quarter.

Great. Thanks for taking my questions.

Thank you. And the next question comes from Elizabeth Porter with Morgan Stanley.

Hi. Thank you so much for the question. Congrats on the quarter and reiterating the full year guide despite some of the macro volatility. I was hoping to get just an update on demand within that residential real estate case. And just given rising interest rates and headlines on softening demand, how should we think about Matterport's ability to either take a bigger piece of a potentially smaller pie residential real estate activities or the ability for those new verticals like insurance and construction to offset a potentially slower real estate market. Thank you.

Yeah, great. Thanks, Elizabeth. First, we haven't seen any impact on our business either from the unusually low inventory of houses for sale, particularly in the United States or as a result of rising interest rates. So, the residential real estate and commercial real estate spaces have continued to grow with us and perform as expected in the first quarter. And of course, the other thing that I think about a lot and look at is the fact that we do have a global business. We've got Matterport customers in nearly 180 countries. And then to your point, we obviously have a growing business in nonresidential real estate vertical markets as well. And we are seeing growth in all of those other verticals Certainly, travel and hospitality, as RJ mentioned, is growing as we're starting to see more people out and about traveling, experiencing restaurants and events. We're seeing growth in the business there. Similarly, in insurance, factory management and facilities and in retail in all those sectors, they're growing as companies are increasingly looking to improve their efficiency of operations by using technology, particularly AI and ML-driven technologies. So I think that we'll continue to see kind of growth in all verticals, and even with if the -- or as the US residential real estate markets go through its ups and downs with respect to mortgage rates or home selling prices. We still have an incredibly large opportunity just in that segment in front of us. We think our penetration rates in the United States, for example, are about 7% of homes listed in the United States each year have a Matterport digital twin associated with them. So there's another 93% of that market regardless of whether it's six million homes sold in the year or 5.5 million homes or 5 million homes sold in the year. That's ahead of us to go capture in that segment, too. So, the opportunities, I think, in all those segments remain significant, massive and in front of us. And I think we'll still continue to see the growth as we're forecasting even with a dynamic market environment.

Great. Thank you so much. And as a follow-up, it was interesting to see the Midland Holdings acquisition, just curious to get kind of a deeper rationale for acquiring a broker. And is that a strategy you're looking to expand? Thank you.

Well, I think to clarify, we did not acquire them. We acquired them as a customer. But no, we did not own Midland Holding. Our customers very much like a number of enterprise relationships that we engage in with global brokerages around the world, like Compass, for example, and Keller Williams, JLL and Cushman & Wakefield on the commercial real estate side. And Midland, of course, is just a fantastic gateway for us into a very large market opportunity in China.

Great. Thanks for the clarification.

Thank you. And the next question from Yun Kim with Loop Capital Market

Thank you. Congrats on a solid quarter, RJ and JD. Given the current focus on the enterprise, can you just talk about at least qualitatively, the subscription revenue mix between enterprise and non-enterprise? And how has that been trending? And should we expect an inflection point in that mix sometime in second half of the year of your recent up-sells hires in the enterprise start to ramps? Thanks.

Well, yes, in terms of the trends in enterprise versus SMB or small and medium business, the enterprise business has been growing as we've talked about, we are making significant investments, and RJ has discussed this earlier, in enterprise go-to-market motions, both sales and marketing. And so while I'm not forecasting an inflection, I do expect to continue to see kind of accelerated growth in enterprise, both in terms of new customer logo acquisition and in terms of outperformance in the net dollar expansion rate.

Okay. Great. Thank you. And then, JD, another one for you is a quick one. Remind us about various factors that's driving your account receivables. It looks like it went up a bit. Is that more of a, again, a function of a higher mix of enterprise business, which tends to have a longer -- which generate longer DSO?

You're exactly right. It is a result of the increasing mix of enterprise customers. Enterprise customers and channel partners tend to pay on terms. And so we're issuing the invoices and then and working to collect those bills, whereas the small to medium business cohort tends to pay by credit card in advance. And so when you see the growth in account receivable, that is, as you said, it's due to the growth in the enterprise business as well as the channel partners.

Okay. Great. Thank you so much.

You're welcome.

Thank you. And the next question comes from Wayne Trinh with Piper Sandler.

Hi. This is Wayne on for Brent. Just wondering if you guys could give some insight into what drove the growth in spaces under management and how we should think about monetization in the space?

Sure. It's a good story. Across the board, we're seeing positive adoption from residential, commercial real estate and enterprise. And once again, when the -- all the cylinders and the engine are firing, including capture services, again, that global network out there that continues its acceleration continues to really ramp up, that's just adding to the monthly velocity of some growth or spaces under management. And this has also been a very important part of the strategy, we've been discussing over the last several quarters, where we've been making very specific investments as well to accelerate those efforts, right, and to put more capacity into the system to cast a wider net to get those initial spaces going and new accounts created in many cases and thus boosting space under management. Second part of this that you're going to see more and more of going into the back half of the year is we continue to see a healthy mix of paid subscriber growth and paid some growth. But also the freemium part of the business is very important because that's the easiest way to test drive Matterport and to measure the value proposition in any of these end markets from enterprise and in any geography. And because our TAM is just so large, we need to continue to cast a much, much wider and exponentially wider net of awareness to get that top of funnel really full to the place we'd like it. And so that's where we're going to be putting forward some highly performance marketing programs that continue to drive the awareness of the Matterport value proposition in all of these growth markets that we have that we've been discussing and in all the geo markets that we now have a beachhead in. So that you can expect to continue to see acceleration through the back half of the year and of course, next year.

Great. And just wondering if you have any update on the hardware camera supply chain constraints.

Sure. It is challenging to be frank. It is -- we have been making good progress. And at the same time, sometimes it feels like it's one step forward, maybe 1.5 steps back as we have been very steadily doing everything from making smart and savvy and timely spot buys to minimize the stock-outs of our products and very actively multi-sourcing components from other suppliers, we also find ourselves in -- at the wins of the pandemic that has caused for Shenzhen and other regions to go into lockdown again, and basically bring supply chains to a halt, which includes key components for our hardware product offering. But I can tell you, again, we've got one of the best teams in the business in manufacturing, not just on the R&D side, but in the full supply chain management that has been doing just a spectacular job of keeping it at bay, right, to the extent we can. Having said that, there's a meaningful backlog of product. There's very strong demand even in today's market for Matterport Pro2 cameras. And so we're going to be continuing to work this very actively, but we're positively staying ahead of it as best we can and steadily digging out as we go. And I can't predict any further kind of global macro events, but save for those that we're contending with here in Q2 and the China lockdowns, I'm optimistic that we are doing all of the right things to keep it at bay for the quarters ahead.

Great. Thanks, guys. Operator: Thank you. And this concludes both the question-and-answer session as well as the call itself. Thank you so much for attending today. You may now disconnect your lines.