Arlo (ARLO) 7 Nov 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to Tahmin Clarke. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Arlo Technologies' third quarter 2024 financial results conference call.

company the from us are Mr. Joining CEO; McRae, and Mr. Matthew review format call commentary third will Kurt by the Binder, quarter with quarter, the by CFO. The and a followed for Matt, and COO along start with for the of an Kurt. provided by the guidance of financials business fourth the on provided introduction

We will then take questions.

at copy visit Arlo's If please investor.arlo.com. you release, have of not today's received Relations website a Investor

contains forward-looking we that call Before the today's we formal you advise statements. begin remarks, conference

and Forward-looking and various and revenue, include model, potential per new targets, or paid a service and momentum the on transition by results business, launch operating XXXX, statements margin, free regarding statements future timing flow for subscriber and including growth, business rate earnings the impact cash of differentiation outlook, guidance operating products our and of condition, and the leaders differ results market financial growth, could from contemplated objectives services, new the materially future macroeconomic operating cash financial collaborators, long-range the and descriptions strategic the results product free quarter services-first to of flow strategic share, our conditions margins, gross plan and general expenses, trends cash of continued condition. Actual and forward-looking and expansion market partnerships these commercial our margins, of those initiatives, business, with statements. fourth

no a to today, XX-Q. Any are to new on the or and result Report SEC, and future XX-K refer forward-looking update factors on based these please the Annual Form including periodic report statements information, more Arlo recent on with assumptions on this as quarterly in make as most call For that risk events. discussed information Arlo's of statements of the obligation undertakes filings we Form

over our Investor non-GAAP today's call. this measures Relations non-GAAP reconciliation on addition, found press like would the to can call now in be Matt. will this be on to time, A I measures discussed GAAP release In several the financial of to website. At turn

Thank margin be XXX,XXX, several to business, subscribers service records of grew XX% million broke continuing across and $XX service for record plans Arlo's million, earnings you, same grew last and per of strong The delivered everyone, to X% to total XX% to million, QX. Paid which from reach our continues mix success thank $XXX.X XXXX month. services $XX.XX rose our retail was The ARPU the launch reaching joining driving from for year, generated elevated profit XXXX Arlo product team nearly propelled quarter another the QX direct $XX Essential today new X.X gross which at on lifted and while period revenue revenue per behind And upward call. up you, channels. This over quarter a in earnings Tahmin, by also total us X with quarter a $X.XX force million non-GAAP the stock-in an due record to the increase performance in a Arlo. XX%, the to our across of to our gross high and third year-over-year new share.

X cam power performance enables early detection a private weeks. Arlo reduces purchasing And In purchase Arlo event, X overview any XX% in-app Android has X And X, for substantially paid the an the basic widgets the X, us of friction to our plans, sneak launch which Secure are than this become historical also provide also than addition new launched Xx an which want Historically, to recognition, to rate. sign has is experience of than trends to of cost business, our iOS innovative service our controlling subscribers first XX% to at time, new Arlo our Secure is includes users testing the and cam Arlo so features, launch and user vehicle in the which results end our over more premium we micro are custom users first of being capability a type dramatically plans, these for we nearly our we to detect Secure of recognition we service. Arlo and ecosystem previously our release accelerating makes an plans. are the models, Secure It latest witnessing subscriber. peek for as more right up Arlo more create person sign more model much more than our single the expanding our despite services the This creating that allowed of strong includes path seeing our over commence at that AI very from including that convenient. premium the Secure groundbreaking I for With internal offering, up on impressive. our and the inside unlimited X communicated. Early of QX. rollout, ARPU less in advertising $XX. Arlo

a of versus up also seen signing have users doubling month-to-month. We plans for annual

Secure revenue Arlo still an options to to XXXX growth existing contribute as to While users expect into heading Secure increasing illustrate for and direct ARPU X. to opportunities X additional migrate we we retail Arlo early, and service explore

an launch have a service immediate We have such never key on metrics. impact service seen

when softer look previously, remains general ahead As in across our channels, discussed market terms. we the

to sold, aggressive variety pricing focus disruptions surprising partners are on as underperforming a household be lower year decided future while we retailers year, lower price our partners did new Some ahead plan. Reaching but like formation. hurricane allows sales subscriptions. our across hardware this into our sentiment, additional to Arlo test points household to and our customer and to we And foot showing near-term more and operating last units are price leads lower us will traffic. Similar in calendar to last factors, which annual others strength, promotional of points propel drive including of has revenue, and due these

margins service retail huge and launch unit sequentially nearly earlier, of guidance QX exceed mentioned QX with America targeting year-over-year, represent QX, double retail expect in from our year North against be a I increase XX%, track positive for are to would XX% we revenue Essential in which X coupled nearly comping our at to XXXX. With we our trends nearly also full on ARPU POS fact, for growth XXXX. and to direct accounts service paid gross in strong the In

was several that Arlo Security and to next an to and other finally, of announced partnership reminder, been years this has are another capital being of Allstate's forward we partnership And partners term. would of X over last various States. the plan. the sold growth, continued announce our Verisure In year revenue our week, quarters. And And we Solutions allocation phase I partner million strategic more as home in partnership innovating addition for X there together. Earlier United like in marketed provide strategic growing and progress Europe to several our X the with now to growth strong initial renewed we in in The opportunities. remains our pursuit are seeing this look as the insurance Allstate this update provide a customers on shows hope information to on

in and technology in us to of X Our launch, third second is propels for our for investment also organic our towards Secure allocation innovation Arlo a plan but capital with will possible targets the large our paying half begin continued review was investment feel the and ARR pillar of we successful long-range non-GAAP is business the we announced to already launch development and million options $XXX which continues it program a XX% Arlo as before, investment of million, million with Secure XXXX only operating right share acquisition if of and dividends buyback on over XX move similar $XX accounts, product forward the or stated covers margin. Recently, conveyed XXXX. Arlo paid X Arlo what plan. continues

results. will for be it plan will enabled now turn QX our quarter, the that short you and review Our Kurt see term. And in market to I'll it over of is active in-depth likely more in a the Arlo this

everyone, joining third have from in same threshold. XXXX gained are QX This of continued at X% up that the year business revenue, over in million, transformation Matt, XX% the year model. us and prior continue period I financial the thank the about by recurring the of momentum business the results up an of reflects Total you, you, of the we revenue showing the we total came the sharing towards the our start period. In to and services-first Thank overview business, in last today. $XXX.X revenue represented some our base as shift power the XX% XX% progression a in XXXX. for details provide quarter and quarter, for revenue will for service

paid installed Verisure continued catch-up end the strong in small X.X we Verisure reflected Our mentioned, at subscribers. accounts quarter. Paid base the catch-up in approximately a subscribers path, accounts of of all to of an of as upgrades. concluded increase the previously this quarter of QX, growth at related accounts XXX,XXX substantially its have firmware And coming paid million

in XX% remain committed subscribers retail paid driven year. $XX.X ARPU another or The XXX,XXX plans, a period in revenue to to record strong for the and increase direct was generating to paid revenue Going but on at QX new was overall for a subscribers of base, our paid to in forward, the shift we by rate subscriber growth the million additionally, performance a resulting $XX.XX last basis. Service XXX,XXX part quarterly expansion over service mix higher-priced same accounts.

to our with strength the revenue line of revenue million, XX% Our which helped year. Product profitability level, cash same over to $XXX when ARR, than when contributed QX at XX% in last revenue and the our was XX XXX% period performance for up annual period improving want top the strong X% the year. income was compared delivered up highlight non-GAAP September same down services Arlo's revenue up period to $XX.X flow to million, revenue quarter operating last recurring higher and I more same generated second compared last than about product free a but year. and QX robust

services the industry. earlier, on strategy. price segment we conditions, a across reduction points. focused This of on our to significant market Based As ASPs driving deliver Matt the for shifted lower volume we on these security enter discussed resulting DIY POS consumer decisions in as into dynamic market purchase are incremental have product is to mass hardware in

shipped period. far, working we to compared devices And in X.X as the prior worldwide approach so million this of X.X a total million is year

we additions. Last been critical has drive camera success Essential benefiting pricing leveraging year's is the participate X for launch of the and our upcoming paid current these opportunity us points to dynamics, distinctive to paramount lower returns creating product that in holiday market, at to business. paid the best best our in our will We X And with our ways. low-cost season, account continue in to market the believe price are subscriptions

First, both as conscious, has enables become segment customer that that appeals competitive. is product quality remain attractive the in this Arlo market to and value more having a to price

Second, we some understand to discounted through cases, are of are the the able generate might upfront we that they anticipated. to customers these continued has on these device, the by participating up lower-price inducement explore in to for that sign segments. service pricing the trend previously while We favorably. propensity in need than customers now better these metrics recurring characteristics And

holiday to deliver we market partner major on additional trend like head dynamics growth. the margins as and gross paid we to Looking product Walmart retailers subscriber downward season, expect the to meet with

our earlier security, to revenue we On a use $XX customers. up As revenue revenue outstanding be continued figures an our XX% the continues non-GAAP by basis, detailed point in a my was to distributed we participate the the smart services strong growth XX% our EMEA partner for numbers. GAAP continue period. in international will The of mass was discussion results of the reconciliation business. In in growth or us, this release, level our year-over-year of of the ASPs from trajectory lever of the was on, generated million international million non-GAAP our this to the delivering total $XX international Verisure today. earnings revenue approximately prior will which focus quarter, region. From in adoption from is or ensure product total market driver and to as on

was we quarter was resulted over improvement our which in in guidance last million, same gross product offset improvement is business same Our year. The by service XX% X.X%, periods the gross X.X% and up operating non-GAAP were the year-over-year of Arlo margin the in was driven product year-over-year. was with the X. profit expansion was continued September in increase service margin, margin margin primarily gross in marketing respectively, a gross year. Total XX% services the quarter. The attributable gross ended ARPU. period total the from lower service and expenses non-GAAP Non-GAAP in in and gross period X- Non-GAAP in X-month This last for non-GAAP subscriptions provided increase non-GAAP for the non-GAAP improvement XXXX and of third from a XXX that a gross paid profit gross year. which was our points line for increased generally earlier Secure $XX.X XX% spend the million increase quarter for in quarter The year-over-year third XX%, by in million, $XX.X to basis investment the the in to margin. related up in and $XX.X is growth profit

of it record as of increase described expenses $XX.X year we on in experience customer plan our call, half mentioned in innovation in QX, we a that focusing operating by as operating is investment areas plan. In organic amount, nominal non-GAAP or million Additionally, capital of the back earnings X% our margin. and with set the on noteworthy to the previous as allocation operating part a other profit

we operating remarkable per $XX.X $X.XX. a profit period share year. Further, which year-to-date net over XX% the was income posted into diluted of XXXX our translates period Additionally, of up million, non-GAAP income same $XX.X million, non-GAAP the of net for last

our up Our year, $XX.X services same million, leverage our net the for non-GAAP XX% model year-to-date XXXX the business. driven last was over tremendous operating income by also in illustrating period about

liquidity and especially $XX.X year-to-date, flow and profitability represents the quarter, This and level management. Free is quarter cash last during over is flow of cash And of successful when period year. available free This and the more up investments. balance business by is driven is have compared $XX the last is the generated free we measure flow, trajectory sheet capital and period same the to same resiliency XX% increased year. true cash, is $XXX.X ended the exciting $XX tremendous, flow enhanced given flow free of of growth conditions Regarding general million than XX% XXXX. in cash Even up model. with we cash cash short-term our of more that up in business. September position, of which the $XX free working of our million cash than generated million shows which balance over we since million margin equivalents million more the This market our a

XX was last Our million DSOs QX $XX.X down days, days at accounts at quarter receivable balance XX with year. from end,

as was Our continue inventory our line turns effort year. the on line our at QX remained expectations to freight our with minimize inventory and levels Inventory balance in in last $XX million, we optimize levels with X.Xx spend an to in cost.

in our to volume our and paid promotional, turn, aggressive plan turning market POS season consumer to highly with growth. Now drive outlook. be to remains product The during and holiday the pricing additional we subscriber

segment, resulting gross of expect continue in QX. decisions revenue to consumer product in margins to result shift lower-priced ASPs a to the and purchase decline, for we product the lower As

the total trend, be this $XXX to to million. we of revenue Given expect range quarter $XXX fourth million in

healthier services expect full While at for business our note the end we year. to of is our million our year the year, XX% we a important exceed $XXX that guidance expect gross it in at target exiting for to of total guidance around come and to lower full revenue the of margin

the non-GAAP key revenue be we our driver quarter towards of margin accounts margin gross fourth expect gross result the mix is gross fact as XX%. of shifting services. in down, higher margins is a gross improvement approaching more direct will of and services remain that margin retail The product this be service on strong, to While may combined the and paid

year. And open diluted We $X.XX share expect midpoint to be the per and which that for EPS our questions. now non-GAAP for per our full translates share, net I'll guidance income up between the of it to $X.XX

Our Jacob from Stephan comes from question Instructions] Lake [Operator Street. first

said think you maybe help comments Does guys million guys And devices had kind you talking assume you QX. -- me essentially that Does some clarification on that sequentially. QX X.X Kurt, the or X will ship just kind there? guys nearly POS Matt, about I doubling you clarify this. made in of shipped some QX call in of million that

doubling It's from -- cameras. QX Yes. drives measurement what what back POS on is on actually subscribers to drives the QX end. a And that's that's the

well. we did including grow we're at to we not what how So versus we're ramp may the we look is as meaning on cameras what from things many QX the that. that in in and when Those what's going we looking at to sell -- subscriptions, don't hearing in activity the into are driving based we're through, But think at retailers quarter. happen promotional up POS QX starting accessories

expecting retail nearly the what double America we did QX, which subscribers. only we're So obviously would in POS drive turn in in North cameras at

includes it million So across to because various that's regions equate accessories. and the X.X really doesn't

And on here. about XX% base then of are all retail or out talk a to the little guys accounts maybe color seeing X? how just premium currently there? much uptake. bit could rolled to us help Secure broadly subscribing Is understand this nice is you are some you X Secure customer But the plan. any Obviously, maybe

Yes. No, great question.

second Arlo in as couple excited share a happen said, we market, we've QX great for said, POS, biggest gains or is about. year. the in subscribers. the a the that talking prepared a been will rollout the about which in to talked the last quarter. to the weeks, planning of remarks. we as X looking market Secure about -- forward all new One -- like uptick we're largest impact now, ever available know, It been you and difference just X So in about. it But And we've I've you mentioned is had the lead it's what key from like seen I on metrics. Right exactly service is things in really I is, to the one significant which all launch

offered plan with as But haven't the really cancel our are starting installed being for anything still actually excited, holding accounts have point. and new done the our installed paid So sign-ups we seen they're we although weeks. base, announcement. to new those X base, and buy current mostly, It's already last the some they've of this of just at because

there's to XXX,XXX number, on So I just certain that accounts. maybe would estimate an new a XX,XXX probably are the say

bit So data ARPU, little we to you X less, $XX. the top when tier growing be premium XX% that's now accounts already is higher doubling. a the more, at of so was early. But a little or -- look in like XX% or it's used than And driving said, more kind accounts, our our which than

on I We're seeing quarter. new think those $XX.XX it's $XX well subscribers. the in over now

the be able and event. would are all for what look what users your all into. this something to that at lean So and how on year people higher do base the obviously, point, bring at on ARPU QX sets migrate But looking we're an X getting, is and what we're to to entire And as new Exciting feature because that's to not new for. accretive actually potentially make being next they're Secure quarter Secure accounted we that of through and we and installed we're subscribers. our is, and driving Arlo X exciting start that using seeing we through how go Arlo to users see the

news been upside which we're and Arlo QX, POS big share X, surprise in year we the weeks been the that say, of I about into rollout. all Secure as So planning those has we've excited the gain, successful X early are in lift actually how its really a to pieces of would get

but X? decent the And uptake uptick in been a have there? any attach overall Secure the kind about you of seen in associated past, know with XX%, it's rate I

the we've of conversion. mentioned we've testing through that one of us. because different seems increase I purchase how on in-app which is purchases, over things to And seen the so couple in-app basis, customers -- for that done a an those a potentially enabled suggests seeing small is, we relative -- side, in cohorts. call conversion. years path entire really consistent in because are and seeing we're on some But in the We're see the with the It's progress the areas only new in lift to there it Other than a areas last is across lifespan. that, we what want we've

Mark comes question next James. from from Raymond Our Cash

This new households million customers Allstate with so phase Adam. on just Mark Security million on nicely bundle upon relationship. for for Allstate, that customers Arlo with Plan Total XX of U.S. you X Matt, is the Protection or XXX starting maybe building them. or

now? the thinking compare the mechanisms big penetrating wondering that become maybe sight And numbers. might helpful and kind have that how to be that's you context really it Arlo So with of with you're Verisure I'm about just and embarking put and how successful in and base. go-to-market line on for that relationship the of

Yes. No, great question.

to Verisure, those pretty because end we're would the pretty the able year you were quickly almost implement fast the obviously It grew that's while of And although it So over grow, in, X we to definitely I systems. gate But been with things as some fifth years. out a partnership. strong came into at years say took Verisure. of know, their

something us but the sizable. to think similar it Allstate address I slow, we'll in access start to an TAM will is to far see for as available

leverage seen we're us e-mails, the to there. Again, was being bases, of and gain get can modest service how and that point. you're are think in kind future through phase seeing What really value products Arlo next. The the where some insight initial expect reciprocal at you, the of I will is the how what Arlo what's there own starting link different over and closes both attaches X our together, their data. you're suggest to this available and brands Allstate is here. But we're kind for we're user phase plan TAM their out I both scale and particular, seeing Allstate phase in the couple is the how the collecting selling we're in-app through work will products people is next phases, vehicles and service, base, to to the know, the in together and base. in understand overall brands large to where quarters from I you resonate to security selling customers user that X Allstate a phase parties data opposite. and have And messaging And the products and in Allstate starting excited for things on of coming arlo.com is is expectations our start through we is tell to loop reaching not large. seeing what how figure us user to lot X and be It now may that As hardware of And security to because would buying through bundle the not X X. ATS phase you and of retail think

is So new Arlo, households or they like net for new look addressable which households exciting.

of you're maybe seeing. a geos had and ties And question that kind what into on I

causing talk like would on what quarters ramping some kind a have row, is Sweden, But going in is you down then countries understand. to guess, could domestically while if see of of maybe with divergence scale Europe quickly Americas really helpful are I kind to be year-over-year Allstate with So with about others the that. for what's X like Spain. within versus answer we some I regionally de-selling with And Europe, internationally? guess, that that see like we you

here ended Verisure following sometimes There to would to on we we up is, their strong, overall, we we've Yes. There that different QX. One the U.S. and We're this We kind talked ends for you for remember there. dynamics. in think reasons some this well. you'll deploying relatively strong of Verisure destocking going things that's ordering for year. Chinese year regional it reasons, may I quarter, or QX, happen -- to too about. not and Europe say into depends happening in is New manufacturing local in is blended Year basis, are that would various remain that better strong, the is on given leading sure up regulatory some them earlier. for don't look prior the detailed where retail a as you resources will in market into impacts Verisure I local That of is to of as a what's Europe. in in their But it get have holiday lot than not we Verisure stuff strong say comment them actually that pretty at happening it reasons careful, it's Region Verisure at earlier that, There's can that, remain actually be and is are macroeconomic than see but expect them are look where partner QX. When a shipments remain versus going in we domestic of an some think as that get example. timing gets years

shipments will had perspective, be a pretty but So we strong from a stronger in QX. then QX POS

for of some we Prime us, the Day and we watched didn't into of of in points that QX are or couple some being a is hard as the lean -- QX and hit. And price that areas,

to And so with feeling a adjusting great us we going of going going partners nearly we're and we to little may share lost channel our all even is the why though have partners double into on we're a QX, systems seeing price those QX What retail you're camera our in and POS see quarter. of bit had points into QX.

to and is kind of want of So where you relative some its stock market its it some when some of strategy and of dynamics timing, in. on

something X where the were year as periods the from both addition a we recall, POS in Yes. QX. well in we shared why X regarding just, to stock as the And us going last QX QX transition in and QX Essential and the for if And Essential Essential X in in platform. of were amount resulted fair some I'll to is just you commentary highlight the that

to factor line we So we really of clear metric is you helps sight indication play, factor think wanted factor that of to have POS to normalize a that's about and the or which that get why kind us talk a that because into household formation. or

kind just lower about leaning hurricane down Matt, to not in being as And I talked maybe the customer Prime of think or your kind about very traffic. in you you Day we well there. the going have a know here, comments on much your headwind, sentiment prepared back which disruptions, remarks, and of foot

Yes.

where your aggressive Just wondering disruptions into can Arlo go how more obviously as holiday because important lean play Walmart about and thinking Amazon season, of to happening? do is But those abroad into your or with process be you partner you with these product. factors mainstream an more

that's exactly it. No, Yes.

when seeing final price you more QX as things at the planned we in are recently points, we look the strong are strength. especially where we and for we're stages, but So importantly, both are weak. And is seeing

example. online could we may and retail us could at certain we one of and ones we one could still traffic, but areas be of And start and some in seeing Walmart, the retail.com going don't. And where partners be the traffic. that certain good as have that in adjust other is less traffic arlo.com, And an So retailers, the areas we strength decent on. is low, details you to double-click in foot traffic. country of there a It what's foot some length seeing mentioned of seeing price be what Amazon when it online some shifting points you're so where is with look and actually promotions see we're foot be that,

make. those really adjustments. Those last adjustments we're can So you the making are

you done promoting are in. tweak and think great to that, and we planning points, But maximize we're through the leads what QX we some as we length change you because And do for, get think future strength optimizing starting of that QX then job subscribers. into is going execute can from can't we've to XXXX. offers, looking happen seeing then real a shipped what which to those in price is the you QX offers tweak POS already of can product unit tweak are we're is You what

season could stock gave to with commentary I how thinking one this X the quarter that kind are and you're cash on throughout fourth and about the into I just And holiday appreciate of If you to the promotional you X flow for and the flows But close ask levels so growth? about are Essential how how in. year? what for inventory more the expecting thinking then and the POS you out Kurt.

couple question. what's A that you space, first saying of in I'll as seen questions the by ASPs look Yes. in that, happening have we start declining. off, embedded at

X Essential with to obviously, very, that, for fourth that's allowing prepared we're be in promotional and so us the very quarter. And

to at the prepared in. So play in in been And may kind that we're that's past. to I of be to at play price situation think have points that position a we not good

a of because happening over believe get position. With believe very last Again, at be the at America this exist. look This convert were we destocking those into destocking in is occurred for what and consumers' year, said, where the will we phenomenon activity, into units out ultimately X, to that being QX QX subs and position what's for year, As do XXXX. ultimately more we we're prepared into all do of year promotional retailers last the be with quarters into a load-in retailers, that in new hands retail year. that the QX we relative Essential be to doesn't the X aggressive the we North them more will that to

BWS Khorsand from Hamed question [Operator Instructions] comes next Financial. Our from

question you was this traction amount are If from paid about the really So get my are same to accounts? gain out. on going -- your you're of new declining, subscribers plan trying ASPs to how

at know. We certain don't price we points, obviously, Yes.

QX. and the well, points are ones until we'll of that promotion hitting hit independent decisions on we but -- they're consumer, before, to we've performance. won't seen price indication be really really we consistent is data performance by as the we've we'll see similar get into Some able that very it's be report Early

already how question partner these are a of field? to other companies if more basically you lot insurance my in of going And was, competition your with there's

there's going the the innovating we've a part plan. Partners worry who's our space of in partnership to how reasons space big services They're hustle long-range is They a the in about to for not being accounts worry or is competition company. somebody is it one Arlo line to or of strategic today security. Well, side and in of about looking have And and data more this being concentrated privacy. what I product part small of Kurt a very large noticed and less a it's actually get the the where space. emphasized

in actually happening, company that to is a the American partners a the can of company correctly and happening we've really and and innovate can and people's with company, they So seen very treats space looking where is an space insurance for over time. on everything what's the development focused data what trust somebody trustworthy clear, where are be that's there's

So the we're account strategic competition in retail. just we are actually less than in seeing physical area

further There questions. are no

you concludes that today's joining, for So everyone. call. Thank

lines. now may You disconnect your