Arlo Technologies, Inc. Q3 FY2024 earnings call

• The services business was a key driver, with paid subscribers growing 255,000 to 4.2 million, service revenue up 21% to $61.9 million, and service gross margin exceeding 77%. • Arlo Secure 5.0 was launched at the end of Q3, with early positive results including over 40% sign-up for premium plans (versus historical <20%) and ARPU on new subscribers exceeding $14. • The market remains softer generally, but Arlo is being aggressive with pricing to drive unit sales and household subscriptions, targeting nearly double Q4 North America retail POS from Q3. • Strong partnership with Verisure in Europe, which was renewed for five years, and phase 2 of the Allstate partnership was announced with Arlo Security Solutions marketed to Allstate's 6 million home insurance customers. • Capital allocation plan includes organic investment, development of Arlo Secure 6.0, potential acquisitions, and a $50 million share buyback program.

Total revenue for Arlo Technologies' Third Quarter 2024 was $137.7 million, up 6% year-over-year. Service revenue accounted for approximately 45% of total revenue, an increase from 39% in the same period last year. Paid subscribers reached 4.2 million, with an increase of about 255,000 during the quarter. Service revenue in Q3 was a record $61.9 million, representing a 21% year-over-year growth. Retail and direct ARPU for paid accounts reached a new high of $12.24 per month.

• Fourth quarter total revenue is expected to be in the range of $116 million to $126 million. • Expected to exceed the full-year services business guidance of $240 million with service gross margin around 80%. • Non-GAAP net income per diluted share is expected to be between $0.07 and $0.13 per share.

• General macroeconomic conditions can impact the business. • Consumer purchase decisions shifting to lower price points leading to declining ASPs and lower product revenue/gross margins. • Intense market promotional activity affecting product pricing and margins.

Q: Jacob Stephan asked about Q4 POS nearly doubling sequentially and clarification on device shipments.

A: Matthew McRae explained that POS refers to cameras driving subscribers, not including accessories, and Arlo expects nearly double Q4 North America retail POS for cameras.

Q: Mark Cash inquired about Allstate partnership go-to-market strategy and Europe regional divergence.

A: Matthew McRae discussed Allstate phase two leveraging emails and in-app messaging to reach its large user base, and Europe regional differences due to market dynamics, timing, and Verisure's strategic stock-in decisions.

Q: Hamed Khorsand asked about the impact of ASP decline on new subscribers and competition with insurance partners.

A: Matthew McRae stated early indications suggest similar performance with new subscribers, and there is less competition in strategic account partnerships as partners seek trustworthy innovators in the security space.