Arlo Technologies, Inc. Q3 FY2025 earnings call

• SaaS business growth: Added 281,000 paid accounts, total paid accounts reached 5.4 million. ARR grew to $323 million, up 34% year-over-year. LTV of users hit an all-time high over $870. • Product launch: Largest in company history with new platforms, 20%-35% BOM cost reduction, unit sales up nearly 30% year-over-year. • Partnerships: Verisure's success with ADT Mexico acquisition and IPO, Arlo is exclusive provider of back-end service for them. Allstate deploying kits, ADT testing units in the field. • Long-range plan: Progressing towards 10 million paid accounts, $700 million in ARR, and operating income over 25%.

Subscriptions and services revenue was $79.9 million, up 29% year-over-year, comprising 57% of total revenue. Product revenue was $59.6 million, down 21% year-over-year. Non-GAAP subscriptions and services gross margin was 85%, a new record, up 770 basis points year-over-year. Product gross margin was negative, but consolidated non-GAAP gross margin was 41%, up 540 basis points year-over-year. Adjusted EBITDA was $17.1 million, up 50% year-over-year.

• Q4 consolidated revenue outlook: $131 million to $141 million. • Non-GAAP net income per diluted share for Q4: $0.13 to $0.19. • Long-range targets: Focus on reaching 10 million paid accounts, $700 million in ARR, and operating income over 25%.

• Macro-economic conditions impacting business. • Tariffs affecting product gross margin. • Supply chain disruptions such as shipping issues and weather disruptions.

Q: Adam Tindle asked about margins, BOM cost reduction, and inventory clear out.

A: Kurt Binder responded that product gross margin was impacted by first full quarter of tariffs, EOL investment to move inventory, and stripping out tariffs, the margin would be negative 8%. The inventory clear out was to load new product inventory and has moved through.

Q: Jacob Stephan asked about partners, retail shelf share, and timing of paid sub adds.

A: Matthew McRae and Kurt Binder responded that Verisure's ADT Mexico acquisition is expanding into Latin America, Walmart shelf share is doubling with new product line, and paid sub adds were through the quarter with some backloading due to EOL product promotion, and service revenue guidance was increased due to strong unit sales and profitability.