ARLO - Earnings call transcript Q4 2018

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Operator

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Erik Bylin

Jesse. you, Thank welcome financial and Technologies quarter fourth Good conference to call. XXXX results of afternoon Arlo

time Joining will the of and fourth Ms. on a Christine provided start us review CEO; guidance an full-year the Gorjanc, then McRae, from with Christine; for financials Matt, by CFO. along Company business are of provided any with The followed and the questions. quarter format introduction the have by We’ll Matthew call: we commentary Mr. by and the for

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

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

trends statements expenses, from those could margins, regarding include statements. gross revenue, contemplated tax by statements these and margins, outlook. rates, business forward-looking operating or differ Forward-looking future materially expected results Actual

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

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

Matthew McRae

December. of up near of revenue $XXX.X was total million QX, in quarter as year-over-year completed the and revenue. of revenue, for thank high of X% as and transformative in $XX.X joining provided Arlo comprised earnings XX% Arlo's everyone that year we standalone today end our Company In in million revised guidance a our year-over-year separation fourth first operations and The the finalized quarter Eric, was a X.X% company. call. you the we you, Services quarter, and year Thank we XXXX the us of fourth past full on delivered growth for

million for the Arlo the XXX,XXX In grown For year-over-year. registered than demand we QX, platform, full-year, added more the to Arlo year-over-year. by user end total XX% of have revenue and strong growth $XXX the XX% of approximately highlighting achieved users

in pleased registered now registered By year-over-year. camera connected for XX% subscriber the systems Arlo the has market paid to considerably and absorb, continues than to growth up say the our more are by XXX,XXX, of XXXX, users. year-over-year and of in XXXX. base the NPD, XXXX. our base to market we to We QX, that retail of expectations, million network levels had brought According to them Arlo expect growth normal while XXXX the the our users. this to X.XX in inventory new end partners consumer subscriber return of outpace slowed the approximately grown U.S. of second market With product XX% market grew quarter Arlo to end higher XX% growth could

such as Ultra well first class-leading that with at to Ultra and crystal well-ahead We video the XK features more of I us our keeps of a two-way our the innovate continued at highly I with CES. of a I fourth spot market monitoring with camera share color outlook field this which vision, details bright. Christine our in the XX%. a with Despite smart security cellular camera it's XXX-degree vision Arlo quarter, the resonate integrates on Arlo with was customers, competition leadership the powered guidance launch integrated Arlo's confident market remain Arlo am our with SmartHub. through proposition to system the AI includes innovations have and of camera will our wire-free dominant by share disappointed in Arlo's continues we advanced camera to affect solution as remarks. services, long-term position. view, this result stream NPD, Arlo, capabilities, year, will camera Ultra for anticipated clear have noise is While This as consumer an to night advanced and light market as achieved Arlo IoT flagship to which the In advanced prepared was remains this latest according you and cancellation. value us continuous and deliver security features Go. industry, put excited computer truly and a her available. held audio years DIY to how of share know, is slowdown, most we’ve the functionality. the wire-free forefront

a with business Arlo's of Coupling our model future provides our year drive Smart Smart of Ultra paid Premier to new AI enable that powered Premier, and to objects. sophisticated subscription growth packages our bundling are detection with vehicles, We one will storage cloud free and subscriber people, camera a the base. Ultra service other service

expanded will alarms, addressable action. windows, an System, siren the the be System this future with monoxide set this freezing the other System our of is paid the of the garnered smart our believe home drive doors, IoT system including The Arlo product in instantly begin alarms, in rolling key one expect the market. and numerous into introductions smoke small of leaks, CES The all innovation, home an activity of more Multi-Sensor Multi-Sensor, into and Components carbon out intelligent subscriptions. Arlo at Security detecting At Multi-Sensor footprint Security picked leaks of at remote, which of will increase package. open XXXX, take unwanted motion can the innovative a possibilities it exemplifies Security and will Any a extremely market. a to half at and we second also through new connected the home communicated forefront water accolades. broad market the We can allowing the gas I app, products to and is mobile sensors up changes, announcement immediate a to open conditions. SmartHub temperature detect security homeowners With which smart events, of integrates the heart

the and System Arlo the to I a quarter call and for growth. quarter TechRadar XXXX challenges, with the outstanding, Honoree, as best based CES will System, topic was an was home celebrates and smart a in tech like Android amount website first Further, appeal a industry. Editors’ confident innovation, value. functionality, design, for on Ultra our awarded continue Ambient, the award Ultra of The by long-term a CES, foundation I remain At her on was engineering. Arlo awards. best near-term slowing display First, that also strong to -- of official that very the continues and was of dedicated XXXX consumer resulting Innovation to awarded products and it remain Choice Award optimistic subscription CES Despite a Today impressive, a technology, clear full-year. leader success. Reviewed.com, Police the commentary now home XXXX Christine to that Ultra would will distinction a CES that and a to and market fourth XXXX. Ultra CES of accelerated the website, we and on for turn innovation smart the a for lead the provide Security And System smart camera profitability path design and USA selected Security to guidance Arlo as finally, XXXX. over marketing both Arlo the market their are innovation Security commitment news selected home and named

Christine Gorjanc

earnings Thank and joining call. you XXXX us for quarter you, Matt, Arlo’s thank fourth all on

the shared, fourth and a $XXX.X of the of of high revenue, increase year-over-year. X.X% million updated end guidance Matt we As at recorded quarter, our an

which up quarter XX.X% year-over-year. revenue $XX.X was for Our is million, services the

revenue For of in recorded XX.X% over XXXX, for XXXX. we $XXX million growth

and and a the our carve-out As financials. QX financials whereas QX standalone for on period results comparison based references reminder, QX are QX year-ago

further You can Arlo’s carve-out offering filed the detail related financials previously our find public filings contained prospectus. our in SEC SX and including Form regarding

million fourth XXX,XXX to registered QX. platform of million added we shipped Arlo users a are the the We approximately total of which quarter, During cameras. X.X X.X devices in

end a users, we is As fourth quarter, registered of than which the million ago. had more we the X.XX had year about of XX%

that believe business. to our subscription critical base is recurring registered to growing our continue We user growing

up count was subscriber XXX,XXX, QX paid approximately for year-over-year. is XX% which Our

our We pleased very are business model big in paid believe the Ultra subscriber new the for driver will with be a and future. base growth subscriber in our base this of

my on which this earlier non-GAAP discussion points earnings in GAAP Our is X% services focus The reconciliation XXXX non-GAAP revenue on, point was from $XX.X today. for release distributed will growth. QX quarter-over-quarter million, is our to numbers. detailed From

financials QX our results This which guidance. standalone whereas again, and $XX.X references in up year-ago in and year-ago period profit line the carve-out margin compares gross comparison non-GAAP are expenses in is at million, in year-over-year on million, up sequentially. quarter references million QX quarter. our came financials. period $XX.X and of financials X.X%, $XX.X a the million for financials. XX.X% Note, the XX.X% resulted was Total comparable of are the gross QX Once comparison non-GAAP with year-ago in Our XXXX which prior based standalone results to period and $XX.X the non-GAAP carve-out fourth whereas operating based QX on

the was QX at ‘XX headcount Our XXX employees. end of

public resources of investing necessary company. are which adding we operate while growth standalone strategically the our are the in believe We to a areas the as to key business

and R&D for revenue fourth and we quarter. roadmaps. for revenue, product from in the heavily expense increase prior in the to critical service of points XX.X% service our an R&D differentiation, non-GAAP Our basis to of our is of XX.X% XX invest was Arlo quarter execute and as hardware continue we R&D

expense grow R&D to absolute in dollars. our expect We continue to

Our the is quarter non-GAAP $XXX,XXX. of XXXX expense fourth tax for

XXXX, million of equivalents $X.XX. ended and loss cash fourth we with the the in share a of We short-term quarter $XXX For posted investments. non-GAAP and quarter per cash

approximately ‘XX, $XXX.X QX prior received the approximately in in IPO-related paid $XX we reminder, deducting fees a by for IPO, and IPO. from from NETGEAR As proceeds to after net Arlo, the million million

outlook cameras XX% turn has rate XXXX Matt two-fold in and to the market in a for decline on shared, XXXX. growth like The market slowed about connected from growth recap to our would I Now, XX% To growth what about XXXX. rates. XXXX to our for effect

of cameras. for Firstly, in is growth slowdown consumer revenue demand reflection slower a this

the partners Market considerably the with However, anticipated fourth in there effect the of uptick. a growth our stocking revenue quarter guidance. normal our compounds was lower line but were a in secondary was growth retail holiday revenue impact that on

inventory our the normal higher result, with a much channel year As exited than level. partners

and of half both the return revenue. partners inventory normal Given million their of the will promotional account, require in impact growth first spend, XXXX $XX early for anticipate a us to XXXX the expect factors we to that in information in continue today, into in we the QX seeing higher will are range channel first early levels, customers, our these lower will we with XXXX, inventory have witnessed shipments we as slower of channel adversely revenue be coupled these affect our million. $XX to which to the to quarter Taking market

and We X.X%, gross in to in the between expect non-GAAP X% non-GAAP come quarter margin X% and gross negative and in margins our first of X.X% to between XXXX. come

$X.XX We in to and come $X.XX GAAP at between EPS $X.XX, and negative non-GAAP our per our EPS expect share. and negative negative come in negative $X.XX $X.XX negative -- to between

GAAP QX ‘XX. approximately will for expense Our tax and $XXX,XXX non-GAAP be

in half seasonally the of expect will year-over-year Looking at second XXXX. be in the new believe across product normalized a our we the modest in gross the quarter half full slows inventory channel. the to second second in of anticipate second million first In for We channel the meaningful promotional expect as this from believe moderate have the spending Ultra come XXXX. will With million and non-GAAP second the we of between contribution and will QX revenue result margin year improve mid-teens. half for expect $XXX growth our that, recovery $XXX the our half sales of year, introductions. We to full-year the full-year, strong of to we quarter the to the

our from million, in range the million and and $XX operating prepared will $XXX We be can loss comments, will million the range Operator, XXXX. our $XXX.X GAAP non-GAAP for questions. million loss we expect to be of now our concludes operating loss to take that loss $XXX.X in

Operator

from the Please Adam Raymond [Operator Instructions] of Tindle from comes James. question ahead. next Your go line

Your open. line is

Adam Tindle

still Continuing costly. just wanted users. good on that of subscribers. I but Okay. to Thanks to paid is it’s is afternoon. to same know have and percentage I number the start add increasing, about users registered

existing on and instead So, in increase getting base, base? more spending in paid you are I'm users the maybe on to broad just uptick hoping existing touch the what the of the if puts takes percentage

Matthew McRae

Yes.

takes the right, you you generate added and time then both. puts and the it subscribers We’re There year. one paid on with and two focused Ultra. new we've and model through there main to is depends And historically, the paths are business on as know are

to if in we you us one seeing the marketing historically, bit base and paid in offers that continue in those to go plan you that we our our look do, features million something QX like So, users, to growth QX installed X.X ways was and of subscribers, that's to we are did in a primary and when are especially do and launch registered XXXX. new of

the going the as the -- number, trial into most attach ratio period I system, new subscribers to product believe pre-bundling attempt started model we give subscription healthy go they perspective box that to a we're a when other when forward from paid with. at we and that a we conversion drive service and from with business announced a forward. is characterize of The happy is will new something new free Ultra or them that a out from retail the XX-day users, higher ship impact convert trial we free and think being with them purchased and that and where the But,

Adam Tindle

bracketing cash to, a inventory Christine. the you're know for little on about currently than of be us maybe touch sense losses the burn higher Could channel Can cash in I operating that? one give XXXX? Maybe elevated. you’ve guiding just that just you expected talked

Christine Gorjanc

that accredited expect the it, be to the cash depreciation factors would amortization be operating would around and million. then $X affecting loss, $XX other approximately burn and around two and I somewhere million CapEx

there. a net million there So, is $X

Adam Tindle

-- then, maybe in nuances Okay. been just volatility the could potential to when There -- public wait that? a an has all acquisition, markets there the a And of I for for and as to you a the Arlo remind know, the some touch on of of stock. of target to for lot if from Arlo as that timing perspective nuances is a potential have you’d tax us

Christine Gorjanc

Yes. tips enough tax tax. the pay far completely as finger the as under information tax. have obviously on know, is far But to I spend, my be several free as as accurate don’t the that that I safe at harbors there you with or

finger don’t now. have information tips that my I So, right at

Adam Tindle

Okay.

on one maybe Just clarification final guidance.

margin on imply that think the But, fair that Sorry, somewhere can and beyond, just I have in if kind kind I we missed this. would the in be to a high QX math gross your gross of touch would what margin of teens Is expect? rate. assumption,

Christine Gorjanc

rolls I expect mid the think, script loss. the the half bottom the end and of year given kind line that guidance we the I in said is of in what that basically the back would of into at teens, operating

Operator

Jeffrey Your next the go ahead. Rand Please question comes of from Deutsche line with Bank.

open. is line Your

Jeffrey Rand

my taking for Thanks Hi. call.

much is counter is revenue underutilization impacting like quick low. How and Obviously, gross much quarter. pretty a other kind for Just that? impacting the things how first on that question the margin the it's outlook of

Christine Gorjanc

it’s promote, there as say, a also orders total. be higher continue and the combination growth of would that and without from we will the or a is are fixed in to that some I shifts the lower, the some then are that costs customers revenue percentage clearly

Jeffrey Rand

other of slow, have half and you in follow-up, operating a as just lower of first flexibility kind do times the year of much how get things expenses? kind the And when to

Christine Gorjanc

always flexibility with and with obviously our plans, We have outsourcing hiring everything.

through, continue that obviously watch as will carefully. good very we at look will a take that. to go we we So, And

Operator

ahead. Khan with Your Capital. next Please Saliq question go Imperial comes from

Your line open. is

Saliq Khan

on my questions quick end, few a guys. Just

December back the issues in is, being you QX with due the one Ultra. taken in already had timing to the guidance First down

guidance we’re Ultra that to? how the to So, conditions seeing of that versus with is the the some QX of much impact revenue now you market right due alluded other

Christine Gorjanc

in today, the a to is is So, million the full that The that in to have, our year going more I XXXX majority into last and then with to as that seed at uptick related market the from channel or materialize revenue of holiday the see -- to Ultra, in we related into basically starts addition weeks guide we the QX, year-over-year December look were $XXX the inventory is decrease pushing we that because we the Ultra from that Ultra QX. ago six that partners really slowdown, really not said in distribution we in forward the when means which in selling QX of period to QX, did not distribution expected. that

Saliq Khan

SimpliSafe traditional any at Amazon out the Christine, even the are impact all security from or seeing competition of you providers?

Matthew McRae

the market the achievement We’re have XX% QX. market we in with a showed competitors but in also big share

what around we’re in drop affected else, obviously So, we quarter. growth innovation do the December staying and focused of the on and off really is what best everything

Saliq Khan

end. one you markets works kind your is the was channel network opening do about things then, the on lot data NPD my remarks or And final they the Matt, IP the of data. of one on A in marketplace. network talked one of the consumer

is be a that the way Is commercial, consumer an opportunity down, the you to is to if towards for that the you able there slowdown offset your repurpose for market? or SMB the in slowing of some efforts So, to refocus market?

Matthew McRae

There some channels some is, product instance, is question. good in and the something addition, incremental in a could we've two yet are into those. And CES. not ready we the believe development the there areas in are the that we've coming security past. to second XXXX. you half talked of right, starting business forward. of of commented we focused about we’re categories, the we’re for we are is do you the at announced And new It’s in diversification something Yes. channel is But, things it device those in yes, One past. we commented announce robust those, that that foresee more And cycle of go I are as moving on

Operator

the question next of from Your Woo Intelligence. line Jin with comes Bloomberg Ho

Your go line Please ahead. is open.

Woo Jin Ho

had is talk you Arlo in or the the Arlo Is channel? predominantly the that X? that's it of the for Pro inventory of that's Arlo the Ultra Can briefly the inventory or being the just being especially a terms that the on reception Pro channel. product? Is and backlogged Couple Standard the down, the given of slowed just are it things you’ve also our and slow bit in constitution little

Christine Gorjanc

Yes. not wasn’t even XX/XX. Ultra the -- It's Arlo in at channel

So, all of Baby to a Arlo be original X and that's honest, products. other and mix it's been like is few out our other since the And there the a which Pro channel. older our things in there too. of It’s things some Light Pro is in are products. XXXX and

So, mixed. really it's quite

Woo Jin Ho

seems And new half in year? ramp second million then, going terms gross the aggressively if the as in products half on way of of to And have the it. guidance the up guidance, margin margin channel. you’re $XXX for gross it Is that the implicit thinking to to guidance, promote right the then, first of

Christine Gorjanc

absolutely. Yes,

Woo Jin Ho

Okay. or go the burn million just end in to on And cash Christie. roughly lower? you cash could then, $XXX that bit about cash little to potentially with be year expect flow, clear, Do a based your comment, the

Christine Gorjanc

of forward goal our management with that cash lot to a that. plus is continue can Obviously, the and also to balance sheet do. $XXX move we’ll end we million is year There of

Woo Jin Ho

can that of sources cash there tap Are into? other you any

Christine Gorjanc

in is this think, I but point options out have -- nothing we there there time. at

Operator

call. this today's As no for call time, at there this concludes conference this further questions are

now many disconnect. You

Arlo (ARLO) 5 Feb 192018 Q4 Earnings call transcript