ARLO - Earnings call transcript Q4 2019

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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

Gabriel. you, Thank welcome Results and Technologies' Quarter Fourth Good Call. to Financial Conference XXXX afternoon, Arlo

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

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

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

new statements outlook. from tax expected cash statements. those partnership trends future results product Forward-looking gross margins, forward-looking differentiation continued or materially our regarding and future and rates, statements Actual could service business expenses, contemplated operating margins, differ outlook, these include Verisure, by revenue, with

the the recent Arlo's please in risk refer discussed more on report on annual including For SEC, quarterly Form Form XX-K XX-Q. to information, report factors and with the filings periodic most

on or statements obligation call statements forward-looking a these to make new undertakes as this and we that assumptions update are based no of result as future of today, events. Any information on Arlo

release financial press addition, on non-GAAP A reconciliation our to mentioned Relations In of non-GAAP measures today's on Investor several the found be GAAP be will the in call. measures website. can

call turn At to time, this the over would to like now Matt. I

Matthew McRae

us earnings on call. you, thank Thank for fourth Arlo's Erik, and XXXX quarter everyone today you joining

outbreak of to moment fourth want address take the discuss the I Before coronavirus. a quarter, I the to

numerous first anticipated quickly now our outside in impacted and effected the associated with virus are a of region impact quarter, Arlo, China, are are seeing quarantine. supply. as our components seeing our components reduce we of our being are products well sourced foremost, and the spread people the thoughts the who to key are we an At as the shortage from manufactured First by although are these

and be second several quarter also The product new will shortages impacted the launches. continued delay of component from

of working We work vendors are partners our plans. as as many manufacturing our closely with as component the factories all on of recovery well

and to original impact partners our more We are on the performance growth coronavirus dates in through in working maximize our developing on headwinds. of The from will options with these her provide channel trajectory shelf return is to we XXXX. Christine the and are our to unanticipated also financial second half impact expect specifics comments. temporary

to will launch from on our the Christine and quarter the through With for our closing and the agreements of our Camera. definitive full-year, recognitions Pledge, accomplishments including SmartCloud, Arlo with major new financial Verisure, quarter. that, product move Privacy will results and of first results I and recent our discuss Floodlight I now announcement walk of you elements

year-over-year. start for Let's $XXX.X talking near up QX, and highlights revenue, slightly by quarter guidance quarter. our the some the achieved we million end through of for high In the in

consecutive second a a Service revenue for year-over-year quarter. million, of for growth XX% the was Arlo and $XX.X represents which record

full revenue reported the For $XXX year, Arlo million. of

quarter Arlo about that continue up decline to top expect registered we management year-over-year. as was and momentum While each a into year, shortage Expense supply for further a a X total accounts, this in accounts lowered achieve returned to our Arlo XXXX in and growth we was despite slight registered in QX we to total the our restructuring QX target of XXX,XXX to sequentially OpEx the million XXXX. XX% Arlo added savings with XXXX. reach in nearly to platform are on focus

ago. to continues up from approximately faster more than and paid accounts, XXX,XXX paid account at year XX% pace our a base importantly, a More grow reached

we growth that this on early when expect Ultra, further expecting Doorbell our Based trial reminder, more this a for Smart. accounts from that the accounts customers a Arlo that data, were include the earnings through paid paid remain free a Pro confident next not of trial received As growth period limited and on we of does a Video X Arlo will fulsome there report lapses, XXXX subject in acceleration Smart on call. be yet

first minimum revenue Latin growth multi-channel in On this committed security customers Arlo’s consumer partnership fast solutions paid $XX X financial Arlo and next December and forecast Europe to immense European America. Arlo products raises provider $XXX a regional It go-to both Verisure, marketing diversify our million in products on strategic for market services. Europe distributed agreement, monitored purchase the experience. implications will It has be million and channel strategic commercial partnership basis. the for a Arlo. Clearly, of of a five a XX further XX% next distribution than of and Verisure’s leading recurring service CAGR professionally security attach Arlo direct XX, the countries a our will Smart Arlo years accelerate years through we which to through million X% for services, to more deployments also revenue. with operations, over and will over closed from our with this to Verisure growing channel CAGR one-to-one covering across have of all With rate five and Verisure

platform. deal $XXX ecosystem term kinds closed users cameras quarter in high million intelligence, analysis, of our the strengthened the customized a rely Europe to to record substantially audio provide events cash, to on. storage, detection, with our more sequential have and integrations in has together alerts vast management, of Arlo a manage life brings version improve After cash scaled and proceeds and SmartCloud is With increase the real-time offering $XXX.X short Verisure, liquidity. total of for fleets million service artificial company Smart the the and come a equivalents strong cash multi-object in fourth our SaaS investments, a the that of than SmartCloud, comprehensive we million. our of importantly and deal Arlo Arlo expertise about expected is and announced vision, Smart Overall over our across we closing service computer profitability $XX

our of the to to to and ideal to like BXB value diversify SmartCloud’s unique partnership our we right proves company grow and those intent delivers Formalizing a At one. our reliable ability Privacy market. also to our further commercial business, believe day cloud touch revenue choice belief control service since privacy bring offering the Arlo, intelligent their design security any on products information, Arlo provides and Verisure services side solutions for underscored that’s in announced growth. a would to of of of making Pledge. example and business accelerate our or our personal great looking to I newly to services communities scalable our this a first users' and the

In privacy regarding we what from principles Arlo and would other The not provide treatment the this provide core and our collect users’ clearly of has any our in light and that the industry. partners we others personal survey. users, protect that information. don't these focused our are in We required concerns differentiates been data, not is most. on on attention of don't continue user Privacy our is will users the sell leadership to response solutions purely us mission commitment our respect a they security retailers of pull front. from to information from Pledge providing company Arlo and or protect our increasing that reaffirms helping on We business overwhelming data about and our care retain to

also market. security, to solutions Our but for for to makes company the ideal integrate not and bring partner consumers Arlo clear their trust with stance only personal ideal company to the to

products. captures launched Doorbells Moving Video Last the – our first onto quarter can't. integrated Video what Doorbell we convention conventional that

to faster users a personalized comes to as video calls of HD reply resolution front extra package lens XXX Doorbell This ratio time -degree visitors – Our lets field or quickly square market. such clear get toe, can trial of have Arlo see including direct unique two-way from an take with packages products complaint Smart head alerts at smart users Video so utilizes response industry-leading audio, With wide mobile and users left with solving on for door, entry solution lets and biggest that detection, delivers users existing an the month the to three with the aspect camera their action. packages view. the

award We believe award ousted the sophisticated the And on for subscriptions accolades paid their received market future powerful as claiming winning CES nest Video drive clearer “Arlo Doorbell.” to most Choice to Innovation CNET just none doorbell that combination the homeowners Arlo. In it January and belief, our course Award named impress numerous Video this favorite CNET Pro was other lever X but and XXXX creates And to recently with XXXX. CNET Arlo Editors' of this Doorbell provides we another bolster than continues alike. and at the its experts product, Honoree. continued best the X released industry Pro an for momentum named

Additionally, garnered CNET, Pro Mobile. Gotta choice Be Trends, across and had X Magazine, PC TechHive, awards editor's Digital

home outdoor are the the that security perfect XXXX Pro best Be quote and quote flexible features, one We best strikes as security Gotta camera by balance as and image and TechHive CNET, the the security security cameras praised buy. home you Mobile was between installation can system smart X indoor/outdoor of camera as that price. quote absolute quality, the to smart the honored By of beat,

lighting first all wire-free new we Arlo line integrated featuring floodlight camera X Pro cameras, on leading our the Pro on X LEDs, an HDR expanding Further bright anywhere camera, camera, protection. form our market, built-in in the siren of class floodlight battery, two-way ultimate of and best-in-class announced compact XXX-degree and custom view, configurations, a field audio, provides modern a integrated place factor the that rechargeable XK a

Doorbell cloud-based X computer subscription Arlo to and Pro month subscription Floodlight Smart and free Ultra, Arlo service. Camera based our joins including and powerful three Video a vision our AI The

bestproducts.com standard Digital Mechanics Camera the CES and tech cameras, also Floodlight product announcement an remarked gold excellent Innovation product was as action Camera industry has The that Popular be Award to recognized so X best security new Business top XXXX for new Honoree no is doubt extremely CES from it's Insider Arlo Trends. have award Floodlight will awards from Pro I won and the of this a The encouraging device. CES been Arlo the and and

see a called the numerous of ease volumes segment IP use, can of growing cameras seriously steroidal promising Floodlight speak these as on and accolades opportunity. I security-conscious. the as market for Patrol and floodlight Floodlight Arlo’s is The than faster Gear you differentiation, product growth Furthermore, the Camera, whole quote

to activities the first call full-year and guidance our the over our Christine turn fourth our quarter on for the for restructuring full-year. our commentary to and and I'll her to quarter results cash sheet, add plan, Now balance

Christine Gorjanc

Thank Matt. you,

sequential in XXXX in with and million. a $XXX cash to cash a than of the management. This quarter cash like investments, more Before approximately the which Verisure, I is detail, increased largely which of the highlight would with agreement a increase equivalents $XXX.X I of fourth financials and discuss balance we closed we million sheet that cash and by $XX increase million completed is result our prudent short-term balance

Additionally, sequential the capital, an working which did outstanding job managing cash contributed increase. to the team

million inventory, the associated sale and the we business of added with First, balance the European sheet. $XX to

we our as revenue an increase of from financial them EMEA for QX, to our the services. million on operations $X.X engineering for by in $XX the will gain reported in is sale prepayment XXXX, in statements. purchased $XX.X The in deferred of Verisure with received up Additionally, consolidated be along million which million a commercial prepayment development products as show

EMEA for well the in EMEA with service well EMEA center the this the of number working million including of $XX as inventory as sale million goodwill received $X.X $X.X de-recognition associated existing as operations, EMEA as Note for deferred business. revenue includes that adjustments capital the commercial sale the distribution the of various million of write-off the

sequential quarterly to a be down to seen still on the decline run $XX per get expenses, the activities in end and can restructuring operating non-GAAP of expense path we our million rate, As XXXX. operating second go well quarter $XX our million to the in are by continue of quarter to of

during QX XXXX. recorded expenses approximately of $XXX,XXX restructuring We’ve

our like also Given accounts of did our draw QX metric line registered to not individuals opposed need accounts describes can from beginning businesses. transaction credit. found Verisure and be more change are we definitions note will supplemental we I our of metrics to information in information EMEA that these paid the XXXX believe and paid the we our by press Verisure our in We where now given or More as for accurately to accounts registered would successes, users to down subscribers. detailed this paid release.

and And up and onto we as now highlighted, sequentially of financials, with million achieved X.X% the revenue Matt $XXX.X XX.X% year-over-year. our up in-line guidance

of approximately cameras. total quarter, shipped million X.X During we X.X approximately are devices the million fourth a of which

in to We platform added approximately XXX,XXX registered Arlo QX. accounts the

XX.X% quarter, an business, we the our improve and year to of increase critical end accounts our four margins ago. recurring base help million registered registered growing will a fourth we the predictability. Growing is both of our had about account believe our of As services which revenue from

the pleased have and of we with we'll base and believe Doorbell business paid and are future in X the very services, Video also be in the growth model account growth paid We Pro future. base recurring with revenue and our will a our for Ultra introduced substantial with product introductions included which and continue with new paid driver near the account

to no a period the model rich a and the of storage. trial at there gives rollback that is business with trial new user end This for experience Smart free Arlo period,

$XX.X last up XXXX, is million, services which year. for For was over QX XX.X% revenue

point this earlier focus in points from non-GAAP to detailed distributed will GAAP discussion reconciliation non-GAAP our on on release is my The From earnings numbers. today.

quarter gross for resulted a million, guidance. the Our non-GAAP XX.X% of range margin XXXX of non-GAAP in which profit $XX.X fourth was the within gross of

$X.X year the in million compares quarter. to period and prior million $XX.X in ago, This comparable the

gross see we fourth we Our carve new free the service gross Arlo for do our gross model XX.X% we the expand. for margin cost the accounting service of margin out increase well rate, free expect was as is basic attach burdened the quarter by as once But service under the service. business margin that XXXX, the the will subscription trials Smart the

million, down year-over-year is X.X% $XX at sequentially. X.XX% in which came expenses down and operating non-GAAP Total

$XX.X R&D to the Our fourth total and down million prior expense non-GAAP was for $XXX,XXX quarter the compared quarter.

Our efforts at transferred the Verisure as XXX quarter. that the head employees of head the in end the was to count well prior The XXXX decrease restructuring of as is our at XXX QX compared in employees equally quarter. count to over those end from

include with to Arlo service as commercial outside business. agreed These transition employees, some with We services provide the as European costs they start systems transition as services Verisure to operate time training costs. well

in normal during was and these our the operating other We is have costs approximately Verisure and in $XXX,XXX from expenses QX included included XXXX. income reimbursement

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

quarter per XXXX, fourth of a the loss posted of For share we net diluted $X.XX. non-GAAP

up I As we in term ended $XXX.X sequentially. million cash, previously quarter cash the short $XXX.X million with investments mentioned, equivalents and

our the from focused inventory very the Verisure our Aside we’re during deal, and continue cash pleased we days be and of position from improved receiving QX management with cash of closing to XX on managing DSOs QX. for

be outlook, million the to revenue first the expect to $XX turning we million. Now in the $XX of quarter to range in

to As Matt our component the of vendors at as supply business required not do components considerably output. mentioned, the reduced coronavirus sufficient our is quantities are side impacting on fulfill because factories the have operating demand our

take China. have we as impacted equipment new Additionally, the that in well we quarter will expecting the product be for between as quarter second second believe and of expectations the To built manufacturing for between first of XX% an shortages account, from planned of some in and into XX% the delayed introductions X% we and our component delivery by to original the XX% have are revenue this quarter. impact impact an

We our course this. partners navigate we working are of with closely as through

XX%. For and to to and come and X% come the gross X.X% non-GAAP first X.X% our margin in expect between we in our quarter gross margin GAAP between

$X.XX GAAP non-GAAP come between per share loss net share and our $X.XX to diluted in expect share We to $X.XX in per loss our share. come diluted per between per $X.XX and and

XXXX. be non-GAAP approximately tax our expense for We QX GAAP $XXX,XXX and to expect

that will loss and year for for non-GAAP For Verisure. of other revenue and about million. we operating million the $XX from note expect for million the we services Please in between $XX benefit have the million full-year $X.X and however, a million $XXX $XXX transition income reimbursement between

with end reduction we we the the For million But will we inventory to and equivalents capital we $XXX and full-year, cash than year more call expect the cash benefit to itself the open with and in reverse some can XXXX questions. we that accrued working in believe in out that of XXXX.

Operator

James. the line of go will Tindle Instructions] ahead. first Raymond from Adam of question [Operator Your come Please

Adam Tindle

Okay, still Video start thanks. Doorbell growth just accounts, of you of Ultra about to potentially talked trial the coming accelerating exciting. customers wanted I X Good that would which lapsing paid Matt, period obviously afternoon. and Pro be

versus color have a bit Just more we a the more improving attach acknowledge you guys looking rate that sense an little hoping visibility obviously at view, that are but of that paid on just for support just to for shipped data than from units perspective, look us. it's not, you and at subscribers outsider's

that of statement, internally? driving guys kind confidence data looking your are what's on what at behind curious So you

Matthew McRae

Yes, our to have like exactly and us will the the attach a larger the calls far. I a we'll that earnings we to actually size and confidence lot but hold is more as the of forward, business some quarter's rate initial driven new in being a Ultra and go next allows obviously get relevant statistically model, your new model confident data sample up I that, go said X especially business couple conveying earnings. last been Video so the in script sharing very internal think fulsome for data Doorbell more quarters, the by we it We we've which on and point for Pro of report remain that

Adam Tindle

time in essentially couple during decline that profit accelerated a are services – that that margin margin in XX% gross know of of And I on key That's flat is you for maybe to I But decline QX. dollars years Okay. and part now. obviously. I north grown the just think have could. services, revenue fair. of I nicely, guess if another it's story question

just given isn't with on it's in and alluded business services I to to counterintuitive behind maybe bigger maybe rate. us is reasons with why one-to-one of kind improving picture to the going scale, Verisure the some impact of comments think that that, how but Christine attach a margin

Christine Gorjanc

Right.

this we all trial, we from have the old Pro our are Adam we've out and then on products QX. basically at products new So quarter, X look free always of have when we during carving out been still came

out Our trial. months they Video Doorbell three QX during and have came

QX sort also So Ultra. then those late end in and of

start as of we And increase not with we storage, the So once selling paying free for people you'll the all you'll there. services, margin kicking then that older see as also not too. see this we're products anymore in

then especially in a to rate, when channel margin. direct attach obviously rate, scale their see a also talking larger Verisure, will with economies we us you're attach that of increase start that the And about and in one-to-one those give

a we of it's got to So, think increase bit a over time. way quite

Adam Tindle

like million Is been on way that that or the services services, trying because opportunity about Verisure the $XXX pretty for gross a consistent a that rate experiencing help attach maybe one-to-one it. identified us of you impact at is revenue margin as the related margin sounds is it interesting to think you've what to to from there going is obviously just impact to be

Christine Gorjanc

revenue. when paid top that. Absolutely, are any our use of of service Smart we customers Verisure’s will that's On that and hardware on that, of top Arlo be and

in forward, much, channel, be retail very giving both both sure honest, they're very not so not really will selling we're what in be going this And exactly direct much their channel. to the in but direct XXX of as looking channel and forward that and And to breakdown we're, that breakdown. a we're million, we're the

Adam Tindle

the you us and Okay, got any related going to of timing in I Verisure to assume guidance last way from you're the just that Verisure timing magnitude in XXXX quick QX benefit it just include Or One QX, clarification. XXXX so? that's guidance? with expecting Does any more help when hit, can maybe it. is your

Matthew McRae

Yes.

that of On had will the start the last mentioned call, XXXX. we Verisure impact in most

incremental instance, So year they X% phase on and the actually integration retail channels when for that through of getting full this we and the beyond around to talk products a about to with being in deployment of the going start for lot the XX% ready that transition them, CAGR especially some purchased. European channel growth, both channels from XXXX CAGR, will

Adam Tindle

Got it. helpful. you. That's Thank

Matthew McRae

Yes.

Operator

question Bank. of come of ahead. will the go from next Rand Jeffrey Your line Deutsche Please

Jeffrey Rand

for Thanks Hi. taking call. my

of Just on being is and your margin by is the of that impacted how gross do at – the the QX gross trajectory how kind throughout much year? margin you look that for coronavirus

Christine Gorjanc

the margin gross bit that. little become So bringing less on comes less we on costs we're a look fixed it always half and of – should it of towards a try it if it a then up spending or the as stuff fixed back margin more year. bit that once having there in we'll you freight a the once as is as also, freight little up do factory end affected starts to to then in costs depending QX over output. of potentially some little the are materials, know, because we air they are And some what those the over And promo. on get that bigger a towards of decide better that piece hit bit is bigger gross we

Jeffrey Rand

Thank And or in revenue? is expect half first lost you. XXXX, some revenue that it recover you. in half something the of that lost Got just of to mostly second is the you the

Matthew McRae

having you as replenishment move stocking especially spring half. losing product that the QX. Those we'll when of that plans on Also orders get the reset try have growth won't a a do as second sales those channel, quarter in and you're lost kind get may component get working at of I will we over, reality, out again back. which daily we’re pushed new and to possible. you launch, replenishment any the and much but most in the several we're targeting on recover from into trajectory POs back in retail would and when a that is But you're say mitigation shortage recovery

half we we think actually why in being transparent about the we're that second see XXXX. and looking at impact for the half the And will and so happen for that's what very first

Jeffrey Rand

you. Thank Understood.

Operator

BWS the ahead. from Hamed will Please go question line next of of come Financial. Khorsand Your

Hamed Khorsand

clarify component were from the QX? seeing? Hi. shortages last just about you you're Is different that talking what quarter that Could impacted you

Matthew McRae

Yes.

Christine Gorjanc

week. were and Absolutely. for Chinese factories were that's normally shutdown These that they obviously, a are – New Year

Some of of lot separate can coming the just in online factory. at anywhere capacity in XX% before are this the them and they have There cities get are XX% because they're to a week shutdowns. had back coming quarantines

even outside though day speed we we slowly of are a China manufacture with every and coming to up factories phone China, literally back components work of So lot are come but to our back on talking, those coming the are from them as their people slowly.

Hamed Khorsand

source Are outside right you of able now? to China anything

Christine Gorjanc

We good, of which a do some components already of still China. China, lot source in things outside is major but sourced are the

Hamed Khorsand

you're that the you’re And from QX, – impact that expected? is is that you've this planning released this impact to talking that that in you're products this you’re products already or release about

Christine Gorjanc

getting those as we It'll down talked be little will do there few and a builds and slow we doing introductions. is with how tooling all more some that. it have bit both, a on little Floodlight a depending new forward but already of and we're We move product the about the that and the

Hamed Khorsand

the in And revenue the XX% could mean the would comment sequentially XX% QX? you made would earlier in versus that impact, that QX be to and statements is or actually down you clarify your that about revenue QX,

Christine Gorjanc

probably probably slightly quite revenue. to not down, And it’s is up. It

Hamed Khorsand

All Thank Okay. you. right.

Christine Gorjanc

Sure.

Operator

question from Jeff Osborne of And ahead. your of next Company. Cowen the Please line comes and go

Jeff Osborne

ones margins? kicks you at sense my I asked, a scale target is Can a just have questions the in? or Verisure been the What quick us give had end. afternoon. of of but Most on Good on as of the couple service Yes.

Christine Gorjanc

to as attach back rate with forward. that. I we're this above, mean, and targeting, we'd but to we love of continue way move do a get this And lot believe model with thing business really up new have our see obviously to catalysts we we'll to make our we XX% Verisure,

Jeff Osborne

there seeing What know a Makes in the specifics rates sounds on kind itself? of in any minimum you there Is book and want of next can it make to rates? any but you is like, versus the terms don't or cameras attach any sense. until I commentary way non-cameras? to call maximum give you're attach

Matthew McRae

enough is I on our we at lot more have next as confidence the script, on in think we’ll really But data there's reaffirming to that. Not time. data the again, and us the don't comment this I is, for provide call. early a mentioned

Jeff Osborne

might've NPD compared just missed then you the a it, share give but And other and smaller I to this it. it quarter? quarter third of did couple the here, how Got ones

Matthew McRae

No, we didn't. NPD quarters a changed some couple ago. methodology

And there's an apples really to no way to comparison. so, provide apples

a So market obviously, a – at lot anymore, to been introductions. don't of comment ASPs. product numerical And a the we've we of we ASPs share know from did going the perspective. do from share least lot a We that had on job product perspective great We've We holding trying reviews. quarter-over-quarter into QX.

in on supply the as the talked progressed the think we the shortage given quarter, about expected call. well very previous especially was of did we kind quarter So and we

Jeff Osborne

last headcount was? you you went Verisure count I the the employee sequentially And to what with change – Got can us Can on it. the the question in that you – is mentioned restructuring. just had the remind

Christine Gorjanc

Right.

down was XX about the about part Verisure It split evenly the XX. headcount I of the and it think and an was was right, came we quarter-over-quarter restructuring. balance So was XX difference,

Jeff Osborne

Got it. Thank you. I That's had. all

Christine Gorjanc

Sure.

Matthew McRae

welcome. You’re

Operator

are conference call. this at further time. This There concludes no questions today's

You may now disconnect.

Arlo (ARLO) 24 Feb 202019 Q4 Earnings call transcript