ARLO - Earnings call transcript Q2 2020

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Operator

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

Erik Bylin

Thank you, Operator. Good afternoon, and welcome to Arlo Technologies Second Quarter of 2020 Financial Results conference call.

company the from us are Mr. Joining CEO McRae, and Mr. Matthew Gordon Mattingly, CFO.

review call Format by an a by for Gordon. will for guidance introduction have questions. along the second Matt, the quarter, the and by We'll provided with provided business start of with financials the commentary followed time then of any on

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

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

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

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

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

Matthew McRae

you account a new earnings everyone, quarter, and call, call. results elements, Arlo's and today Quarter Erik, I through XXXX partner growth, on paid including major Gordon you, the thank financial us today's and joining the for you, products announcement. Thank will walk for In Second

well the quarter, million guidance. our reported second revenue; the in we end above upper of $XX.X For

of $XX better $XXX,XXX million, last goal that million year. down set expenses restructured million $X.X million in expenses is non-GAAP This substantially $XX.X operating at $XX in than sequentially operating year-over-year. Our down and we came we our than more when to

XXX,XXX of spend cash, than cash in-quarter paid equivalents expires, seeing attach created old model. Smart Arlo XXx to which year-over-year. records capital sequentially. up accounts, and again is features transition XX% diligent we for the Cloud million. of storage up quarter XX-day through balance is of free of this with a clearly maintained was business Arlo and which Arlo accounts our year-over-year. attach up new more and inflection the record Arlo. we million, an The management, and set was at has account ended revenue success This vision Importantly, which At higher paid paid a rate, subscription This growth a in model, new our services service. than working which of the $XX accounts Smart, XX% consecutive Arlo our our business our the registered of growth. performance and record both trial investments XX% the business quarter XX% fourth $XXX computer above trial impressive heart this Once are resulted approximately industry-leading for model new point short-term our AI-powered quarter XX,XXX to an transition rate also substantial is

new two-way video, further network of the camera and business directly hub, channel legacy out integrated to definition of to the smart users audio, year. without wide addition vision to a expect Wi-Fi Spotlight offers providing our and battery which also Essential In This model, optional recently with of can color flexibility. retail launched features, with security products sales our final camera, array products connect six quarter, greater user step reviews. segment. channel $XXX night end spotlight, early life. our ecosystem high lineup Arlo sale we positive price major of of at our announced Arlo retail We security months lineup the momentum Essential home completes partners addresses a Spotlight the available Arlo.com old smart new and award-winning Pro floodlight and Essential press is the now subscription and phase out the including camera. phase our the between products as very of and The for now full business our fast-growing latest model X availability the Last on to shift

camera the Buy, with very Best it at Trends, rating floodlight the X.X three wire well X for the a The Arlo Awards growing integrated to category, Pro of capture Garnering been from and rapidly comprising in floodlight camera Choice market. floodlight including this connected many first ever tested. free, XX% battery-operated Digital product share the to floodlight overall up With Magazine represents Editors' has opportunity positive have a market. in best camera a significant reviews, CNET, called PC which they received

Now as to turning a Arlo SmartCloud channel offering. business-to-business Software Service; our and

of agreement monitoring centralized with cameras SmartCloud first Services partnership Securitas Securitas growth Our commercial are In Security Verisure their will last integrate achieved. as remote award-winning SmartCloud announced U.S. an we July, targeting in as we for quarter XXXX. into all-in mentioned And assets. rollout Arlo USA, with wide and their customer. SaaS milestones our proceeding is our with platform quarter, planned, and accelerating

and enables COVID-XX, SmartCloud more clients. a action due remote time monitor commercial our and incidents. potential are AI-enabled security Securitas' make Go, used their numerous to addition, cameras, be including efficient when the services any left guarding buildings on assets take to At SmartCloud Securitas Arlo unmonitored In Arlo to will for even and Pro being X

challenges a balance market supply chain the of a We of assist accelerate continue mind Arlo the point and on the delivering to their business. our launched In priced in are creating SaaS year. achieved QX, in go-to-market strong through segment, competitively will partner despite achieved and the and peace in were the that of continue These the camera expanding both business new results summary, price side Securitas routes inflection the pandemic, side subscription to to excited into our fastest-growing to to announced results customers. delivered

Our will I to now Gordon And and Mattingly, him also operational would employees helped am to outperform results and I that first showed challenges Chief recently insight provide our quarter foundation proud overcome our performance, QX. and outlook quarter. as introduce call. over details more execution, team us success. like an for expectations Financial commitment the and for for that into welcome of these built took the future the to our extraordinarily Arlo, for Officer financial our Arlo the for has exemplary his Gordon who

Gordon Mattingly

Thank you, Matt.

extremely from significantly to time. by the of the very can I'm the company reducing We're an the paid QX, channel inventory XX.X saying the acceleration in delivered in to that weeks account end retail seven start of Arlo excited team to I America's to with weeks you $X.X end coming growth end pleased QX. guidance, I'm the high that for pleased business million over do above forward and with while serve and new of that excellent with my quarter, our also at at the what future. the share in me working in all role, Let look revenue

our operating our in achievements to business. of of below restructuring results. financials. to in team's addition, We communicated demonstrate well continued target our previously execution management our in expenses to came million QX. activities the $XX In across continue These now And and strength non-GAAP $XX deliver expense million on

XXXX year-over-year upper highlighted, $XX.X revenue XX.X% compared million million, Product was revenue, major COVID-XX Matt channel retail our uptick X.X% the in year-over-year. The which down of last sequentially mainly channels. on effects was sequential by $XX.X As performance down offset sell-through, by guidance, was and QX reflected for achieved an X.X% our we above sequentially. is end up operations. XX.X% which our The driven sales destocking down year of performance and to in

which Arlo is revenue under subscription XX.X% for and new the excellent Our continue last driver XX.X% growth service model, is after The up trial account growth year ends. to strong $XX to sequentially. of our business QX where up very paid conversion was our paid Smart our a over we XXXX of free service see main revenue million,

revenue million service compared are as and with quarter costs XXXX ago. of Our NRE includes providing for also $X.X first year we of million the services a associated $X.X in zero with along Verisure,

second devices, was approximately the XXX,XXX on which will points reconciliation discussion numbers. XXX,XXX my quarter, today. on, in point we which from detailed of shipped focus non-GAAP The approximately earnings this is were During distributed earlier release, to cameras. non-GAAP From GAAP our

the the which business quarter XXXX million to of of has first year of sequentially. gross to $X.X margin million, in transition quarter. comparable in in legacy gross and prior the was the an period improvement to challenged Our of a in profit the $XX.X products ago This compares under from X.X%, points million X.X model. non-GAAP products Product resulted percentage margin year second the costs business incremental non-GAAP our new the half in under model been gross due $X.X incurred for

move shipping averaged to they remainder gross the roughly in of we XXXX to business for As margin to we expect under the products increasingly new model, what product return XXXX.

gross quarter up Our was XX.X% XX.X%, margin first XXXX. service of from the in

the is basic free old margin the model. the cost mentioned, well service of trials as servicing the the the new burdened business As under model service free cost Arlo our previously of Smart by gross as business under

were line and them awareness, Total expect gross reflecting are growth the margin. patterns third year providing paid late expense continued the subscription prevailing in to million, as our and In last Also, marketing QX, $XX.X mentioned, NRE online seen more revenue in we are expenses have $X.X our bringing benefited non-GAAP efforts. our expenses continued quarters, service to X.X% to year-over-year online In down attach the from we we rate includes the As drive the Verisure. buying efforts quarter, our seeing Arlo.com. million in expand sequentially. store; management shift in we services past of operating and operating with service our XX.X% will down restructuring two improvement

Given expenses to that, and in we expect QX. rise sales marketing

remain the our ending will While in operating QX. flat, result opex original range in target expenses, that should balance of the in expect this we components up

million, R&D the is The an second time prior spending service. expense reduction from quarter was sequential expense $XX.X non-GAAP both team which came lower to spent on Verisure the in our $X.X and classified down million the increase total of in cost R&D quarter. the by on for Our compared NRE, the R&D

the to end at headcount compared quarter. of XXX were XXX prior QX in Our the employees

with early Verisure, agreed European the costs a them as operating as outside Arlo includes to provide we systems well commercial training some reminder, As business, the during employees, of transition with services which stages service costs. time

these QX. during approximately million Verisure normal in income other The $X included in expenses. was have included operating We reimbursement is from our costs and

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

less store. in $X.XX; our significantly management or operating particular, which We of end share the helped million XXXX, For the the pleased of offsetting during improved and days, in with paid non-GAAP We quarter by guidance. $XXX.X at of the short-term net in the we subscriptions investments, our our loss diluted came loss. than ended capital capital quarter down down our the growth was with QX, improvements, which equivalents a more working better were high from XX DSO, XX second results sequentially. working $X.X with cash posted per million we sequentially; in online cash, In days of

in while show DSO in quarters and expect improvements. based We customer XXXX mix; increase year-on-year business on subsequent to continuing to

our to turning Now outlook.

guidance year, presented on previously but withdrawn full uncertainty we the today. the by have third for we As COVID-XX, quarter provide based know what the given guidance our we will mentioned, for

takes what presented uncertainties inherent channels consideration about and we as supply our demand, end-user as retail well Our know into by chain QX COVID-XX. the guidance our

in the of expect range be $XX million. We to million revenue third $XX quarter to

of million $XXX in between $X.XX We will diluted non-GAAP for its our per and loss without retail our and cash will effect this update short-term We tapping our channels, $X.XX $XXX net our range investments share. pandemic range. on also commentary share share $X.XX come cash, facility, to chain $X.XX believe and for distribution between this we supply loss come like diluted year in end to with position. our COVID-XX still outcomes likely and and of considering and the to per at between more land and We'd that end million credit share equivalents on cash expect our GAAP into and upper the in and but a

And we continue will during preserve operations open XXXX the performance monitor and We manage to our cash. now closely to questions. to our our can call

Operator

Instructions]. [Operator

Your first Jeffrey comes go Rand. ahead, question from Please sir.

Jeffrey Rand

attach subscription will cost-sensitive buying bit lower these camera? talk customers than more so you the far, eventually Can as and attach, you think Essential do little a be the about more rate, traction expensive a a have someone may Arlo Camera they

Matthew McRae

Yes.

on weeks you got what far. know, we're under attach Essential significant with on variability a happy you, camera, comment had this entered tell And I all rate We've have the may to our seeing we're the I point price market. when on rate including what by the the products sales early seen the few belt. points. very we we today; market attach has just we've But think as can price So versus others. lower product down so any to the It's not promote subscription of of on them be in

we're channel. how has that's I the far, So have executed going we happy with think in. data But the in so Essential actually

Jeffrey Rand

growth going both support little you talk business the about forward? a and can can Securitas And and this product your services opportunity more in how

Matthew McRae

several deal We're we Yes, the United deal obviously, in have absolutely. Securitas here about first One, SmartCloud excited States. for SaaS it's reasons. the the substantial

a So Two, from going like done go with that's the with Verisure product service channel deal. obviously, exciting perspective. Securitas, we've diversification are to our together and just

expect are deal part as customers that it a deploy. Go, industrial, that we they target they basically Remote that deploying the small, going of it's the one-to-one be medium Guarding clients enterprises. HOAs, rate service call service to attach of out and to on like So deployed to be as They're

deal going I of So Go involves us because are Then a Go deploying excited not itself, products. Arlo for But it even traditional and just be customers Arlo our this only said, Wi-Fi for SaaS also to in opportunity actually our Arlo their Smart. it's we're diversification as -- product. for channel

uses it's capability. no with broadband but can there's you where the So product, connectivity who or that operated, are for those not because that battery where power product where familiar cellular place is there's that product a networking also no

of full they're attached going So platform going service using into our products diversified mix. to a be to channel

to does this what time. over excited So see we're

Operator

Adam from ahead, sir. comes question next your And Tindle. Go

Adam Tindle

that We I with on the to wanted to more a start premium category product the environment. consumers experimenting you're gross trending getting an commodity of should noticed getting ASPs correlate rational? up. industry moving serious more in update you think that had function how product Is margin. it Just up versus and Matt, Do the that's purchase? maybe of just state pricing to about after and what it competitive the on for more seeing maybe were and that

Matthew McRae

Yes.

we you seen definitely, if as ASPs coming So look historically, have know, were especially aggressively. you down quite

back, gross couple designing launch has And which part look help of a time. you a think natural a especially an of also we've stabilized. a example for That Arlo as of the is but point, is both points; I industry will definitely some and essential price price margin that If over years. product hit an

calls, our on One of promote previous down gross it having we've things the that's to product. old discussed dragged and was margin,

of a asking of to peace product product category category, lines over see of and expect, Gordon and not itself, that mentioned that go up the is our in that's looking I to backing as it time. of core as are we've are but want of mind a also, for. at as product people the think refresh people that price the points, completed hardware trustworthy people we that generally this product commentary, quality; at actually mind service up those now safety provide the hardware designed But only peace So trigger

historically couple all why So had over declines quarters. I of the not the we're think we into play those are coming last seeing ASP of seen

Adam Tindle

secondly, just Got subscriptions. it. then That's on helpful. And

expiring. attach talk You a when XX% rate about

way opportunity overall growth. As our us inflection to you're there mean, quarter? just adding guiding as this subs does stabilize for Just think year kind we think should that quantify step point? Does the sequential perhaps increase? pretty You're a that I to that? revenue a way judge some another to it forward, total progresses? any healthy is moving level? we at how now coral I over XX,XXX on it function And expectations of hit

Matthew McRae

Yes.

investor I in the included where model I model, have this is some think And this the we're products business in business very is at complex of have the new we field selling we transition say the the reason selling best in moment through, deck. products we through. information guidance that legacy

had We've We have trial. the got trials. original ultra XX-month products a that with XX-day

couple So think we the we be of is as exit complex going transition that will the substantially be next this through for year to relatively quarters.

the from sales the a in should get actuals and some perspective the completely the how that products, a complex and channel; chart And of additional year, shows kind at QX down biggest right? and this new to guidance. obviously, information, and and new conversion. days sale, We of drivers provide and into QX see as almost lot for included trickles predominantly, will a provide of next POS business mix that And And we're investor be I that of then our sales, the forward. at would modeling you as XX look to POS later the us QX of that we wanted the think the going on meaning sign for to through modeling get point forecast we've obviously, model, legacy deck one forecast, help especially the state will that in. you easier ups in QX

Operator

Hamed comes from ahead, Go Next sir. Khorsand. question

Hamed Khorsand

a as way be win. disadvantage going you have using and your here more share? to lot then the just competitors happening that it -- you your to Securitas competitive wanted in and market I to Is competitors another a had the on to what's seeing We're off, cash about week you obviously, first if this Just U.S. got they're ask a front. cash get of one

Matthew McRae

is security, is some was start is deals. whole partnerships. base you're level, see grow, But next by obviously course, our the actually to of take a what's to most of emergency called security for think, deal is and think a and smart of while to the whole think and to the several being user what additional the potential seeing right? the up verification already verified. leader But we're make on computer flagship results I respond see a side, is it we've actual vision happening Arlo which And validated, get and that from area space, I and of video user obviously the more moving creates in couple from as better security false sure I technology these it's video year the our and when of mix space are especially much it home we into provides services responders also adding meaning video, at alarms or solves the the perspective, one, security but smart deal working the for is The to that partners you'll to faster; contributing a integrated. looking trends becoming seeing what's on smart going continue Well, heating for definitely that can Verisure end these is partners, their things; to reduce activity One you're signed, smart experience deal especially expect events security.

to the next months. trend space think in a forward. to activity continue as go we of XX And I over think the is lot you're going XX just I So seeing that

Hamed Khorsand

more share that service the market as being does to able with far where providers? put So get Arlo as

Matthew McRae

Yes.

from the first of world we're which in also like a both our operated, because the have hardware. frankly, obviously, first floodlight, the we And integrated great have, battery we a is think for operated, best-in-class hardware position do portfolio widest battery I floodlight. that,

surprising very computer we And things end, that launched full pledge stance We is don't that taken our product. best for end privacy positioning on with we've One service position I'll video of that the purposes got our We've perspective, got our on a there's marketplace. the couple user. other strong collect a a from sell are obviously, ecosystem data. back important. we've I have of But we Now you, doorbell. data to don't the privacy, vision that in the tell think

strict data different protect perspective. perspective. a the a we're us, that's collect. do partnership And That great we other us ecosystem taken we've makes the then, what look agnostic So very we than how very do in view from two, big some on from that and of space. players an and And not

you some and provides Siri you with other there, if these voice compatibility Google of So out up Apple Arlo with SmartThings, Voice, with even may one sign one Samsung or Alexa, be Amazon IFTTT. solution capability. HomeKit, partners stuck interoperability obviously

so the not locking so most our single data have in and in do all your have may device way, survey of the also solution. in and they they kitchen, homes pocket customers to the world home providers we capabilities, a that have their household, partner us space. meaning our in this a only we the they found, and into talking seamless And to a and in of but through find iPhone And you're an broadest expect a a are one better Google we work that; what multi-voice the customers, that to is makes Arlo

we'll go So we we're positioned. forward. well as information I have think more And

Hamed Khorsand

far going that to webpage your -- And goes is that my converting and partners? you And was last guys retail question traffic to as sales? are what any of as that your doing cannibalize

Matthew McRae

the really growth we that roughly pandemic are Yes. seeing Arlo.com, and -- seeing last as were in of launched accelerated quarter-over-quarter, we in you but year, QX even launched obviously, know, further. nice we -- already

have -- completely all incremental sales to those We seen has that been of channel.

different a customer. different customer. We're addressing So a it's

think and consumer. I different to of the kinds opens for do potential up to us direct bundles it business models the possibility

wholly incremental. been exciting for and So it's a very us path growth it's

continue to success part our drop and channel drive of investing below future marketing bit to line -- see on in opex us that little direct and on us believe one more We our in of that. the You'll will Gordon's to the some continue in commentary. in quarters a It's that see invest Arlo.com. of you'll dollars is

Operator

sir. Please from question last Osborne. your And Jeff ahead, go comes

Jeffrey Osborne

Prime being quarter the were with of the but what wanted traditionally, are answered, Day of quarter fourth understand now of I to that? third the Most in instead just ramifications questions the

Matthew McRae

exactly, know to don't be honest. I Yes.

So We've we for have it's to we're at Prime PLS on a quarter But everything know different. the side, ship QX working the POS modeling interesting year-over-year, in reactions more What's which Prime the Amazon, is the we'll looking closely the that significant but at that right, includes, falling Day. point, when activity, Day in their are and you perspective. other normal predictable including going shipments still look Monday than of obviously where POS with really to promotional retailers from QX at seasonality that be been also else. retailers, obviously, Black Friday Cyber and is and because

But we to depend think handle will than the look partners for seasonality obviously more the bit a footprint perspective, because on A depending a lot will on planning how POS it difference. normal on a of the pandemic what maybe is. look operational I what individual seasonality shipment progresses. the I So like little think the on good of going is the from have

Jeffrey Osborne

opposed Because early you of to being as October the later? mean, date,

Matthew McRae

in Well, Prime change those the Prime well, in happen QX will POS shipments. early QX anyways. QX of land -- of the QX, lot -- time a a If kind from it having shipments it's in will Day versus Day versus in

Jeffrey Osborne

relates are I formulation call, if And future? about you apologize the was guidance? expectations? to sense. the potentially And on QX initial describe learned through QX it can the approach recent that any you you where do then formulating hear lessons the Makes we I took there your the quarter to in the how as to didn't of guidance upside about relative think then just And went about XQ it. and the

Gordon Mattingly

Yes Jeff, it's Gordon here.

fair the guide degree when obviously, went uncertainty facing was we significant. actually say that of think I that, chose are to for we QX pretty it's and out the

say the just beat. was beat, mainly driven sell-through In I of terms would it

in just demand that by of we of that uncertain. on situation, the what based pretty guiding expectations. being demand Obviously, for pretty caution And more with than driven account really the QX is guidance, was referenced monitor the our as into take had was by it certainly at we guide So But conservatism we the just still and driven Obviously, but level know, stage, not in you expected, end-user uncertainty. and closely. situation end-user this to QX beat we've we're our just exceeding the QX. continue the degree

Jeffrey Osborne

I trying channels, was that to was across -- than was I Gordon, others? get it wasn't doing at, there particular all one what And outlet better

Gordon Mattingly

It across all generated was for generally all channels. We've channels.

Jeffrey Osborne

where one Verisure, accomplished in what's then can hit, And made it. also, questions; you you just the can of But you that You quarter. maybe to for two reference two been hitting be? And last X% there? top one of what XX.X%, the could you the appreciation milestones from said weeks pick or but better normal you so we improvement us that get obviously. a Got your is, what content my are? inventory remind just would like -- to Or

Gordon Mattingly

take one. Matt the let one. second I'll I'll first Yes. the to speak

retail because seen what interesting is it terms things. So partners, norm a couple a weeks pretty start isn't in what really of norm. our focusing But is on the at is, moment of asking we've to the probably

and tightly they're should. Firstly, own very cash their inventory managing they as

in but a It's us weeks. of relationship certainly roughly of XX/XX see the recent to what a of for give at weeks. seen levels of inventory certain I XX-ish XX/XX to But stock XX to weeks an to business. perspective back kind going to us, don't inventory prior from Obviously, think that's times the return probably almost small will a in used we normal don't happen mix level a mix, went the weeks inverse amount to we're to certainly, to of don't back benefit say retail. to shift -- be for just in head probably channel we've and online essential the QX, going fill channel their now. XX COVID-XX, Secondly, I heading to roughly in-store, Obviously, expect quite talking in you're about I think into anytime soon. What would that QX.

Matthew McRae

your doing integration, with answer have of to both of solution. integration, our for companies we're your we're more Verisure to them development execution And quarter a the do more that doing that to question, go-to-market on timelines most milestones with integrated to hardware with question, software as and preparing in -- next year, the prepare of second part then the things

right very close sure sure on account So each make the we we how that milestones quarter that the that's that on specific and can that we And we're for out to make also NRE every mark we have making quarter. progress.

And so those are all progressing well.

it's and to two about you still think All is especially how previous year if to perfectly. deal of our through description contribute Arlo, going all commentary, remember we tracking the five;

So we're with we about that continue Verisure. excited to as work

Operator

are this further I closing McRae will questions comments. at Matt to the for there call time. turn And over no now

Matthew McRae

operator. call. Thank to Yes. QX joining I you, on XXXX for today's concludes earnings everybody Arlo our thank want call. That

Operator

conference This concludes today's call.

You may now disconnect.

Arlo (ARLO) 5 Aug 202020 Q2 Earnings call transcript