ARLO - Earnings call transcript Q1 2021

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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' first quarter of 2021 financial results conference call.

company the from us are Mr. Joining CEO; McRae, and Mr. Matthew Gordon Mattingly, CFO. a the The provided with by provided financials by call with an quarter, of the by of first for introduction followed Gordon. business start guidance, the will format along the in and Matt, review commentary We'll then have any for time questions.

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

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

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

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

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

Matt McRae

put $XX.X XX% company statement. point my a loss explanation Arlo's that Arlo consecutive commentary, at Revenue ago. that you, expenses it non-GAAP at million. guidance XXXX Thank the And record I you, thank In same margin seventh QX with on is per million clearly, for net of by over our This QX year the QX commitment quarter end into non-GAAP is revenue of year short-term year strong not to came all-time gross today to our Eric, leverage, discipline non-GAAP soundly year, $XXX.X for results, and came This our and past an performance, lowered remained was the our reaching our in drove an operational revenue maintaining to up year results for XXX% And of above is share, cash for first-quarter led Arlo. bit loss margin us a again, year an everyone, outperforming equivalents, nearly balance and cash, $X.XX. record million. earnings over call. the nearly marked over $XX.X of guidance year. year. just of joining healthy end at a deeper and services on an our the XX% which over a up Diving non-GAAP incredible operating million, coupled high in year. up is company. $X.X reach at high XX% XXX% up year, top all-time our accounts gross over are Paid solidly investments year Service mentioned revenue sequentially,

our resulting momentum the earnings year-end Our by undeniable in forward reaching million and subscribers success to are year. million year capital. business X this $XXX additional in the trajectory toward after our And basis strategic half revenue the We non-GAAP we our services, need through new breakeven raise on to as and of shift passing X. paid model, look service us this not call subscribers will just with March reach a this, XXX,XXX anticipate have on second will of

and which over of profound Arlo's near-term demonstrate milestones XXX% had these XX% increase represents paid year. successful XXX,XXX year a current we transition the performance sequentially and impact In company. to additions, service-first Our of QX, account an

we of video motion Through under the unmatched unique a of conversion an attach rate upon period, subscription out which indoor expiration provide includes we activity Arlo our mind. essential and portfolio, automatic entirely to AI-powered total available feature rate service. are six-month phasing features in see As customer XX%. period. cloud notification, our has security suite favor our products trial honored our Smart we audio out new follow XX% retail business Arlo's TechRadar and the as carried our newest winner of to business subscription It refresh Arlo privacy value-add CES. computer like and TWICE, maintain technology a Arlo a and Systems us price and with offerings storage, home transition consistent truly Residential a Smart, identification advanced already honoring over of XX-day named to reminder, trial influential analytics, most last of been business of initial legacy at the product final suggested a vision-based product grow owners product, object a $XX.XX. award, model the to a camera, the model that Picks now for an year, at is the peace best free and customers, toward zones, And the represents leading identification, cohorts of services shutter, of new is old customizable a and Pro,

Hub. increased Samsung Google and Google up notifications times, now and to allows through launched directly and a of version video last features our live Android are of to stream from of Google events available and wide two for and performance App and richer are also IFTTT Apple Alexa, improvements. be with collection experience. devices past new the Over Smarter Amazon Arlo's turned notifications quarter, faster ecosystems to deep can Home, X.X SmartThings, on our IOS engine innovation user events. application access We Nest linking viewed

span in inside to This will that X.X an Android, our notification animated from of providing user, across an iOS In clear event services, to much on addition, the motion-triggered and kind threat a experiences, and better of segments. is the the the cycle window Arlo the enables context clip determine industry-first a level. of innovation indication Arlo beginning what new

across U.S. acclaim to continue industry. the solutions current Our win

Pro best camera. awarded Report Security Best in the camera the of World series categories. security of multiple recognized XXXX Pocket-lint indoor Camera as & essential indoor News the

from all Camera, Series acclaim Editor's both Google's head-to-head like review.com. won awards Android to red.design I X teams their Digital Essential in Arlo most to by coveted awards ecosystem. smart three and the deliver a Trends. Wire-free The Arlo best for Choice Video for by X of moment to outstanding design our Floodlight, recognized Doorbell and Spotlight excellence security Essential Nest review Doorbell. Magazine Pro beat the work and posted thank world's at from and Pro finally, would the Doorbell And Essential take Our AMBIENT, was winning Central, a won in the Wirefree for PC recognized

as our service partner, year with We move as have and new continue product a relationship in Verisure, have full-volume spread program our in to XXXX. and our to our a QX enhance This is their deployments and all will in designed milestone completed designed business initial significant XX entire innovation services, specifically products new launched rollouts a than needs teams successfully future camera this drive that revenue. in and more growth major clearly into our the Arlo And for under hardware, has production across will to our experience. well our model,

through of minimum of Verisure service $XXX the with the our alone engagement start reminder, of guaranteed a from strategic channel. and million includes a direct acceleration XXXX purchases five-year over product As sales term the

traction results, seeing and in their our of Verisure You quarter can solution. the in see across invests are the continues the as rollout we Europe Arlo channels

relationship to of quarter forward call programs the will full the details, we over and provide Our in our XXXX. like on performance, would who the second I year. and Gordon, and look track remain full more to to rollouts into and the financial benefit in insight And now for XXXX, operational outlook hand

Gordon Mattingly

gross and above for QX you, high guidance end margin, expectations, QX results all-time We delivered high joining up XXXX. an over Matt, than that thank for exceeded you, everyone, our revenue was Thank more XX% of today. recording XXXX the and financial our us strong non-GAAP

And quarter with million navigated exceed of $XX.X management. leading $XX.X million, business at notably, sequentially. Our which to improving our Arlo sequentially supply to by normal normal Product execution and product year expectations our successful by non-GAAP account. record and on our XX.X% million the despite The team in prudent XXXX primarily operating and we up was last was year the detail. year $XX.X over down due QX decreased for while XX.X% for the million, our significantly revenue, through spend XX.X% financial over seasonal downtick. paid challenges levels moving profitability to new now year loss the driven compared revenue year $X.X on model, up came to was QX Most product performance seasonality. down Revenue revenue sequentially, to XX.X%, revenue financial

by strength driven year-over-year growth our product relationship. Europe revenue primarily Verisure was Our in from

business XX.X% for over $XX.X Our was fueling up sequentially, a XXXX our record up last and year QX new our model X.X%, growth. service revenue million, with

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

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

non-GAAP more XX.X% gross than in was XX included margin to million up points due year on year profit third improvements Non-GAAP ago. margin in the last and which product XX% and in up a strong in airfreight million resulted XXXX represents driven in $XX.X and margin services. gross margins XX.X%, was QX higher significantly year the was progress The QX million and for year-over-year million, service over non-GAAP product XX percentage $XX.X from XXXX profit X.X% XX.X%, non-GAAP product points and $XX.X gross X.X% of gross over XXXX gross from XXXX. a lower QX record than of negative a Our to spending improvement from million over This both up gross $XX.X year. percentage promotional quarter up in by $X.X from of from

lower than business cost last with in account the slightly legacy Non-GAAP in the substantial affected model, second We in QX coupled at service to lower new non-GAAP per million, was sequentially. believe over Total in quarter year. of cost management range $XX the and the the As the quarter million XX.X% growth half the XX.X% with our and $XX.X higher continued million, will driven year-over-year and by than expenses transition under COVID-XX. operating year, year paid over over in significantly by quarter. in XX.X%, XXXX million first demand were of or due be The prudent management operating coupled QX uncertainty quarter from growth result approximately was were XXXX. margin last year $X.X of recall, in you to margins adversely X.X%, came gross the gross down half both expenses our and $XX marketing second This expenses $XX non-GAAP million products, year.

sequentially R&D total first million. expense for Our non-GAAP slightly the at was down $XX.X quarter

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

As well Arlo employees, our in normal from them with million relationship, services, operating approximately and a reminder, of we expenses. $X.X outside in these income the early Verisure during Verisure QX. the systems costs. which with We've agreed transition reimbursement service costs other to was training is and provide include included some stages as during as costs included The

quarter company. investments, tax per year our cash, public of QX, we a non-GAAP year. guidance net was down down quarter We $XXX.X In short-term best sequentially and million first ended of than expense Our and loss $X.XX, over better million equivalents, much non-GAAP our cash $XXX,XXX. for as the and million XXXX the in share $XX result a with diluted posted $XX.X

on to capital our progress We make management during working continue QX.

days, turns compared at X.X million significantly XX from year a X.X XXXX, days a XX quarter year to last inventory with DSO QX Our $XX days at million, decrease down in over of down X and XX closed ago a from ago. QX and came sequentially. $X.X at

Now outlook. turning our to

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

in headwinds supply we component the in sea And Our quarter. while incremental shortages second lead expect believe third quarter chain challenges the from over to an freight progress team navigating excellent the we did make quarter, we can first job similar times.

investments, the previous questions. and year the up with cash and $X.XX to to in quarter net in monitor up GAAP prudently $X.XX approximately short-term And our manage cash XXXX, For per equivalents, open million $XXX guidance, our preserve we expect continue second share end operations our our per between diluted performance Slightly net non-GAAP from $X.XX to loss share for and per now share and of and to diluted to in cash, I'll we'll loss position. it our between per and expect $X.XX come share. we come

Operator

Tindle the [Operator Adam Raymond Instructions] Your first question is James. of with from line

Catherine Huntley

from what learning there's you gave drive do And you on token, base, future? the Huntley the will spoke about on on already. is partnerships We lifetime that Adam. Thank upside specifically I how when sub-vectors? Hi. attach value impact This this same subscriber that Catherine characteristics color a And a believe you're were you know of for wondering do your a believe the you product in Verisure, you. little about that how mentioned X-X have rate. services? of previously And bit will your you

Matt McRae

service you we're Thank going service and Yeah. as about forward. the for question. growth Talking

on churn basis. we've So net as rate as you we're before model also the still business lower. can a quarter adds on new accelerating see, as the that far And mentioned is

attach that only It's of the lower model business churn XX% benefit double also approaches seen is but higher rate rate. cohort, six-month a a actually showing there's not a So a over accelerating.

each So share we're forward. we nothing will about drive only promotional as about going those really in the we particular, we're quarter subscription to of perspective. have Verisure, segments, driving some customers visibility that how from better activities a buckets. base we in three smarter address but customers, a our not the different the getting and publicly, subscriptions customer but lot to learning the seeing actually a is are adding be effect use We're can into

as we're And here bucket So in the seeing through channels. even there, Verisure retail retail, performance Arlo Arlo branded marketing United And seeing in is heavily as and channel product e-commerce dollars, brand personnel much the far strong like in is and those ads in States. the the channels. partnership there. Europe to first throughout television full-up demand the investing channel, in running Arlo deploying traditional for drive our we're

and security those point, mix, the that's the X-X just subscribers, cameras traditional into see upselling bucket the And Also, they cameras seeing So that seeing through channel to in through. Arlo that here direct systems security And branded them strong traditional added a your growth we're to sell is we're Arlo United their starting install, branded to get in second we're attach. and like States. product are, channels.

of XXX% the the in custom that a be Verisure we've see we attach channel. X-X seeing of services the will also high-volume we're deployments and second So cameras milestone is their on product ramp service. phase will that and like attach what deployed year, we'll we'll full-volume development to being in a deployed in, for on be in rate direct year, top our those subscribers those are then And that finally, year I next through half next and see that reached of product start third this a that to in mentioned of call on the said,

call So, to our three year-end Verisure the there's that are by our year. next that to X is actually million expect -- we contributing mix, accelerate buckets help us hit and and subscribers service

Catherine Huntley

the Great. your and plan even to previous how can impact you you also, talk the were business point, do you shift complete shift seeing Thank you going services, your since soon? And you margins? mentioning believe on that's to especially is And color. in also plan to so so and about much breaking on as the What you what answer? for

Gordon Mattingly

Thanks. That's question. a great

see we're margin business in services that long-debt our QX saw is the of we the with margin in can pretty you percentage in a service see benefits just a benefit QX, obviously, and margin the see XX%. I in actually itself, pleased already for mix, gross just with the were a great XX% QX. pleased Services a result, can kept mix as on even that But of our And and gross us that. in high XX% gross having the think of we that total gross under actually can record some you on which QX. margin you we under record basis, very were company,

seasonality itself service a is But expect revenue proportion point. lowest expect our to would margin. for the account in us. keep it perspective, in an mind And from mix, as point seasonal large for the revenue to grow, strongest would gross our business. to and reflect certainly, we is QX a So that product QX, the the increasingly we continues in obviously, of

see exemplify But you'll think So results QX the variation. I business some mix does of that for services benefits our what it margins. and

Catherine Huntley

you. And quarter. Thank congrats on the

Matt McRae

you. Thank

Gordon Mattingly

you. Thank

Operator

Deutsche Your of next Bank. question line Jeffrey is from Rand with the

Jeffrey Rand

meet supply outlook? any you about you Congrats have do you if Hi. revenue Can on your you're any your quarter. demand enough securing visibility support? seeing talk much upside in have how do to supply great components areas a tightness? into your -- good of could chain And And full-year

Matt McRae

Yeah. question. It's a great

world obviously, the I'll is a lay that. are, we a on couple of out impacts some in components where and So still of business, COVID having

So one, airfreight. both sea And we still we're a freight, little sea see congestion. for seeing elevated of freight bit costs freight and

So little lead perspective. just bit from a freight a time longer

think we're well. managing I very

managing in very go a go you Those well year we're it quarter, see and up can You again, we're those the but expenses. managing through else. the bit, as we the [indiscernible] through everything team know, could

and impact area has the think be component shortages. more component little bit of an that I a will

at know, We year guidance we're to out this supply we would make normally that quite comfortable than point, have forecast securing those components. further out feel sure of, we been with much we having the need. forecasting you And our

impact our upside. having again, actually second component get into that to as is may to are out biggest half. respond the see The the we ability Although, we shortages pressure intensify there

And QX than because So, are more components, you I and there's shortage in higher. we a we there a QX, could was you not because in know, tell can but just service. lead times actually great again, the big published, demand know, you

is upside-finished bit than actually little time normal. goods a reaction slower bringing Our in

think the potential So shortage. we that I attenuated, being upsides But are at we're see some seeing the of strong same demand out. time but we'll component are where that we're that seeing managing

We think, manufacturers. forecast -- out well a are suppliers our this, I our but not our lot with our farther. very with taking managing We're only

they And we is year to so for potential through and while now, how that we're address adjust trying think of upsides up comfortable we can I as execute. how the do relatively actually what much we're come

Jeffrey Rand

how little lot my as people school, to And people. has changed go but with more the maybe follow-up, a about work, high-level Great. pandemic question, and interact a

these you talk after to the some you how during behaviors Can about continue changing impact a And will change your are demand pandemic. pandemic products? likely of think behavior for longer-term

Matt McRae

It's awareness generated of I of be, you a with Yeah. tremendous call, awareness. amount a there's what think and the still I product would And been for quite uses for think know, bit. I areas that us vertical will several,

Some a most The change. at is amount the and will deliveries of happen front interactions be it obvious the door. permanent that of

have lifted perspective. want even taken it's up scenario, face after meal front people the sure is during don't shift delivered. and left just that restaurants, being delivered they to things e-commerce, But instead not pick even make delivery test actually general, a not door, they're at delivery delivered going front are people, the person come we of of some and And the traffic people the do of the left. only that And where a food they to leave, the out buying some to to noticed that and the is higher lot meal also But so pandemic your in to being in things and from people has see to face of caused door. something's one want a know when see and at meals then they being want can

traffic There front ones loved because going So and well, to activity is awareness get don't and able sure that's in around know, think other the something entire you the the door persist. are being around as to the as there trends make check I and often. remotely they're moving you on

now these all secure people think actually, we trends in the in long the to as term. are So sure to not want increased then, fact, house, it's and demand I make they're think time, leave And that when we'll of get some that remote. home they the they're see some

some and their think of to actually some travel then will launch again we leave they people trends So to continue. these home again. And want start start to accelerate as them as their of premise may

Jeffrey Rand

Great. Thank you.

Operator

line next Thomas the is Your from with question of Boyes Cowen.

Thomas Boyes

Excellent.

margins you're destocking The significantly, quarter. So it product there I into healthy looks could just was like lot inventory the a margins many insight you of of really the were up business, year. maybe then nice maybe typically product how us if us know, wondering And into and gross was balance the some channel. targeting. for you for steady-state the some the remind provide

Gordon Mattingly

nicely. margin things. in Really, QX, benefited airfreight of main able couple product the questions. from QX gross to Great were a Yeah. control We in pretty

on from the QX. And your first quiet then weeks destock perspective. from a margin helped relatively the in that promotional the the and calculation product was that channel is denominator lot in Not events you perspective, a channel it was the QX thing, that Addressing well final quarter a question activity. need of that certainly to the remind six as for in So gross actually inventory, thing. just of we the a going I sell-through. second on promotional did

quarter holiday And weeks comparing look actually period. you're at last QX seasonally perspective. our is The the included from weakest six that Now, it, sell-through if of a you QX QX. to

the in So a QX was lot it lower than is that denominator in what QX. calculation in

actually like think stopped I destocked we the level in So channel And it's it. XX.X for it looks America retail, weeks. know where North at the now channel, inventory looking at we've I

I reasonable it's pretty stop. think that

there's think we'll COVID the our tailwinds destocking to for the inventory. see. from the I or see pattern year, of of headwinds we perspective on rest think normal any seasonal be channel going that would stocking, don't I

did dollar destock was just So I'm QX what sorry, clarify, perspective a But in actually from had? Americas. to I you in think we're the final relatively we normalized. question

Thomas Boyes

steady-state the the business. on for It was margin just product

Gordon Mattingly

for would steady-state reasonable gross guideline margin product expect from product a we margins. mid-teens is a perspective, Steady-state

Thomas Boyes

could complete entire Everyone's you as you then wondering product And a, the hardware the Or you from follow-up, do refresh. it are you're bundles, and to line? going to line? on gaps it. that simply hardware down is you're XK I down technology Got refreshes you my software side. Is what you there now something has just the smart line other, the potential adapting go know, making offering see XK? know, had was just know,

Matt McRae

Yeah.

I on want thing we'll And and includes of you the perspective be are roadmap we really I actually know, mission is, would there's in over to But I to lineup consumers more subscription, aspects this I which stages think components, several into connect say that working it's ways healthy too mind. of conversion can there's attach all monthly think categories customers, our value looking people and that already I we care time time. and think that now. peace you and here The right do early adjacent opportunity Arlo at camera lot providing at don't know, about, there those there's would to some to, protect and tell areas, is And vision do and much tell and would that rate. of an there. still still provide healthy add its a even I at significant rate we're value over at at last a AI we're service, and would you our get you believe time. several technology on a those I core to from the innovate very

continue best like physical set kind in only are anything, call, service smart opportunities best technology feature perspective. our functionality we the the innovation beyond industry moving starting we camera refreshed, products, particular, just with the announcing lineup. drive the company is will delivering to the of and not said a we've without monitoring on at delivering I of to that's highest going look scale which So engine, to products in be we are some But core and our the first from to what and

Operator

like this to back management it questions remarks. no to There [Operator turn I'd at closing over Instructions] further are for time.

Matt McRae

quarter. Yeah. operator, speaking quarter Thank to for was We again great joining thank forward us you, what next everybody, on look you, you and to Arlo. for another

Operator

This does conclude today’s conference. for participating. Thank you

now may disconnect. You

Arlo (ARLO) 6 May 212021 Q1 Earnings call transcript