ARLO - Earnings call transcript Q3 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 Third Quarter of 2021 Financial Results Conference Call.

company the for 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 third for introduction followed Gordon. business start guidance the will format along the on 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

and results rates, statements of descriptions COVID-XX and chain the business, include differentiation, Forward-looking on service of those outlook, XXXX, regarding our strategic future product a business products full-year condition, continued materially gross future forward-looking business, transition differ of guidance and initiatives, and our supply operating contemplated including momentum Verisure, services-first operations new or and and services, statements model, of condition. margins, expansion by from impact potential statements. growth, financial pandemic operating new these expenses, for the market Actual revenue, with commercial partnership our the results financial trends and quarter could results and our challenges and to margins, fourth tax objectives cash launch

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

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

Matthew McRae

old some QX, Driven growth our tenfold. more a or additional to We we X% world. Erik, across so are quarter everyone, supply chain Arlo metrics outperformed total and dollars as paid than by services year-over-year. navigate earnings little accounts the challenges today our revenue recurring into ARR and Total profit around fastest third reported growing costs, up new provide XXX% top line expectations team business by our thank for many all business non-GAAP deeper in growing million again, XXXX Digging $XX our disruptions, year-over-year, the the Arlo's annualized is comfortably revenue gross up model, to you, was clarity. as ARR Once year-over-year. the NRE XX% highest service our total services chain recurring the additional you, XX% model over of up from driven represents and continue as our unprecedented we our us ARR was legacy strategic supply revenue accounts. such service on joining were carbon margin derived year-over-year, the annualized were revenue XXX% excludes revenue from prepaid revenue revenue despite from call. revenue, pandemic companies service over And portion service up the and Thank facing partners. indexing year-over-year paid business and

raising the QX, for what QX, team's raising our of cash the is Looking in headwinds. balance. year may ahead guidance and to execution raising guidance I supply continuing of full see for great guidance peak year-end be for Arlo chain our face

our of our that again paid we Arlo accounts, in high, increase outperformed Revenue XXX% our in million of first sequentially have million our the acceleration in to came model, the year XX% to air $X.X million. context, account is and $XXX.X added gross service non-GAAP of XXX,XXX it to for million provide revenue on share, accounted topic revenue number than years came record year-over-year To than helped by report gross down on which a by our in quarters, million expenditure paid the of loss total $X.XX, alone. us just operating up X added QX pushing a by incremental over to for plan third non-GAAP up fulsome and to an offset our guidance more in of This quarter dollars and a our we recurring represents XX% under lowered in earnings more add expected guidance XXX% quarter profit annualized end $XX accounts We profit net to addition, impressive In put year-over-year. which more ago, of our loss above XX% grow than services top non-GAAP results. same of the quarter more consecutive continued the of we call. took business Xth business, the record and at legacy freight and quarter growth QX year-over-year. of an non-GAAP compared more a fourth the which X XXXX. into at marked than XX% high-end per loss in at $XX.X QX Returning $X this

capital. and investments $XXX.X without cash our need with reaching a and Our anticipate current equivalents at And cash position the landed short-term trajectory, profitability financial million. cash, of to raise healthy we balance additional

and reached also service ahead long-range services million was the paid previously of QX goal powered mentioned, more our is call. of transformation revenue us earnings targets. revenue we path year. a results, service year-end million significantly XXX,XXX a we And in our for exceed Our million, as giving clear our to positioned On $XX $XXX account QX impressive of paid October us XX, projection to but propelling to X believe achieve accounts than are our company towards these

which features performance. AI are interactive the of support. Arlo Arlo Arlo service includes and secure the from core event of preview, of Arlo's response, an to request resolution per computer increases emergency object includes new Secure security ability responder detection, Arlo's fire, incredible the event Secure and directly of XK our plans the in and to a provides Secure, $XX.XX this XXxX while with providing or further new emergency. Our if at police month of Arlo of speak animated expert to Plus Secure significant notifications, Plus cloud up value leadership storage audio is Arlo video XXxX users. detection, technological storage features vision-based extends XK medical the Secure all based video cloud premium and resolution

XX% business Arlo expiration rate trial As a a period. model, we of conversion we new upon XX-day the subscription see initial Secure our reminder, under a include free of consistent where trial Plus,

our attach toward As cohorts follow X-month to we subscription rate XX%. grow period, we see the services over a

Best more so consistently X and and low-power the such expert environments as both our to with WiFi from security Internet multiple life fleets homes, earnings the or recognized deep in Verizon. a a last Our year. provide call call now that outshines intellectual new glowing with This to Since Go Editor's sites, the carrier Gordon, like It continues XXXX just CNET connectivity, power launched large commitment nationwide will "in LTE, properties. Arlo next most financial insight across and publications. and announcement. a industry-leading awards, Camera that who RVs, provides operational our testament just deliver is We to features available no acclaim Security on industry. or property recent details Arlo Choice quarter. through technology to X performance, design point-by-point outlook fourth X competition." reception August, would in enabled additional to the Go garner continues for in construction Verizon camera comparison now leverages to GPS and out-class RF partners performance, our on. our awards the battery X commented with Arlo over is Go with product and the vacation -- resolution, I have coming device is exclusively vehicle List which competition And innovation, been a Smart products critical Arlo our X hand of into in Pro uninterrupted design the with

Gordon Mattingly

revenue We Thank you, that was joining expectations, you, while today. XXXX results of for our XX.X% strong year-over-year, over and the financial above up profit thank non-GAAP QX QX our gross exceeded And growing guidance X.X% delivered XXXX. by high-end Matt. us everyone,

again record million again revenue, while model, profitability, And new Revenue tough detail. of improving now, $X.X on Our financial onto continuing and team our underpinned conditions QX accounts. our Arlo X.X% The million, financial year-over-year. sequentially. exceed moving by our navigated year-over-year for supply the to paid to business the the at quarter of by up expectations XX.X% was performance leading operating $XXX.X non-GAAP levels decreasing successful execution year-over-year in loss our came

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

delivered our QX revenue service our XX.X% While of non-GAAP profit. XXXX XX.X% it of accounted gross revenue, for

$X as for XXXX to of NRE of million with $X.X down includes second million X.X% in providing also quarter the year. up Verisure QX costs, $XX.X we revenue last was with along revenue associated Product for and compared service Our XX.X% which sequentially services million, are compared was XXXX.

were in pronounced Our seasonally sequential quarter. growth stages in by the in impacted from sequential fourth growth into the driven chain coupled which both head by stronger of relationship we supply revenue Europe, as product and continued in Verisure quarter. most growth our with revenue strength retail was product Americas were early challenges, Year-over-year the

ahead the of by additional our the and the team part supply was did channel chain inventory uptick quarter. fantastic quarter securing in of expect the shortages, we seasonal the job dampened replenishing While our sell-through in a supply latter fourth

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

year impacted in cost million air growth substantial The The in Non-GAAP $X.X under from in year-over-year model, more up $X.X new of paid an management was service a non-GAAP significantly the $X.X was margin will non-GAAP in adversely margin current account came increase $X.X expense airfreight freight business XX.X% reduction include challenges, chain Our Non-GAAP related margins non-GAAP growth from slightly with expenses freight by or last XXXX, in progress strong which gross from points The and sequentially quarter products. up and XX.X% the expense year. ago, $X.X higher sequential long-term incremental gross while again than year-over-year at million mainly drove higher COVID-XX non-GAAP product XX.X% XX.X% the from service customer improvement a XXXX. a margin of operating product million QX and $XX.X justifies of million, X% $XX.X in supply services, margin COVID-XX from down third XX.X%, value in freight derive driven resulted than X.X% was year-over-year. air of expense, is more of year-over-year. XXXX impacted gross an gross QX a by XX.X% driven paid while gross and in million QX XXXX million on impacted to chain continue QX by was increase to for profits down improvement year-over-year short-term margin from supply investments. due in offset significant down be incremental to to profit $X.X percentage XX.X%, or million QX incremental by associated than compelling we in a our was XXXX. related expense the improvement lifetime than due up Total million, mainly from XX.X%, year-over-year in over gross The X by XX.X% $X.X million gross which XXXX $X.X coupled account by air and product the gross up challenges. were million

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

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

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

than our expense with XXXX posted $X.XX $XX.X net $XX.X X.X share compared cash, $X.X QX a year cash of quarter quarter per In at much QX, of Our million, short-term was non-GAAP $XXX.X closed we at million $X.X guidance million. the million non-GAAP to ended down and for a equivalents, over ago. and X.X QX million with loss the the of quarter year-over-year. and We better decrease improvement investments, turns $X.XX, a third in $XX.X XXXX tax sequentially and last million down as X.X year-over-year. diluted inventory

the Our days, the from year with latter DSO timing XX a days from XX of quarter. increase part came driven shipments and in up ago in at of days up by XX the the sequentially

outlook. our to turning Now

to million in guidance million and to million $XX at revenue between of come up full-year quarter at fourth $XXX and on be in our to $XXX expect the midpoint We million million, $XXX $XXX the range. range revenue of the accordingly, current previous

done unprecedented navigating XXXX, to the has team in chain top incredible provided back supply exceed an we us February. guidance enabling Our line job COVID-XX related in challenges

we of loss in share For per XXXX, diluted share and in per net and come between quarter $X.XX per $X.XX expect our the between net share to fourth $X.XX to GAAP $X.XX non-GAAP and our diluted per share. come loss

Our guidance QX challenges. expenditure includes XXXX. diluted expense result current per diluted of per share to of $X.XX is supply direct chain compared airfreight a COVID-XX share in freight the This related approximately additional $X.XX

short-term $XXX than from and operations to in cash will I'll guidance, monitor and our normalize global position. and we expect previous end to continue questions. expect cash expense We airfreight cash, our preserve the performance year stabilizes. now, And our situation equivalents investments chain prudently it more Up to the open up we'll when million with for manage supply

Operator

[Operator Instructions].

question of Adam the from first Your Tindle comes Raymond line with James.

Unidentified Analyst

Alex this for Hi, is Adam. on

So next how given year, do I this the sort holiday you current and out? supply looking that year's just season will into chain in levels promotional looking think kind was the in about also how setup, of of activity into inventory play curious

Matthew McRae

real-time. a great almost making decisions, in question. it's Yes, those We're

heard call, than in in you've both and As we QX more on we supply have a had we're from QX even perspective. expecting the demand

a on think of on we no we those So because be little some those supply, back promotions areas reason in that. do where is to pulling light are there bit we might

happened what into continue of year in to get it that the based probably the balance and to quarter, do making disruptions expect year, in happening product those QX, the QX. in need profitability. on there chain stocked in we you As depend areas reacting the we news maximize good on supply an gives what for and what that coming it what's but see have and to of we make next to channel, we the as in is idea we're absolutely is The unwind sure do what out several demand will as continuing the we decisions the start have throughout we'll and we're we for supply to

Unidentified Analyst

subscription IP And significant typically devices mix I'm Perfect. shift door And just towards bells gross margin then you to do attach a seeing and devices as rate? ran are any speak other discount than curious, things, nice we're these cameras. flood we there carry from lights? different of move towards

Matthew McRae

comment. great a it's Yes,

are but it's It's spun we we see We are and products diversifying think across area that subscription we long-term out a we calling seeing diversify not you're diversification what in both cameras. rate on and the on from attach at of different categories. those margin, product from gross they that go-to-market to When consistent look was with also only important. our the set out the side, one as we goals very

So way as consistent look cameras. a seeing either quarter, totally IP there given would is what at a couple them from on we're of but I with percentage points

Operator

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

Jeffrey Rand

your in Congrats your wanted progress in your on into you your ARR? NREs, included eventually on a annual ARR included recurring revenue be and first continued much services to the of question, excluding services it, business. XQ and to describe How dig business I would good Based quarter deeper all currently you revenue revenue My services legacy your expect your in you number? how number gave. that is with

Gordon Mattingly

$XX can now question. part the the using that to month break the your of pretty didn't in math quarter ARR We the calendar we by second some but last disclosed million, moment, the out the multiplied is ARR you work do out, At as answering simple Yes. XX.

a and it's So oranges. little bit apples

X, take the that service $XXX of in you $XX million million revenue by annualized. You multiplied gives QX

We to the opportunities, get that continue is going service We're of the bit So the away. revenue more to don't And revenue. comparing shift the to service total first question. expect we to our to we piece remember, from strategic to working ARR think of is future? of you NRE going you prepaid paid think yes, is free But to business NRE XXs ARR. idea, still how piece. the do accounts a favor the be part idea to in paid do certainly for. disappear. answering get that account the legacy piece, of all the mix second rough offer your ARR go services continue additional model will products the the can excluded service shift will much And revenue of trial I that recurring and That's with part one, that that in mainly an a new XXX, get recurring

Jeffrey Rand

Great. dig And are manage the to costs meaningful Are supply -- as airfreight deeper the main you your for unmet or What these costs chain. into problems to for is a demand? able seeing? components to wanted my follow-up, and more you're I it there need you mostly

Matthew McRae

depends the There is and meaningful unmet on demand it product.

So see stocked bit I say in coming some about QX. products of said, some that's would little in out that times multiple we a script, QX. why the we quarter. also some demand we're products continue good missed Like later I and quarter stock talked and during In I into shipments Gordon's have think we we'll the in,

product. So the seeing we're for healthy demand

we component As are the far some shortages. causes as it, seeing of

factor. but We are I primary some cost component say some seeing wouldn't that's ups the areas, in

lead those thing to previous components farther go then components as on we took times And out. that out our lead short, those first forecasting times. we've on than described calls, go starting the the As happen is

shortages done guide feel on those QX, but the results do costs, that we're obviously you up I yes, only call, biggest airfreight our to components from the the is cost side. the freight we would and to in impact lead really normal, XXx something over our as from certain we're seeing executing to come quarter of are taking in X sea tell top can cost the with really weeks from is more of times we've seeing that some airfreight, a outside freight not shared may a X weeks why good the cost that to freight say be the areas, So to anywhere actually some of sea our disruptive, on also product of the of component it in Gordon of in What and X lot would that which up take has port. down and on slows multiple around is the what's to shipped but weeks is that sitting response Xx up. X to go the the now is of you're

how example, coming problems in getting as QX of airfreight more sea XX% QX, some costs out up, even the look temporary. about that's go be forward and do QX, be that, it's congestion, a an we're around as you're as would of script year product of So in of take transitory, we ago, using product in the our it's will seeing and will the in actually maybe those why freight airfreight, airfreight. anticipating on We're on again be some we're XX% we our that's believe those as we would called max or XX%, coming

in, think but we see can get demand that the year, we meet much generates obviously into airfreight the unwind, in in as future the to so call we can is some should which we next we as QX coming continue of As subscribers. QX right of

Operator

of comes & Jeff from Your Osborne next line the with Company. question Cowen

Matthew McRae

are there? you Jeff,

Operator

next Hamed to on BWS. question with move will from We the Khorsand

Hamed Khorsand

much Is I question revenue Verisure of involves QX the product with all from guidance and increased. the ahead Verisure the ramp-up Europe. had Obviously, how of was release first associated the that and So exclusive on there Verisure?

Matthew McRae

of definitely obviously from Yes. In some that QX, Verisure. is

great. of are product until We your And QX. the effect next the call, full question, more are by announced region They see out a tracking to with release in The on of we'll bit region. it basically so of that won't exactly we deploying on that the bit previous be product year. being that seeing felt QX. We're that's time rolled really of custom a in

So then step bit a I QX step would we year. to and as expect continue up up get next in into it to

to forward as So the and we'll we're in Europe growth we're the see Verisure continue they on that retail additional out, at side roll some brand going seeing well invest starts in as obviously see of grow as to the to continue -- go-to-market. to some expecting

Hamed Khorsand

able Arlo you paid Secure too Smart Is as the the it to kind product? from going what side Arlo the being as early all subscriber the Okay. have conversion of on far to

Matthew McRae

Yes, be numbers. And we haven't it very really that is, released to going forward. any seems of different consistent part

Arlo We we'll very not our least As early from seeing far I you a think as think at services historically. a assume around tell difference enough but Arlo the Smart for characterize to as more we're data that a now Smart seeing will earnings in we've only as Arlo read, that maybe safe business it's to I whole it's been have that right what next call. as from anything secure. But good

Hamed Khorsand

the beyond can kind hardware you any the where you're the of And actually pace QX? contribution to just services offset from negative able side side a on maintain

Gordon Mattingly

double-digit, double side. -- QX anticipating obviously, the We're still contribution, still on we're low hardware negative digit, we were Yes, Hamed. not margin gross

suggesting I implicitly guide something is think QX the similar. for

looking to not negative the territory on all move we're at So into hardware.

you to a QX, for the continue for us a itself positive margins saw to itself record gross that expect and quarter We services standalone is company. gross prior on an obviously margin the and hardware see XX.X%, improvement as on the

slow see the improvement but to gross in continuing services as margin steady we're well. So

Operator

from Jeff next & the of Your question with Cowen comes Company. Osborne line

Jeffrey Osborne

not is products. easy phone my guess to use I Arlo as as that. about sorry Hey,

Matthew McRae

to you. No from Good hear problem.

Jeffrey Osborne

Arlo noticeable also, is update working the of couple you mix you give questions I wondering on store touch the any out online if for terms an channel A you? in in-store. if on my And versus going us just direct then could front? on Absolutely. how was end, see of could Yes. we on trends Did that

Matthew McRae

seen a now. a retail.com we Yes, would from It's sometimes is reporting changes get retailers. sold what and And omnichannel single there mean versus is mix that store through mortar, activity. pick often somebody to by hard what buy up, but to product though that it that, seen the up they're as also actually and additional you increased buying what some and we've no retail we've going and differentiate in an bucket is counted when things. I and order say actually tell is may online physically the I know big picking online we've brick a and and even is, our seen that the drive into the also it's store I maybe from

from read a little great tough arlo.com shift what released retail in we've the seen a massive seen haven't on But So a quarter-over-quarter any From give sequential to from side. any perspective, that. on we it's haven't perspective, details, you with and obviously the relationship growing not of one it's from financial only that our but direct perspective, perspective, but also important it channel is user. most our profitability a it fast channels, end a is and

able so people is buy the really arlo.com lot sure after And our And customers market we to know buy a for they we're key sell certain roughly is us accessories. of on course to services. they're subscribe the what accessories glean are way primary that main can XX to modeling and camera days that. make It actually of apt a buying. that data we're We to

that across profitability. it contributing but from increased perspective, up mixing not to a is revenue across board, our the only So is

Jeffrey Osborne

evolution can more as it That's in supplies just mind now were Malaysia semiconductor be more and can having semiconductor you the on Vietnam the QX, we to helpful maybe and as the from sort precise everything monitor the challenges. foundry an Can the last it. is of so of Got my you're question where to from of just into in you seen microcontrollers shortage issues that back-end sort keep situation heading and the to challenges related XXXX. more chain supply as we world, touch from

Matthew McRae

tell typically the you on level, it's IC. relatively I'll value Yes, low component

and we more why So moved things like the of fabulous is it has towards procurement perspective, an end get of if ship share, of absolute, able job supply. think the are of these more that like of QX, getting direction, an on to power good. the team not or ICs. got to done The sure so which operations chase our some In we've that, operations our quarter, kind enough ICs make fair from that's we

to the the we that results are confidence saw but to able so for secure in we And and that, not supply only the that QX. needed deliver guide the you deliver

on it dealing from we're there really what's really of actually from airfreight perspective daily. perspective, freight just component a or level an that then that's on the and So IT and then is going rest only with figuring chasing finding airports port. this And instead not the weekly but the it capacity, out the starting landing those into to bit little even that's all of don't how product airfreight at of much ports most a and to lot and go of side, see actually stick rails, boat, have airports congestion, we're a on a of actually

we're So sure there, what to accurately being so proper times make making keeping nowhere and that as land near guidance. that product give in shipping we're actual eye parts, seeing on we're lead the sure actually seeing on calculated are our our congestion we side some a

Operator

to There Mathew McRae, questions further back I over turn you. the at this time. are call no Mr.

Matthew McRae

you, Thank operator.

Thank continue pandemic to everyone earnings confidence global company we on call. like our you for laser related disruptions. focused the I the we the also QX entire as the QX for only the joining year-end finishing The to the is year close, outstanding looking deliver all Arlo would forward at As face but absolutely us today. strong not I'm and hard to work to in teams thank

Operator

conference This today's concludes call.

You disconnect. may now

Arlo (ARLO) 10 Nov 212021 Q3 Earnings call transcript