Earnings call transcript Q2 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. [Operator Instructions].

I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Erik Bylin

operator. you, Thank welcome Results and Technologies Quarter Second Good Call. to Financial Conference XXXX afternoon, Arlo

Joining company from Kurt us the Binder, and McRae, CFO. Mr. CEO; are Mr. Matthew

and will The and the a full third Kurt. along review for by by start with commentary financials by on the year second with Matt, format provided followed the call quarter an the of of guidance provided business the introduction quarter, for

will We have any time questions. then for

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

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

statements flow Forward-looking of the the results our to our paid free guidance margin; and cash earnings third future descriptions and margins, of subscriber gross growth; business; expenses, operating margins, cash and XXXX; flow include operating of regarding the full statements and new year revenue, per macroeconomic services-first campaign rate for and including on on future continued cash partnerships launch of and our collaborators; awareness financial growth; financial brand commercial quarter and and transition product the timing various results free impact condition, and share, potential outlook, differentiation; market our the with momentum operating service the expansion new services; model; products strategic future general and market and of strategic business effect initiatives; objectives of leaders and business, growth; conditions condition. a

contemplated statements. trends by Actual forward-looking materially those these results or could from differ

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

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

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

Matthew McRae

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

the to completed underlying by grew year-over-year, has subscribers. million year-over-year outstanding drivers accounts XX% X.X service to $XX as reaching evidenced Arlo a year-over-year business, revenue grew financial million. million revenue our to $XXX performance. of grew XX% and Service annual record the transformation Paid our XX% a recurring

a gross XX%. of achieved also We margin record service

rolled is the of are All these ahead a out QX long-range pricing to to and of metrics a more pricing. service brought year plan partially Arlo we we attributable be strategy implemented subscription we acceleration raised where service This substantially hardware hoped than in little when our ago. pricing down where

and incremental While rebalancing barrier revenue this subscription material increases with solution demand customers. services value by truest no it for our the substantially margin, the product entry Arlo pricing product and This revenue is gross the service our on value provide impact of the churn. reduces in generates testament to of lowering inelasticity the

ARPU Security the the performance year per a What's direct is retail ago. of a highlights System an ARPU services roughly the current avenue lifetime This compared and even the which value paid This over quarter. for that small, by is clear execution up team Arlo our when the overall and households have in Arlo up more, results average additional is a though number higher, excellent new accounts drive turn $XXX. paid XX% show that deeper, for time. over the XX% revenue to direct drove an bit Diving to account pushed in has user and retail a

operating gross of was margin. free share which company X%. produced non-GAAP and margin we of $X.XX. achieved And in flow Arlo earnings at Revenue capital great management, our record XX% the and end Arlo working million, per record record with of top guidance, delivered cash margin of came at XX% $XXX.X a

first Arlo of XXXX, non-GAAP first with profit alone history, million. on. our services Comparing half point expenses. time XXXX first $XX huge operating the for the and are improved in half non-GAAP is operating highlights its the exciting company And gross the of a crossover we activities exceeded for from Arlo cash by our This from trajectory

metrics which significant these results inventory consumer through Most gives we carried are levels. of second as execution evidenced and strong strategy our demand and mindset ahead into seeing macroeconomic Our a glimpse Despite half. value. are that conditions, us recently, by current saw the shareholder Prime driving and demand to Day, we successful generating key is the our a the

upcoming season, the low-cost new drives strategy across promotional pricing substantial we lean and totally by major launching placement into further will security a drives expansion channels. Arlo in holiday vehicles acquisition secured This which our paid platform, our Arlo's have Customer accounts, profitability. camera successful of

year-over-year XX% $XXX With exceed we to our revenue full service target. and this backdrop, expect million grow now nearly year

gross roughly the service year will XXXX. XX% for Our more for full improvement non-GAAP of and non-GAAP the a our year, X to operating compared than be to us propel point margin margin should X% full target percentage

the across an begin is thank you whole we focused Arlo the the hard Arlo the business. milestones as we of at exciting on for witnessed years and work to passed are materialize time a ones meaningful to next. Congratulations we in It the team way and

with And it I'll that, over turn Kurt. to

Kurt Binder

and you, Matt, everyone, joining today. you, for us thank Thank

roughly sharing $XXX.X for and the some Revenue start business of an guidance QX came and year-over-year. flat the slightly for details by in overview XXXX. financial sequentially end second of quarter at top down the at will million, I our

dramatically. composition was that the changed relatively year-over-year, consistent revenue of While revenue

for of revenue, of revenue well it recent most shift pricing the XX% year, XX% our quarter, is while of last In accounted only as This was our total as total strategy the revenue. service services-first strategy. new reflective

contributed our to margin operating in revenue $X.X in and pleased or range Arlo which XX% $XX.X growth, and at ARR cash profit cash are the free of to million our non-GAAP million margin. flow and services extremely of free end operating generating flow or We X% revenue guidance helped top with QX deliver

million, increases Verisure at million million and reflects the increase quarter. catch-up an our driven This XX% in QX which XXX,XXX in $XX.X was XX% by Our another paid subscription accounts was of or paid $X.X service the number addition $XX.X the growth our and by of a region, an revenue for price European in quarter-over-quarter. of increase This year-over-year quarters. being accounts underreported record of was in previous or number

catch-up their Our does system normal paid not of to impact net couple the This remains to works XXX,XXX over continue paid in expect as is rate related Verisure correction. run metric any through and next number only. XXX,XXX net we But the this to the financial account account range. limited quarters

trajectory growth million X.X in Our and installed reached paid base QX. its accounts continued

earlier, accounted total revenue our mentioned of gross of As XX% our for QX service XX% profit. represented revenue XXXX importantly, and

than business. $XX.X ARR million, up more Product another X% year-over-year. year-over-year QX point down our revenue was end for tremendous quarter providing our million, XX% sequentially $XXX which proof was was Additionally, the about XX% of of and services growth and

the was shift so in prices the period. selling decline but average million total shipment During our slight global product in deliberate by due a XXX,XXX worldwide revenue more impacted X.X and compared to cameras volume mix in shipped a driven by Product prior assortment. declines year in a to pricing quarter, in we strategy

revenue our from approximately originated international our quarter, the customers. XX% In of

as quarters. partner in a our to other went results previous through Our QX EMEA impacted largest constrain were continues channel cycle levels, partners inventory in

focus region moderate We to to are confident figures non-GAAP reconciliation on this today. to macro issue in my conditions market will is non-GAAP GAAP this over distributed near-term in demand the our this release end on, From response is an not detailed point The and earnings from points numbers. expect earlier discussion time.

profit XXXX. for attributable XX% our million, year-over-year. our with in the up the to a in business. gross basis and growth pricing $XX was second profit was points profit XXX planned subscriptions in optimizations. in gross service quarter non-GAAP gross QX driven in growth XX% of The QX cost improvement by This in margin non-GAAP was coupled The in year-over-year services from gross non-GAAP resulted increase XX%, up non-GAAP of Our

significantly Non-GAAP was our gross margin and provided was X% margin of quarter XXXX. guidance year. slightly Non-GAAP XX% of for March of up QX QX XX%, service from with in XXXX in from the for product this up gross the consistent and quarter in XX%

expenses Furthermore, operating business quarter. we achievement for our validating are pleased well our was into very and foreseeable now future. important an our exceeded in that services our non-GAAP the non-GAAP ability transform gross model into a services team, around Arlo profit thereby sustainable operating the to This the

reflect last quarter our and continued to sequentially operating million, non-GAAP expenses initiatives operating $XX.X $X.X slightly by investment year-over-year expenses drive account increase non-GAAP half cost year-over-year were the for sales and The expenses less household XXXX the and help than Total the marketing The than is attributable year. and to second of million. better in were paid in implemented growth. acquisition QX of for first savings expectations up

the count of head XXX end XXX, QX at members of and team change was at last end Our period represents a members the which QX year. same the from XXX team slight in

non-GAAP In we of posted QX, net income million. $X.X

and marked improvement income approach gross expansion by the our per revenue quarter. disciplined with margin combination top Our share provided driven translates a The a of of margin growth $X.XX end cost in of operating net management. guidance diluted at to service range non-GAAP earnings to last was non-GAAP and coupled

liquidity position. We ended sequentially available quarter with million up cash, balance and million trending in with $X and Regarding in expectations. line was short-term the our sheet cash is This investments. balance $XXX.X equivalents our and

cash profitability QX, and which by report that our free cash driven We solid capital pleased working and of to generated are in margin approximately million increased represents flow management. improvement $XX.X in free we XX% flow

representing balance a last turns with consistent $XX.X decrease ended QX relatively at QX at our XXXX quarter. X.Xx Additionally, inventory and of million, with from inventory slight

new second of particularly we enable remain the holiday through highly strategy, launching our with the and will of pricing into us product products broad As assortment Matt which in season aggressive XXXX, strong to mentioned, are seasonally XXXX. a half

to levels with a flow upside demand cash that impact similar of being working in be smooth on capital inventory These fluctuate. product our focused We free and consumer inventory any maintaining as our experienced. balance factors to levels to potential remain and retailers effectuate may generate while partners may ability transition appropriate thereby may able meet

at DSOs days, X, QX $XX.X days last finally, million And from same XX accounts was our July from balance the down year. XX of as with period receivable

revenue We with forecasted and in with focus sheet a levels the to capital consumer working liquidity solid balance a maintaining in will monitor on balances and continue line future. demand our our position

Now to outlook. our turning

about to the expect million. range remain the of product our $XXX third revenue the be million outlook revenue to quarter for we for cautious XXXX year, While in we $XXX

be to loss GAAP diluted share net per and our share between net be and $X.XX, to our $X.XX and $X.XX per expect income $X.XX We per share. between non-GAAP diluted

We We year-over-year at $XXX models of service approximately and XXXX to will year be between as to full revenue promotional the paid million roughly reiterate $XXX revenue guidance prioritize estimate to sales pursue accounts. that in $XXX is XX% million. our range our we digits and grow the and product be activities new mid-single that non-GAAP gross margin million acquisition forecasted

expect XX% we However, margin non-GAAP be or in to above at gross XXXX. service

questions. now And I'll for open it up

Operator

the BWS. Hamed comes line from question Your with Khorsand of

line open. Your is

Hamed Khorsand

Hi.

is are So understanding And is bit How you could talk so provide find do what much And it? you little also more noncash about could you why cautionary? inventory why they if catch-up Verisure? also, had out then as this inventory first how they question and to I do issue and this was, about just a it have? with being

Matthew McRae

Yes.

seeing think what to very is in with we with what retail the I we're retailers similar channel. Verisure saw

And visibility inventory the don't to year, of number them. can we at but last managing longer doing into much this example, a managing forecast and The see a end that their have see inventory where amount, their down. they're we an year. them Verisure, As target exact we with know, really we

As you know, with we partnership long-term have great them. a

recovering can hit target they're internally. we after trying So that going see they're to to whatever hit

today, through going we think the end saw what at same it's similar I year. cycle do year the this and last now very of that retailers they're to So

installed of On was it we installed last catch-up, or the our in cost accurate. like We household, at model year. not That's mark means, in of a being about the the The which pricing up. started. roughly location, saw the meaning October but paid the do BXB being that's the the was correctly. actual product, charge them the we it, are at or so are with cameras talked model, accounts it when when our But that we've customers. count cloud cost-plus not incremented being that We household

out updates over that units firmware what So call fix Verisure is to pushing to they their central time.

of think And where out that this catch-up they'll some quarter. so the the through to we you of And roll year. that end continue that's see the can

a bit catch-up we'll So little see quarter. more each

just example, Verisure's range out, an for quarter quarter, before call firmware of were roll we give as out. catch-up our normal out thousand you at If quarter catch and back so we they the you this it of saw kind XXX-plus that adds of up the deploy anyway, back to if the for you high accounts the range

Hamed Khorsand

a stay over? And the in around seeing Prime as activity-wise much was that of was that is what you seeing at been as attach while? about you've for Are as is Day concerned far as is follow-up mark far rates I revenue hardware now the Day XX% as How you still the Prime are talking had QX far and sell-in the as concerned.

Kurt Binder

I'll that, saw this Hamed. part, We couple there of first impacting the that answer factors a quarter. So were

did strong on we of part the the fairly sell-in activity see last months. been a result of the X for we've as that better First, X promotional or embarking

As was Prime fact the Day. a seasonality that in we favor significant the played of our natural load-in a have compounding for result fairly but for QX, that did that,

sure Day seen also will a but touch for like, Matt of bit load-in Prime we've Costco. similar couple this on retailers for instance, a us. for a success great I'm more, key other And was

U.S. a most here relates load-in as a those relatively the the was inventory retailers. to it had quarter So strong level retailers it for in good The the part, for

in we especially half, do the so expect, be will to that promotional. continue demand second the And

Matthew McRae

think on was of script. described strong, around customer it, the a continuation demand. the on Yes. part we've couple consumer that And around Kurt follow-up kind sentiment. Prime quarters what last the touched and we second I your in a it just of question of touched is as, and in Day of resilience on

strategy is Our demand. consumer pricing driving definitely

channel. do good levels inventory think have the in I demand is strong. relatively We

see came down. can You our inventory actually

bringing we're in more So product.

proposition the we're feeling strong partners around our a reacting second a example pricing how multiple Prime plan of pretty channel to And we channels. in across multiple very value half. that. across have our So robust consumer the is Day was great strategy,

going service So we're for going into that's excited revenue. going about see we're the household QX QX, what going formation XXXX into future to around really mean to

Operator

Street. line Stephan of with next comes question the Your from Jacob Lake

Your line is open.

Jacob Stephan

And questions the Hey, thanks results. guys. my Congrats on for taking here.

the big just sequentially, been of holiday that have would on when any Costcos? wondering, the with up kind just here, I'm color retailers, levels the kind think period stocking about helpful. So inventory I coming be U.S. the Best what stable box Buys, conversations those initial And of

Matthew McRae

Yes.

we would second end gets So as a and nearly QX. period bit actually planning little say, detailed for at specific, a the year last promotional starts and I half go more into of

obviously, has So a execution planning been in, been we've lot of mode. this the QX, for in and

excited load timeframe, may that and lot so a about product I of very we're will I think have in in launching a it of coming QX, that QX. that both some new load in Kurt we and commented line this

them, of to things. when that and how much QX, do some lands versus that of ahead in freight And other look and QX has with we

good relatively in concern speaking sentiment They're good seeing I right is say, the that's some and optimism, about the half. with relatively around despite traffic, would say, In sales. And the seeing for both, relative I consumers. retailers, we're general, now second would foot

actually them segment. can in And of then the success share the I would tell additional in for is had say, specifically Arlo, pretty year, we've market. strategy you, that capturing Arlo pricing the And first our the I this around clear generating it's sales in half

in a level planned Arlo, around our maybe strategy, consumer plans box and what a cautious But we that as general coming the the our on optimism from big have would specific but excitement I new out second placement months. half just the are both say X the also pricing in second I doing, there's we market for over the half. last we're level relative So that promotional products there's retailers a together the think

Jacob Stephan

kind of destocking. Okay. channel Got And on Verisure the touching just maybe it.

roughly in the So had XX. of XX-Q backlog June as $XX million

the So maybe that kind than incorporated QX? coming into might of is be was backlog lower here million that that, destocking end in quarter this after the $XX so or that

Kurt Binder

into wouldn't Yes. that too No, I read much, Jacob.

now, the right year. this hearing end are what into been currently week-to-week that working factored seeing. have and target we're to a think that from that's Verisure And we're you're I a clear on for but inventory they hit they going PO placement with the of basis that

of sitting we're million the by And give that what We're almost $XXX million do to to about path commitment year. an we Verisure. Just we of the seeing, from have well of right today. a next now, see overview you second as quarter exceeding $XXX

end see the market So region is demand pretty EMEA that still we in also the resilient.

destocking into of inventory specific So be the next a although they're of QX looks and of going and especially to hit healthy the very resilient, demand the kind year, year. still working target to for end

feel So end there. market we any demand around concerns out there's that's like the don't major

Operator

comes Instructions] the of Your Norrison question [Operator from line with next James. Jake Raymond

Your line is open.

Jake Norrison

you guys. so Good much. Thank quarter,

do to want I a might fiscal level. about to look talk services, over higher products you mark? from can versus visibility us start to go as and sense XX% you're mix any that internally particularly we and as cross you seeing give of maybe just when think 'XX? a Can How the where this high Firstly,

Kurt Binder

Yes, great question.

of services the focused overall been higher on revenue with we've percent So revenue. our the driving combined overall

the comments, our out we quarter, XX% this pointed mark, fantastic. was which prepared hit we As in

--on pleased our super with entire expense gross you margin. is absolute the we the operating generating fact revenue that quarter. the service non-GAAP around gross basis, covered were for overall that dollar know, an And As margin XX%

had QX I we was was a of and of QX that kind it communicated or milestone positioned to probably a event. be more before, milestone but big think a So

able that quarter. we to So were this in were pleased super we do

terms we look or overall will be for the full that And forward our XXXX, we will moving year, into then we target. towards XX% in we of at above think, rapidly be As revenue mix, up XX%. going

to XX% the a ending we it probably of take plus line at say XX%, then time, clear the year. Our goal year from between next end and XX% somewhere quickly XX% But to a path will this us and little long-term moving have towards over is and XX% that. of

Jake Norrison

very sort How are me, last we then thinking guys guardrails as level. retail Okay. you another channel And of you're That around XXXX? willing helpful. one low was just go to how -- e-commerce high enter for any And about mix there? maybe and

Matthew McRae

of relative a Yes. between the question two. the It's growth more

you give a we So would of spun what history. while roughly a XX% traditional little call was Netgear When we revenue back, retail. from from our

and the e-com retail So like.

closer it's XX%, to Now maybe XX%.

we So what saw a diversify base, revenue to significant was we Verisure that initiative largest those of lot some strategic and accounts call internally or BXB partners, opportunity the of strategic a our obviously, partners. in being

both it's grow. will me, So to

retail We growth the now. channel in seeing are

call, feel in we of channels in existing those and long-term our And traditional accounts pricing some mentioned we're seeing the the As across on accounts. share we're across retail capturing strategic strategic earlier is we new and strategy growth working.

as on But on XX flat look retail a basis between X. down a the what we're that And question growth market be, the the strategic you right the I months. again, drive far balance over and basis, account might as additional opportunities and growing. to So side, is it's growth the there's higher on actually XX as significant out or to the relative would say around now, relative will growth next

and than successful always and markets very we're faster at retail and grow account the market, we that. So try our direct being

but XX on would a I XX just you, many I there hard upside have months. additional because to So for next the say accounts strategic over are so opportunities potential number there's don't the

Operator

Your with comes Rian next question Bisson from line the of Craig-Hallum.

Your open. line is

Rian Bisson

for Rian my on for guys. taking Thanks Hey, question. Tony.

for the you that guess, looking kind and adds guess add for still catch-up. on the -- look catch-up with kind to mean, of and still going that Verisure I does quarter, I year, of are Verisure clarify I quarter subscriber expecting throughout the next XXX,XXX of Just kind out that kind subscriber are you forward? QX, paid per netting of how

Matthew McRae

Yes.

stays what XXX,XXX we've quarter. multiple range runway, by and And normal I kind what the that's And is same. that our I channels organically XXX,XXX that think, from between the is a communicated. we're So of generating paid somewhere mean accounts

I still think that's true.

had in I accounts. Although on of this quarter, said a high We the on like think probably quarter I were end we that successful range. paid

additional on add you Then catch-up.

this XXX,XXX to we XXX,XXX, were So paid quarter, closer accounts.

metrics as similar roll rest we under go on of of Again, or the can quarters into catch-up accounts how be of number think upgrades do it we'll aren't they year. just accounts. like of absolute see It's those the financial again, plus adding those I we and accounting minus revenue. value But because many as of through service the depending paid catch-up. a firmware of

So right some I number, and XXX,XXX perspective underlying it's think affecting the there's think know account when the is on you're modeling happening service it from it. financials. range to XXX,XXX And not but paid just a then that the about catch-up way revenue, financial to

Operator

are questions attending. at for time. concludes today's There conference further Thank And you call. this this no

may disconnect. You now

Arlo (ARLO) 10 Aug 232023 Q2 Earnings call transcript