Arlo Technologies, Inc. Q1 FY2025 earnings call

• Arlo added 298,000 subscribers in Q1 2025, ending Q1 with 4.9 million paid accounts, a 51% year-over-year increase. Average revenue per user (ARPU) rose to a record $13.48. • Subscriptions and services revenue was $69 million for Q1, annual recurring revenue (ARR) grew to $276 million, both up over 20% year-over-year. • Surpassed 5 million subscribers in the first five weeks of Q2, ahead of 2025 forecast and more than two years early compared to original long-range plan. • Planning largest product launch in company history for 2025 holiday season with over 100 new SKUs, achieving 20%-35% cost reduction. • Rolling out advanced features of Arlo Secure 6 in May, including AI and audio event descriptions, fire detection, etc. • Rolling out Phase 1 of advertising strategy to promote service subscription tiers and device upgrades.

In Q1 2025, Arlo's subscriptions and services revenue was $68.8 million, a 21% increase year-over-year, representing about 58% of total revenue. Product revenue was $50.2 million, down from the prior year. International customers contributed approximately $51 million or 43% of total revenue in Q1, down from 56% in the prior year quarter. Non-GAAP subscriptions and services gross margin was 83.1%, a new record, while product gross margins remained slightly negative. The installed base of paid accounts was 4.9 million, up 51% year-over-year, and the company surpassed 5 million subscribers in the first five weeks of Q2, ahead of 2025 forecast.

• Reaffirmed full-year guidance, expecting 2025 results to make Arlo a Rule of 40 company and exit the year with over $300 million in ARR. • Q2 2025 expected total revenue in the range of $119 million to $129 million and non-GAAP net income per diluted share in the range of $0.11 to $0.17. • Surpassing 5 million subscribers ahead of 2025 forecast, showing strong growth in subscriptions and services business.

• Potential impact of tariffs on hardware product gross margins, though less than 25% of total revenue is directly impacted by announced tariffs. • Uncertainty around future tariff regimes and their effect on the business, but Arlo is working with suppliers and trade experts to address potential outcomes.

Q: Jacob Stephan asked about inventory stocking ahead of July 3rd and impact on tariffs.

A: Matthew McRae said they've been monitoring inventory levels, focusing on having sufficient tariff-free or 10% tariff inventory between now and early July, with a good plan in place.

Q: Logan Katzman asked about international revenue decline and Verisure catch-up.

A: Kurt Binder said Verisure has inventory and supply-chain related drivers, and Matthew McRae said catch-up was about 300,000 with normal being 170-190, expecting last quarter of catch-up.

Q: Scott Searle asked about product gross margin and competitive landscape.

A: Matthew McRae said most competitors are hardware-focused and struggling, Arlo is well-positioned with services first, and Kurt Binder said combined gross margins are growing despite product gross margin being negative.

Q: Hamed Khorsand asked about ARPU increase drivers.

A: Matthew McRae said it's from Arlo Secure 5 rollout, plan structure changes, and new features of Arlo Secure 6.

Q: Rian Bisson asked about churn and conversion rates.

A: Matthew McRae said churn has returned to baseline and is improving, conversion rates look great across cohorts.