Q4 2023 Arlo Technologies Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. At this time, I would like to welcome everyone to the Arlo Technologies fourth quarter and full year 2023 earnings call. All lines are in a listen-only participant mode.

Good afternoon, ladies and gentlemen, thank you first standing by at this time I would like to welcome everyone to the Arlo technologies fourth quarter and full year 2023 earnings call. All lines are in a listen only participate mode. Later, we will conduct a question and answer session at that time.

Operator: Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press the star, then one on your push button phone. I would now like to turn the conference over to Tahmin Clarke. Please go ahead, sir.

If you have a question you will need to press. The Star then one on your push button fault I would now like to turn the conference over to Tom and Clark. Please go ahead Sir.

Tahmin Clarke: Good afternoon, everyone, and welcome to Arlo Technologies' fourth quarter and full year 2023 financial results conference. Joining us from the company are Mr. Matthew McRae, CEO, and Mr. Kurt Binder, CFO. The format of the call will start with an introduction and overview provided by MAP, and followed by a review of the financial results by Kurt.

Good afternoon, everyone and welcome to Arlo technologies fourth quarter and full year 2023 financial results Conference call.

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

The format of the call will start with an introduction and overview provided by mapped and followed by a review of the financial result by Kurt.

Tahmin Clarke: Matt will then share an update on technology and innovation, and Kurt will deliver guidance for the first quarter and full year. Then we will wrap up with Matt providing an update on the long-range targets, and the team will then answer any questions that you may have. If you have not received a copy of today's release, please visit Arlo's Investor Relations website at Investor.arlo.com.

Matt will then share an update on technology and innovation.

We will deliver guidance for the first quarter and full year.

Then we will wrap up with not providing an update on our long range targets.

And the team will then answer any questions that you may have.

If you have not received a copy of todays release, please visit <unk> Investor Relations website Investor <unk> Com.

Carlo Ferro com.

Tahmin Clarke: Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements... Forward-looking statements include statements regarding our potential future business, Operating Results, and Financial Condition, including descriptions of our revenue, Gross margins, operating margins, earnings per share, expenses, Cash Outlook, Free Cash Flow, and Free Cash Flow Margin. Guidance for the first quarter and full year of 2024. Long-range targets.

Before we begin the formal remarks, we advise you that todays conference call contains forward looking statements.

Forward looking statements include statements regarding our potential future business.

Operating results and financial condition, including descriptions of our revenue.

Gross margins operating margins earnings per share expenses cash outlook free cash flow and free cash flow margin guidance for the first quarter and full year 2024.

Long range targets the rate and timing of paid subscriber growth the transition to our services first business model the commercial launch of momentum new products and services strategic objectives and initiatives market expansion and future growth.

Tahmin Clarke: The rate and timing of paid subscriber growth and the transition to a services-first business model. The commercial launch and momentum of new products and services. Strategic objectives and initiatives. Market expansion and future growth, partnerships with various market leaders and strategic collaborators, continued new product and service differentiation, and the impact of general macroeconomic conditions on our business, operating results, and financial conditions. However, actual results or trends could differ materially from those contemplated by these forward-looking statements.

No shifts with various market leaders from strategic collaborators continued new product and service differentiation.

The impact of general macroeconomic conditions on our business operating results and financial condition.

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

Tahmin Clarke: For more information, please refer to the risk factors discussed in Arlo's periodic filings with the SEC, including the most recent annual report on Form 10-K and quarterly report on Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and Arlo undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be discussed on this call. A reconciliation of the GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to Matt. Okay, Matt?

For more information please refer to the risk factors discussed in <unk> periodic filings with the SEC, including the most recent annual report on Form 10-K, and quarterly report on Form 10-Q.

Any forward looking statements that we make on this call are based on assumptions as of today and Arlo undertakes no obligation to update these statements as a result of new information or future events.

In addition, several non-GAAP financial measures will be discussed on this call.

Reconciliation of the GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website.

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

Matthew Blake McRae: Thank you, Tahmin, and thank you, everyone, for joining us today on Arlo's fourth quarter and full year 2023 earnings call. Two years ago, Arlo unveiled our long-range plan to provide visibility into our forward operational goals and to set clear goalposts for investors to measure our transformation and acceleration into a services business. The team's stellar performance of the last two years has put Arlo on a trajectory to surpass those targets

Thank you Kevin and thank you everyone for joining us today on <unk> fourth quarter and full year 2023 earnings call.

Two years ago, our low unveiled our long range plan to provide visibility into our forward operational goals and to set clear goalpost for investors to measure our transformation and acceleration into a services business.

The team's stellar performance over the last two years has put <unk> on a trajectory to surpass those targets are.

Matthew Blake McRae: Our business has clearly hit an inflection point that warrants us updating our long-range plan targets to more accurately convey where the business is headed and set newer and higher goal posts for us to focus on. As part of this long-range planning process refresh, we evaluated our execution from Arlo's IPO in 2018 to where we stand at the end of 2023. I would like to share some highlights of that review before we get started today.

Our business has clearly hit an inflection point that warrants us updating our long range plan targets to more accurately convey where the business is headed.

Newer and higher goalposts for us to focus on.

Okay.

As part of this long range planning process refresh we evaluated our execution from <unk> IPO in 2018 to where we stand at the end of 2023 I would like to share some highlights of that review before we get started today.

Matthew Blake McRae: First, let's take a look at our paid accounts, the underlying growth driver of Arlo's transformation. At our IPO, we had just over 100,000 subscribers, which was the result of a 5% service attach rate. I remember standing in front of the entire company at the time and saying our first goal was to hit 1 million subscribers. Given the fundamental change required in technology, operations, and culture, it seemed an almost insurmountable goal.

First let's take a look at our paid accounts the underlying growth driver of <unk> transformation.

At our IPO, we had just over 100000 subscribers that were a result of a 5% service attach rate.

I remember standing in front of the entire company at the time and saying our first goal was to hit 1 million subscribers.

Given the fundamental change required in technology operations, and culture exchange and almost insurmountable coal.

Matthew Blake McRae: Since then, we have increased our paid accounts 25-fold and more than doubled our subscriber base since we rolled out our long-range plan in 2021. It is a similar story for annual recurring revenue, which has shot up 16-fold since our IPO and again has more than doubled since the rollout of our long-range plan to reach $210 million. And finally, a quick look at our non-GAAP operating margin, which has swung more than 12 percentage points since our IPO and is continuing to expand since hitting the $2 million paid account number. This was not an easy journey.

Since then we have increased our paid accounts 25 fold and more than doubled our subscriber base since we rolled out our long range plan in 2021.

It is a similar story for annual recurring revenue.

Which has shot up 16 fold since our IPO and again, that's more than doubled since the rollout of our long range plan to reach $210 million.

And finally, a quick look at non-GAAP operating margin, which has swung more than 12 percentage points since our IPO and is continuing to expand since hitting the $2 million paid account number.

This was not an easy journey.

Matthew Blake McRae: Transforming a public company from the inside out without raising capital or taking on debt was an extraordinarily difficult task that required belief, discipline, and best-in-class execution. I would like to take a moment to thank the entire Arlo team for their hard work and dedication to our customers, suppliers, and all our stakeholders. Arlo is so focused on where we are headed that it is easy to forget how far we have come. We have achieved an incredible feat, and I look forward to climbing the next mountain together. So who is Arlo now after this transformation? Arlo is a service business providing consumers and small businesses peace of mind by connecting and protecting everything that matters. We have a core belief that everyone has a right to feel safe and in control of their lives.

Forming a public company from the inside out without raising capital or taking on debt was an extraordinarily difficult task that requires belief discipline and best in class execution.

I would like to take a moment to thank the entire arlo team for their hard work and dedication to our customers suppliers and all our stakeholders are low so focused on where we are headed that it is easy to forget how far we have come we.

We have achieved incredible feat and I look forward to climbing the next mountains together.

So who is also now after this transformation.

Although as a service business, providing consumers and small businesses peace of mind by conducting a protecting everything that matters.

We have a core belief that everyone has a right to feel safe and in control of their lives.

Matthew Blake McRae: The entire company is built around fulfilling this need. Arlo users have an emotional and personal connection to their use cases, which transcends a typical transactional or one-time engagement. I learned early on that we play an extremely important role in our users' lives, and by providing this value to them every day, every week, every month, we can become a trusted companion that becomes a part of their daily life. And the need is large and growing. People feel less safe as they see and experience a rise in burglaries, theft, and assault.

The entire company is built around fulfilling that need.

Harlow users.

<unk>, a personal connection to their use cases, which transcends a typical transactional or onetime engagement.

I learned early on that we play an extremely important role in our users' lives by providing this value to them every day of every week of every month, we can become a trusted companion that becomes a part of their daily life.

The need is large and growing people feel less safe.

Inexperience of ryzen burglary and assault property damage from fire and water leaks have grown to nearly $50 billion a year in the U S alone, creating a huge burden on families and insurance companies.

Matthew Blake McRae: Property damage from fire and water leaks has grown to nearly $50 billion a year in the U.S. alone, creating a huge burden on families and insurance companies. These are big problems with a massive impact on both life and financial terms that, if properly addressed, could increase the quality of life and drive significant savings to numerous industries. These trends are driving substantial growth in our market. Offerings that can detect, control, and mitigate these negative events are seeing rapid growth that will ultimately grow to a $50 billion market by 2027. Arlo is leading a wave of innovation that is bringing these capabilities to mass market consumers through simple, elegant, innovative, and powerful solutions available through numerous channels. This leadership has propelled Arlo's meteoric rise in annual recurring revenue and our recognition as a world-class SaaS business. The SaaS ecosystem is filled with well-known companies.

These are large problems with a massive impact in both life and financial terms that if properly addressed to increase the quality of life and drive significant savings to numerous industries.

These trends are driving substantial growth in our market offerings that can detect control and mitigate these negative events are seeing rapid growth that will ultimately grow to a $50 billion market by 2027.

<unk> is leading a wave of innovation that is bringing these capabilities to mass market consumers through simple elegant innovative and powerful solutions available through numerous channels.

This leadership is propelled arliss meteoric rise in annual recurring revenue and our recognition as a world class SaaS business.

Fast ecosystem is filled with well known companies in fact, we studied the business models of our best in class peers as we set about building a world class services focused company RF.

Matthew Blake McRae: In fact, we studied the business models of our best-in-class peers as we set about building a world-class services-focused company. Our execution after launch puts Arlo in rarefied air when looking at how fast a SAF company reached the critical $100 million ARR milestone. Only a handful of companies have achieved this feat in five years, and Arlo is the most recent example. What is driving the success is our retail and direct paid accounts, which represent the majority of that service revenue and ARR. Our average revenue per user is now over $11 per month or $135 on an annual basis, and this business is operating at nearly 90% gross margin. If we look at these users on a lifetime basis, the customer lifetime value is roughly $700, while our acquisition cost for that customer is $100. This results in an LPV to CAC ratio of 7.

Our execution after launch puts arlo and rarefied air and looking at how fast a SaaS company reached the critical $100 million of IRR milestone.

Only a handful of companies have achieved the feat in five years and <unk> is the most recent example.

What is driving the success is our retail and direct paid accounts, which represents a majority of that service revenue and <unk>.

Our average revenue per user is now over $11 per month or $135 on an annual basis.

And this business is operating at nearly 90% gross margins.

If we look at these users on a lifetime basis, the customer lifetime value is roughly $700, while our acquisition costs for that customer is $100.

This results in an LTV to CAC ratio of seven how.

Matthew Blake McRae: How does that compare with other world-class SaaS companies? Again, you can see that Arlo's service business is operating at an extremely high level when compared to its top peers in the industry. Our LTV to CAC ratio of 7 puts us above some of the largest and well-known SaaS companies in the world and well above the industry average of 3. This also shows that we have significant room to invest in customer acquisition to further drive growth in ARR and shareholder value. Underpinning that impressive LPV number is another world-class metric, our churn rate.

How does that compare with other world class SaaS company.

Again, you can see that Arlo service business is operating at an extremely high level when compared to the top peers in the industry.

Our LTV to CAC ratio seven puts us above some of the largest and well known SaaS companies in the world and well above the industry average of three.

Illustrates we have significant room to invest in customer acquisition to further drive growth and.

And shareholder value.

Underpinning that impressive LTV number is another world class metrics, our churn rate <unk>.

Matthew Blake McRae: Arlo experiences a churn rate of between 1.1% and 1.3%, which stands apart from the top consumer SaaS businesses in the world. This churn rate has held across the pandemic, price increases, and macroeconomic challenges and is evidence of the depth of the value Arlo provides our users, how peace of mind is so sticky, and the importance of the role we play in our users' lives. Recently, Arlo was awarded the IoT Security Camera of the Year award by the Tech Breakthrough Organization.

Arlo experience as a churn rate of between one 1% and one 3% which stands apart from the top consumer SaaS businesses in the world.

This churn rate has held across the pandemic price increases and macroeconomic challenges and as evidence for the depth of the value of Arlo provides our users how peace of mind is so sticky and the importance of the role we play in our users' lives.

Recently <unk> was awarded the Iot security camera of the year award by the Tech breakthrough organization.

Matthew Blake McRae: This award honors companies based on innovation, creativity, hard work, and ultimately, success on a global basis in the IoT and smart home market. Additionally, Newsweek selected Arlo as a winner of its Excellence 1000 Index for 2024, which recognizes companies based on a commitment to best practices and growth while serving customers, stakeholders, and communities with a dedication to social responsibility and ethical standards. Arlo was ranked number 14 out of 1000 global companies and was placed in the top five for the IOT category, an honor we share with Intel, Nokia, Verizon, and Microsoft. Arlo is a world-class company punching well above its weight and focused on leading the market through innovation and disciplined execution of our operating plan. And now I will turn it over to Kurt, who will provide an overview of our Q4 and full year 2023 results. Thank you, Matt, and thank you, everyone, for joining us today.

This award honors company based on innovation creativity hard work and ultimately success on a global basis, and the Iot and smartphone markets.

And Newsweek selected <unk> as a winner of its excellent 1000 index for 2024, which recognizes companies based on our commitment to best practices and growth, while serving customers stakeholders and communities with a dedication to social responsibility and ethical standards are.

<unk> was ranked number 14 out of 1000 global companies and was placed in the top five for the Iot category and.

In auto we share with Intel Nokia, Verizon and Microsoft <unk>.

<unk> is a world class company punching well above our weight and focused on leading the market through innovation and disciplined execution of our operating plan.

And now I will turn it over to Kirk who will provide an overview of our Q4 and full year 2023 results.

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

Kurt Binder: 2023 was an outstanding year for Arlo as we continue to advance our track record of operational excellence guided by our services-first strategy. Our approach has yielded significant paid customer additions, best-in-class lifetime value per subscriber, and a record level of services gross margin. And this year, we achieved a critical inflection point.

2023 was an outstanding year for Ironwood as we continued to advance our track record of operational excellence guided by our services for our strategy.

Approach has yielded significant paid customer additions best in class lifetime value per subscriber and a record level of services gross margin.

And this year, we achieved a critical inflection point for the first time ever in our history, our services business gross profit exceeded our non-GAAP operating expenses.

Kurt Binder: For the first time ever in our history, our services business, Gross Profit, exceeded our non-GAAP operating... We expect this trend will continue even with acceleration in paid accounts and promotional activities to drive new household formation. This positions Arlo well for continued growth and profitability, and we are just beginning to tap into the vast long-term opportunity before we address the long-term growth potential of the business. Let's discuss the financial details around Q4 and the full year 2023, which will provide context for why we are so excited about the future. Total revenue for the fourth quarter came in above consensus at $135.1 million, up 14% year-over-year, driven primarily by the strong growth of our services business. The revenue derived from products was in line with the prior year period and driven by the successful launch of the Essential 2 product line. While the ASPs for our products declined as a result of our commitment to our pricing strategy, unit volume was higher, demonstrating strong demand for our products and services.

We expect this trend will continue even with acceleration in paid accounts and promotional activities to drive new household formation.

This positions <unk> well for continued growth and profitability and we are just beginning to tap into the vast long term opportunity.

Before we address the long term growth potential of the business, let's discuss the financial details around Q4, and the full year 2023, which will provide context for why we are so excited about the future.

Okay.

Total revenue for the fourth quarter came in above consensus at $135 1 million.

Up 14% year over year, driven primarily by the strong growth of our services business.

The revenue derived from products was in line with the prior year period, and driven by the successful launch of the essential to product line.

While the Asps for our products declined as a result of our commitment to our pricing strategy.

Unit volume was higher demonstrating strong demand for our products and services.

Kurt Binder: Revenue for the full year of 2023 was $491.1 million, in line with the prior year and within our original annual guidance. Our strategic shift to a services-first operating model was evident in the growth of our total subscribers, which increased by 51% year-over-year to 2.8 million paid accounts at year-end. This paid account growth was instrumental in driving our year-end ARR up by about 53% year-over-year to $210 million. Our focus on subscriptions has provided a major uplift in our profitability, while also creating greater visibility and predictability in meeting our near-term revenue targets, while dampening the volatility around consumer sentiment and other macroeconomic factors. Our service revenue for 2.4 was another record at $55.9 million, an increase of $17.6 million, or 46% year-over-year, driven by strong paid accounts and a price increase which occurred earlier in the year.

Revenue for the full year of 2023 was $491 1 million in line with the prior year and within our original annual guidance range, our strategic shift to a services first operating model was evident in the growth of our total subscribers, which increased by <unk> <unk>.

51% year over year to $2 8 million paid accounts at year end.

This paid account growth was instrumental in driving our year end.

<unk> up by about 53% year over year to $210 million.

Our focus on subscriptions has provided a major uplift in our profitability, while also creating greater visibility and predictability and meeting our near term revenue targets.

While dampening the volatility around consumer sentiment and other macroeconomic factors.

Okay.

Our service revenue for Q4 was another record at $55 9 million.

An increase of $17 6 million or 46% year over year, driven by strong paid accounts and a price increase which occurred earlier in the year.

Kurt Binder: Our service revenue for the full year of 2023 was $201.2 million, an increase of $65 million, or 47% year-over-year, fueled by the addition of almost 1 million paid accounts during the year and a robust installed base. While service revenue accounted for 41% of our total 2023 revenue, it represented about 87% of our total gross profit, highlighting the value inherent in the subscription-based model that Matt discussed earlier. This also enabled us to be profitable just based on the service's gross profit, again providing a level of stability and predictability we did not have a year ago. Product revenue for Q4 was $79.2 million, which is in line with the revenue generated both in the previous quarter and in the prior year period.

Our service revenue for the full year of 2023 was $201 2 million, an increase of $65 million or 47% year over year fueled by the addition of almost 1 million paid accounts during the year and a robust installed base.

While service revenue accounted for 41% of our total 2023 revenue.

It represented about 87% of our total gross profit hi.

Highlighting the value inherent in the subscription based model that Matt discussed earlier.

This also enabled us to be profitable just based on the services gross profit again, providing a level of stability and predictability, we did not have a year ago.

Product revenue for Q4 was $79 2 million.

Which is in line with the revenue generated both in the previous quarter and in the prior year period.

Kurt Binder: Our product revenue for the full year of 2023 was approximately $290 million, down 18% year-over-year as a result of our shift in pricing strategy and constrained inventory levels in the EMEA region. Despite the decline in product revenue, the number of devices we ship worldwide was up 5%, highlighting our strategy to drive household formation and to bring additional paid customers into the Arlo ecosystem. During 2023, our international business generated 39% of our revenue, and for 2024, we expect our international customer base to continue to be a meaningful portion of our revenue. EMEA revenue was down year over year, primarily driven by our largest customer, Farishore, and their desire to reduce inventory levels and related carrying costs.

Our product revenue for the full year of 2023 was approximately $290 million.

18% year over year as a result of our shift in pricing strategy and constrained inventory levels in the EMEA region.

Despite the decline in product revenue the number of devices. We shipped worldwide was up 5% highlighting our strategy to drive household formation and to bring additional paid customers into the arlo ecosystem.

During 2023, our international business generated 39% of our revenue and for 2024, we expect our international customer base to continue to be a meaningful portion of our revenue.

Our EMEA revenue was down year over year, primarily driven by our largest customer there sure and their desire to reduce inventory levels and related carrying costs.

Kurt Binder: Based on current visibility and forecasts, we expect that VeriShore's inventory procurement activities will resume to more normal levels in early 2024. Our ability to develop such a strong and collaborative relationship with VeriShore has proven to be a great foundational element in Arlo's success. From this point on, my discussion will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP figures is detailed in our earnings release that was distributed earlier today.

Based on current visibility and forecast, we expect that <unk> inventory procurement activities will resume to more normal levels in early 2024.

Our ability to develop such a strong and collaborative relationship with there sure.

Has proven to be a great foundational element in <unk> success.

From this point on my discussion will focus on non-GAAP numbers.

The reconciliation from GAAP to non-GAAP figures is detailed in our earnings release that was distributed earlier today.

Yes.

Kurt Binder: Our non-GAAP gross profit for the fourth quarter was $48.3 million, up $15 million or 46% year-over-year, driven by the improvement in service profitability. This resulted in a non-GAAP gross margin of 36%, up almost 800 basis points from 28% in Q4 of 2022. Our non-GAAP gross profit for the full year of 2023 was $171.7 million, up 22% year-over-year.

Our non-GAAP gross profit for the fourth quarter was $48 3 million up $15 million or <unk>, 46% year over year, driven by the improvement in service profitability. This resulted in non-GAAP gross margin of 36% up almost 800 basis points from 28%.

In Q4 of 2022.

Our non-GAAP gross profit for the full year of 2023 was $171 7 million up 22% year over year.

Kurt Binder: This resulted in a non-GAAP gross margin of 35%, up more than 600 basis points from 29% in 2022. The $31 million year-over-year increase in non-GAAP gross profit was primarily attributable to the growth in revenue and improvement in gross margin percentage in our service business, as well as bolstered by the price increase that we implemented earlier in the year. This is also driven by continued monetization of new customers that we bring into our service plans, coupled with an ongoing focus on cost optimization. Non-GAAP service gross margin for the full year was 74 percent, significantly up from 67% in 2022. Non-GAAP product gross margin for the full year was 8%, down from 14% product gross margin reported last year, which is consistent with our strategy to leverage product margin to lower the cost of entry into the Arl Total non-GAAP operating expenses for the fourth quarter were $38.5 million, up about $3 million sequentially and $1.4 million year over year, which is in line with our expectations. Total non-GAAP operating expenses for the full year of 2023 were $146.7 million, in line with the $146.9 million reported in the same period last year.

This resulted in a non-GAAP gross margin of 35% up more than 600 basis points from 29% in 2020 to the.

The $31 million year over year increase in non-GAAP gross profit was primarily attributable to the growth in revenue and improvement in gross margin percentage in our service business as well and bolstered by the price increase that we implemented earlier in the year.

This was also driven by continued monetization of new customers that we bring into our service plan, coupled with an ongoing focus on cost optimization.

non-GAAP service gross margin for the full year was 74%.

<unk> up from 67% in 2022 non.

non-GAAP product gross margin for the full year was 8% down from 14% product gross margin reported last year.

This is consistent with our strategy to leverage product margin to lower the cost of entry into the arlo ecosystem and generate additional service revenue.

Total non-GAAP operating expenses for the fourth quarter were $38 $5 million.

Up about $3 million sequentially, and $1 $4 million year over year, which is in line with our expectations.

Total non-GAAP operating expenses for the full year of 2023 were $146 7 million in.

In line with the $146 9 million reported in the same period last year.

Kurt Binder: Our ability to report full-year operating expenses at the same level as the prior year truly demonstrates the leverage in our business model. We showed extraordinary leverage in our service business, and service revenue rose by $65 million, while the cost to deliver that revenue only grew by $7 million. This represents an 89% gross margin on the incremental service revenue added in 2023. In Q4, we posted non-GAAP operating income of $9.9 million and non-GAAP net income of $11 million. The non-GAAP net income was up almost $15 million when compared to the prior year period.

Our ability to report full year operating expenses at the same level as the prior year truly demonstrates the leverage in our business model.

We showed extraordinary leverage.

In our service business and service revenue rose by $65 million.

The cost to deliver that revenue only grew by $7 million.

This represents an 89% gross margin on the incremental service revenue added in 2023.

In Q4, we posted non-GAAP operating income of $9 9 million and non-GAAP net income of $11 million.

The non-GAAP net income was up almost $15 million when compared to the prior year period.

Kurt Binder: Our non-GAAP net income translates into net income per dilutive share of $0.11, well above the Q4 consensus of $0.08 per share. For the full year of 2023, we reported non-GAAP net income of $27.8 million, up more than $33 million when compared to the full year of 2022. Similarly, our non-GAAP net income translates into a net income per dilutive share of $0.28.

Our non-GAAP net income translates into net income per diluted share of 11.

Well above the Q4 consensus of <unk> <unk> per share.

For the full year of 2023, we reported non-GAAP net income of 27 $8 million.

More than $33 million when compared to the full year of 2022.

Our non-GAAP net income translates into a net income per diluted share of <unk> 28.

Kurt Binder: Again, a significant improvement year-over-year from the net loss per diluted share of $0.07. The improvement in non-GAAP net income was driven by a combination of services revenue growth and Gross Margin Expansion, coupled with a disciplined approach to cost management. You can expect us to continue to be focused on managing operating expenses and investing in growth opportunities ahead of us while delivering maximum profit to the bottom line. Perhaps the most impressive benefit of aligning every part of our organization to this services-first approach is the improvement in free cash flow. During 2022, Arlo's free cash flow was negative $48 million.

Again, a significant improvement year over year from a net loss per diluted share of <unk>.

The improvement in non-GAAP net income was driven by a combination of services revenue growth.

And gross margin expansion, coupled with a disciplined approach to cost management.

You can expect us to continue to be focused on managing the operating expenses.

To invest in growth opportunities ahead of us.

While delivering maximum profit to the bottom line.

Perhaps the most impressive benefit of aligning every part of our organization to the services first approach.

Is the improvement in free cash flow.

During 2022 are those free cash flow was a negative $48 million.

Kurt Binder: While in 2023, Arlo generated positive free cash flow of $35 million. That's an improvement of $83 million in cash flow in a single year, and when coupled with the increased level of profitability. It is transformational for Arlo. Regarding our balance sheet and liquidity position, we ended the quarter with $136.5 million in available cash, cash equivalents, and short-term investments.

While in 2023.

<unk> generated positive free cash flow of $35 million.

That's an improvement of $83 million in cash flow in a single year.

And when coupled with the increased level of profitability.

It is transformational for iron ore.

Okay.

Regarding our balance sheet and liquidity position, we ended the quarter with $136 $5 million in available cash cash equivalents and short term investments.

Kurt Binder: This balance was up over $10 million sequentially and almost $23 million year-over-year, underscoring the improving profitability Arlo is generating. We expect our cash generation to continue due to the operating leverage from the subscription model. Given our growing cash balance, we are extremely focused on our ability to allocate capital in ways that generate the best return, whether it be investing in the business to fuel organic growth, acquiring assets that will complement or accelerate our future growth and profitability, or returning capital to shareholders. Our DSO levels for the quarter decreased to 44 days in Q4 of 2023, as compared to the prior quarter and the same quarter last year, driven by the volume of essential tube cameras shipped in the early part of the fourth quarter, as well as our enhanced collection efforts on our base of large retail customers.

This balance was up over $10 million sequentially, and almost $23 million year over year underscoring the improving profitability of Arlo is generating.

We expect our cash generation to continue due to the operating leverage from the subscription model.

Given our growing cash balance we are extremely focused on our ability to allocate capital in ways that generate the best return.

Whether it be investing in the business to Super organic growth.

Wiring assets that will complement our accelerate our future growth and profitability.

Or returning capital to shareholders.

Our DSO levels for the quarter decreased to 44 days in Q4 of 2023 as compared to the prior quarter and the same quarter last year driven by the volume of the central two cameras shipped in the early part of the fourth quarter as well as our enhanced collection efforts.

On our base of large retail customers.

Kurt Binder: We will continue to monitor our DSOs closely, but we are pleased with the overall status and collectability of our outstanding receiver. Regarding inventory, we increased our inventory levels in the third quarter to $53.5 million to meet the expected consumer demand in the fourth quarter as well as in support of the largest product launch in company history with the Essential 2 camera line. During Q4, we had already substantially reduced our inventory balance to $38.4 million, with inventory turns improving to 7.6 times, down from 5.5 times in Q3.

We will continue to monitor our DSO as closely but we are pleased with the overall status and collectability of our outstanding receivables.

Regarding inventory we.

We increased our inventory levels in the third quarter to $53 5 million.

To meet the expected consumer demand in the fourth quarter as well as in support of the largest product launch in company history with the essential to camera lineup.

During Q4, we had already substantially reduced our inventory balance to 38 4 million with inventory turns improving to seven six times down from five five times in Q3.

Matthew Blake McRae: That inventory improvement was driven by a well-executed expansion of our Essential 2 product lineup into mass market retailers like Walmart and Amazon to support their larger fourth quarter annual promotional events. And now, I'll hand the call back over to Matt. Before we move on to our outlook and the updated long-range plan, I would like to provide a glimpse into innovation at Arlo and our planned technology pipeline, which will serve as a key component of our future growth strategy. Innovation is at the core of what we do. Arlo invented the wire-free security market with its original camera that launched nearly ten years ago. That innovation expanded to industrial design, low-power intellectual property, RF designs, and numerous industry-first product launches as we drove the category forward.

Inventory improvement was driven by a well executed expansion of our essential to product lineup into the mass market retailers like Walmart and Amazon to support their larger fourth quarter annual promotional events.

And now I'll hand, the call back over to Matt.

Before we move on to our outlook and the updated long range plan I would like to provide a glimpse into innovation at Arlo and our planned technology pipeline that will serve as a key component of our future growth strategy.

Innovation is at the core of what we do.

Arlo invented the wire free security market with our original camera that launched nearly a decade ago.

That innovation expanded two industrial design low power intellectual property RF designs and numerous industry first product launches as we drove the category forward.

Matthew Blake McRae: Arlo also revolutionized the market by being the first company to provide AI-based subscription services back in 2018, well ahead of the broader AI cycle we see today. Arlo services are built on our best-in-class platform, which is one of the largest, highest-performance security and AI platforms in the world. It is performing billions of AI predictions on millions of hours of video per day across thousands of parallel compute clusters in real time. We are adding new recognition engines, a predictive capability, more context awareness, and personalization capabilities to support the new Arlo Secure user experience. Our platform is a core differentiating asset that we continue to invest in, providing clear performance superiority in the market. Our culture of innovation has resulted in the most awarded product and service ecosystem in the world. These are some of the most recent awards that touch on our technology and user experience leadership. You will notice that our trophy case has moved beyond just the technical press and into popular media properties and content sites.

Arlo also revolutionize the market by being the first company to provide AI based subscription services back in 2018, well ahead of the broader AI cycle, we see today.

Our low services are built on our best in class platform, which is one of the largest highest performance security and AI platforms in the world.

It is performing billions of AI predictions on millions of hours of video per day across thousands of parallel compute clusters in real time.

We are adding new recognition engine, a predictive capability more context awareness and personalization capabilities to support the new Arlo secure user experience.

Our platform is a core differentiating asset that we continue to invest in providing clear performance superiority in the market.

Our culture of innovation has resulted in the most awarded product and service ecosystem in the world.

These are some of the most recent awards that touch on our technology and user experience leadership, you will notice that our trophy case has moved beyond just the technical press and into the popular media property and content sites.

Matthew Blake McRae: The smart security segment is moving beyond the early adopter market and entering the mass market safely. As such, we have turned our engine of innovation towards simplifying the user experience and making truly powerful DIY security accessible to everyone. Reviews on our new Arlo Secure app show the results of that fact. Android Guy said, quote, "for first time users and those just dabbling in home security, things don't get much easier." TechHive said, quote, I always enjoyed the ease and flexibility Arlo Secure brings to operating the camera. PC Magazine wrote, quote, motion alerts arrived instantly and were correctly identified. HowToGeek said that the installation process for the camera is quick and easy, and the Companion Arlo app is user-friendly and offers a seamless experience.

The Smart security segment is moving beyond the early adopter market entering the mass market phase as.

As such we have turned our engine of innovation towards simplifying the user experience and making truly powerful DIY security accessible to everyone.

Reviews on our new Arlo secure App showed the results of this effort.

Android guys said quote for first time users and those just dabbling in home security things don't get much easier.

<unk> said quote I always enjoyed the ease and flexibility arliss secured brings to operating the camera.

PC magazine wrote quote promotional or arrived instantly and were correctly identified.

How does <unk> said quote the installation process for the camera is quick and easy and the companion Arlo App is user friendly and offers seamless experience and quote the companion Arlo security App is the most impressive security based app ever used.

Matthew Blake McRae: End quote. The Companion Arlo security app is the most impressive security-based app I have ever used. Our focus on simplicity as we broaden our camera platform to include the mass market will continue as we drive an exciting path of innovation around the user experience. And on that note, I would like to provide a sneak peak of our next-generation security offering, Arlo Secure 5, which will begin rolling out in the second half of this year. This represents the most comprehensive and feature-rich update in our company history and truly raises the bar for a smart security experience and service. Our new user experience has been extended to include a user-customizable dashboard with Master Army, support for multiple locations, configurable widgets, and smart home device control.

Our focus on simplicity as we broaden our Tam to include the mass market will continue as we drive an exciting path of innovation around the user experience.

And on that note I would like to provide a sneak peak of our next generation security offering Arlo secure five which will begin rolling out in the second half of this year. This represents the most comprehensive and feature rich update in our company history and truly raises the bar for smart security experience and service.

Our new user experience has been extended to include a user customizable dashboard with Master Army support for multiple location Configurable widgets as smart home device control. We have also introduced a powerful event feed that provides a chronological timeline with intuitive search and filter features.

Matthew Blake McRae: We have also introduced a powerful event feed that provides a chronological timeline with intuitive search and filter features. The app also includes a powerful automation and shortcut engine that permits the user to create simple or complex behaviors across the entire ecosystem. And Arlo Secure has the most sophisticated and robust emergency response experience, providing direct dispatch and real-time two-way status of any emergency enabled by the best cameras available. With Arlo Secure 5, we are expanding our detection engine to include fire, barking, screaming, glass breaking, and other audio or visual events.

The App also includes a powerful automation and shortcut engine, which permits the user to treat simple or complex behaviors across the entire ecosystem.

And all of the secure has the most sophisticated and robust emergency response experience.

Providing direct dispatch and real time, two way status of any emergency enabled by the best cameras available.

With <unk> five we are expanding our detection engine to include fire Barking Screamy class braking and other audio or visual event.

Matthew Blake McRae: And we are introducing a powerful and extendable recognition engine that will initially launch with facial recognition and vehicle recognition. Arlo Secure 5 will also add predictive and proactive capabilities by analyzing events and past data to suggest or improve the user experience. And over time, the service will be more situationally aware by analyzing a full scene to drive deeper insight and may the, And I'm excited to announce that Arlo Secure 5 can produce personalized AI experiences. This frees Arlo from having to develop numerous generic models for each potential use case and provides a nearly unlimited capability. A user simply types in a phrase or question and takes snapshots of the different states.

And we are introducing a powerful and extendable recognition engine that will initially launch with facial recognition and for vehicle recognition.

<unk> five will also add predictive and proactive capabilities by analyzing events and past data suggests or improve the user experience.

And over time, the service will be more situationally aware by analyzing a full siem to drive deeper insights and made it better.

And I am excited to announce that <unk> can't produce personalized AI experiences. This frees arlo from having to develop numerous generic model for each potential use case and provides a nearly unlimited capability.

Users simply types in a phrase or question and take snapshots of the different states. The text and images are combined into a personalized multimodal AI micro model that can get smarter over time with further user input.

Matthew Blake McRae: The text and images are combined into a personalized, multimodal AI micro-model that can get smarter over time with further user input. And that tailored experience is completely private to that user. None of the data prompts, resulting models, or events are shared with any other user.

And that tailored experience is completely private to that user none of the data prompts resulting model or events are shared with any other user.

Matthew Blake McRae: This is truly groundbreaking innovation, and we look forward to what experiences our users will build. And finally, Arlo will be testing a more feature-rich free tier that includes embedded advertising. This will allow non-subscribers to access a more powerful experience without the need for a full-paid subscriber.

This is a truly groundbreaking innovation and we look forward to what experiences are users will build.

And finally, although we'll be testing a more feature rich free tier that includes embedded advertising.

This will allow non subscribers to access a more powerful experience without the need for a full paid subscription arlo.

Matthew Blake McRae: Arlo Secure has extremely high engagement and could produce up to 750 million impressions per month that could be leveraged with relevant advertisements, partnerships, or other information. The potential for service revenue growth is exciting, as we would be able to monetize our entire user base for the first time. Arlo Secure 5 will be the most important and powerful smart security experience in the world and extends our lead in the industry by a considerable margin.

<unk> secure has extremely high engagement and could produce up to 750 million impressions per month that can be leveraged with relevant advertisements partnerships or other information the.

The potential for service revenue growth is exciting as we would be able to monetize our entire user base for the first time.

<unk> will be the most important and powerful smart security experience in the world and extends our lead in the industry by a considerable margin.

Kurt Binder: It provides groundbreaking new capabilities with compelling differentiation for the user and the foundation for significant growth. Now, I'll turn it over to Kurt again for a look at 2024 and our guidance. Our strong operational performance in 2023 and groundbreaking innovations that Matt just discussed position us for success in 2024 and beyond. Arlo's addressable market is expanding as the value proposition that we provide can serve a broader range of customers. We were ranked as one of the top two providers of hardware for safety and security in 2023, and we are confident that we can continue to win and gain market share in the future. Arlo is a pure play security company that provides a dedicated focus on protecting, which our peers cannot match.

It provides groundbreaking new capabilities with compelling differentiation for the user and the foundation for significant growth.

And now I'll turn it over to Curt again for a look at 2024 and our guidance.

Our strong operational performance in 2023, and groundbreaking innovations that Matt just discussed.

Positions us for success in 2024 and beyond.

<unk> addressable market is expanding as the value proposition that we provide can serve a broader range of customers.

We were ranked as one of the top two providers of hardware for safety and security in 2023, and we are confident that we can continue to win and take market share in the future.

Okay.

<unk> is a pure play security company that provides a dedicated focus on protection, which our peers cannot match, unlike others, who participate in the safety and security market for unrelated purposes like access to user data, our selling non security products and services.

Kurt Binder: Unlike others who participate in the safety and security market for unrelated purposes like access to user data or selling non-security products and services, our singular focus remains that every person is entitled to feel safe and secure every day. Our products are centered around video capture and intelligent processing, and given the collection of awards we have won for innovation. We are clearly leading the industry in this arena. We give users peace of mind with our safety and security pledge, a promise that their data will only be used to enhance their personal safety and that their data is exactly that, theirs.

Our singular focus remains that every person is entitled to feel safe and secure every day.

Our products are centered around video capture and intelligent processing.

And given the collection of awards, we have won for innovation, we are clearly leading the industry in this arena.

We give users peace of mind with our safety and security pledge.

A promise that third data will only be used to enhance their personal safety and that their data is exactly that.

A promise that third data will only be used to enhance their personal safety and that their data is exactly that.

<unk>.

Kurt Binder: Our platform, one of the most powerful video ingress platforms in the world, with more than five years of AI tracking experience, is the backbone of Arlo's ability to truly differentiate its service. And finally... Arlo has tailored offerings to support the entire market, delivering both DIY and DIFM solutions at every price point to meet each customer where they are in their security journey. Safety and security is all we do.

Our platform one of the most powerful video in grass platforms in the world with more than five years of AI track experience is.

This is the backbone of <unk> ability to truly differentiate its service.

And finally.

<unk> has tailored offerings to support the entire market.

Delivering both DIY and Difm's solutions at every price point to meet each customer where they are in their security journey.

Safety and security is all we do.

Okay.

Kurt Binder: Our focus remains on accelerating our penetration of households globally. Paid account growth will deliver expanded service revenue and profitability, and this will remain the primary catalyst of intrinsic value in the long term for Arlo. We will continually look for opportunities to expand our feature set and functionality in all aspects of our service offering. Customers will migrate to service offerings that enhance their feelings of safety and connectivity.

Our focus remains on accelerating our penetration of households globally.

Paid account growth will deliver expanded service revenue and profitability and this will remain the primary catalysts of intrinsic value in the long term for arlo.

We will continually look for opportunities to expand our feature set and functionality in all aspects of our service offering.

Customers will migrate to service offering that.

That enhance their feelings of safety and connectivity.

Kurt Binder: We endeavor to create compelling services that deliver those benefits, and in turn, we will continue to have pricing power that can create ARPU expansion over time. And finally, we will leverage our position as the central hub of the smart, safe home with platform offerings and data solutions to improve the quality of life for our customers. We view adjacent market opportunities, like InsureTech and Telehealth, as impactful segments that will require advanced video capabilities. Scalable Platforms, and an elevated level of privacy, all of which Arlo is extremely well positioned to provide.

We endeavor to create compelling service offerings that deliver those benefits.

And in turn we will continue to have pricing power that can create <unk> expansion over time.

And finally, we will leverage our position as the central hub of the smart safe home with platform offerings and data solutions that enhance.

The quality of life for our customers.

We view adjacent market opportunities like insure tech and telehealth.

As impactful segments that will require advanced video capabilities.

Scalable platforms.

And an elevated level of privacy.

All of which <unk> is extremely well positioned to provide.

Kurt Binder: Our differentiation, an additional growth driver, gives us the confidence that we can deliver on both our short-term and long-term expectations, which we will share with you today. Considering that Arlo has surpassed the 3 million subscriber milestone in the last few days, almost exactly one year after we hit the 2 million subscriber target, demonstrates how well positioned the company is to leverage the significant opportunity available in the smart security space. Our strategy remains consistent with last year.

Our differentiation and additional growth drivers.

Give us the confidence that we can deliver on both our short term and long term expectations that we will share with you today.

Okay.

Considering that Arlo has surpassed the 3 million subscriber milestone in the last days almost exactly one year. After we hit the 2 million subscriber target demonstrates how well positioned the company is to leverage the significant opportunity available in the smart security space.

Kurt Binder: We will leverage our product pricing to lower the consumer's barrier of entry into the Arlo ecosystem and further fuel subscriber and service revenue growth, bolstered by the launch of our Essential 2 product line. We are well positioned to compete across all price bands in the market. And with the consumer environment continuing to be price sensitive, we will price strategically so we can grow unit sales and overall market share as a means to grow our subscriber count. With that said, we expect the first quarter revenue for 2024 to be in the range of $117 to $127 million. We expect our first quarter gap net loss per share to be between 8 cents and 2 cents, and our non-GAAP net income per dual roof share to be between 5 cents and 11 cents per share.

Our strategy remains consistent with last year, we will leverage our product pricing to lower the consumer's barrier of entry into the arlo ecosystem and further fueled subscriber and service revenue growth.

Bolstered by the launch of our central to product line.

We are well positioned to compete across all price bands in the market.

And with the consumer environment, continuing to be price sensitive we will price strategically. So we can grow unit sales and overall market share as a means to grow our subscriber count.

With that said, we expect the first quarter revenue for 2024 to be in the range of $117 million to $127 million.

We expect our first quarter GAAP net loss per share to be between <unk> and <unk> and our non-GAAP net income per diluted share to be between <unk> and <unk> 11 per share.

Kurt Binder: For the full year of 2024, we expect revenue to be in the range of $510 to $545 million, factoring in our cautious outlook around consumer sentiment. We will use our innovative service offerings and pricing levers to continue to drive ARR growth and remain focused on exercising cost discipline to expand our profitability. We expect that our service revenue will grow at roughly 20% year over year and that non-GAAP service gross margin will be in the range of 75% throughout the year. And finally, we expect our non-GAAP net income per dilutive share to be between 35 cents and 45 cents per share. At this point, I would like to revisit the slide that started this call today.

For the full year of 2024, we expect revenue to be in the range of $510 million to $545 million.

Factoring in our cautious outlook around consumer sentiment.

We will use our innovative service offerings and pricing levers to continue to drive our growth and remain focused on exercising cost discipline to expand our profitability.

We expect that our service revenue will grow at roughly 20% year over year.

And that non-GAAP service gross margin will be in the range of 75% throughout the year and.

And finally, we expect our non-GAAP net income per diluted share to be between <unk> 35.

And 45 <unk>.

For sure.

Okay.

At this point I would like to revisit the slide that started this call today.

Kurt Binder: The company that is in front of you today is fundamentally different. Arlo is a subscription-driven consumer services business with world-class SaaS-level metrics driven by innovation and entering a mass market that provides significant upside for growth. Our performance since IPO reflects this, and our performance since recently rolling out our long-range plan shows the business has hit an inflection point and is ready for further service revenue and profitability expansion. As a result of this outperformance, coupled with the highlighted growth drivers, we are confident that we can sustain this operating momentum over the long term. The Long-Range Plan metrics we published in March 2022 seemed bold at the time, but our current trajectory and recent success have turned them into a foregone conclusion.

The company that is in front of you today is fundamentally a different entity.

<unk> is a subscription driven consumer services business with world class SaaS level metrics, driven by innovation and entering a mass market that provides significant upside for growth.

Our performance since IPO reflects this and our performance since recently rolling out our long range plan shows the business has hit an inflection point.

And is ready for further service revenue and profitability expansion.

As a result of this outperformance coupled with the highlighted growth drivers. We are confident that we can sustain this operating momentum over the long term.

Our long range plan metrics, we published in March 2020 to seek bolt at the time, but our current trajectory and recent success, let's turn them into a foregone conclusion. It is not in our culture to coast finish line. So we are choosing to reset our long range plans metrics that reflect the.

Kurt Binder: It is not in Arlo's culture to coast to the finish line, so we are choosing to reset our Long-Range Plan to metrics that reflect the scale of the opportunity in front of us. That high degree of confidence allows us to share our long-term outlook for the business through 2030 with a focus on the same key operating metrics previously shared. By year end 2030 or earlier, we expect that we can deliver 10 million paid subscribers.

The scale of the opportunity in front of us.

That high degree of confidence that allows us to share our long term outlook for the business through 2030 with a focus on the same key operating metrics previously shared.

By year end 2030 or earlier, we expect that we can deliver 10 million paid subscribers $700 million in annual recurring revenue and 25% operating margins.

Kurt Binder: $700 million in annual recurring revenue and 25% operating margin. These new goals represent a three to five-fold increase from our current results and will be achieved through both organic internal investment and potential inorganic growth opportunities we will speak more about in the coming quarters as we finalize our capital allocation plan. Arlo intends to take advantage of market dynamics and our leadership position to drive growth well above our current trend line, which reflects the confidence and excitement we have in our future. Now, I'll open it up to questions. Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad.

These new goals represent a three to five fold increase from our current results and will be achieved through both organic internal investments and potential inorganic growth opportunities, we will speak more about in the coming quarters as we finalize our capital allocation plan.

Our low intends to take advantage of the market dynamics, and our leadership position to drive growth well above our current trend line, which reflects the confidence and excitement we have in our future.

And now I will open it up for questions.

Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one.

Operator: If you would like to withdraw your question, again, press star one. We also ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Scott Searle from Roth MKM. Please go ahead. Hey, good afternoon.

Also ask that you limit yourself to one question and one follow up your first question comes from the line of Scott Searle from Roth km. Please go ahead.

Scott Wallace Searle: Thanks for taking my questions. Nice job on the quarter. And Kurt, congratulations on adding a new, Thanks guys. Hey, so maybe just to dive in a lot in the presentation. Thank you so much for the detail.

Hey, good afternoon, Thanks for taking my questions nice job on the quarter and Curt congratulations on adding a new head.

Thanks Scott.

Okay. So maybe just to dive in.

A lot in the presentation. Thank you so much for the detail.

Matthew Blake McRae: I was wondering if you could talk about adjacencies, and specifically, you're talking about monetizing other high levels of engagement. Matt, I'm just wondering how you're thinking about that, the impact of ARPUs, how far along this is in terms of its development, and do you need some other technologies to bring into the fold now to really execute on that? Yeah, thanks, Scott. That's a great question.

Was wondering if you could talk about Adjacencies and specifically you are talking about other monetizing other high levels of engagement.

And then I'm just wondering how youre thinking about that the impact of <unk>, how far along this is in terms of its development and do you need some other technologies to bring into the fold now to really execute on that strategy.

Yes, Thanks, Scott Great question.

Matthew Blake McRae: You've touched on a couple of areas there. So when we look at market adjacencies, what we're doing is we're looking at areas where our platform, platform technologies, and some of the AI capabilities we have could be leveraged into an adjacent market with minimal change in many cases. So when you look at things like agent place or insured tech, which is an area we're having a lot of discussions about now, you can see where a platform like ours could have almost immediate benefits to that market. And the investment is mostly around fine-tuning some of the edge technologies or things before we do that. I would say in some cases, I think there's internal development to maybe address some of those adjacent markets. And in other cases, you know, it could be if we found a piece of technology or a company that was focused on that market and we felt it made sense to bring that into an acquisition, that's something we can look at.

You've touched on a couple of areas. There. So when we look at market Adjacencies. What we're doing is we're looking at areas, where our platform of platform technologies and some of the AI capabilities. We have we think could leverage into an adjacent market with with minimal change in many cases. So when you look at things like agent place or <unk>.

<unk>, which is an area, we're having a lot of discussions now you can see where a platform like ours could have almost immediate benefits to that market and the investment is mostly around fine tuning some of the edge technologies or things before we do that I would say in some cases.

I think there is internal development to maybe address some of the adjacent markets and in other cases it could be if we found a piece of technology or a company that was.

Focus on that market and we felt it made sense to bring that into an acquisition. That's something we can look at.

Matthew Blake McRae: What I would say is the confidence from the board level and the management team in how we've operated Arlo has given us the foundation to do that. So I think that window is opening for the company, which is really exciting. As far as the impact on ARPU, which is another facet of your question, you can see our ARPU is strong.

What I would say is the confidence in from the board level and the management team in how we've operated Arlo has given us the foundation to do that so I think that window is opening for the company, which is really exciting as far as impact on <unk>, which is another facet of your question you can see <unk> is strong.

Scott Wallace Searle: Gross margins are actually going up on our retail and paid direct accounts, and we think some of these adjacent markets actually have an opportunity to expand that further, not just additional service revenue or additional paid accounts but potentially the opportunity to actually expand ARPU even higher. So that's some of the thought, and you picked it up exactly, of what's going into actually increasing our long-term metrics significantly because we think the metrics we have in front of us are no longer bold enough. Hey, Matt, maybe just to quickly piggyback on that, Arlo 5, is that expected then to drive another price increase in ARPU as we start to look out to late this year and into next? And then just in terms of diving into the Boring Financials, if I'm looking ahead to the first quarter and the guidance there, a couple of things. It seems like distribution levels in the U.S. are a little bit high. Are you seeing some of that work down going on there? And in terms of product gross margins, they were, I think, better in the fourth quarter than you guys had been expecting. Is that something that carries through into the first half of the year here?

Gross margins are actually going up on our retail and paid direct accounts and we think some of these adjacent markets.

Actually I have an opportunity to expand that further.

Not just additional service revenue or additional paid accounts, but potentially the opportunity to actually expand expand ARPA, even higher so that's some of the thought and you picked up on it exactly whats going into actually.

Creasing, our long term metrics are significantly because we think the metrics we have in front of us are no longer no longer bold enough.

Hey, Matt maybe just to quickly piggyback on that or a low five.

Is that expected to drive another price increase in <unk> as we start to look out to late this year and into next year.

And then just in terms of to dive into the boring financials, if im looking out to the first quarter and the guidance there.

A couple of things it seems like distribution levels at the U S are a little bit high are you seeing some of that work down going on there and in terms of product gross margins. They were I think better in the fourth quarter than you guys had been expecting is that something that carries through into the first half of the year here, thanks, and I'll get back in the queue.

Kurt Binder: Thanks, and I'll get to the Q1 guidance and the financials right now. Scott, I think you asked the question about where we stand with inventory levels and what's going on in the channel and how that might be impacting our overall first quarter as well as the product margin targets that we're looking at. So, first and foremost, let me touch on inventory levels. We actually felt really good about our performance in Q4 in working with our channel partners to ensure that we had the appropriate amount of inventory that was made available. Now, as we look at Q1 relative to last year, we're in great shape from an inventory level. We feel really good about the promotional activities that we've already signed up for, and we think that, ultimately, we'll start off the year fairly strong, and it'll roll into a really successful 2024. Our feeling in terms of margin on the product side is that we want to maintain maximum flexibility. You are correct.

Curt you want to talk on.

Q1 on Q1 guidance and net financials right now so Scott.

<unk>.

You asked the question about where we stood with inventory levels and what's going on in the channel and how that might be impacting our overall first quarter as well as the product margin targets that we're looking at so first and foremost let me touch on inventory levels, we actually felt really good around our performance in Q4.

And working with our channel partners to ensure that we had the appropriate amount of inventory that was made available now.

As we look at Q1 relative to last year.

We're in great shape from an inventory level, we feel really good around the promotional activities that we've already signed up for and we think that ultimately we will start off the year fairly strong and it will roll into a really successful 2024 are feeling in terms of in terms of margin on the <unk>.

Side is that we want to maintain maximum flexibility you are correct. We had indicated throughout 2023 that we would target somewhere in the mid single digits for product gross margin, we came in a bit higher than that in the 8% range that was just because we felt like throughout the year. We were in great shape and we are.

Kurt Binder: We had indicated throughout 2023 that we would target somewhere in the mid-single digits for product gross margin. However, we came in a bit higher than that, in the 8% range. That was just because we felt like throughout the year we were in great shape and we were generating the sell-through that we wanted, and there was no need to price it down any further. Now, as we look really beyond Q1, we want to maintain flexibility to bring it down into that mid-single digit target. I'm talking somewhere between 5% and 7% because our overall goal, as you all know, is to drive household formation, and that's the target for 2023. I think we've been very successful.

At generating the sell through that we wanted and there was no need to price it down any further as we look at really our beyond Q1, we want to maintain flexibility to bring it down into that mid single digit target. So I'm talking somewhere between five and 7% because our overall goal as you all know is to drive household.

Formation and Thats been.

The target for 2023, I think we've been very successful that shows up in our subscriber adds it's showing up in our services revenue in our services revenue margin and we want to continue that momentum into 2024. So hopefully that answers. Your question Scott Yeah, It's Scott I'll loop back to the first part of your question around secure five as you can see it as it is.

Kurt Binder: That shows up in our subscriber ads. It's showing up in our services revenue and our services revenue margin. We want to continue that momentum into 2024. Scott, I'll loop back to the first part of your question around Secure 5.

Matthew Blake McRae: As you can see, it's a large innovation cycle that we're undergoing, and this is something we've talked about a little bit over the last few quarters, giving some previews into it. We really wanted to share the level of innovation and advancement, especially on the AI front, that we'll be rolling out. We see it as a little bit cyclical.

A large innovation.

The cycle that we're undergoing in this is something we've talked about a little bit over the last few quarters, giving some previews into it but we really wanted to share the level of innovation and advancement, especially on the AI front that will be rolling out.

We see it as a little bit cyclical. So we did some significant price increases last year, we made a small adjustment to pricing at the beginning of this year and now we're looking at adding significant functionality to all of the tiers.

Scott Wallace Searle: We did some significant price increases last year. We made a small adjustment to pricing at the beginning of this year, and now we're looking at adding significant functionality to all of the tiers of the plans to set us up for the next price increase, which right now would most likely be next year, but that's something we look at every quarter. Our focus for the next, let's say, 12 to 18 months is to drive this innovation in the market, separate Arlo even farther from our competitors, and then we'll take a look at pricing. Great, thanks so much. Your next chain comes from the line of Jacob Stephan from Lake Street. Please go ahead.

The plans to set us up for the next price increase which right now would most likely be next year, but that's something we look at every quarter are focused for the next let's say 12 to 18 months is to drive this innovation and market separate arlo, even further from our competitors and then we'll take a look at pricing at that time.

Okay, great. Thanks, so much.

Thanks Jay.

Comes from the line of Jacob Steven from Lake Street. Please go ahead.

Jacob Michael Stephan: Hey, thanks for taking my questions, guys. Congratulations on a solid year, and Kurt, congrats on the expanded opportunity. Thanks, Jacob. So I just wanted to touch base.

Hey, Thanks for taking my questions guys and congrats on a solid year and Kurt.

Congrats on the expanded opportunity there.

Thanks.

I just wanted to touch.

Matthew Blake McRae: Yeah, absolutely. I just want to touch on the Arlo secure announcement. It sounds like you're adding some pretty robust features there. But when you think about the insurance market, how do you think this increases your exposure there? And Adam.

Absolutely I just wanted to touch on the Arlo secure announcement it sounds like you're adding some pretty robust.

Features there, but when you think about the insurance market.

How do you think this increases kind of your exposure there.

Or anything that we can look out for.

And in that industry.

Matthew Blake McRae: Yeah, so Secure5 is really doing two things. One, it's bringing some really compelling and, I think, very advanced functionality to our end users in the field, but it's also adding a lot of capabilities to the back-end platform around data, data analytics, and the ability to be what we call more contextually aware or situationally aware of what's happening inside that. That is of very high interest for some of our partners when they're trying to understand what the risk profile would be in a house, for instance, from an insurance perspective, or what the real risk profile is for somebody who's aging in place at home. So some of the technology that we're bringing into Secure5 at the end-user level is for those end-user features that we discussed on the call today, but there is a significant upgrade happening to Got it. And then, you know, just on the Verisher agreement here, you're 96 complete at Q4 end. I just want to, you know, double check. Is there anything that happens after that?

Yes, so secure five is really doing two things one is bringing.

Some really compelling.

And I think very advanced functionality to our end users in the field.

But it's also adding a lot of capabilities to the backend platform around data data analytics and the ability to be what we call more contextually aware of situationally aware of what's happening inside that house that is of very high interest for some of our partners.

When they are trying to understand what the risk profile would be in a house for instance for an insurance perspective or what the real risk profile is for somebody who's aging in place at home. So some of the technology that we're bringing into secure five at the end user level is for those end user features that we discussed on the call today.

But there is a significant upgrade happening to the underlying platform to prepare ourselves to be able to address markets that are outside of just the traditional home security space.

Got it and then.

Just on the <unk> agreement here Youre 96 completed.

Q4 end.

I just wanted to double check is there anything that happens after that.

Kurt Binder: www.HamedKhorsand.com The Bulletproof Executive 2013, No, nothing changes there, you know, the agreement with them is five years, and the purchase amount, the $500 million, is a minimum guarantee, like you said, so we have forecasting that already goes beyond the $500 million, so it really is just a minimum guarantee and the business. Yeah, Jacob, just to highlight, we did reference. In the finances, we're at $470 million of the $500 million, and we already have $50 million in the backlog. So there's an expectation that we will exceed $500 million, probably in the next three to four months. And then last one for me here, the large kind of quarterly over quarterly paid sub income. Adam Tindle, Erik Bylin, Scott Searle, Kurtis Binder, Arlo Technologies Inc. Yeah, that's a great question and something we didn't touch on in our original script, which is a good point. We are still, if you remember, doing that catch-up for the Vergeur South region where we have subscribers already on the system but weren't being properly counted. And so what you're seeing there is a larger-than-normal catch-up. We think that we'll see this for another quarter or two, probably at least two quarters.

Minimum purchase requirements fulfilled any sort of ASP.

The product purchases changes or anything to look out for there.

Nothing changes there.

The agreement with them is five years.

The purchase amount of $500 million is a minimum guarantee like you said so.

We have forecasting that already goes beyond the $500 million. So it really is just the minimum guarantee in the business and we'll continue after they reach that threshold.

Yes, Jacob just to highlight we did reference sorry.

Alright, and the finances were at $470 million of the 500, and we already have in backlog another $50 million. So there is an anticipation that we will exceed the 500 probably in the next.

Three to four months here.

Okay and then.

Last one for me here, the large kind of quarter over quarter paid sub increase.

327000.

Can you just kind of touch on the drivers was that a greater share of bearish or paid subs coming through or what was was that a greater share of kind of the consumer.

U S market, yes.

Yes, that's a great question and something we didn't touch on it in our original script, which is which is a good point. We are still if you remember doing that catch up for the very first south region, where we've had subscribers already on the system, but werent being properly counted.

And so what youre seeing there is a larger than normal catch up we think that we'll see this for another quarter or two probably probably at least two quarters actually.

Adam Tindle: The first half of this year, they're still doing some catch-up as we kind of get that backlog done. If you remove most of that, we're right in that range of 170,000 to 190,000 net paid ads per quarter if you back out those Verisure ads. And that's very similar to what we saw in the previous couple of quarters. Okay. Your next question comes from the line of Adam Tindle from Raymond James. Please go ahead.

The first half of this year, where they are still doing some catch up as we kind of get that backlog down.

If you remove most of that we're right in that range of 170 to 190000 net paid ads per quarter. If you back out those bearish or ads and that's very similar to what we saw in the previous couple of quarters when we reported.

Okay.

Your next question comes from the line of Adam Tindle from Raymond James. Please go ahead.

Adam Tindle: Okay, thanks, and congrats on a strong close. I just want to continue with the subscription ads there. I think, Kurt, you mentioned expectations for 2024 are for services revenue growth of around 20%, if I heard that correctly. And if so, I think that implies a net new or incremental services revenue dollar growth of around $40 million. If I look at last year or 2023, which you just finished, it was closer to $60 million.

Okay, Thanks, and congrats on a strong close.

I just wanted to continue on the subscription.

There I think Curt you mentioned expectations for 2024 as for services revenue growth of around 20%, if I heard that correctly and if so I think that implies a net new or incremental services revenue dollar growth of around $40 million.

I looked at last year or 2023, which has just finished it was closer to $60 million. So if you are kind of the same run rate for subscriber adds why would the dollars of services revenue be different year over year is there may be some level of conservatism if you could help us.

Kurt Binder: So if you're on kind of the same run rate for subscriber ads, why would the dollars, www.hamedkhorsand.com Square Libs, Yeah, Adam, thanks for the question. And just to kind of clarify, you're correct, 20% roughly year-over-year growth, $240 million is our target. When you compare it to last year, you have to factor in that we did do a price increase in the early part of 2023. If you recall, we actually implemented that price increase across all of our retail subscriber plans, and it was somewhere around a 20% to 30% increase. So when you factor that in, you can understand the variance that we're talking about here from the $60 million increase from 2023 to the $40 million for 2024. That's the variance you're referencing, Adam. Okay, that's helpful. And then Matt, maybe one for you.

Square that circle.

Yeah, Adam Thanks for the question and just kind of clarify you are correct.

20% roughly year over year growth.

$240 million is our target when you compare to last year you have to factor in that we did do a price increase in the early part of 2023 Youll recall, we actually implemented at price increase across all of our retail.

Subscriber plans and it was somewhere around 20% to 30% increase so when you factor that in you can understand the variance that we're talking about here from the $60 million increase from 2023 to the sorry $40 million for 2024, that's the that's the variance you're referencing Adam.

Got it okay. That's helpful.

And then Matt maybe one for you.

Matthew Blake McRae: You know, Kurt talked about how free cash flow has become transformational, cash generation is going to continue, and I want to double-click on the capital allocation vision from here, how you and the board are thinking about that. Obviously, it sounds like you think there's further room for subscription, dollar growth, and maybe expansion beyond your core adjacency. So on that topic, on that piece of the topic, if you could maybe just talk about how you're thinking about the ceiling for an Arlo customer from a subscription standpoint. I mean, if I think about the LPVs that you're citing, starting to get up there with other, you know, big subscriptions like audio or cable or something like that, you know, where do you think you fit and what would be a natural adj And then secondly, you know, the balance of that strategy versus perhaps pursuing a more shareholder return focus or cash shareholder return instead of pursuing those adjacencies, how you balance that. Yeah, again, great question.

You talked about how free cash flow has become transformational cash generation is going to continue and wanted to double click on the capital allocation vision from here how are you and the board are thinking about that.

Obviously it sounds like you think there's further room for subscription dollar growth and maybe the expansion beyond your core adjacency. So on that topic on that piece of the topic. If you could maybe just talk.

Talk about how youre thinking about the ceiling to our low customer from a subscription standpoint, I mean, if I think about the ltvs that youre, citing starting to get up there with other big subscriptions like audio or or or cable or something like that where do you think you fit in what would be a natural adjacency and then secondly, the <unk>.

Balance of that strategy versus perhaps pursuing a more.

Shareholder return focus our cash shareholder return instead of pursuing those adjacencies, how do you balance that.

Yes again, great question, we've been talking about the capital allocation plan for the last couple of quarters. It is under active discussion with the board.

Matthew Blake McRae: You know, we've been talking about the capital allocation plan for the last couple of quarters. It is under active discussion with the board. We've started meeting as a strategic committee again, so we actually have a formal process, and we're making great progress. I would tell you we kind of break down the capital allocation options into three buckets, a little bit we alluded to on the call. One is obviously organic growth or organic investment.

<unk> started meeting as a strategic committee again, so that we actually have a formal process and we're making great progress I would tell you that we kind of break down the capital allocation options into three buckets, a little bit we alluded to on the call. One is obviously.

Organic growth for organic investment and Thats, something youre seeing in the robust R&D pipeline and some of the things we shared around what's coming with Arlo five youll see the fruition of some of that come in the second half and continue into 2025. So that's one example of an organic bucket of potential innovation and investment.

Matthew Blake McRae: And that's something you're seeing in the robust R&D pipeline and some of the things we shared around what's coming with Arlo 5. You'll see the fruition of some of that come in the second half and continue into 2025. So that's one example of an organic bucket of potential innovation and investment from a capital allocation perspective. We also look at inorganic.

From a capital allocation perspective, we also look at inorganic I briefly commented on a potential acquisition, if we find something opportunistic or something that can either provide additional subscribers are <unk> and kind of consolidate the market a little bit or into an adjacency like youre speaking about.

Matthew Blake McRae: You know, I briefly commented on a potential acquisition if we find something opportunistic or something that can either, you know, provide additional subscribers or ARPU and kind of consolidate the market a little bit or, you know, into an adjacency like you're speaking about and we talked about on the call. And then the third bucket is return to shareholder, whether that's a dividend or a shared value back. So all three are on the table.

And we talked about on the call and then the third bucket is returned to shareholders.

Whether that's a dividend or a share buyback. So all three are on the table. We're actually analyzing what we think is the best long term value creation across all three and it's something we intend to come back and talk more openly about probably in the next quarter or two.

Matthew Blake McRae: We're actually analyzing what we think is the best long-term value creation across all three, and it's something we intend to come back and talk more openly about, probably, in the next quarter. Specifically, when you talk about ARPU and ARPU expansion, whether that's organic or inorganic, you know, moving into a new segment, either way, we think there's actually still a lot of room. You know, our pricing, our average ARPU is $11.30, as we spoke about today. And even in the security space, if you look at the traditional security market, a lot of the pricing to consumers is in the $40, $50, sometimes as high as $70 per month.

Specifically when you talk about <unk> and ARPA expansion, whether that's organic or inorganic moving into a new segment either way, we think there's actually still a lot of room in our pricing. Our average <unk> is $11 30, as we spoke about today.

And even in the security space, if you look at the traditional security market.

A lot of the pricing to consumers is in the $40 $50, sometimes as high as $70 per month, and we feel we provide a superior user experience a superior service with a lot more features and capabilities.

Matthew Blake McRae: We feel we provide a superior user experience, a superior service with a lot more features and capabilities. So I think we're nowhere near what I would call a ceiling, even in our core market before we start looking at potential adjacencies where we can leverage the platform technologies that we have, you know, things like aging in place or in the insurance market. So that's part of why we're excited. It's part of why I think you'll see us go through this capital application plan very carefully and make sure we're maximizing the ROI for investors as we look ahead. Very helpful, thank you. Your next question comes from the line of Anthony Stoss from Craig Hallam. Please go ahead.

So I think we are nowhere near what I would call a ceiling even in our core market before we start looking at potential Adjacencies, where we can leverage.

The platform technologies that we have things like aging in place or in the insurance market. So that's part of why we're excited is part of why I think youll see US go through this capital allocation plan very carefully.

And make sure we're maximizing the ROI for.

<unk> investors as we're looking forward.

Very helpful. Thank you.

Your next question comes from the line of Anthony Stoss from Craig Hallum. Please go ahead.

Anthony Stoss: Hey guys, great presentation and congrats on the new cash flow levels. Kurt, I just wanted to confirm something that by the end of this year, maybe early 2025, your service revenue should probably be approaching or over 50% of revenue. And then Matt, I'd love to hear your view on any kind of expansion outside of the US and bearish or any thoughts or plans on expansion internationally. Yeah, thanks, Tony. I appreciate the question. And just to point out that this past year, we came in at an average of 41% of our total combined revenue from services. When you look at 2024, and our plan that is in front of us, you know, our target is to come in somewhere between 47 to 50% of our overall revenue from service revenue. So I think it's really in line with what you were expecting.

Hi, guys, great presentation, and congrats on the new cash flow levels could I just wanted to confirm something that by the end of this year, maybe early 2025 year service revenue should be probably approaching or over 50% of revs.

And then Matt and love to hear your view on kind of expansion outside of the U S and very sure any thoughts or plans on expansion internationally.

Yes, Thanks, Tony I appreciate the question and just to point out for this past year. We came in at an average of 41% of our total combined revenue was from services. When you look at 2024 and our plan that is in front of US our target is to come in somewhere between 47% to 50% of our overall.

Revenue being service revenue. So I think it's really in line with what you were expecting and then of course as you get out beyond 2024 into 2025 in 2026. Our goal is that we would exceed the 50% target. We know that above 50% is really that period when companies that are in our space labor.

Kurt Binder: And then, of course, as we get out beyond 2024 into 2025 and 2026, our goal is, you know, that we would exceed the 50% target. We know that above 50% is really that period when companies that are in our space, labeled as SaaS or software providers, get what we call a re-rating in the stock. And so we're very laser focused on that topic, and we also believe that the long, long-range targets that we've laid out help us get there in a reasonable time period. So hopefully, that answers your question. Yeah, and then on the international front, it's a great topic.

To SaaS or software providers get what we call a re rating in the stock and so we're very laser focused on that topic and we also believe that the long range targets that we've laid out help us get there in a reasonable time period. So hopefully that answers your question yes.

Yes, and then on the on the International front, that's a great topic.

Matthew Blake McRae: You know, I tell you, today, obviously, the United States, or North America broadly, plus the EU and the UK, are the largest markets, and we feel like we've got a really good footprint here in the United States that's growing, and you can see the performance that we're generating here. And through our partnership with Ferrissure, which has been an outstanding partnership and a win-win relationship with them, we address that. What I'll tell you is, as part of our long-range plan, we are looking at other markets, and it's very clear to me that safety and security is a hot topic, top of mind with consumers and small businesses in many other regions in the market and across the world. But I will also say that in many of those markets, when we first looked at them maybe four or five years ago when we spun out from NIC here, it just didn't And I'm talking about things like household GDP, broadband penetration, some of the underlying requirements that allow our solution to lie on top of and actually be successful.

I'll tell you today, obviously, the United States or North America broad with broader plus the EU and the U K are the largest markets and we feel like we've got a really good footprint here in the United States, that's growing and you can see the performance that we are generating here and through our partnership with <unk>, which is it's been an outstanding partnership and a win win relationship with them.

Addressing that market what I will tell you is as part of our long range plan. We are looking at other markets and it's very clear to me that safety and security.

<unk> is a hot topic.

Top of mind with consumers and small businesses in many other regions in the market and across the World I will also say that in many of those markets, where when we first looked at in maybe four or five years ago. When we spun from Nick here.

It just didn't make sense because some of the underlying metrics for those regions Werent, there and I'm talking about things like household GDP broadband penetration some of the underlying requirements that allows our solution to lay on top and actually be successful I do believe in the next two or three years a lot of that is starting to change and we will open up.

Matthew Blake McRae: I do believe in the next two or three years a lot of that is starting to change and will open up our ability to potentially look at markets that are outside, you know, North America and Europe. And that'll be something that we'll do probably in the second part of our launch. And if I could sneak in one more question, I'm curious about share gains and your competing companies, the number of skus at retail, if you're seeing that shrink or your view on where the market's shaking out. Yeah, we're seeing what I would call consolidation. We, you know, we mentioned on the call today that we are gaining share here in the United States, which is great, you know, and that obviously feeds into household formation, which feeds into paid accounts, service revenue, and gross margins.

Our ability to potentially look at markets that are outside.

North America, and Europe, and that will be something that we'll do you probably in the second part of our long range plans.

And if I could sneak in one more just curious on.

On share gains and Youre competing companies number of Skus at retail if youre seeing that shrink or your view on <unk>.

Just where the market shaking out.

Yes, we are seeing.

What I would call consolidation.

We mentioned on the call today that we are gaining share here in the United States.

Which is great and that obviously feeds into household formation, which feeds into paid accounts and service revenue and gross margin. So that is part of our pricing strategy going forward is to make sure that we're actually capturing share and growing faster than market when I look at the competitive landscape.

Matthew Blake McRae: So that is part of our pricing strategy going forward to make sure that we're actually capturing share and growing faster than the market. When I look at the competitive landscape, we're starting to see competitors drop off and whether that's being removed from a shelf because it's just not being productive for that retailer or kind of moving away from the category or some of the largest partners or competitors that you see in the market today, very large brands, very, very large companies de-emphasizing, laying off people in their device category and not focusing on it like Arlo or us This is all we do. This is our pure play. So, I think there is some consolidation happening. There's some defocusing happening, and I think it's an opportunity for us to continue to capture share and grow over our long-range plans. Perfect. Best of luck, guys! Thank you. Thank you. Your next question comes from the line of Hamed Khorsand from BWS Financial. Please go ahead.

We're starting to see competitors drop off and whether that's being removed from a shelf because it's just not being productive for that retailer or kind of moving away from the category or some of the largest partners.

Competitors that you see in the market today very large brands very very large companies deemphasizing laying off people in their device category.

And not focusing on it like Arlo where to US. This is all we do this as our pure play. So I think there is some consolidation happening there's some defocus happening and I think it's an opportunity for us to continue to capture share and grow over our long range plan period.

Perfect. Thanks, Good luck guys. Thank you.

Thank you.

Your next question comes from the line of Amit Hamad <unk> from Dws financial. Please go ahead.

Hamed Khorsand: Hi, so first off, could you just talk about why there's this catch-up with Verishore still going on...

Hi, So first off could you just talk about <unk>.

Why there is this catch up with very short still going on and why you still need another two quarters for this to finalize.

Matthew Blake McRae: Yeah, to get these cameras to increment and actually count as paid households, they are doing a firmware update to a very large region, to what they call their central unit. And that firmware update, they push in batches, will only work if the system at that user's home is unarmed. They don't want to reset the device if it's unarmed.

Yes.

To get these.

Cameras to increment in <unk> account as paid household they are doing a firmware update to a very large region.

To their what they call their central unit and a firmer update.

In batches and it will only work if the system at that user's home is an armed they don't want to reset the device if its armed and so they are rolling it out in batches and they're rolling it out at different times of day.

Matthew Blake McRae: And so they are rolling it out in batches, and they're rolling it out at different times of day. And also being careful, I think, from a risk mitigation perspective, if something goes wrong, they don't want to do too many at once. So, our estimation is we've got maybe another couple quarters of catch-up on that, and we will be transparent on every call, giving you an indication of, you know, what is really catch-up and what is net paid ads on every call. Okay, and then as far as the services go, I mean, you increase prices. At the end of January, why doesn't that translate into larger revenue growth this year? Your annual numbers went up, and your low-tier subscription number went up by 6%. The Elliott Films Company, LLC.

So being careful I think from a risk mitigation perspective, if something goes wrong. They don't want to do too many at one point.

Our estimation is we've got maybe another couple of quarters of catch up on that.

And we were transparent on every call, giving you an indication of what is really catch up and what is net paid ads.

Every quarter.

Okay.

And then as far as the.

Services scope.

Increased prices at the end of January.

Why doesn't that translate into.

Larger revenue growth this year.

Yes.

Your annual numbers one of your.

Low tier subscription number went up by 60% as far as the price increases are concerned.

Matthew Blake McRae: Yes, so last year we made a price increase across all of our accounts by roughly 30%. This year, we made a small adjustment to only our single camera, and that has to do with the cost associated with a single camera. As we roll out some of the new features later this year, there's a higher compute cost for that. And so if someone has a single camera, what we found is a lot of the... A lot of the usage actually lands on that first camera. So you can imagine a user, even if they have three or four cameras, usually, that first camera goes at the front door and has the majority of the events, computation, storage, and other costs with it.

Yes, so last year, we made a price increase across all of our accounts.

At roughly 30% this year, we made a small adjustment to only our single camera plan and that has to do with the costs associated with a single camera as we roll out some of the new features features later this year Theres, a higher compute for that and so if someone has a single camera. What we found is a lot of the.

A lot of the usage actually lands on that first camera. So you can imagine a user but even if they have three or four cameras, usually that first camera goes at the front door and has a majority of the events compute storage and other.

Matthew Blake McRae: So we're adjusting to reflect that correctly and prepare for the feature sets that are going out. But the adjustment we made this year was only on single camera plans, which is not the most popular plan that we have. And that was going to be my follow-up question. I know you've been talking about an $11 average, but given that you had this huge promotion at Walmart this past quarter, what are the implications there on the market? Yeah, we don't know yet because we're still watching those cameras come online, and, you know, for our attach rate metrics, it takes us six months of data because that's the definition of our attach rate. We're seeing good conversion rates that're actually, in some cases, ahead of Essential One, which is great. And it really depends on how many cameras they bought.

Their cost with it so we're adjusting to reflect that correctly and prepare for the feature sets that are going out but the adjustment. We made this year was only on single camera plans, which is not the most popular plan.

We have.

And that was going to be my follow up is that.

I know that you've been talking about a $11 average but.

Given that you had this huge promotion at Wal Mart this past quarter.

What's the implications there on the on the mix.

Yes, we don't know yet because we're still watching those cameras come online and for our attach rate metrics that takes us six months of data because that's the definition of our attach rate. We're seeing good conversion rate. That's actually in some cases ahead of our central won which is great and it really depends on how many cameras they bought and with interest.

Matthew Blake McRae: And what's interesting is sometimes when the price is really low and you do a big promotion, people don't buy one; they grab two or three. So when you look at our plans, we've always kind of guided, even though we don't break out the plans specifically, we like people to kind of think of a bell curve where the middle plans, you know, our 1299 plan, as an example, are kind of the most popular plans. And the plans on the edges are $25, you know, safe and secure plans, and a single cam on the other side is lower in their price.

And sometimes when the price is really low and you do a big promotion people don't buy one that grabbed two or three.

So when you look at our plans, we've always kind of guided even though we don't breakout the plants, specifically, we'd like people to kind of think of a bell curve, where the middle plans are 12 99 plan. As an example is kind of the most popular plan and the plans on the edges are 25 dollar savings here plan in a single Cam on the other side are lower.

They're in their number.

Great. Thank you.

Youre welcome.

We have no further questions in our queue at this time I will now turn the call back over to Matt Mcrae for closing remarks.

Thank you everybody for joining us on our Q4 and 2020 for 2023 earnings call.

Hamed Khorsand: Great, thank you. You're welcome. We have no further questions in our queue at this time. I will now turn the call back over to Matt McRae for closing remarks. Thank you, everybody, for joining us on our Q4 and 2023 earnings call. Hopefully, you got a lot of information on where we're headed and our new long-range targets. And we look forward to speaking again. This concludes today's conference call. Thank you for your participation, and you may now disconnect.

<unk> got a lot of information on where we're headed and our new long range targets and we look forward to speaking again soon.

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Yes.

[music].

Okay.