Q2 2024 Arlo Technologies Inc Earnings Call

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

Operator: The participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you would need to press the star 1 on your push-button phone. And I would now like to turn the conference over to Tahmin Clarke. Please go ahead, sir. Thank you.

Later, we will conduct a question and answer session.

At that time, if you have a question, you would need to press the star 1 on your push-button phone.

And now I'd now like to turn the conference over to Tahmin Clarke.

Tahmin Clarke: Good afternoon, and welcome to Arlo Technologies' second quarter 2024 financial results conference call. Joining us from the company are Mr. Matthew McRae, CEO, and Mr. Kurt Binder, COO, and CFO.

Tahmin Clarke: Please go ahead, sir. Thank you, operator.

Tahmin Clarke: Good afternoon and welcome to our low technology second quarter, 2024 financial results conference call.

Speaker Change: Joining us from the company are Mr. Matthew McRae, CEO , and Mr. Kurt Binder, COO and CFO .

Tahmin Clarke: The format of the call will start with an introduction and commentary on the business provided by Matt, followed by a review of the financials for the second quarter, along with guidance for the third quarter provided by Kurt. We will then take questions.

Speaker Change: The format of the call will start with an introduction and commentary on the business provided by Matt.

Kurt Binder: Followed by a review of the financials for the second quarter along with guidance for the third quarter provided by Kurt.

Tahmin Clarke: If you have not received a copy of today's release, please visit Arlo's Investor Relations website at investor.arlo.com. 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 conditions, including descriptions of our revenue, gross margins, operating margins, earnings per share, expenses, cash outlook, free cash flow, and free cash flow margins. Guidance for the third quarter of 2024 are long-range plan targets.

Speaker Change: We will then take questions.

Speaker Change: If you have not received a copy of today's release, please visit Arlo's Investor Relations website at Investor.Arlo.com.

Tahmin Clarke: The Rate and Timing of Paid Subscriber Growth, 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. The effect of our brand awareness campaign on future growth.

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

Kurt Binder: Forward-looking statements include statements regarding our potential future business.

Kurt Binder: Operating results and financial conditions, 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 third quarter of 2024.

Speaker Change: Our long-range plan targets the rate and timing of paid subscriber growth.

Operator: time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question, you would need to press the star one when you're pushed by the phone.

Kurt Binder: The Transition to a Services First Business Model.

Kurt Binder: The commercial launch and momentum of new products and services.

Kurt Binder: Strategic Objectives and Initiatives

Tahmin Clarke: And I would now like to turn the conference over to Tahmin Clarke. Please go ahead, sir. Thank you, operator.

Speaker Change: Market Expansion and Future Growth.

Kurt Binder: The effect of our brand awareness campaign on future growth.

Tahmin Clarke: Good afternoon and welcome to Arlo Technologies, second quarter, 2024 financial results conference call. Joining us from the company are Mr. Matthew McRae CEO and Mr. Kurt Binder, COO and CFO. The format of the call will start with an introduction and commentary on the business provided by Matt, followed by a review of the financials for the second quarter along with guidance to the third quarter provided by Kurt. We will then take questions.

Kurt Binder: partnerships with various market leaders and strategic collaborators

Kurt Binder: continued new product and service differentiation, and the impact of general macroeconomic conditions on our business, operating results, and financial condition.

Tahmin Clarke: 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 results. However, actual results or trends could differ materially from those contemplated by these forward-looking statements. 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.

Kurt Binder: Asso results for trends could differ materially from those contemplated by these four looking statements.

Arlo: 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 .

Tahmin Clarke: If you have not received a copy of today's release, please visit Arlo's investor relations website at investor dot Arlo dot com. 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 third quarter of 2024.

Kurt Binder: Any four looking statements that we make on this call are based on assumptions as of today, and all undertakes no obligation to update these statements as a result of new information or future events.

Tahmin Clarke: 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.

Kurt Binder: 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.

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

Matthew McRae: Thank you, Tahmin, and thank you everyone for joining us today on Arlo's second quarter 2024 earnings call. Once again, Arlo executed well in a tough environment to deliver another truly outstanding quarter.

Matt: Thank you, Tahmin, and thank you everyone for joining us today on Arlo's second quarter 2024 earnings call. Once again, Arlo executed well in a tough environment to deliver another truly outstanding quarter.

Tahmin Clarke: Our long range plan targets, the rate and timing of paid subscriber growth, the transition to a services first business model, the commercial launch and momentum of new products and services, strategic objective initiatives, market expansion and future growth, the effect of our brand awareness campaign on future growth, partnerships with various market leaders and strategic collaborators, continued new product and service differentiation. And the impact of general macro economic conditions on our business operating results and financial condition.

Matthew McRae: Total revenue came in at $127 million, up 11% year-over-year, and our annual recurring revenue, or ARR, was up over 21% year-over-year to reach $235 million. Arlo also recently hit 4 million paid accounts, an increase of 74% year over year. Our average revenue per user, or ARPU, for retail and direct paid accounts grew to $12, a new record for Arlo, on the back of a small increase in single camera pricing and an overall mixed shift to higher tier service.

Matt: Total revenue came in at $127 million, up 11% year of a year, and our annual return revenue, or AR, was up over 21% year over year to reach $235 million.

Matt: Arlo also recently hit 4 million paid accounts, an increase of 74% year-over-year.

Matt: Our average revenue per user, or ARPU, for retail and direct paid accounts grew to $12, a new record for Arlo, on the back of a small increase on single camera pricing and an overall mixed shift to higher tier service plans.

Tahmin Clarke: After results or trends could differ materially from those contemplated by these forward looking statements. 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 10K and quarterly report on form 10Q. 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-gap financial measures will be discussed on this call. A reconciliation of the gap to non-gap measures can be found in today's press release on our investor relations website.

Matthew McRae: Based on this strong performance, Arlo delivered non-gap earnings per share of $0.10 in Q2, which brings earnings per share for the first half to $0.19, up an incredible 171% year over year. Shortly, Kurt will walk you through our results in greater detail.

Matt: Based on this strong performance, Arlo delivered non-GAAP earnings per share of 10 cents in Q2, which brings the earnings per share for the first half to 19 cents, up an incredible 171% year-over-year.

Matt: Shortly, Kurt will walk you through our results in greater detail, but these highlights illustrate the power of our business model.

Matthew McRae: But these highlights illustrate the power of our business model and our accelerating trajectory towards our long-range targets of 10 million paid accounts, $700 million in ARR, and over 25% operating margin. A huge congratulations to the entire Arlo team, and thank you for your focus on the execution of the business. It is a pleasure to work with such a dedicated team that cares so deeply about bringing the best security experience to our customers.

Kurt Binder: and our accelerating trajectory towards our long-range targets of 10 million paid accounts.

Tahmin Clarke: At this time, I would now like to turn the call over to Matt. Thank you, Tom. And thank you, everyone, for joining us today on Arlo's second quarter, 2024 earnings talk.

Kurt Binder: $700 million in ARR and over 25% operating margins.

Speaker Change: A huge congratulations to the entire Arlo team. And thank you for the focus on the execution of the business. It is a pleasure to work with such a dedicated team that cares so deeply about bringing the best security experience to our customers.

Matthew McRae: Once again, Arlo executed well in a tough environment to deliver another truly outstanding quarter. Total revenue came in at $127 million, up 11% year over year. Arlo also recently hit 4 million paid accounts, an increase of 74% year over year. Our average revenue per user for Artoot for retail and direct paid accounts grew to $12, a new record for Arloot on the back of a small increase on single-camera pricing and an overall mix shift to higher tier service plans. Based on this strong performance, Arloot delivered non-gap earnings per share of 10 cents in Q2, which brings the earnings per share for the first half to 19 cents up an incredible 171 percent year-over-year.

Matthew McRae: We now find ourselves at the midpoint of the year, and with a big holiday season ahead, I thought I would provide some commentary on the trends we are seeing and our expectations for the balance of 2024. Across our channels, we see the consumer is under some pressure, which often results in a step down in the price segment of the initial hardware.

Speaker Change: We now find ourselves at the midpoint of the year with a big holiday season ahead of us.

Speaker Change: I thought I would provide some commentary on the trends we are seeing and our expectations for the balance of 2024.

Speaker Change: Across our channels, we see the consumer is under some pressure which often results in a step-down in the price segment of the initial hardware purchase.

Matthew McRae: Arlo anticipated this environment with our pricing strategy, where we brought down our initial hardware margins but raised our service pricing, which has driven an expansion of ARR and profitability. This decision has sustained household formation and, coupled with the tailwind in the security segment, delivered excellent conversion and low turn rates in our subscription business. Looking ahead to the holiday season, Arlo has worked closely with its channel partners to create an aggressive promotional calendar. The Essential 2 product line is the right product at the right time to drive additional household adoption and address the category shift to mass market.

Arlo: Arlo anticipated this environment with our pricing strategy where we brought down our initial hardware margin but raised our service pricing which has driven an expansion of ARR and profitability.

Arlo: This decision has sustained our household formation and coupled with the tailwind in the security segment delivered excellent conversions and low-turn rates in our subscription business.

Arlo: Looking ahead to the holiday season, Arlo has worked closely with our channel partners to create an aggressive promotional calendar.

Matthew McRae: Shortly, Kurt will walk you through the results in greater detail, but these highlights illustrate the power of our business model and our accelerating trajectory towards our long-range targets of 10 million paid accounts, $700 million in ARR, and over 25% operating margins. A huge congratulations to the entire Arlo team, and thank you for the focus on the execution of the business. It is a pleasure to work with such a dedicated team that cares so deeply about bringing the best security experience to our customers. We now find ourselves at the midpoint of the year with a big holiday season ahead of us.

Arlo: The Essential 2 product line is the right product at the right time to drive additional household adoption and address the category shift to mass market.

Matthew McRae: Our current read is that the second half of 2024 is going to look very similar to the second half of 2023, and Arlo is extremely well positioned to repeat our success and continue to drive new paid accounts. Switching to our strategic partner channel, I mentioned on our last earnings call that interest and engagement in this area have increased substantially. That remains the case.

Arlo: Our current read is the second half of 2024 is going to look very similar to the second half of 2023. And Arlo is extremely well positioned to repeat our success and continue to drive new paid accounts.

Arlo: Switching to our strategic partner channel, I mentioned on our last learnings call that interest and engagement in the area has increased substantially. That remains the case. As you know, we recently renewed our successful partnership with Veriser for another five years.

Matthew McRae: As you know, we recently renewed our successful partnership with Verisure for another five years. This collaboration has driven strong growth across the European region. And after a recent joint strategic planning session, we see opportunities to grow that relationship even further. Arlo also announced a strategic partnership with Allstate to bring additional security and protection options to both of our customer bases. There is a natural fit between Arlo and the insurance industry as we look at the full spectrum of services a customer can benefit from in the broader safety and security space. This is our initial foray into the InsureTech segment, but you will see more activity from us in the future, including additional rollouts with Allstate as our full partnership unfolds.

Matthew McRae: I thought I would provide some commentary on the trends we are seeing in our expectations for the balance of 2024. Across our channels, we see the consumer is under some pressure, which often results in a step down in the price segment of the initial hardware purchase. Arloot anticipated this environment with our pricing strategy where we brought down our initial hardware margin, but raised our service pricing, which has driven an expansion of ARR and profitability.

Arlo: This collaboration has driven strong growth across the European region, and after a recent joint strategic planning session, we see opportunities to grow that relationship even further.

Speaker Change: Arlo also announced a strategic partnership with Allstate to bring additional security and protection options to both of our customer bases.

Speaker Change: There is a natural fit between Arlo and the insurance industry as we look at the full spectrum of services a customer can benefit from in the broader safety and security space.

Matthew McRae: This decision has sustained our household formation and coupled with the tailwind in the security segment, delivered excellent conversion and low turn rates in our subscription business. Looking ahead to the holiday season, Arloot has worked closely with our channel partners to create an aggressive promotional calendar. The essential two product line is the right product at the right time to drive additional household adoption and address the category shipped to mass markets. Our current read is the second half of 2024 is going to look very similar to the second half of 2023, and Arloot is extremely well-positioned to repeat our success and continue to drive new paid accounts.

Speaker Change: This is our initial foray into the InsureTech segment, but you will see more activity from us in the future, including additional rollouts with Allstate as our full partnership unfolds.

Matthew McRae: This resurgence of activity reaches beyond Beresher and all. There are other major entities looking to partner with Arlo across several verticals, including smart security, insurance, and telecom. We expect a significant portion of our growth toward our long-range targets to come from future strategic partnerships and plan to bring additional engagements to fruition over the next two to three years. And now, I would like to provide a detailed update on Arlo's capital allocation plan.

Speaker Change: This resurgence of activity reaches beyond Beresher and Allstate. There are other major entities looking to partner with Arlo across several verticals including smart security, insurance, and telecom.

Speaker Change: We expect a significant portion of our growth toward our long-range targets to come from future strategic partnerships.

Speaker Change: Implanned to bring additional engagements to fruition over the next two to three years.

Matthew McRae: Switching to our strategic partner channel, I mentioned on our last earnings call that interest and engagement in this area has increased substantially. That remains the case. As you know, we recently renewed our successful partnership with Verisher for another five years. This collaboration has driven strong growth across the European region, and after a recent joint strategic planning session, we see opportunities to grow that relationship even further. Arloot also announced a strategic partnership with all states to bring additional security and protection options to both of our customer bases.

Speaker Change: And now, I would like to provide a detailed update on Arlo's capital allocation planning.

Matthew McRae: Our consistent and increasing levels of success will continue to generate substantial resources for Arlo to deploy on our journey towards the long-range targets we established earlier this year. Since the fourth quarter of last year, we have leveraged the broad experience and knowledge of our board's strategic committee to explore and analyze numerous options to drive additional shareholder value. First is the area of organic investment in our. The teams at Arlo have been developing truly groundbreaking technologies that will continue to extend our lead in the smart security industry and deliver new user experiences in our core market. I am convinced now more than ever that another wave of innovation is beginning, and Arlo will continue to set the pace like we did when we launched our first camera nearly 10 years ago.

Speaker Change: Our consistent and increasing levels of success will continue to generate substantial resources for our load to deploy on our journey towards the long-range targets we established earlier this year.

Speaker Change: Since the fourth quarter of last year, we have leveraged the broad experience and knowledge of our board's strategic committee to explore and analyze numerous options to drive additional shareholder value.

Speaker Change: First is the area of organic investment in our business.

Speaker Change: The teams at Arlo have been developing truly groundbreaking technologies that will continue to extend our lead in the smart security industry and deliver new user experiences in our core market segments.

Matthew McRae: There is a natural sit between Arlo and the insurance industry as we look at the full spectrum of services a customer can benefit from in the broader safety and security space. This is our initial foray into the insure tech segment, but you will see more activity from us in the future, including additional rollouts with all states as our full partnership unfolds. This resurgence of activity reaches beyond bearish in all states. There are other major entities looking to partner with Arlo across several verticals, including smart security, insurance and telecom.

Speaker Change: I am convinced, now more than ever that another way of innovation is beginning and our role continued to set the pace like we did when we launched our first camera nearly 10 years ago.

Matthew McRae: The first marker on our three-year roadmap will be the Arlo SecureFive platform, which we announced earlier this year. It will deliver several major service enhancements and industry-first features, including custom private AI models to drive an amazing smart security user experience.

Speaker Change: The first marker on our three-year roadmap will be the Arlo Secure5 platform which we announced earlier this year.

Speaker Change: It will deliver several major service enhancements and industry-first features including custom private AI models to drive amazing smart security user experiences.

Matthew McRae: We expect a significant portion of our growth toward our long range targets to come from future strategic partnerships and plan to bring additional engagements to fruition over the next two to three years. Our consistent and increasing levels of success will continue to generate substantial resources for Arlo to deploy on our journey towards the long range targets we established earlier this year.

Matthew McRae: And we are already beginning work on Arlo Secure 6, which we will talk more about sometime next year. Arlo has also defined and started developing a three-year device roadmap that will solidify our leadership position in several key security sectors. This will include key refreshes of existing product lines across the company but also the design and development of a new DIY security concept that we believe will revolutionize the security market segment once again.

Speaker Change: And we are already beginning work on Arlo Secure 6, which we will talk more about sometime next year.

Speaker Change: Arlo has also defined and has started development of a three-year device roadmap that will solidify our leadership position in several key security seconds.

Speaker Change: This will include key refreshes of existing product lines across the company, but also the design and development of a new DIY secured concept that we believe will revolutionize the security market segment once again.

Matthew McRae: Since the fourth quarter of last year, we have leveraged the broad experience and knowledge of our board's strategic committee to explore and analyze numerous options to drive additional shareholder value. First is the area of organic investment in our business. The teams that Arlo have been developing truly groundbreaking technology that will continue to extend our lead in the smart security industry and deliver new user experiences in our core market segments. I am convinced now more than ever that another wave of innovation is beginning and Arlo continued to set the pace like we did when we launched our first camera nearly 10 years ago.

Matthew McRae: We are targeting a 2026 or early 2027 launch, and I am genuinely excited about the impact it will have on our industry. And finally, Arlo will be increasing its investment and focus on enhancing its customer experience. Execution against these initiatives is more important than ever as our category enters the mass market phase, which started with our hugely successful holiday selling season with Walmart in the fourth quarter of last year.

Speaker Change: We are targeting at 2026 or early 2027 launch and I am genuinely excited about the impact it will have on our industry.

Speaker Change: And finally, Arlo will be increasing our investment and focus on enhancing our customer experience.

Speaker Change: Execution against these initiatives is more important than ever as our category enters the mass market phase, which started with our hugely successful holiday selling season with Walmart in the fourth quarter of last year.

Matthew McRae: Our user community is broadening quickly, and our ability to support and maintain these customers has an enormous ROI for the business. In the future, Arlo may include upper funnel marketing and brand awareness spending when the market conditions and consumer sentiment result in a better outcome. But at this time, our assessment of the general market conditions does not provide the return we are looking for yet.

Speaker Change: Our user community is broadening quickly, and our ability to support and maintain these customers has an enormous ROI for the business.

Matthew McRae: The first marker on our three year roadmap will be the Arlo secure five platform which we announced earlier this year. It will deliver several major service enhancements and industry first features, including custom private AI models to drive amazing smart security user experiences. And we are already beginning work on Arlo secure six, which we will talk more about sometime next year. Arlo has also defined and have started development of a three year device roadmap that will solidify our leadership position in several key security segments. This will include key repressions of existing product lines across the company, but also the design and development of a new DIY secured concept that we believe will revolutionize the security market segments once again.

Speaker Change: In the future, Arlo may include upper funnel marketing and brand awareness spending when the market conditions and consumer sentiment will result in a better outcome. But at this time, our assessment of the general market conditions does not provide the return we are looking for, yet.

Matthew McRae: The second major area of our capital allocation plan is external investments or acquisitions. We are actively filtering and evaluating potential transactions that would accelerate our execution towards our long-term target. The potential opportunities tend to fall into two major buckets. The first bucket is something new to Arlo, a new technology, a new product line, a new channel, or another area that is not part of our current core business. The second bucket represents possible paths to market consolidation, potentially acquiring an entity in our core market that could accelerate market expansion.

Speaker Change: The second major area of our capital allocation plan is external investments for acquisition.

Speaker Change: We are actively filtering and evaluating potential transactions that would accelerate our execution towards our long-range target.

Speaker Change: The perspective of opportunities tend to fall into two major buckets. The first bucket is something new to our low, a new technology, a new product line, a new channel, or another area that is not part of our current core business.

Speaker Change: The second bucket represents possible paths to market consolidation, potentially acquiring an entity in our core market that could accelerate market expansion.

Matthew McRae: We are targeting a 2026 or early 2027 launch and I am genuinely excited about the impact it will have on our industry. And finally, Arlo will be increasing our investment and focus on enhancing our customer experience. Execution against these initiatives is more important than ever as our category is the mass market phase which started with our hugely successful holiday selling season with Walmart in the fourth quarter of last year. Our user community is broadly quickly and our ability to support and maintain these customers has an enormous ROI for the business.

Matthew McRae: In general, it is clear that some level of inorganic investment could drive additional growth for Arlo, and it is likely that you'll see the company take actions along this path in the next 12 to 18 months. Irrespective of the opportunity we pursue, we will remain disciplined in our approach, assess the risks of such transactions, and ensure that our path to our long-range targets is not compromised. The third and final area of our capital allocation discussion is around the direct shareholder return of capital, such as a stock we purchase.

Speaker Change: In general, it is clear that some levels in organic investment could drive additional growth for our low, and it is likely that you will see the company take actions along this path in the next 12 to 18 months.

Speaker Change: Irrespective of the opportunity we pursue, we will remain disciplined in our approach, assess the risks of such transactions, and ensure that our path to our long-range targets is not compromised.

Speaker Change: The third and final area of our capital allocation discussion is around the direct shareholder return of capital, such as a stock we purchase.

Matthew McRae: In the future, Arlo may include upper funnel marketing and brand awareness spending when the market conditions and consumer sentiment will result in a better outcome. But at this time, our assessment of the general market conditions does not provide the return we are looking for.

Matthew McRae: This approach is under active consideration, albeit at a lower priority, given the potential massive returns from the other areas of our capital allocation plan. However, given the trajectory of the business, we will continue to explore the right timing to execute such a program as we progress on our long-range plan. Arlo's capital allocation plan represents a new vector of shareholder value creation, enabled through the monumental success of our business transformation. However, market conditions may change, which may cause us to alter or update our thinking around the best path forward together.

Speaker Change: This approach is under active consideration, albeit at a lower priority given the potential massive returns from the other areas of our capital allocation plan. However, given the trajectory of the business, we will continue to explore the right timing to execute such a program as we progress on our long-range plan.

Matthew McRae: Yes, the second major area of our capital allocation plan is external investments or acquisitions. We are actively filtering and evaluating potential transactions that would accelerate our execution towards our long range target. The perspective opportunities tend to fall into two major bugs. The first bucket is something new to Arlo. A new technology, a new product line, a new channel or another area that is not part of our current core business. The second bucket represents possible paths to market consolidation, potentially acquiring an entity in our core market that could accelerate market expansion.

Speaker Change: Our Loved Capital Allocation Plan represents a new vector of shareholder valuations, enabled through the monumental success in our business transformation.

Speaker Change: Marks and conditions may change, which may cause us to alter or update or thinking around the best path forward together, but you have first and my commitment to remain transparent and open in our communication around the strategic direction of the company.

Matthew McRae: But you have heard my commitment to remain transparent and open in our communication around the strategic direction of the company, and now I'll turn it over to Kurt for a more in-depth review of these Q2 results. Thank you, Matt!

Speaker Change: And now I'll turn it over to Kurt for a more in-depth review of these Q2 results.

Kurt Binder: Thank you, Matt, and thank you everyone for joining us today. I will start by sharing some financial details and providing an overview of the business for Q2 2020. Total revenue for the second quarter of 2024 came in at $127.4 million, up 11% over the prior year period. In the quarter, service revenue represented about 47% of total revenue, up from 44% in the same period last year and quickly approaching the 50% threshold.

Kurt Binder: Thank you, Matt. And thank you, everyone, for joining us today. I will start by sharing some financial details and provide an overview of the business for Q2 2024.

Matthew McRae: In general, it is clear that some level of inorganic investment could drive additional growth for Arlo, and it is likely that you will see the company take actions along this path in the next 12 to 18 months. Irrespective of the opportunity we pursue, we will remain disciplined in our approach, assess the risks of such transactions, and ensure that our path to our long-range targets is not compromised.

Kurt Binder: Total revenue for the second quarter of 2024 came in at $127.4 million, up 11% over the prior year period.

Kurt Binder: In the quarter, service revenue represented about 47% of total revenue, up from 44% in the same period last year, and quickly approaching the 50% threshold.

Matthew McRae: The third and final area of our capital allocation discussion is around the direct shareholder return of capital, such as a stock repurchase. This approach is under active consideration, albeit at a lower priority given the potential massive return from the other areas of our capital allocation plans. However, given the trajectory of the business, we will continue to explore the right time to execute such a program as we progress on our long-range plans.

Kurt Binder: This shift in our growing recurring revenue base reflects the continued momentum that we have gained in our transformation to a services-first business. Our installed base of subscribers continued its strong growth trajectory as we reached just under 4 million paid accounts by the end of Q2, an increase of approximately $745,000 in paid accounts in the quarter. The significant increase in paid accounts reflects a substantial catch-up in the very short subscribers, as discussed on previous calls. We continue to believe that the catch-up will be largely complete by next quarter.

Speaker Change: This shift in our growing recurring revenue base reflects the continued momentum that we have gained in our transformation to a services-first business.

Speaker Change: Our install base of subscribers continued its strong growth trajectory as we reached just under 4 million paid accounts by the end of Q2. An increase of approximately 745,000 paid accounts in the quarter.

Matthew McRae: Arlo's capital allocation plan represents a new vector of shareholder valuation, enabled through the monumental success in our business transformation. Marketing conditions may change, which may cause us to alter or update our thinking around the best paths forward together, but you have hurt and my commitment to remain transparent and open in our communication around the strategic direction of the company.

Kurt Binder: The significant increase in paid accounts reflects a substantial catch-up in the very short subscribers as discussed on previous calls.

Kurt Binder: We continue to believe that the catch-up will be largely complete by next quarter.

Kurt Binder: And now, I'll turn it over to Kurt for a more in-depth review of these Q2 results.

Kurt Binder: Further, our paid account additions, exclusive of this catch-up adjustment, remain in the range of 150,000 to 190,000 subscribers that we expect to generate on a quarterly basis. Service revenue for Q2 was another record at $60.3 million, or a 20% increase over the same period last year. The strong service revenue performance was driven in large part by the growth in our overall paid account base and, to a lesser extent, a small price increase in our single camera plan and some migration of subscribers to higher priced plans.

Kurt Binder: Further, our paid account additions, exclusive of this catch-up adjustment, remains in the range of 150,000 to 190,000 subscribers that we expect to generate on a quarterly basis.

Kurt Binder: Thank you, Matt, and thank you everyone for joining us today. I will start by sharing some financial details and provide an overview of the business for Q2 2024. Total revenue for the second quarter of 2024 came in at $127.4 million, up 11% over the prior year period. In the quarter, service revenue represented about 47% of total revenue, up from 44% in the same period last year, and quickly approaching the 50% threshold.

Kurt Binder: Service revenue for Q2 was another record at $60.3 million, or a 20% increase over the same period last year.

Kurt Binder: The strong service revenue performance was driven in large part by the growth in our overall paid account base and to a lesser extent a small price increase in our single camera plan and some migration of subscribers to higher price plan.

Kurt Binder: Our annual recurring revenue at June 30th was $235 million, up more than 20% over the same period last year. I want to highlight the strength of our services revenue and ARR, which help deliver strong top-line revenue performance and contributed to Arlo generating non-GAAP operating profit of $9.2 million in the quarter, a 70% improvement over the prior year. Even more impressive is that the non-GAAP operating profit for the first half of 2024 grew by 166% when compared to the same period last year.

Kurt Binder: This shift in our growing recurring revenue base reflects the continued momentum that we have gained in our transformation to a services first business. Our install base of subscribers continued its strong growth trajectory as we reached just under 4 million paid accounts by the end of Q2, an increase of approximately 745,000 paid accounts in the quarter. The significant increase in paid accounts reflects a substantial catch-up in the bearish or subscribers as discussed on previous calls.

Kurt Binder: Our annual recurring revenue at June 30th was $235 million, up more than 20% over the same period last year.

Kurt Binder: I want to highlight the strength of our services revenue and ARR, which helped deliver strong top-line revenue performance and contributed to Arlo generating non-GAAP operating profit of $9.2 million in the quarter.

Kurt Binder: A 70% improvement over the prior year period.

Kurt Binder: Even more impressive is that the non-gap operating profit for the first half of 2024 grew by 166% when compared to the same period last year.

Kurt Binder: We continue to believe that the catch-up will be largely complete by next quarter. Further, our paid account additions, exclusive of this catch-up adjustment, remains in the range of 150,000 to 190,000 subscribers that we expect to generate on a quarterly basis, services. Service revenue for Q2 was another record at $60.3 million or a 20% increase over the same period last year. The strong service revenue performance was driven in large part by the growth in our overall paid account base and to a lesser extent a small price increase in our single camera plan and some migration of subscribers to higher price plans.

Kurt Binder: Product revenue for Q2 was $67.2 million, which was in line with our first quarter level and up about $2.4 million or 3.8% when compared to the product revenue generated in the same period last year. During the quarter, we shipped a total of 1.3 million devices worldwide, compared to 954,000 in the prior year period. Product revenue at these levels was driven by higher unit volume but partially offset by a decline in average selling prices, or ASP.

Kurt Binder: Product revenue for Q2 was $67.2 million, which was in line with our first quarter level and up about $2.4 million or 3.8% when compared to the product revenue generated in the same period last year.

Kurt Binder: During the quarter, we shipped a total of 1.3 million devices worldwide compared to 954,000 in the prior year period.

Kurt Binder: Product revenue at these levels was driven by higher unit volume, but partially offset by a decline in average selling prices, or ASPs.

Kurt Binder: Over the past year, we have deliberately reduced the ASPs for our devices to successfully drive household formation and service revenue growth, and we will continue to do so as we approach the 2020 fall holiday season. Our investment in the low-cost Essential 2 camera lineup has enabled us to remain competitive in uncertain economic times, while helping us to expand into the mass market segment of home security.

Kurt Binder: Over the past year, we have deliberately reduced the ASPs for our devices to successfully drive household formation and service revenue growth, and we will continue to do so as we approach the 2024 holiday season.

Kurt Binder: Our annual recurring revenue at June 30 was $235 million, up more than 20% over the same period last year. I want to highlight the strength of our services revenue and ARR which helped deliver strong top-line revenue performance and contributed to our low generating non-gap operating profit of $9.2 million in the quarter, a 70% improvement over the prior year period. Even more impressive is that the non-gap operating profit for the first half of 2024 grew by 166% when compared to the same period last year.

Kurt Binder: Our investment in our low-cost Essential 2 camera lineup has enabled us to remain competitive in uncertain economic times.

Kurt Binder: while helping us to expand into the mass market segment of home security.

Kurt Binder: Solid top-line growth and exceptional profitability are driven by the conversion of our customers from a singular product purchase to participation in a service offering that generates a strong value proposition for our customers. As we look to the remainder of 2024, we expect product gross margins to remain in the low to mid-single-digit range as we partner with major retailers like Walmart to deliver incremental paid subscribers into our services business, as we participate in the mass market adoption of smart. We will continue to use our product ASPs as a lever to ensure that we secure incremental market share.

Kurt Binder: The solid top line growth and exceptional profitability is driven by the conversion of our customers from a singular product purchase to participation in a service offering that generates a strong value proposition for our customers.

Kurt Binder: Product revenue for Q2 was $67.2 million, which was in line with our first quarter level and up about $2.4 million or 3.8% when compared to the product revenue generated in the same period last year. During the quarter we shipped a total of 1.3 million devices worldwide compared to 954,000 in the prior year period. Product revenue at these levels was driven by higher unit volume but partially offset by a decline in average selling prices or ASP.

Kurt Binder: As we look to the remainder of 2024, we expect product gross margins to remain in the low to mid-single-digit range as we partner with major retailers like Walmart to deliver incremental paid subscribers into our services business.

Kurt Binder: As we participate in the mass-market adoption of smart security,

Kurt Binder: We will continue to use our product ASP as a lever to ensure that we secure incremental market share.

Kurt Binder: In the quarter, approximately $64.1 million, or 50% of our total revenue, was generated from our international customers. On a year-over-year basis, international revenue was up significantly from the $37 million level, or 32% of total revenue in the prior year period. Verisur continues to be an outstanding partner for us, especially considering we renewed our contract with them last quarter, and we are grateful for their strategic collaboration in the near and long term.

Kurt Binder: In the quarter, approximately $64.1 million, or 50% of our total revenue was generated from our international customers.

Kurt Binder: Over the past year we have deliberately reduced the ASP for our devices to successfully drive household formation and service revenue growth and we will continue to do so as we approach the 2024 holiday season. Our investment in our low cost essential to camera line-up has enabled us to remain competitive in uncertain economic times while helping us to expand into the mass market segment of home security. The solid top line growth and exceptional profitability is driven by the conversion of our customers from a singular product purchase to participation in a service offering that generates a strong value proposition for our customers.

Kurt Binder: On a year-over-year basis, international revenue was up significantly from the $37 million level, or 32% of total revenue in the prior year period.

Speaker Change: Very sure continues to be an outstanding partner for us, especially considering we renewed our contract within last quarter, and we are grateful for their strategic collaboration in the near and long term.

Kurt Binder: 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 distributed earlier today. Our non-GAAP gross profit for the second quarter was $48.3 million, up $5.3 million, or 12% year-over-year. This resulted in a non-GAAP gross margin of 38% in the quarter.

Kurt Binder: From this point on, my discussion will focus on non-GAAP numbers.

Kurt Binder: The reconciliation from GAAP to non-GAAP figures is detailed in our earnings release distributed earlier today.

Kurt Binder: Our non-GAAP gross profit for the second quarter was $48.3 million, up $5.3 million, or 12% year-over-year.

Kurt Binder: As we look to the remainder of 2024, we expect product growth margins to remain in the low to mid-single-digit range as we partner with major retailers like Walmart to deliver incremental paid subscribers into our services business. As we participate in the lever to ensure that we secure incremental market share. In the quarter, approximately 64.1 million dollars or 50% of our total revenue was generated from our international customers. On a year-over-year basis, international revenue was up significantly from the 37 million dollar level or 32% of total revenue in the prior year period.

Kurt Binder: This resulted in a non-GAAP gross margin of 38% in the quarter.

Kurt Binder: The year-over-year increase in non-GAAP growth profit was primarily attributable to the continued expansion of our services business and associated growth margin improvement, which was partially offset by lower product growth. Non-GAAP service gross margin for the quarter was 76.4%, up from approximately 75.2 percent in the same period last year. The improvement in non-GAAP service gross profit was driven by growth in our total paid subscriptions and cost optimization. Non-GAAP product gross margin for the quarter was 3.4% and 5.7% for the first half of 2024, which is in line with the guidance that we provided earlier in the year.

Kurt Binder: The year-over-year increase in non-GAAP gross profit was primarily attributable to the continued expansion of our services business and associated gross margin improvement, which was partially offset by lower product gross margin.

Kurt Binder: Non-gap service gross margin for the quarter was 76.4% up from approximately 75.2% in the same period last year.

Kurt Binder: The improvement in non-GAAP service gross profit was driven by growth in our total paid subscriptions and cost optimization.

Kurt Binder: Non-gap product gross margin for the quarter was 3.4%.

Kurt Binder: Varyshire continues to be an outstanding partner for us, especially considering we renewed our contract with them last quarter and we are grateful for their strategic collaboration in the near and long term. From this point on, my discussion will focus on non-gap numbers. The reconciliation from gap to non-gap figures is detailed in our earnings release distributed earlier today. Our non-gap gross profit for the second quarter was $48.3 million, up $5.3 million, or 12% year-over-year.

Kurt Binder: and 5.7% for the first half of 2024, which is in line with the guidance that we provided earlier in the year.

Kurt Binder: With that said, we expect to continue our aggressive approach to hardware pricing to drive incremental unit volume, coupled with new household formation to support our services business. Total non-GAAP operating expenses for the second quarter were $39.1 million, down from $40.3 million reported in the first quarter, but up from $37.5 million in the same period last year. The year-over-year increase is primarily related to a slight increase in headcount and related compensation expense.

Kurt Binder: With that said, we expect to continue our aggressive approach to hardware pricing to drive incremental unifallium coupled with new household formation to support our services business.

Kurt Binder: Total non-gap operating expenses for the second quarter were $39.1 million, down from $40.3 million reported in the first quarter, but up from $37.5 million in the same period last year.

Kurt Binder: This resulted in a non-gap gross margin of 38% in the quarter. The year-over-year increase in non-gap gross profit was primarily attributable to the continued expansion of our services business and associated gross margin improvement, which was partially offset by lower product gross margins. Non-gap service gross margin for the quarter was 76.4% up from approximately 75.2% in the same period last year. The improvement in non-gap service gross profit was driven by growth in our total paid subscriptions and cost optimization.

Kurt Binder: The year of a year increase is primarily related to a slight increase in head count and related compensation expense.

Kurt Binder: We expect the organic investment that Matt described earlier as part of our capital allocation plan to increase operating expenses by a nominal amount compared to our original guidance, starting in the second half of this year and continuing throughout 2025. In Q2, we posted non-GAAP net income of $10.5 million, which translates into non-GAAP net income per dilutive share of $10,000. Our non-GAAP net income for the first half of 2024 was $20 million, up almost 180% over the same period last year, showing the tremendous operating leverage in our business model.

Kurt Binder: We expect the organic investment that Matt described earlier as part of our capital allocation plan to increase operating expenses by a nominal amount to our original guidance range.

Kurt Binder: Starting in the second half of this year and continuing throughout 2025.

Kurt Binder: In Q2, we posted non-GAAP net income of $10.5 million, which translates into non-GAAP net income per dilutive share of $0.10.

Speaker Change: Our non-GAAP net income for the first half of 2024 was $20 million, up almost 180% over the same period last year, showing the tremendous operating leverage in our business model.

Kurt Binder: Non-gap product gross margin for the quarter was 3.4%, and 5.7% for the first half of 2024, which is in line with the guidance that we provided earlier in the year. With that said, we expect to continue our aggressive approach to hardware pricing to drive incremental unifying coupled with new household formation to support our services business. Total non-gap operating expenses for the second quarter were $39.1 million down from $40.3 million reported in the first quarter, but up from $37.5 million in the same period last year.

Kurt Binder: Regarding our balance sheet and liquidity position, we ended the quarter with $144 million in available cash, cash equivalents, and short-term investments. This balance was up more than $20 million since June of 2023. In addition, we generated $25.6 million in free cash flow in the first half of this year, which represents a free cash flow margin of 10% during that period, a solid improvement over the same period last year, driven by increased profitability and enhanced working capital management.

Speaker Change: Regarding our balance sheet and liquidity position, we ended the quarter with $144 million in available cash, cash equivalence and short-term investment.

Speaker Change: This balance was up more than $20 million since June of 2023.

Speaker Change: Further, we generated $25.6 million in free cash flow in the first half of this year, which represents free cash flow margin of 10% during that period.

Kurt Binder: The year-over-year increase is primarily related to a slight increase in headcount and related compensation expense. We expect the organic investment that Matt described earlier as part of our capital allocation plan to increase operating expenses by a nominal amount to our original guidance range starting in the second half of this year and continuing throughout 2025. In Q2, we posted non-gap net income of $10.5 million, which translates into non-gap net income per dilutive share of 10 cents.

Speaker Change: A solid improvement over the same period last year, driven by increased profitability and enhanced work and capital management.

Kurt Binder: Our Q2 accounts receivable balance was $61.7 million at quarter end, with DSOs at 44 days and in line with the same period last year. Our Q2 inventory balance was $45.2 million, up $6.8 million from Q4 2023 levels. Inventory turns were 5.8 times and in line with our expectations as we continue to optimize our inventory levels in an effort to minimize our spend on freight costs. Now turning to our, we expect third-quarter revenue for 2024 to be in the range of $132 to $142 million and our non-GAAP net income per dilutive share to be between $0.08 and $0.14 per share.

Speaker Change: Our Q2 accounts receivable balance was $61.7 million at quarter end with DSOs at 44 days and in line with the same period last year.

Speaker Change: Our Q2 inventory balance was $45.2 million, up $6.8 million from Q4 of 2023 level.

Speaker Change: Inventory turns were 5.8 times and in line with our expectations as we continue to optimize our inventory level in an effort to minimize our spend on freight costs.

Kurt Binder: Our non-gap net income for the first half of 2024 was $20 million, up almost 180% over the same period last year, showing the tremendous operating leverage in our business model. Regarding our balance sheet and liquidity position, we ended the quarter with $144 million in available cash, cash equivalent, and short-term investments. This balance was up more than $20 million since June of 2023. Further, we generated $25.6 million in free cash flow in the first half of this year, which represents free cash flow margin of 10% during that period.

Speaker Change: Now turning to our outlook.

Speaker Change: We expect 3rd quarter revenue for 2024 to be in the range of $132 to $142 million and our non-gap netting on per dilute of share to be between $8 and $14 per share.

Kurt Binder: Consumer sentiment still remains a bit uncertain, with most buyers looking for heavily discounted or promotional offers before making their purchase decision. Given our low-cost essential-to-camera product portfolio, we are able to comfortably meet the needs of these customers who demand innovative, feature-rich solutions at an affordable price. Furthermore, we are committed to supporting our critical retail partners, which we believe will help us drive higher levels of market share for our brand and ultimately generate high-quality paid account growth for our services business.

Speaker Change: Consumer sentiment still remains a bit uncertain, with most buyers looking for heavily discounted or promotional offers before making their purchase decision.

Speaker Change: Given our low cost essential to camera product portfolio, we are able to comfortably meet the needs of these customers who demand innovative feature-rich solutions at an affordable price point.

Kurt Binder: A solid improvement over the same period last year driven by increased profitability and enhanced work in capital management. Our Q2 Accounts Recegal Balance was $61.7 million at quarter-end with DSOs at 44 days and in line with the same period last year. Our Q2 Inventory Balance was $45.2 million, up $6.8 million from 24 of 2023 levels. Inventory turns were 5.8 times and in line with our expectations as we continue to optimize our inventory levels in an effort to minimize our spend on freight costs.

Speaker Change: Further, we are committed to supporting our critical retail partnerships.

Speaker Change: With we believe will help us drive higher levels of market share for our brand and ultimately generate high quality paid account for our services business.

Kurt Binder: We reiterate that service revenue is forecasted to grow at approximately 20% over last year, thereby becoming a much larger portion of our overall revenue and profitability mix. And we continue to expect non-GAAP service growth margins to be at or slightly above 75% for 2026. Now, I will open it up for questions.

Speaker Change: We reiterate that service revenue is forecasted to grow at approximately 20% over last year, thereby becoming a much larger portion of our overall revenue and profitability mix, and we continue to expect non-get service growth margins.

Speaker Change: To be at or slightly above 75% for 2024.

Speaker Change: And now I will open it up for questions.

Operator: Perfect. At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A list. The first question is from the line of Jacob Stephan with Lake Street.

Kurt Binder: Now turning to our outlook. We expect third-quarter revenue for 2024 to be in the range of $132 to $142 million and our non-gap net income per dilutive share to be between $0.8 and $0.14 per share. Consumer sentiment still remains a bit uncertain with most buyers looking for heavily discounted or promotional offers before making their purchase decision. Given our low-cost essential-to-camera product portfolio, we are able to comfortably meet the needs of these customers who demand innovative feature-rich solutions at an affordable price point.

Speaker Change: Perfect. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: The first question is from the line of Jacob Steven with Lake Street. You may proceed.

Jacob Stephan: Hey guys, thanks for taking my question. Congratulations on the quarter. Maybe just starting out, you guys have talked a lot about the potential for offering ads on the Arlo Secure 5 platform, but it sounds like you're already working on Arlo Secure 6, so I'm just kind of curious, you know, is this the ad server, is that an Arlo Secure 5, or is that more of a Secure 6 kind of project at this point?

Jacob Steven: Hey guys, thanks for taking my question, congrats on the quarter.

Speaker Change: Um...

Jacob Steven: Maybe just starting out, you know, you guys have talked a lot about the potential for offering ads on the Arlo Secure 5 platform, but it sounds like you're already working on Arlo Secure 6, so I'm just kind of curious, you know, is this, the ad server, is that an Arlo Secure 5 or is that a Secure 6 kind of project at this point?

Kurt Binder: Further, we are committed to supporting our critical retail partnerships, which we believe will help us drive higher levels of market share for our brand and ultimately generate high-quality paid account growth for our services business. We reiterate that service revenue is forecasted to grow at approximately 20 percent over last year, thereby becoming a much larger portion of our overall revenue and profitability mix, and we continue to expect non-gap service growth margins to be at or slightly above 75 percent for 2024.

Matthew McRae: Yeah, great question. It's in parallel to the actual official releases. So we're on track, as we mentioned on the last call, to test the ad capability and the ad serving in Q4 of this year, before the end of the year, and probably going into part of next year as we collect data around that. And then we'll be able to update investors and the market around the timing of an eventual rollout, or if and when that makes sense to actually deploy in the field in a wider view. But it's on a parallel track.

Speaker Change: Yeah, great question. It's in parallel to the actual official releases so we're on track as we mentioned on the last call to test the ad capability and the ad serving in Q4 of this year before the end of the year and probably going into part of next year as we collect data around that.

Speaker Change: and then we'll be able to update.

Speaker Change: Investors and the market around a timing of the eventual rollout, or if and when that makes sense to actually deploy into the field in a wider view, but it's in a parallel track, all the capabilities are built into our low secure five for testing, and then we can roll it out at a future date, depending on the performance of the rollout.

Matthew McRae: All the capabilities are built into Arlo Secure 5 for testing, and then we can roll them out at a future date pending the performance of the rollout.

Kurt Binder: And now, I will open it up for questions. Perfect.

Operator: At this time, I would like to remind everyone in order to ask a question for a star than the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Jacob Stephan: Okay, I got it. That's helpful.

Jacob Stephan: And then maybe, you know, just around the kind of promotional activity heading into the holiday season here. And, you know, this year, we kind of saw Walmart double down on the Walmart Day sale. We saw one in the earlier part of July here, and we have one in the fall.

Speaker Change: Okay, got it. That's helpful. And then maybe, you know, just around kind of promotional activity heading into the holiday season here and...

Speaker Change: You know, this year we kind of saw Walmart double down on the Walmart Day sale. We saw one in the earlier part of July here, and we have one in the fall. But maybe if you could kind of help us think about, you know, what's the potential with Walmart here in terms of Arlo?

Jacob Stephan: The first question is from the line of Jacob Stephen with Lake Street. You may proceed. Hi, guys.

Matthew McRae: But maybe if you could kind of help us think about, you know, what the potential is with Walmart here in terms of our loan?

Matthew McRae: Once we're taking my question, congrats on the quarter. Maybe just starting out, you guys have talked a lot about the potential for offering ads on the RLOS Secure 5 platform, but it sounds like you're already working on RLOS Secure 6. I'm just curious, is this the ad server that RLOS Secure 5 or is that a Secure 6 kind of project at this point? Yeah, great question. It's in parallel to the actual official releases.

Matthew McRae: Yeah, I think it's going to look a lot like last year in some ways. So, as you know, most of our promotional activity for the second half, and obviously most of that's in Q4, gets locked down in roughly the April-May time frame in the planning sessions with them. Obviously, discussions start earlier than that, so we already know exactly what's going to happen both from, you know, an Arlo perspective across the various channels, but some indication of what's going to happen on a competitive set as well as we go in.

Speaker Change: Yeah, I think it's going to look a lot like last year in some ways. So, as you know, most of our promotional activity

Speaker Change: for the second half, and obviously most of that's in Q4.

Speaker Change: gets locked down in roughly the April May timeframe in the planning sessions with them. Obviously discussions start earlier in that.

Speaker Change: So we already know exactly what's going to happen both from, you know, an Arlo perspective across the various channels, but some indication of what's going to happen on a competitive set as well as we go in. And so the best I can tell you right now is I think you're going to see Walmart be a significant partner for Arlo again.

Matthew McRae: So, we're on track, as we mentioned on the last call, to test the ad capability and the ad serving in Q4 of this year, before the end of the year, and probably going into part of next year as we collect data around that. And then we'll be able to update investors and the market around a timing of an eventual rollout or if and when that makes sense to actually deploy into the field in a wider view. But it's in a parallel track. All the capabilities are built into RLOS Secure 5 for testing and then we can roll out at a future date, depending the performance of the rollout.

Matthew McRae: And so the best I can tell you right now is I think you're going to see Walmart be a significant partner for Arlo again, and that's part of what we mean when we say this holiday season is probably going to look a lot like last holiday season, because we're seeing a lot of similar dynamics in the competitive set, the offerings, kind of the promotional areas, same timing, and we know that Arlo, you know, we did So that's really the plan, and that's what we're seeing as far as the roll-up into the holiday season this year.

Speaker Change: And that's part of what we mean when we say this holiday season is probably going to look a lot like last holiday season because we're seeing a lot of similar dynamics in the competitive set, the offerings, kind of the promotional areas, same timing.

Speaker Change: And we know that Arlo, we did a great job executing through that holiday period and generated a lot of incremental households for future subscribers So that's really the plan and that's what we're seeing as far as the roll up into the holiday season this year

Matthew McRae: Okay, yeah, that's helpful. And then maybe, you know, just around kind of promotional activity heading into the holiday season here. And, you know, this year we kind of saw Walmart double down on the Walmart day sale. We saw one in earlier part of July here and we have one in the fall, but maybe if you could kind of help us think about, you know, what's the potential with Walmart here for in terms of Arlo.

Speaker Change: May be just one last one. You talked about kind of the single camera plan, you know, the price increase there. Maybe you could just give us a sense on what percentage of price increase that was going to be helpful.

Kurt Binder: Yeah, it was about 15, 20%. It depends on if you're talking annual or single-camera. It can be as high as like 30% if it's on the monthly plan.

Speaker Change: Yeah, it was about 15%, it depends on if you're talking manual or single cam, it can be a 5% like 30% if it's on the monthly plan. And that was done just on the single cam plan if you remember we described that on the last call in the middle of kind of Q1. So you're seeing a little bit of a full quarter effect.

Matthew McRae: Yeah, I think it's going to look a lot like last year in some ways. So, as you know, most of our promotional activity for the second half and obviously most of that's in Q4 gets locked down in roughly the April May timeframe in the planning sessions with them. Obviously discussions start earlier in that. So, we already know exactly what's going to happen both from, you know, an Arlo perspective across the various channels, but some indication of what's going to happen on a competitive set as well as we go in.

Kurt Binder: And that was done just on the single-camera plan, if you remember we described that on the last call in the middle of kind of Q1. So you're seeing a little bit of a full quarter of effect. But I would tell you the single-camera plan is not our most popular plan by far, so it has a relatively small impact when you look at ARPU. The other impact, obviously, is what we talked about in the script around seeing just an overall mixed shift in the tiers.

Speaker Change: But I would tell you, you know, single can plan is not our most popular plan by far, so it is a relatively small

Speaker Change: impact when you look at ARPU. The other impact, obviously, is what we talked about in the script around

Kurt Binder: So we are seeing interest in more capabilities and people kind of mixing and matching in our plans. And so those both together allowed Arlo to hit a record level of $12 of ARPU for our retail and direct paid accounts this quarter.

Speaker Change: seeing just an overall mixed shift in the tiers. So we are seeing, you know, interest in more capabilities and people kind of mixing up in our plans. And so those both together is what allowed Arlo to hit a record level of $12 of ARPU for our retail and direct-paid accounts this quarter.

Matthew McRae: And so the best I can tell you right now, I think you're going to see Walmart be a significant partner for Arlo again. And that's part of what we mean when we say this holiday season is probably going to look a lot like last holiday season, because we're seeing a lot of similar dynamics in the competitive set. But the offer is kind of the promotional areas. Same timing. And we know that Arlo, we, you know, we did a great job executing through that that holiday period and generated a lot of incremental households for future subscribers. So that's really the plan and that's what we're seeing as far as the roll up into the holiday season this year.

Matthew McRae: Okay, awesome. I appreciate you guys. All the comments.

Speaker Change: Yeah, okay, awesome. I appreciate you guys and all the comments.

Matthew McRae: Yeah, you're welcome.

Speaker Change: Yeah, you're welcome.

Mark Cash: The next question is from the line of Mark Cash with Raymond James.

Speaker Change: The next question is from the line of Mark Cash with Raymond James, you may proceed.

Mark Cash: All right, thanks. Yeah, this is Mark. I'm for Adam.

Matthew McRae: Matt, if I could start with you, you know, understanding the consumer environment is challenging, but we're sort of selling two geos this quarter. So could you talk about trends being seen in the Americas and the strategy timeline to accelerate growth there? And then in EMEA, you know, really strong. So how much of that is their share of contribution and catch up, and, you know, what is left to catch up on there? Thank you.

Matthew McRae: Got it. Maybe just one last one, you talked about kind of the single camera plan, you know, price increase there. Maybe if you could just give us a sense on what percentage price increase that was, that would be helpful. Yeah, it was, it was about 15, 20%. It depends on if you're talking annual or, or single cam. It can be a five, like 30% if it's on the monthly plan. And that was done just on the single cam plan.

Mark Cash: This is Mark. I'm for Adam. Now, if I could start with you, you know, understanding consumer environment is challenging, but it's sort of a sale of two geos in this quarter.

Speaker Change: So could you talk about trends being seen in the Americas and the strategy timelines that accelerate growth here, and then in a mea, you know, really strong. So how much that is there, sure, contribution and catch up, and you know, what is left to catch up there? Thank you.

Matthew McRae: Yeah, yeah, let me tackle that in a couple sections. So one on the verification side, The catch-up you're seeing is really just the numerical number of paid accounts of cameras that have been previously installed in people's homes but haven't been really incrementing the paid account numbers. So that's the catch-up we're doing there. It really doesn't have an impact on the finances of the company.

Matthew McRae: If you remember, we described that on the last call in the middle of kind of q1. So you're seeing a little bit of a full quarter of effect. But I would tell you, you know, single cam plan is not our most popular plan by far. So it is a relatively small impact when you look at our food. The other impact, obviously is what we talked about in the script around seeing just an overall mixed shift in the pier.

Speaker Change: Yeah, let me tackle that in a couple of seconds. So one on the on a very sure side.

Speaker Change: The catch-up you're seeing is really just the numerical number of paid accounts.

Speaker Change: of cameras that have been previously

Speaker Change: Installing people's homes would have them been really incrementing on the paid account number. So that's the catch-up we're doing there. It really doesn't have an impact.

Matthew McRae: It really is just us, you know, correcting some of the issues they had in their firmware in the South region and making sure those are being counted properly. Kurt mentioned on the call we expect most of the catch-up to be done in the following quarter, so in Q3. And then we'll be on a kind of normal run rate where you'll be able to correlate actual paid account ads with service revenue increase more one-to-one because we don't have the divergence of some catch-up that's happening on the paid account.

Speaker Change: on the finances of the company.

Matthew McRae: So we are seeing, you know, interest in more capabilities and people kind of mixing up in our plan. And so those both together is what allowed Arlo to hit a record level of $12 of our food for our retail and rent paid accounts this court.

Speaker Change: It really is just us, you know, correcting.

Speaker Change: Some of the issues they had in their firmware in the South region and making sure those are being counted properly.

Jacob Stephan: Yeah. Okay. Awesome. I appreciate you guys in all the comments. I can keep. Yeah, you're welcome.

Speaker Change: Kurt mentioned on the call, we expect most of the catch-up to be done in the following quarter, so in Q3, and then we'll be on a kind of our normal run rate where you'll be able to correlate actual paid account ads with service revenue increase more one-to-one because we don't have the divergence of some catch-up that's happening on the paid account.

Matthew McRae: Part of what you're seeing from Verisure is some strength, I think, in the relationship and in the region in Europe, but some of it is also, you remember them bringing down their inventory towards the end of last year and kind of starting this year relatively dry and trying to build up inventory as they continue to deploy Verisure security systems in their direct channel. So this was expected.

Speaker Change: Part of what you're seeing from Verisure is some strength, I think, in the relationship and in the region in Europe , but some of it is also, you remember them bringing down their inventory towards the end of last year and kind of starting this year relatively dry and trying to build up inventory as they continue to deploy.

Mark Cash: The next question is from the line of mark cash with Raymond James. You may proceed. Thanks. This is Mark on for Adam. If I just start with you, you understand the consumer environment is challenging. But it's sort of a sale of two geos in this quarter. So could you talk about trends being seen in the Americas and the strategy timeline to accelerate growth here. And then in Amia, you know, really strong. So how much of that is there sure contribution and catch up and you know, what is left to catch up there. Thank you.

Speaker Change: security systems in their direct channel. So this was expected. We kind of mentioned that we expected Verisure to be strong in Q1 and Q2 as they're building back up their inventory after kind of winding it down last year. So that's what you're seeing in the international front and what you're seeing from Verisure in particular.

Matthew McRae: We kind of mentioned that we expected Verisure to be strong in Q1 and Q2 as they're building back up their inventory after kind of winding it down last year. So that's what you're seeing on the international front and what you're seeing from Verisure in particular. In the U.S., like I said, I think this holiday season is going to look a lot like last holiday. Consumers are there is some headwind from a consumer, but there is some offset. You know, we know that consumers feel less safe in general, and there's a bit of a tailwind, just in the security segment in general. And so we're benefiting from that while we do see a little bit of headwind Those are somewhat offsetting.

Speaker Change: In the U.S., like I said, I think this holiday season is going to look a lot like last holiday season. The consumers are, there is some headwind from a consumer, but there is some offset. You know, we know that consumers feel less faith in general, and there's a bit of a tailwind.

Matthew McRae: Yeah, let me tackle that in a couple of sections. So one, on the on the very sure side, the catch up you're seeing is really just the numerical number of paid accounts, of cameras that have been previously installed in people's homes, but haven't been really incrementing on the paid account numbers. So that's the catch up we're doing there. It really doesn't have an impact on the finances of the company. It really is just us, you know, correcting some of the issues they had in their firmware in the South region and making sure those are being counted properly.

Speaker Change: Just in the security segment in general, and so we're benefiting from that while we do see a little bit of headwind coming.

Speaker Change: from just macroeconomic conditions in the United States. Those are somewhat offsetting. And again, we predicted that this was going to be the environment that we were probably walking into in the second half, and we adjusted our pricing strategy to match.

Matthew McRae: And again, we predicted that this was going to be the environment that we were probably walking into in the second half, and we adjusted our pricing strategies to match. So again, our expectation is that we will gain a good amount of households in the Americas going into the second half, which will often lead to additional subscribers in late Q4, but really spilling into Q1. So that's kind of a commentary there. You know, we're a little bit ahead of what's going to happen in 2025.

Matthew McRae: Kurt mentioned on the call we expect most of the catch up to be done in the following quarter. So in Q3, and then we'll be on kind of our normal run rate where you'll be able to correlate actual paid account ads with service revenue increase more one-to-one because we don't have the divergence of some catch up that's happening on the paid account. Part of what you're seeing from Verisher is some strength, I think, in the relationship and in the region in Europe, but some of it is also remember them bringing down their inventory towards the end of last year and kind of starting this year relatively dry and trying to build up inventory of a continued deploy Verisher Security Systems in their direct channel.

Speaker Change: So our, again, our expectation is that we will gain, you know, good amount of households in the Americas going into the second half, which will often lead to, you know, additional subscribers, late Q4 but really spilling into Q1 timeframe.

Speaker Change: So that's kind of commentary there, you know, we're a little bit ahead of what's going to happen in 2025. But I think, you know, for at least the first half, I think, again, our first inclination would be that the consumer sentiment and stuff may continue into the first part of next year, and then we'll take a better look at it as we start to line down this year and start to do our annual operating plan for 2025.

Matthew McRae: But I think, you know, for at least the first half, I think, again, our first inclination would be that the consumer sentiment stuff may continue into the first part of next year, and then we'll take a better look at it as we start to wind down this year and start to do our annual operating plan for 2025.

Matthew McRae: So this was expected, we kind of mentioned that we expected Verisher to be strong in Q1 and Q2 as they're building back up their inventory after kind of winding it down last year. So that's what you're seeing in the international front and what you're seeing from Verisher in particular. In the US, like I said, I think this holiday season is going to look a lot like last holiday season, the consumers are, there is some headwind from a consumer, but there is some offset.

Mark Cash: Okay, very helpful. Thank you. And I appreciate you guys going through the tech allocation plan. That was great.

Speaker Change: Okay, very helpful. Thank you. And I appreciate you guys going through the cash allocation plan. That was great.

Mark Cash: If I could switch to Kurt and ask, I really appreciate the color you gave on Product Growth March and expectations for the second half, but I have two questions here. One is, I was wondering if you could get some thoughts on how this year's Prime event went for Arlo. Thank you.

Speaker Change: And if I could switch to Kurt and ask, I really appreciate the color you gave on Product Growth March and expectations of the second half, but I have two questions here. One is, I was wondering if you could get some thoughts on how this year's Prime event went for Arlo.

Matthew McRae: And then, kind of not related, but if I'm not as correct, based on the 20% service growth commentary you gave, services would be in the 45, 46% of sales in the second half. So I'm just kind of curious when you're expecting services to become a larger portion of demand. Yeah, maybe I'll take the commentary on Prime Day first, and then Kurt can kind of talk about service revenue mix across the company.

Matthew McRae: You know, we know that consumers feel less safe in general and there's a bit of a tailwind just in the security segment in general. And so we're benefiting from that while we do see a little bit of headwind coming from just macroeconomic conditions in the United States. Those are somewhat offsetting and again, you know, we predicted that this was going to be the environment that we were probably walking into in the second half and we adjusted our pricing strategies to match.

Speaker Change: And then kind of not related, but if I'm not as correct, based on like the 20% service growth commentary you gave, it seems like services would be in the 45, 46% of sales in the second half. So I'm just kind of curious when you're expecting services to become a larger portion of the mix.

Matthew McRae: Prime Day went pretty much as planned. You know, we saw a good amount of activity. It was basically sales were pretty much what we were expecting across the board. We're kind of curious about what the October, you know, it's not called Prime Day; I think it's called Amazon Deal Days or something like that. That happens in October as a ramp-up. So I would say, again, what we're seeing from the promotional activities across our channels, including Prime Day, is landing almost exactly where we're expecting.

Speaker Change: Yeah, maybe I'll take the commentary on the Prime Day first and then Kurt can kind of talk about service revenue mix.

Speaker Change: across the company. Prime Day went pretty much as planned. You know, we saw, I think a good amount of activity.

Matthew McRae: So our, again, our expectation is that we will gain, you know, good amount of households in the Americas going into the second half, which will often lead to, you know, additional subscribers, late Q4, but really spilling into Q1 timeframe. So that's kind of commentary there, you know, we're a little bit ahead of what's going to happen in 2025. But I think, you know, for at least the first half, I think again, our first inclination would be that the consumer sentiment and stuff may continue into the first part of next year and then we'll, we'll take a better look at it as we start to wind down this year and start to do our annual operating plan for 2025. Okay, very helpful thank you and I appreciate you guys throwing through the task allocation plan. That was great.

Kurt Binder: It was basically sales were pretty much on what we were expecting across the board. We're kind of, we're curious about what the October, you know, it's not called prime day. I think it's called Amazon Deal Days or something like that. That happens when October is a ramp up. So I would say again, what we're seeing from the promotional activities across our channels, including prime day, is landing almost exactly where we're expecting and that's why you see the predictability both in our revenue but also obviously in the pay accounts going forward. So a lot of it looks like a repeat from last year and I think that's because we're dealing with similar market conditions.

Matthew McRae: And that's why you see the predictability, both in our revenue, but also, obviously, in the paid accounts going forward. So a lot of it looks like a repeat from last year. And I think that's because we're dealing with similar market conditions.

Kurt Binder: Yeah, and as related to your question regarding mix, you know, when we communicated back, I think, in the early part of May, we had indicated that for the full year, we thought the mix of service revenue to our total consolidated revenue would be somewhere in the range of 46 to 47% for this year 2024. We feel really good about that guidance. Actually, as we mentioned then, we feel very confident that the 20% growth trajectory in our services business is spot on. We think we could be a bit closer to 47% of the total mix when we end the year, just as we were this past quarter. So we feel like we're trending appropriately.

Kurt Binder: If I could switch to Kurt and ask, Ray, I appreciate the color you gave on product risk margin, the expectation of the second half of it, kind of two questions here is, one is, I was wondering if you could disinvolve how this year's prime event went for Arlo, and then kind of not related, but that's not as great, based on like a 20% service script commentary case, kind of services to be in the 45% or 45% of sales in the second half. So he's kind of curious when you're expecting the service to become a larger portion of the mix.

Speaker Change: Yeah, and as related to your question regarding mix, you know when we communicated back I think in the early part of May

Speaker Change: We had indicated that for the full year we thought the mix of service revenue to our total consolidated revenue would be somewhere in the range of 46 to 47% for this 2024.

Speaker Change: We feel really good about that guidance, actually, as we mentioned then, we feel very confident that the 20% growth trajectory on our server's business is spot on. We think we could be a bit closer to 47% of the total mix when we end the year just as we were in this past quarter, so we feel like we're trending appropriately. As it relates to a little bit further out, our certainly our target is to get to us.

Kurt Binder: Yeah, maybe I'll take the commentary on the prime day first and Kurt can kind of talk about service revenue mix across the company. Prime day went pretty much as planned. You know, we saw I think a good amount of activity. It was basically sales were pretty much on what we were expecting across the board. We're kind of we're curious about what the October, you know, it's not called prime day. I think it's called Amazon Deal Days or something like that.

Kurt Binder: As it relates to a little bit further out, certainly, our target is to get to over 50%. And I know we've had some discussion about that in the past, and we think that it's within the near term. Let's just say within the next year to two, we think we can be there. So I think we're trending quite nicely relative to our initial expectations and the annual guidance we gave back in May. Great

Speaker Change: All of those are in the past and we think that is within the near term, let's say within the next year to two we think we can be there. I think we are trending quite nice relative to our initial expectations and the annual guidance that we gave back in May.

Mark Cash: Great, thanks so much. I'll pass it on.

Speaker Change: hi

Kurt Binder: That happens in October as a ramp up. So I would say, again, what we're seeing from the promotional activities across our channels, including prime day, is landing almost exactly where we're expecting. And that's why you see the predictability both in our revenue, but also obviously in the pay accounts going forward. So a lot of it looks like a repeat from last year. And I think that's because we're dealing with similar markets.

Speaker Change: Great. Thanks so much. I'll pass it on.

Scott Searle: The next question is from the line of Scott Searle with Roth Capital.

Speaker Change: The next question is from the line of Scott Cero, with a rough capital.

Scott Searle: Hey, good afternoon. Thanks for taking my questions.

Speaker Change: You may proceed.

Scott Cero: Hey, good afternoon. Thanks for taking my questions. Nice job on the quarter, guys.

Scott Searle: Nice job on the quarter. Hey, Kurt, maybe just to dive in quickly on the gross margin front, you've articulated that, look, you're going to keep your pedal on the pedal here in terms of, you know, driving sales to drive basically, you know, the recurring revenue on the back end. But the second quarter gross margins, I think, were an all-time low for you guys at 3% or so adjusted for non-GAAP charges, etc.

Speaker Change: Kurtis, maybe just to dive in quickly on the Ghost Morgan front.

Speaker Change: You know, you've articulated that what you're going to keep your pedal, your foot on the pedal here in terms of, you know, driving sales to drive basically, you know, the recurring revenue on the back end. But the second quarter goes margins. I think we're an all-time low for you guys at 3% or so adjusted for...

Scott Searle: Is that the level that we should be thinking about in the second half of this year, or should we get a little bit more aggressive than that? And then, similarly, kind of extrapolating that into 25, is this the new norm, or is there a little bit of an aberration in the June quarter?

Speaker Change: Non-Gap Charges, etc. Is that the level that we should be thinking about in the second half of this year, or do you get a little bit more aggressive than that? And then similarly, it's kind of extrapolating that to 25. Is this the new norm? Or is there a little bit of an exploration of the Zoom Corps?

Kurt Binder: We think we could be a bit closer to 47% of the total mix when we end the year just as we were this past quarter so we feel like we're trending appropriately. As it relates to a little bit further out, our target is to get to us over 50% and I know we've had some discussion on that in the past and we think that that's within the near term, let's just say within the next year to two we think we can be there so I think we're trending quite nice relative to our initial expectations and the annual guidance we gave back in May. Great, thanks so much. I'll pass it on. You're welcome.

Kurt Binder: Right. Hey Scott.

Speaker Change: Right. Hey, Scott, thanks for the question.

Scott Cero: Yeah, just to sort of set the record straight, so this past quarter we did on a non-GAAP basis for product.

Speaker Change: Gross Margin about 3.4% and actually for the six month period that put us at about 5.7%.

Kurt Binder: Thanks for the question. So, yeah, just to sort of set the record straight. So, this past quarter, we did, on a non-GAAP basis, for product gross margin, about 3.4%. And actually, for the six-month period, that put us at about 5.7% for the first half. And as we've mentioned in the past, you know, we have felt that it would make sense at the right time to take our product gross margins to the mid-single digits, essentially 5 to 7%, which is where we are right now.

Speaker Change: for the first half. And as we've mentioned in the past, you know, we have felt that it would make sense at the right time to take our product gross margins to the mid-single digits, essentially 5 to 7 percent, which is where we are right now.

Kurt Binder: We expect that given the, I would say, muted kind of consumer environment we're in right now, that we would continue for the second half at around that mid-single digit range of about 5%. So, I guess the point, Scott, is that you should expect us to be very promotional and ultimately hit our targeted guidance of around that 5 to 6% for product gross margin for the remainder of the year.

Scott Searle: The next question is from the line up Scott Searle with Roth Capital. You may proceed. Good afternoon, thanks for taking my questions.

Speaker Change: We expect that given the, I would say, muted kind of consumer environment we're in right now, that we would continue for the second half at around that mid-single-digit range of about 5%. So, I guess the point, Scott, is yeah, you should expect us to be very promotional and ultimately hit our targeted guidance around that 5% to 6%.

Scott Searle: Nice job on the quarter, guys. Kurt, maybe just to dive in quickly on the Gross Margin front, you've articulated that what you're going to keep your pedal, your foot on the pedal here in terms of driving sales to drive basically the recurring revenue on the back end, but the second quarter, Gross Margin, I think we're an all time low for you guys at 3% or so. We're going to be able to adjust it for non-gap charges, et cetera.

Speaker Change: for Product Growth Margin for the remainder of the year.

Scott Searle: Okay, great. Very helpful.

Scott Cero: Okay, great, very helpful. And Matt, exciting to see the all-state announcement and you guys stepping into the InsurTech market. I'm wondering if you could start to help us understand the opportunity within that market, how we'll start to see the evolution that relationship into more recurring revenue opportunities going forward, and what other opportunities there are in the pipeline within InsurTech, because I think it's a relatively greenfield opportunity. I think SimpliFitSafe has got a couple of relationships there, but for the most part, these potential partners out there are unoccupied with existing solutions.

Matthew McRae: And Matt, it's exciting to see the all-state announcement and you guys stepping into the InsurTech market. I'm wondering if you could start to help us understand the opportunity within that market, how we'll start to see the evolution of that relationship into more recurring revenue opportunities going forward, and what other opportunities there are in the pipeline within InsurTech, because I think it's a relatively greenfield opportunity. I think SimpliCitSafe has got a couple of relationships there, but for the most part, these potential partners out there are unoccupied with existing solutions.

Scott Searle: Is that the level that we should be thinking about in the second half of this year or do you get a little bit more aggressive than that? And then similarly, kind of extrapolating that into 25, is this the new norm? Or is there a little bit of an aberration in the June quarter?

Kurt Binder: Right, hey Scott, thanks for the question. So yeah, just to sort of set the record straight to this past quarter, we did on a non-gap basis for product, Gross Margin, about 3.4%. And actually for the six-month period, that put us at about 5.7% for the first half. And as we've mentioned in the past, we have felt that it would make sense at the right time to take our product, Gross Margin, to the mid-single digits, essentially 5.7%, which is where we are right now.

Matthew McRae: Yeah, you're absolutely right, Scott. It's something we're very excited about. You know, it's a market that takes time to form. I'll just tell you that.

Matt: Yeah, you're absolutely right, Scott. It's something we're very excited about, you know, it's a market that takes time to form. I'll just tell you that. These are big entities.

Matthew McRae: These are big entities whose entire life's work is mitigating risk and understanding risk portfolios and things like that. So it does take some time, but it's also an opportunity once you get started. There's actually tremendous value. And so, what you see us doing now is what I would say some transactional benefits to both companies. For example, we sell all-state protection plans on our website. You may see something, you know, a little bit of vice versa on the other side soon as well.

Speaker Change: who's an entire life's work is mitigating risk and understanding risk portfolios and things like that. So it does take some time, but it's also an opportunity that once you get started, there's actually tremendous value there.

Kurt Binder: We expect that, given the, I would say, muted kind of consumer environment we're in right now, that we would continue for the second half at around that mid-single digit range of about 5%. So I guess the point is, yeah, you should expect us to be very promotional. And ultimately, hit our targeted guidance around that 5% to 6% for our product, Gross Margin, for the remainder of the year.

Speaker Change: And so what you see us doing now is what I would say some transactional benefits to both companies, so us selling all state protection plans on our website, UAC something, you know, a little bit of vice versa on the other side soon as well. And that's really working with our customer basis and doing cross offerings into those customer basis to provide kind of a wider set.

Scott Searle: Okay, great, very helpful.

Matthew McRae: And that's really working with our customer bases and doing cross-offerings into those customer bases to provide kind of a wider set. When I step back and I look at the market segment, as I mentioned on the call, there's such a natural fit, right? Arlo exists in this world to be able to help you detect, you know, notify you and potentially mitigate some of the damage that may be happening in your life, whether that's theft or fire or smoke or water leaks or some of these things.

Speaker Change: When I step back and I look at the market segment, right, and I mentioned this on the call, there's such a natural fit, right? Arlo exists in this world to be able to help you detect

Scott Searle: And Matt, exciting to see the all-state announcement, and you guys stepping into the IntureTech market. I'm wondering if you could start to help us understand the opportunity within that market, how we'll start to see the evolution that relationship into more recurring revenue opportunities going forward. And what other opportunities there are in the pipeline within IntureTech.

Speaker Change: attempts to save money on insurance.

Matthew McRae: And the insurance industry exists to make sure you're okay if something does happen, right, and backstop you with financial help if you do have those damages. So, when you look at that breadth of experience, right, that kind of whole gamut of experience, having both of those together is really then providing the entire user experience from top to bottom, right? From being able to detect, you know, an issue and mitigate it and everything else, but also be able to backstop you if something does happen in your life that you can't control. So there is this natural set of a consumer offering where both of these really do click together in a really natural way.

Matthew McRae: So I think it's a relatively gloom-field opportunity. I think Simplified Safe has got a couple of relationships there. But for the most part, these potential partners out there are unoccupied with existing solutions. Yeah, you're absolutely right, Scott. It's something we're very excited about. You know, it's a market that takes time to form.

Matt: So, when you look at that breadth of experience, right, that kind of whole gamut of experience.

Matt: Having both of those together...

Matt: is really then providing the entire user experience from top to bottom right from being able to tech

Speaker Change: You know, an issue would mitigate it and everything else, but I'll also be able to backstop you if something does happen in your life that you can't control.

Matthew McRae: I can't tell you that. These are big entities whose entire life's work is mitigating risk and understanding risk portfolios and things like that. So it does take some time, but it's also an opportunity once you get started, there's actually tremendous value there. And so what you see us doing now is what I would say some transactional benefits to both companies. So us selling, I'll state protection plans on our website. You may see something, you know, a little bit of vice versa on the other side seem as well.

Matt: So there is this natural set of a consumer offering where both of these really do click together in a really natural way.

Matthew McRae: I think what you'll see in the space is moving from some of these kind of tactical engagements and rollouts of specific offers to maybe more strategic offers where you see, you know, potentially the products on both sides being offered together. So, you know, home insurance with, you know, home security in a more integral and integrated way to provide a single user experience. And that may blossom even further, you know, in the future, when we may see home insurance companies take a more active role in the space because if they are able to deploy technologies and services that mitigate damage, it fundamentally changes, you know, their finances and their risk tables and everything else.

Matt: I think what you'll see in the space, you know, is moving from some of these kind of tactical engagements and roll-outs of specific offers.

Matt: To maybe more strategic offers where you see potentially the product on both sides being offered together.

Matthew McRae: And that's really working with our customer bases and doing cross offerings into those customer bases to provide kind of a wider set. When I step back and I look at the market segment, right? And I mentioned this on the call. There's such a natural fit, right? Arlo exists in this world to be able to help you detect you know, notify you and potentially mitigate some of the damage that may be happening in your life, whether that's theft or fire or smoke or water leaks or some of these items.

Matt: So, you know, home insurance with, you know, home security in a more integral and integrated way to provide a single user experience.

Matt: And that may blossom even further, you know, in the future where...

Matt: We may see home insurance companies take a more active role in the space because if they are able to deploy technologies and services that mitigate damage, it fundamentally changes, you know, their finances and their risk tables and everything else.

Matthew McRae: In the insurance industry exists to make sure you're okay if something does happen, right? And backstop you with financial help if you do have those damages. So when you look at that breadth of experience, right? That kind of whole gamut of experience. Having both of those together is really then providing the entire. User experience from top to bottom, right? From being able to to test, you know, an issue or mitigate it and everything else, but I'll also be able to backstop you if something does happen in your life that you can't control.

Matthew McRae: So it's them taking not just a passive role by running some numbers and cutting a check if something goes wrong on you based on some broad demographic, but actually taking much more granular data and an active role in potentially detecting and mitigating the damage in the first place. So I do believe this is the beginning of a revolution in, you know, the home insurance space. Similar to some of the beginnings you're starting to see in the driver space with driver safety scores and things like that completely changing how insurance companies quote, engage, and provide insurance for, you know, drivers for cars, you know, automobile drivers and the like. So that gives you a little bit of it.

Matt: So, it's them taking not just a passive role by running some numbers and cutting a check if something goes wrong on you based on some broad demographic, but actually taking much more granular data and an active role in potentially detecting and mitigating the damage in the first place.

Matt: So I do believe this is the beginning of a revolution in the home insurance space.

Matt: similar to some of the beginnings you're starting to see in the driver space with driver safety scores and things like that completely changing how insurance companies quote engage and provide insurance for

Matthew McRae: I mean, again, I think we're barely in the first inning of what this is, but we've now got a great partner, one of the top brands in the home insurance space, and I think you'll see more activity in this rolling forward. And this could become a significant part of our business as we look towards the rest of our long-range plan.

Matt: You know, drivers for car, you know, auto and build drivers in the like. So, that gives you a little bit of it. I mean, again, I think we're in not barely in the first inning of what this is, but we've now got a great partner.

Matthew McRae: So there is this natural set of a caught consumer offering where both of these really do click together in a really natural way. I think what you'll see in the space, you know, is moving from some of these kind of tactical engagement and rollouts of specific offers to maybe more strategic offers where you see. You know, potentially products on both sides being offered together. So, you know, home insurance with, you know, home security in a more integral and integrated way to provide a single user experience.

Matt: One of the top brands in the home insurance phase, and I'll think you'll see more activity of this rolling forward, and this could become a significant part of our business as we look towards the rest of our long range plant.

Scott Searle: And Matt, given that this is the first inning, this probably isn't a fair question. But, you know, it sounds like you're engaged in talking to other parties out there within InsurTech. I'm wondering if there's a bogeyman that you're thinking about in terms of the number of relationships you'd like to have looking 12 or 18 months out. And then to, you know, lump onto the unfair questions. If you look at the size of the opportunity, if we start looking down,

Matt: Matt, given that this is the first inning, this probably isn't a fair question, but, you know, it sounds like you're engaged in talking to other parties out there within InsurTech. I'm wondering if there's a bogey that you're thinking about in terms of the number of relationships you'd like to have looking 12 or 18 months out. And then to, you know, lump onto the unfair questions,

Matthew McRae: And that may blossom even further, you know, in the future where we may see home insurance companies take a more active role in the space because if they are able to deploy technologies and services that mitigate damage, it fundamentally changes. You know, their finances and their risk tables and everything else. So it's them taking not just a passive role by running some numbers and cutting a check of something goes wrong on you based on some broad demographic, but actually taking much more granular data and an active role in potentially detecting and mitigating the damage in the first place.

Speaker Change: If you look at the size of the opportunity, if we start looking down into late 25, 26, what's going to constitute success in terms of strategic relationships like this, like outside of Verashore, what this could represent in terms of your recurring services revenue stream? Thanks.

Matthew McRae: Yeah, no, I love unfair questions. Yeah, I think there's a lot of activity just starting in the general space. I would tell you, Arlo, we're very much concentrated on Allstate right now because there is, I think, a shared vision for what happens in this space. But what we see is when things do get announced or when things get rolling, you know, some of these industries move in packs. And they kind of move together as they start to discover that someone may have an advantage in a certain space.

Matt: Yeah, no, I love unfair questions. Yeah, I think there's a lot of activity just starting in the general space.

Scott Searle: So I do believe this is the beginning of a revolution in, you know, the home insurance space. Similar to some of the beginnings you're starting to see in the driver space with driver safety scores and things like that completely changing how insurance companies quote engage and provide insurance for, you know, drivers for car, you know, auto and build drivers and the likes. So that gives you a little bit of it. I mean, again, I think we're in not barely in the first inning of what this is, but we've now got a great partner, one of the top brands in the home insurance space.

Speaker Change: I would tell you, we're very much concentrated and I'll stay right now because there is, I think, a shared vision and what happens in the space. But what we see is when things do get announced or when things get rolling, you know, some of these industries move and pack.

Jacob Stephan: Maybe just one last one. You talked about kind of the single camera plan, you know, the price increase there. Maybe you could just give us a sense of what percentage of the price increase that was. Let me help. Yeah.

Speaker Change: and they kind of move together as they start to discover that someone may have an advantage in a certain space. So I do think there's a broader opportunity in general right now, Arlo is really focused on executing all state and expanding that relationship and some really innovative ways for consumers of both companies.

Matthew McRae: So I do think there's a broader opportunity in general right now, Arlo is really focused on executing all state and expanding that relationship in some really innovative, innovative ways for consumers of both companies. And so that's a bit of an answer to your question, at least at this point, but I think a focused approach, initially, to drive the solution and learn from that on both sides is probably the first stage.

Scott Searle: And I'll think you'll see more activity of this rolling forward and this could become a significant part of our business as we look towards the rest of our long range plan. Given that this is the first inning, this probably isn't a fair question, but, you know, it sounds like you're engaged in talking to other parties out there within insure tech. I'm wondering if there's a bogey that you're thinking about in terms of the number of relationships you'd like to have looking 12 or 18 months out and then to, you know, lump on to the unfair questions.

Speaker Change: And so that's a, you know, it's a bit of an answer to your question, at least at this point. But I think a focused approach initially to drive the solution and learn from that on both sides is probably the first stage. And then the second stage is expansion, potentially.

Matthew McRae: And then the second stage is potential expansion. As far as how do we provide a metric or a measure of success as we kind of get into maybe the second half of our long-range plan, like 2027 or something like that, I think the first thing we would look at is how many homes were we able to address through this incremental channel. And I would hope by that point, we're looking at hundreds of thousands, if not maybe even a million homes that have been able to be addressed through the InsureTech channel in particular and are incremental to the growth that we're seeing in retail and some of our other strategic accounts.

Speaker Change: As far as, you know, where does this, where, how do we, you know, provide a metric or a measure of success as we kind of get into, you know, maybe the second half of our long range plan, like 27, 27 or something like that. I think, you know, the first thing we would look at is, you know, how many homes were we able to address?

Matthew McRae: If you look at the size of the opportunity, if we start looking down into late 2526, what's going to constitute success in terms of strategic relationship like this, like outside of very short, what this could represent in terms of your recurring services revenue. Yeah, no, I love unfair questions, Scott. Yeah, I think there's a lot of activity just starting in the general space. I would tell you, Arlo, we're very much concentrated on all space right now because there is, I think, a shared vision in what happens in the space.

Speaker Change: You know, through this incremental channel. And I would hope, you know, by that point, we're looking at hundreds of thousands, if not maybe even a million, homes that have been able to be addressed through the InsureTech channel, InsureTech channel in particular, and incremental to the growth that we're seeing in retail and some of our other strategic accounts.

Matthew McRae: So that's kind of how we would measure initially. We drive a lot of our success and even measurements internally on how many people we have been able to keep safe. And to us, that's a household that's actually active and a paid account. Thank you.

Matthew McRae: But what we see is when things do get announced or when things get rolling, you know, some of these industries move in packs and they kind of move together as they start to discover that someone may have an advantage in a certain space. So I do think there's a broader opportunity in general right now. Arlo is really focused on executing all state and expanding that relationship in some really innovative ways for consumers of both companies.

Speaker Change: So that's kind of how we would measure initially. You know, we drive a lot of our success and even measurements internally on how many people have we been able to keep safe. And to us, that's a household that's actually active and being a paid account.

Scott Searle: Okay, thanks so much. Very helpful and a great job on the quarter.

Speaker Change: Okay, thanks so much. Very helpful and a great job on the quarter.

Hamed Khorsand: The next question is from the line of Hamed Khorsand with BWS Financial. You may proceed.

Speaker Change: The next question is from the line of Hamed Khorsand with BWS Financial. You may proceed.

Hamed Khorsand: Hi, so my first question was, are you seeing any changes as far as your major, you know, retail partners are concerned, as far as the composition of who's who's important?

Hamed Khorsand: Hi, so my first question was, are you seeing any changes as far as your major, you know, retail partners is concerned, as far as the composition of who's important?

Matthew McRae: So that's a bit of an answer to your question, at least at this point. But I think a focused approach initially to drive the solution and learn from that on both sides is probably the first stage and then the second stage is expansion potentially.

Matthew McRae: Not major. I mean, what I would say, and we've described this over the previous, I would say maybe three or four quarters, is that as the market is starting to shift into more of a mass market product segment, there is a natural transition of the, at least the pie chart, right? All potential retailers can grow, but you'll see retailers like Walmart, as an example, start to take a bigger portion of the pie as the awareness of the product segment, and the solution, becomes a little bit broader.

Speaker Change: Not major, I mean, what I would say is in we've described this over the previous, I would say maybe three or four quarters is as as the market is starting to shift.

Scott Searle: As far as, you know, where does this, where, how do we, you know, provide a metric or a measure of success as we kind of get into, you know, maybe the second half of our long-range plan, like 2027 or something like that. I think, you know, the first thing we would look at is, you know, how many homes were we able to address, you know, through this incremental channel? And I would hope, you know, by that point, we're looking at hundreds of thousands, if not maybe even a million homes that have been able to be addressed through the insurtec channel, insurtec channel in particular and incremental to the growth that we're seeing in retail and some of our other strategic accounts.

Speaker Change: into more of a mass market product segment.

Speaker Change: There is a natural transition of the, at least the pie chart, right. All potential retailers can grow.

Speaker Change: But you'll see retailers like a Walmart, as an example, start to take a bigger portion of the pie as the awareness of the product segment, awareness of the solution, becomes a little bit broader.

Matthew McRae: And you'll remember we said last year that we kind of took a bet last year that we thought that kind of mass market adoption at the beginning of that phase was going to start last year. That's what triggered some of the discussions with Walmart and then the ultimate promotion we did with them in Q4 that was very successful. And I think that promotion and that success in Q4 proved that the mass market is starting not only with us but also with Walmart, maybe some other channel partners.

Speaker Change: and you'll remember we kind of took a bit last year that we thought that kind of mass market adoption.

Scott Searle: So that's the kind of how we would measure initially. You know, we drive a lot of our success and even measurements internally on how many people have we've been able to keep safe. And to us, that's a household that's actually active in being a paid account. Okay, thanks so much, very helpful and great job on the quarter. Thank you, Pat.

Speaker Change: At the beginning of that phase was going to start last year that that's what triggered some of the discussions with Walmart And then the ultimate promotion we did with them in Q4 that was very successful

Speaker Change: And I think that promotion and that success in Q4 proved that.

Speaker Change: [inaudible]

Hamed Khorsand: The next question is from the line of Hamad Korsand with BWS Financial. You may proceed. Hi, so my first question was, are you seeing any changes as far as your major, you know, retail partners is concerned as far as the composition of who's important? Not major. I mean, what I would say is, and we've described this over the previous, I would say, maybe three or four quarters, is as the market is starting to shift into more of a mass market product segment, there is a natural transition of at least the pie chart, right?

Speaker Change: So, you know, in initial technology...

Matthew McRae: So, you know, an initial technology journey, you know, in the market, you'll see Best Buy or others have a significant portion of the share because it's a new technology. It needs a consultative sale. It needs a lot of description behind it.

Speaker Change: journey, you know, in the market, you'll see a Best Buy or others have a significant portion of the share because it's a new technology, it needs a consultative sale, it needs a lot of description behind it, it's a certain demographic of people looking at it because it's brand new, and then as that technology matures and becomes more a mass market phenomenon from an awareness perspective, you'll start to see the Walmart's then start to catch up and start to gain share. So long-winded answer to your question is we are seeing a little bit more growth on a relative basis.

Matthew McRae: There is a certain demographic of people looking at it because it's brand new. And then as that technology matures and becomes more of a mass market phenomenon from an awareness perspective, you'll start to see the Walmarts then start to catch up and start to gain share. So the long-winded answer to your question is we are seeing a little bit more growth on a relative basis in more of the mass market channels because of this transition of the product segment becoming a little bit more mass market.

Speaker Change: in more of the mass market channels because of this transition of the product segment becoming a little bit more mass market.

Hamed Khorsand: All potential retailers can grow, but you'll see retailers like a Walmart, as an example, start to take a bigger portion of the pie as the awareness of the product segment, awareness of the solution becomes a little bit broader. And you'll remember, we said, we kind of took a bet last year that we thought that kind of mass market adoption at the beginning of that phase was going to start last year. That's what triggered some of the discussions with Walmart.

Hamed Khorsand: Okay, and then what was the reason behind expanding your range in your commentary about what your organic subscriber additions are per quarter? In this quarter, you said 150 to 190. In previous quarters, you had said 170 to 190.

Speaker Change: Okay, and then what was the reason behind expanding your the range and your commentary about what your organic subscriber additions are for quarter and this quarter you set 151-90 previous quarters, it's headed 178-198.

Hamed Khorsand: And then the ultimate promotion we did with them in Q4, that was very successful. And I think that promotion and that success in Q4 proved that mass market is starting, not only to us, but also to Walmart, maybe some other channel partners. So, you know, an initial technology journey, you know, in the market, you'll see a best buy or others have a significant portion of the share because it's a new technology, it needs a complicated sale.

Matthew McRae: Yeah, it's some of that seasonality. So, as you know, you'll often see a little bit higher in Q1 after the holiday season, and then a little bit more in Q4. So we're kind of widening the range a little bit in Q2, but I don't think anything's really changed in the business. So it's, you know, it's 160, 170 to 190,000. We'll get a much better read on that after the catch up is done very quickly next quarter. But there's nothing, nothing fundamental in the business has changed, and that's not what we're trying to communicate.

Speaker Change: Yeah, it's some of that seasonality, so as you know, you'll see more often a little bit higher in Q1 after the holiday season and then a little bit more in Q4, so we're kind of widening the range a little bit in Q2.

Speaker Change: But I don't think anything's really changed in the business. So it's 160, 170 to 190,000. We'll get a much better read on that after the catch-up is done on Verisure next quarter. But there's nothing fundamental in the business has changed, and that's not what we're trying to communicate.

Hamed Khorsand: Okay, my other question was, are you going into the holiday season with just the essentials two products, just like last year? Or will there be an updated product?

Speaker Change: Okay, my other question was, are you going into the holiday season with just the Essentials 2 product just like last year, or will there be an updated product?

Hamed Khorsand: It needs a lot of description behind it. It's a certain demographic of people looking at it because it's brand new. And then as that technology matures and becomes more a mass market phenomenon from an awareness perspective, you'll start to see the Walmart's men start to catch up and start to gain share.

Matthew McRae: Typically, our products are every other year, so we launched Essential 2 right before the holiday season. I mean, it really landed in October of last year, and so we're leaning back into that platform this year as well, and it's the right product, like I said, at the right time. Now, obviously, as we work through quarter by quarter and the volume picks up, as it has over the last couple of quarters after our launch, we're able to get additional price concessions from the supply chain as we go. So our cost basis for that product is not the same as last year, but the product assortment is going to be very similar to last year.

Speaker Change: Typically our products are every other year. So we launched Essential 2 right before the holiday season. I mean it really landed in October of last year and so we're leaning back into that platform this year as well and it's the right product like I said at the right time. Now obviously as we work through quarter by quarter and the volume picks up as it has over the last couple of quarters after our launch, we're able to get additional price concessions.

Matthew McRae: So, long-winded answer to your question is we are seeing a little bit more growth on a relative basis in more of the mass market channel, because of this transition of the product segment becoming a little bit more mass market. Okay, and then what was the reason behind expanding your the range and your commentary about what your organic subscriber additions are per quarter and this quarter you said 150 to 190 previous quarters you said it's 170 to 190.

Speaker Change: from the supply chain as we go through. So our cost basis for that product is not the same as last year, but the product assortment is going to be very similar to last year.

Hamed Khorsand: Okay, thank you. You're welcome. There are no further questions waiting at this time. I would like to turn the call back over to the presenters.

Speaker Change: Okay, thank you.

Matthew McRae: Yeah, it's some of that seasonality. So as you know, you'll see more often a little bit higher in Q1 after the holiday season and a little bit more in Q4. So we're kind of widen the range a little bit in Q2 but I don't think anything's really changed in the business. So it's, you know, it's 160, 170 to 190,000. We'll get a much better read on that after the catch up is done on very short next quarter. But there's nothing, nothing fundamental in the business has changed and that's not what we're trying to communicate.

Matthew McRae: Thank you everyone for joining us on the call today. We look forward to executing the quarter and speaking it into you in 90 days.

Speaker Change: Thank you everyone for joining us on the call today. We look forward to executing the quarter and speaking it in to you in 90 days.

Operator: This concludes today's conference call. You may now disconnect.

Speaker Change: This concludes today's conference call you may now disconnect.

Speaker Change: Thank you for watching!

Matthew McRae: Okay, and my other question was, are you going into the holiday season with just the essentials to products just like last year or will there be an updated product? Typically, our products are every other year. So we launched essential to right before the holiday season. I mean, it really landed in October of last year. And so we're leaning back into that platform this year as well. And it's the right product, like I said, at the right time.

Hamed Khorsand: www.HamedKhorsand.com www.HamedKhorsand.com

Matthew McRae: Now, obviously, as we work through Q4 by Q4 and the volume picks up as it has over the last couple of quarters after after our launch, we're able to get additional price concessions from the supply chain as we go through. So our cost basis for that product is not the thing as last year, but the product assortment is going to be very similar to last year.

Hamed Khorsand: Okay, thank you. You're welcome.

Operator: There are no further questions waiting at this time. I would like to turn the call back over to the presenters. Thank you, everyone for joining us on the call today. We look forward to executing the quarter and speaking it into you in 90 days. This concludes today's conference call. You may now disconnect.