Q4 2024 Arlo Technologies Inc Earnings Call
And CFO.
If you've not received a copy of today's earnings release. Please visit <unk> Investor Relations website at investors that are the dot com.
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Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties.
Actual results could differ materially.
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We undertake no obligation to update any forward looking statement.
During this call we will present, both GAAP and non-GAAP financial measures.
A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website.
Speaker Change: Thank you Thomas and thank you everyone for joining us today.
Speaker Change: And I will be reporting Q4, and full year 2024 results then providing a look ahead and guidance for Q1 and full year 2025.
Speaker Change: But before we dive in I would like to take a moment to reintroduce silo identify the pillars of our success and highlight the outstanding operational execution over the last five years.
Speaker Change: This is especially important as we find ourselves engaging with so many new faces that are coming to the story without the benefit of traveling with us on a recent journey to becoming a top consumer SaaS company.
Speaker Change: Arlo as a trusted player in the smart home security market. In fact, we invented the category more than a decade ago with the first arlo wire free security camera.
Speaker Change: Through relentless focus and innovation, we have outpaced our competitors to build a highly profitable subscription business powered by a scaled SaaS platform with an AI enabled suite of services for our direct users and strategic partners.
Speaker Change: Arlo has been monetizing AI subscriptions since 2018, and our innovation has propelled the company to the top rung of public SaaS companies on a global basis.
Speaker Change: Let's take a look at our key business metrics.
Speaker Change: We currently have nearly 11 million registered accounts and over $4 5 million paid subscribers on our platform.
Speaker Change: That user base is generating over $250 million in annual recurring revenue, which is growing faster than 20% year over year.
Speaker Change: <unk> gross margin on that service revenue is above 80% and we have an LTV to CAC ratio of four.
Speaker Change: Which highlights the efficiency of our sales model and the enormous return, we're providing to shareholders as we continue to grow our business.
Speaker Change: These are world class metrics for any type of subscription services business consumer commercial enterprise any business and I believe this is substantially underappreciated or frankly missed because arlo reached this level so quickly.
Speaker Change: The growth of our subscription business over the last five years has been virtually unparalleled registered accounts have more than doubled while our paid subscriptions have grown more than tenfold in the same timeframe.
Speaker Change: This has driven our annual recurring revenue above a quarter of a $1 billion and as our revenue has scaled we have gained operating leverage in the business to expand non-GAAP service gross margin to an exit velocity of more than 80% at the end of 2024.
Speaker Change: Our SaaS business model with predictable and has been sustainable over the last five years.
Speaker Change: As we generate the recurring subscription revenue in a market segment that is sticky and through stellar service Arlo enjoys world class customer retention.
Speaker Change: Let's look at how our lowest growth stacks up against the best SaaS companies in the world.
Speaker Change: We found 47 SaaS companies trading on the NYSE or NASDAQ with an enterprise value of at least $250 million and then looked at how long it took for them to reach $250 million in <unk>.
Speaker Change: First you will recognize the caliber of the companies listed here in each category.
Speaker Change: Second you will see how rare it is for a consumer SaaS company to achieve this level of <unk> growth in such a short time.
Speaker Change: By achieving over a quarter of a $1 billion in IRR in six years or less Arlo is an elite company with only new tactics rubric and Sam Sarah achieving a similar fee.
Speaker Change: And with a big 2025 ahead of US we have no intention of slowing down.
Speaker Change: I'm going to place a large and growing market of home security, which is now at 25 billion dollar segment in the United States alone.
Speaker Change: And while penetration of smart cameras and video doorbell has doubled over the last five years Smart home security services have only reached 7% market adoption, leaving an enormous untapped market to grow into the.
Speaker Change: The broader smartphone market as another $13 billion of addressable market in the United States.
Speaker Change: We intend to launch user experiences and services in this area starting with Arlo secure six.
Speaker Change: This brings the total addressable market to nearly $30 billion in the United States with the rest of the world, adding another two to three times that value and other adjacent markets such as SMB, adding another potential of three to four times.
Speaker Change: <unk> addresses this home security market today with a simple to use yet sophisticated smart security experience, coupled with a compelling subscription service.
Speaker Change: That experience manifests itself in our award winning mobile application and starts with clear notifications for any type of event notifications can be easily customized by the user to filter out unwanted noise and prioritize types of events that are important.
Speaker Change: These notifications include a preview of the event and optional actions that can be taken right from the notification screen.
Speaker Change: In the case of an emergency Arlo concerned a critical emergency alert, which bypasses any do not disturb settings to ensure the user receives the urgent information they need.
Speaker Change: Controlling your entire Arlo ecosystem is simple and can be done right from the home screen with our wizards that provide convenient access without needing to launch the app.
Speaker Change: Or are the Arlo dashboard provides complete control of the system and the most frequently used devices from a single customizable screen.
Speaker Change: And if that timeline shows a holistic view of everything that is happening across the whole minute by minute with efficient video previews and intelligent AI driven descriptions to ensure the user is informed of important events and actions happening across the system.
Speaker Change: Our user experience also has a comprehensive emergency response center, which provides immediate help when needed and an ongoing update of any emergency events happening in real time. The App also includes direct dispatch buttons, allowing the user to make a request for a specific type of first responder, depending on the type of emergency.
Speaker Change: Of course, the Arlo experience provides comprehensive access to all of the devices and cameras in our system, providing quick live streaming video recording playback and two way talked communicate with anybody in view, whether they are intruders or a package delivery person.
Speaker Change: And the entire system can be automated with device and AI cross triggers in numerous ways, including automatic army and disarming when family members of ryzen leaf to create an experience that adapt to your daily life routines.
Speaker Change: This is all built on the <unk> SaaS platform, which has been developed refined and deployed over the last 10 years. Our platform was conceived and designed to specifically address the needs of the smart home security space from low latency event handling to real time processing of <unk>.
Speaker Change: Coming video streams and connections to first responders on a global basis.
Speaker Change: And it operates at significant scale with over 1700 hours of video being analyzed per minute generating over 170 billion AI alerts per year, while keeping the high levels of quality and availability required in a true security context.
At the core of our platform is our low intelligence, our real time high performance Smart security AI engine built specifically for this market segment to drive our subscription services. This is an area where focus and clarity of use cases can create a higher performing AI model compared to the massive expensive general purpose.
Speaker Change: <unk> models that seem to be quickly becoming a commodity.
Speaker Change: Hello Intelligence is the most advanced AI model available in the security market.
Speaker Change: Process is video audio and environmental events to create specific alerts and system triggers which allows for faster response to potential emergency events, while filtering out the noise and insignificant activities.
Speaker Change: <unk> engine can detect objects, such as a person animal vehicle or package and was recently updated to detect fire, allowing earlier alerts for dangerous situations a.
Speaker Change: Our robust recognition engine can identify a specific person to differentiate actions for known individuals or an unknown person approaching a property.
Speaker Change: Andy can identify specific vehicles, enabling specific alerts our actions depending on whether that vehicle is known or unknown by the user Arlo intelligence also includes our groundbreaking custom detection capability.
Speaker Change: That enables users to create private AI micro models, which detect nearly any type of event dramatically expanding the power of our service.
Speaker Change: No other security AI platform has this advanced and comprehensive suite of capabilities and this differentiation is helping us win and retain subscribers.
Our low price itself in the performance and quality of the solutions, we provide our users and partners a great benchmark is the industry Press and awards, where we are judged by experts in the field and in 2020 for Arlo continues to be recognized as a leader in driving new Tech.
Speaker Change: <unk> market and enabling a world class user experience.
And a great judge of that user experience is the ability to retain subscribers RV.
Speaker Change: <unk> experienced as a churn rate of between one one and one 3%, which translates to the average customer staying with Arlo services for more than seven years.
Speaker Change: This puts us in a great position as a SaaS company and compares very favorably to other consumer subscription services.
Speaker Change: Our low singular focus on the smart home security market has allowed us to move quicker innovate faster and continues to lead the market.
Speaker Change: Every day every person at our lowest dedicated to driving our platform forward to benefit our users and partners.
Speaker Change: Video is at the heart of security now with some areas of the country requiring video verification to dispatch first responders and users are demanding experiences that show them what is happening at all times. This coupled with our strict privacy pledge creates a relationship is founded on trust.
Speaker Change: And our platform is the main asset of the business the culmination of a decade of work and at its core is Arlo intelligence, where we are at the forefront of leveraging AI to provide real tangible value to users in a scaled and performance experience. This is why we win.
Speaker Change: And now I will turn the presentation over to Kurt who will present, our Q4 2024 operating results.
Kurt: Thank you, Matt and thank you everyone for joining us today.
Kurt: 2024 was another outstanding year for Arlo as we continued to advance our track record of operational excellence guided by our subscription driven strategy.
Kurt: Before I provide additional details on our subscription services business I wanted to highlight that the consolidated business generated total revenue of $511 million for the full year of 2024 up $19 $7 million over the prior year and within our original annual guidance range.
Kurt: Additionally, total revenue for the fourth quarter of $122 million came in slightly ahead of consensus expectations and was driven by the strong growth of our services business.
Kurt: Yeah.
Kurt: Over the past several years <unk> has been on a transformational journey. During this time, we have been told on many occasions that can be considered a world class SaaS company, we need to achieve certain kpis. These milestones include service revenue composition greater than 50% of total revenue minimum a R. R.
Kurt: Of $250 million and services gross margins greater than 80%.
Kurt: While the Arlo team accepted this feedback and undertook the challenge and we are proud to announce that we have hit all of these key milestones during the fourth quarter of 2024.
Kurt: As Matt mentioned earlier, we increased our cumulative paid accounts to $4 6 million and along with it our annual recurring revenue grew by over 20% to $257 million.
Kurt: Our services revenue increased to $243 million in 2024, and in Q4 comprised 53% of our total revenue.
Kurt: Further we have expanded our services gross margins to 82% as we exited this year and although we are pleased with our execution. This management team is not complacent with our success.
Kurt: So much more to come in 2025.
Kurt: Yeah.
Kurt: The Arlo subscription based operating model with its retail and direct paid accounts. Both exceptional unit economics unit economics that are consistent with most world class size enterprises.
Kurt: During 2024, we continued to expand our overall unit economics as the gross profit from our services business.
Kurt: Exceeded our non-GAAP operating expenses by more than $35 million.
Kurt: During the year, we increased our our pool from retail paid accounts to $12 60.
Kurt: From $11 30 in the prior year, representing a 12% growth rate.
Kurt: <unk> expansion was driven by the value of enhanced AI and other robust features included in our higher tiered service plans amazingly. These retail paid accounts generated gross margins of 92% as we exited the year, thereby catalyzing this outstanding financial performance.
Kurt: Our view expansion and consistent monthly subscriber growth retention at 99% per month has driven our current LTV to an outstanding $750 per subscriber.
Kurt: It is important to highlight that we continue to employ a strategy of leveraging our product sales as a critical.
Kurt: Element in our customer acquisition model.
Kurt: Product revenue for the full year of 2024 was $268 million down by $22 $1 million compared to the prior year.
Kurt: Product revenue for the fourth quarter was $57 $4 million and in line with our expectations communicated back in Q3.
Kurt: In Q4, the promotional activities across all retail channels, where aggressive given consumer sentiment as well as other environmental and macroeconomic factors.
Kurt: In order to meet the consumers, where they work and drive growth in point of sale or Pls activities Arlo instituted a number of incremental promotional campaigns, which decreased the asp's for our devices and also attributed to a decline in our overall product gross margins.
Kurt: As a result, our cost of customer acquisition or CAC increased from $100 in the prior year to $200 in 2024.
Kurt: Since the increase in CAC was driven by our intentional strategy to reduce asps and use our products to drive household formation, we were able to increase our unit Pos in Q4 by 73% over the prior quarter and 5% over the prior year.
Kurt: This is a remarkable outcome considering that we launched the essential to platform in 2023.
Kurt: Leveraging our sales channel strong pricing power and world class customer retention levels, we still have an industry, leading LTV to CAC ratio of four times and we are just beginning to tap into this math long term opportunity.
Kurt: Yeah.
Kurt: It is important to discuss two critical growth metrics.
Kurt: Accounts and <unk> growth.
Kurt: Our installed base of subscribers continued its strong trajectory coming in at $4 6 million paid accounts at the end of 2024, an increase of 63% over the prior year.
Kurt: As discussed in previous quarters, we remain committed to generating 170000 to 190000, new paid subscribers each quarter in.
Kurt: In this past year are paid accounts reflected a meaningful catch up a bearish or subscribers. However, we believe that substantially all of the bearish or catch up related to firmware upgrades are completed.
Kurt: We recognize that paid account growth is instrumental in driving our <unk>.
Kurt: Year end, RMR, which was $257 million at the end of 2024.
Kurt: Our growth rate of 22% is exceptional and a factor of both paid account growth as well as the expansion of <unk> due to mix shifts and service plan.
Kurt: It is important to note that.
Kurt: That around 87% of the IRR is generated from our retail and direct paid accounts.
Kurt: Our focus on subscription based services provides a significant uplift to our profitability and greater visibility and predictability in achieving our near term revenue targets.
Kurt: Our service revenue was at record levels for Arlo at $64 $1 million for the fourth quarter and $243 million for the full year of 2024.
Kurt: Service revenue increased by $42 million or 21% year over year fueled by the addition of new paid accounts.
Kurt: The <unk> expansion.
Kurt: Further service revenue as a percentage of total revenue represented 53% and 48% for Q4 and for the full year respectively.
Kurt: non-GAAP service revenue gross margins were above 76% throughout the year and exited the fourth quarter at a remarkable rate of 82%.
Kurt: The Q4 2020 for services gross margin increased significantly from 74% in Q4 of 2023.
Kurt: On a consolidated basis.
Kurt: Our non-GAAP gross profit for the fourth quarter was $45 $6 million, resulting in a non-GAAP gross margin of 37, 5% driven by the improvement in services profitability.
Kurt: Our non-GAAP gross profit for the full year of 2024 was $192 $3 million up $26 million or 12% year over year.
Kurt: This resulted in a non-GAAP gross margin of 37, 6%.
Kurt: Up more than 260 basis points from 35% in 2023.
Kurt: The year over year increase in non-GAAP gross profit was primarily attributable to the growth in revenue and improvement in gross margins in our services business.
Kurt: Coupled with an ongoing focus on cost optimization.
Kurt: Our growth in non-GAAP operating income and free cash flow was exceptional this year to appreciate the operating leverage in our business model.
Kurt: To understand our disciplined approach to managing our non-GAAP operating expenses and working capital in 2024.
Kurt: Total non-GAAP operating expenses for the fourth quarter were $36 3 million.
Kurt: Down more than $2 million, both sequentially and year over year.
Kurt: Total non-GAAP operating expenses for the full year of 2024 were $154 $4 million of about $7 $7 million or 5% from the $146 $7 million reported in the same period last year.
Kurt: Our ability to manage our operating expenses at these levels truly demonstrates the leverage in our business model.
Kurt: This was evident this year as services revenue grew by $42 million or 21%.
Kurt: While the cost to deliver that revenue only grew by 2% representing a 97% gross margin on the incremental service revenue.
Kurt: We set another record in 2024 generating $37 $9 million, a non-GAAP operating profit or seven 4% operating margin.
Kurt: For that same period non-GAAP operating income was up a remarkable 52% over the prior year.
Kurt: This level of operating profit coupled with exceptional working capital management helped drive our free cash flow to $48 $6 million with free cash flow margin of nine 5%.
Kurt: The year over year growth in free cash flow was $13 2 million or 37%.
Kurt: In Q4, we posted a non-GAAP net income of $10 $4 million or net income per diluted share of <unk> 10 in line with consensus.
Kurt: For 2024, we recorded non-GAAP net income of $42 $3 million up more than $14 $4 million or 52% when compared to the same period in 2023.
Kurt: Our non-GAAP net income translates to net income per diluted share of <unk> 40.
Kurt: Again, a significant improvement from a net income per diluted share of 28 in 2023.
Kurt: You can expect us to continue to be focused on managing the operating expenses to invest in growth opportunities ahead of us.
Kurt: Regarding our balance sheet and liquidity position, we ended the quarter with 151 $5 million in available cash cash equivalents and short term investments. This balance was up $15 million year over year underscoring the improvement in profitability.
Kurt: Given our growing cash balance we are extremely focused on our ability to allocate capital in a manner that generates the best return.
Kurt: Our DSO levels for the quarter were 44 days in Q4 of 2024 and relatively consistent with our DSO levels in the prior quarter and same quarter last year, highlighting our enhanced collection efforts on a base of larger retail customers.
Kurt: We will continue to monitor our dsos closely but we are pleased with the overall status and collectability of outstanding receivables.
Kurt: Regarding inventory.
Kurt: We managed our inventory levels to $46 million to meet the expected consumer demand in the fourth quarter.
Kurt: This balance was substantially reduced from our inventory balance of $52 million in Q3.
Which helped improve our inventory turns in Q4 to six four times.
Kurt: Up from five eight times in Q3.
Kurt: That inventory improvement was driven by a well executed loading of product into mass market retailers like Walmart and Amazon to support their fourth quarter promotional events.
Kurt: Thank you Kurt.
Kurt: I would like to change gears now to start looking ahead at 2025 and some of the exciting components that will play a role in our future success.
Kurt: Innovation is at the core of what we do here at ARVO.
Kurt: History of innovation spans a decade from the launch of the original Arlo wire free camera to the most recent updates to our complete security experience, including our low intelligence.
Kurt: What we have plans going forward.
Kurt: Looking ahead to the holiday season in 2025, Arlo will refresh nearly every camera and our lineup across altra pro and essential.
Kurt: And we will also be expanding into several new camera segments like Pan tilt zoom and more power to outdoor devices. This will be the largest device launch in our company's history and sets the stage for growth with Arlo already securing an increase in shell share at one of our largest channel partners.
Kurt: Simultaneously Arlo has commenced development of a next generation home install business security ecosystem launching in 2026 and 2027.
Kurt: This new concept was born out of a clean sheet of paper design study ignoring the past precedents in old technology, that's still dominates the space, which enables a groundbreaking new way to think about experience security.
Kurt: I could not be more excited about this program, which is a beneficiary of our organic capital allocation program and we will start sharing information with strategic partners later this year.
Kurt: This is true innovation, what has always made arlo, great and it will reset the bar for the entire industry once again.
Kurt: Based on the success and data we saw from our Arlo secure five launched last year, we moved to simplify the subscription plans that we offer in 2025.
Kurt: <unk> now offers two plants plus in both single and unlimited camera options and Premier which includes professional monitoring emergency response steadily or backup and arlo safe.
Kurt: We have doubled the cloud video storage to 60 days and now every plan has access to our full suite of Arlo intelligence features.
Kurt: The new plants took effect January one and all current subscribers are being migrated to these plans starting this month early.
Kurt: Early metrics confirm what we saw with our initial launch of <unk>.
Kurt: Average revenue per user for new subscribers is now $17 54.
Kurt: 24% of our users are selecting annual plans, which reduces churn and we have seen a 20% increase in the mix of users selecting our premium plan.
Kurt: And a quick stat, we found interesting.
Kurt: When looking at our population of active devices in the field roughly 65% are attached to a paid plan.
Kurt: <unk> is a resounding success and this change in plant structure will maximize the positive impact for users and our shareholders.
Kurt: And here's a quick sneak peek at a subset of the new features coming in Arlo secure six later this year.
Kurt: First you will see or will begin its push into the $13 billion a year DIY smart home space by adding third party device control and automation to our user experience. This is the beginning of a multiyear expansion into that market, where we see security solution companies like Arlo, having an advantage in owning the user engagement and really.
Kurt: <unk> chip as the smart home and home security segments combined into one concept smart home security.
Kurt: A single shortcut could RMB argosystem at night, while simultaneously locking the front door lowering the thermostat and turning off the lights down stairs.
Kurt: Second you will see Arlo intelligence expand into providing more detailed descriptions of an event.
Kurt: For both video and audio portions of the data capture for instance, it will be able to describe a person's close or what they are holding as they walk up to the front door or it can listen and determined what sounded here's such as a car lines and these descriptions will be fully searchable to find patterns in your event feed or find specific events.
Kurt: And third we will be rolling out a beta version of our new Arlo intelligent capability spread assessment.
Kurt: Our platform will analyze each event and provide threat, scoring on several parametric classifications to determine how to react.
Kurt: The threat assessment could be used to send a critical alert kreger system to <unk> actions and prioritize emergency responders, while providing much more detail as part of that escalation.
Kurt: Arlo secure six is another example of our innovation edge and we will continue our leadership and capabilities and user experience.
Kurt: Now I would like to shift to partnerships.
Kurt: This morning, we announced our partnership with rapid Sos, which extends the capabilities that the arlo platform to provide world class Emergency response.
Kurt: <unk> users will have a faster response time to any emergency request and have the option to share important information with first responders such as gate coats profiles of people at the location medical histories or other information that could vastly improve response times and deliver better outcomes.
Kurt: <unk> users can select specific cameras to share with emergency agents, who can then use video verification of the event, which enables a faster higher priority response from first responders.
Kurt: Looking ahead rapid Sos will enable arlo to bring peace advanced emergency response services to new regions fueling the international expansion of our Premier subscription plan and we plan to collaborate with them on additional innovation opportunities in the space over the coming years.
Kurt: Additionally, we launched a deep technology partnership with origin wireless, whose verified human presence technology utilizes existing Wi Fi devices within the home or business to intelligently predict if a moving object on the premises of person.
Kurt: It is a groundbreaking capability driven by a sophisticated AI model that not only brings a differentiated feature to the arlo SaaS platform, but has also created a pipeline of strategic partners that want to deploy it as part of our security subscription service.
Kurt: It's integrated into Arlo intelligence, and our SaaS platform. It will provide simple motion detection without hardware helped reduce false alarms and drive new business opportunities for Arlo.
Kurt: As part of our relationship Arlo has secured global exclusive rights to the technology itself and the ability to market and sell the technology as a service.
Kurt: And finally, we also announced this morning, a deeper relationship with Samsung, which we are very excited about.
Kurt: As a first step the teams are working closely together to bring our best in class experience. The Samsung Smart things users across Arlo cameras. This will include better performance two way audio events snapshot previews and AI powered notification some triggers inside of the smart things user experience.
Kurt: Other aspects of our partnership will be announced later this year.
Kurt: And now I will turn the presentation over to Curt again to provide our 2025 financial outlook.
Speaker Change: Thanks, Matt our strong operational performance in 2024, and groundbreaking innovation that Matt just discussed.
Kurt: Positions us for success in 2025 and beyond.
Kurt: <unk> addressable market is expanding as the value proposition that we provide cancer a broader range of customers.
Kurt: Our <unk> business model is resilient and sustainable as we focus on acquiring new households through our highly leverage channel and strategic partnerships.
Kurt: Using our compelling service offerings, we expect to convert purchases from new households at high rates into paid subscriptions.
Kurt: As customers are integrated into the Arlo ecosystem, we will expand <unk>.
Kurt: Through upsell opportunities led by sophisticated AI capabilities or lifesaving professional monitoring solutions.
Kurt: These efforts result in higher E R R and expanding margins.
Kurt: Bolstering, our profitability and generating additional free cash flow.
Kurt: The flywheel effect inherent in our business model is why we have such confidence in our ability to continue to deliver outstanding operational results now and.
Kurt: And into the future.
Kurt: We have now describe the outstanding results that our subscription strategy has yielded and our focus remains on driving additional unit sales to deliver highly profitable subscriptions.
Kurt: Even with our aggressive stance on growth, we don't expect our customer acquisition costs to materially impact, our consolidated margins or profitability goals.
Kurt: With that said.
Kurt: We expect the first quarter consolidated revenue for 2025 to be in the range of $114 million to $124 million.
Kurt: We expect our first quarter GAAP net loss per share to be between a loss of <unk> <unk>.
Kurt: And zero cents.
Kurt: And our non-GAAP net income per diluted share.
Kurt: To be between nine.
Kurt: And 15 cents per share.
We expect product margins.
Kurt: In the period to rebound from the promotional driven activity that was experienced in the fourth quarter of 2024.
Kurt: For the full year of 2025, we expect consolidated revenue to be in the range of $510 million to $540 million with service revenue comprising greater than 50% of total revenue.
Kurt: Based on the increase in paid accounts an improvement in our or we expect to generate service revenue at or above $300 million in 2025 growing at over 20% year over year.
Our approach to subscriptions will continue to drive.
Kurt: Our margin expansion as we expect non-GAAP service gross margin to be greater than 80% throughout the year.
Kurt: Our cost management discipline will be an important factor.
Kurt: And our expanding profitability as we expect our non-GAAP net income per diluted share to be between 56.
Kurt: And <unk> 66 per share.
Kurt: Representing year over year growth of more than 50% at the midpoint of the guidance range.
Kurt: We expect our consolidated gross margins will again be up several hundred basis points emphasizing.
Kurt: Emphasizing the operating leverage in the model.
Kurt: Even withstanding investment and customer acquisition through product pricing.
Again, all metrics proving that Arlo is a world class SaaS business.
Kurt: Our strong balance sheet and profitability establishes a solid foundation for the company's robust capital allocation program.
Kurt: On previous calls we have discussed the three dimensions of our capital allocation program, which include organic and inorganic investments as well as return of capital to shareholders.
Kurt: We prioritize organic investments because the addressable market of the smart security space is large relatively untapped and poised to expand over time.
Kurt: The investments we have made so far have paid dividends, yielding positive outcomes and enhancing our customer experience and achieving innovation milestones.
Kurt: Such as the introduction of our low secure Fi.
Kurt: With respect to inorganic investments, we continue to review potential candidates for external investments that either strengthen our position in the smart security space.
Kurt: Or enhance our technology platform to expand into adjacent markets.
Kurt: We have remained cautious around inorganic investments and will only execute a transaction that accelerates our path to achieving our long range goals.
Kurt: Finally, we have embarked on a share repurchase program that enables us to return capital to our shareholders. During the period, we executed repurchasing shares at an average price of $11 67.
Kurt: With proceeds totaling $4 $4 million.
Kurt: We will continue to be opportunistic at repurchasing our shares which we believe are still undervalued, given our growth and profitability profile.
Kurt: Yeah.
Kurt: Thank you Kurt.
Kurt: As you can tell from our guidance 2025 is going to be a massive year at arlo, we are executing extremely well and continuing to perform at the highest level across all SaaS peers. In fact, if you take the SaaS companies, we highlighted earlier and down select further to only those companies that are achieving a new rule of 40 status it becomes a much smaller cohort.
Kurt: And this set of companies are currently being valued based on a revenue multiple of seven six times.
Kurt: We then decided to take a look at a smaller group and only look at companies that are achieving revenue growth above 20% that reduces the peer group to five companies get lab Clavier life 316, Monday Dot com at some rush and these companies are valued at a revenue multiple of nearly 10 times, how does <unk> compare.
Kurt: Our 2025 guidance puts us squarely in the rule of 40 club and our <unk> growth rate puts us in that top tier set of only five companies, we trade at less than four times multiple against our service revenue, which supports my earlier comment that we feel are true value has not yet been recognized by the market.
Kurt: You can see why we have been buying back stock.
Kurt: So those that have been on the journey with US you will remember we set out some ambitious targets to achieve by 2027% in our original long range plan. Those targets were 5 million paid accounts $300 million in IRR and more than 10% operating margin.
Kurt: It is clear that we will likely achieve all three of these metrics before the end of this year 2025.
Kurt: So it was the correct decision to reset those targets last year and to put out audacious goals that doubled or more than doubled those original targets to achieve over the next five years, and while 10 million paid accounts $700 million in IRR and over 25% operating margin remain our current long range target. It is clear our load is likely to.
Kurt: <unk> beat these targets given our current growth rate and the incremental opportunities that lie in front of us.
Kurt: Refocusing to the year ahead Arlo is set up for an absolute incredible 2025 past investments in technology innovation partner development and operational excellence will come to fruition and begin reading through the business as we endeavor to maximize shareholder value creation.
Kurt: Some of the highlights.
Kurt: <unk> will continue to lead on platform technologies, and specifically in category AI innovation.
Kurt: The impact of last year's Arlo secure five launch is clear and we have given you a small sneak peek at Argo secure six which pushes arlo intelligence much further and providing real world tangible value to our users.
Kurt: Our device refresh cycle for holiday 2025 is the largest in company history touching nearly every camera, we produce and pushing us into several growing segments of the smart security camera market.
Kurt: These innovations and product launches have positioned us to secure additional shelf share and some of the largest retailers in the world with additional opportunities available.
Kurt: Today, we announced several new strategic partners that will expand our capabilities provide additional growth opportunities and continue to diversify our revenue base and routes to incremental arlo households.
Kurt: The partnerships with rapid Sos and origin AI immediately compound our technological differentiation in the market.
Kurt: More to come throughout the year.
Kurt: The result is an annual operating plan targeting $300 million or more of service revenue, which represents nearly 25% year over year growth.
Kurt: And our full year guidance means you were looking at our rule of 40 company coupled with the IRR growth rate. This puts arlo in an extremely small and elite list of publicly traded SaaS companies and shows the power of our subscription service offering.
Kurt: This outstanding outlook for Arlo is the culmination of years of strategy transformation and hard work across the team and it shows the power of a company with clarity of vision and focused execution towards well defined goals. Thank you to everyone at ARVO.
Kurt: And now I will open the call up for questions.
Speaker Change: At this time I would like Curt alright, everyone in order to ask a question Press Star then the number one on your telephone keypad.
Kurt: Pause for just a moment to complete the Q&A roster.
Speaker Change: Okay.
First question is from the line of Adam Tindle with Raymond James Your line is now open.
Adam Tindle: Okay. Thanks, good afternoon, and congrats on 2024 I appreciate the additional details on the call.
Speaker Change: You look at your outlook for 2025, particularly on the services revenue side I wanted to ask about that Kurt at or above 300 million or 20% plus year over year growth is obviously, a very strong outlook.
Speaker Change: And if I compare that to 2024, where you just finished its about a similar level of growth despite higher scale.
Speaker Change: In Q4, I think you were closer to mid teens, so it's a little bit of an acceleration from what we just saw in the past 90 days and that's what I wanted to ask about what are sort of the buckets that underpin that $300 million.
Speaker Change: Services target for 2025, I imagine there is some price lift in there that Matt talked about if you could just.
Speaker Change: You know kind of decompose some of that to give us a little bit more confidence in that outlook.
Speaker Change: Yeah, Adam Thanks, so much for the question.
Speaker Change: Certainly a great outlook for 2025% to 300 million plus in services revenue. So it's a factor of a several aspects.
Speaker Change: Obviously, we've been talking a lot about <unk> expansion. So we do see the pricing increasing this past year. We highlighted the fact that we started the year at $11 30 grew that 12% to $12 60.
Speaker Change: Accident year, so we expect that to continue especially on the back of our less secure five.
Speaker Change: On the volume in our subscriber base is increasing.
Speaker Change: That's going to continue throughout the year, we were doing a number of things to ensure that we.
Speaker Change: Then advise our sell through of our point of sale activity to ensure we can form some additional households, and drive subscriber growth that would be a big factor in it and then of course.
Speaker Change: The other thing that's going to we believe provide an accelerant. There is also a number of these strategic partnerships, which Matt touched on in great detail and Theres a lot of runway, there and kind of opportunity and finally mix shift. We also work in our favor. So it's a combination of factors and we just feel like the results from 2024 and what we've been.
Speaker Change: To accomplish their bode well for us delivering on a big 2025.
Speaker Change: Got it and maybe for Matt just to clarify on that because I think I caught.
Speaker Change: Comments that you have a transition in your subscribers to the new services platform ARPA is going to bump up to $17.54 you said.
Speaker Change: In that.
Speaker Change: The clarification would be.
Speaker Change: Is that for all of the existing subs or is there a way to kind of give us a sense of like what percent of subscribers are going to be making this transition and secondly, how are you thinking about potentially mitigating any churn from that transition obviously in consumer SaaS, you've got to have that very strong.
Speaker Change: The metrics that we're always worried about that when we go through transition so.
Speaker Change: What percent of subs and how do you manage for them.
Speaker Change: Yeah, Great question. So it started from our Arlo secure launch.
Speaker Change: In Q3 going into Q4 last year and we as we always do we're very data driven so we watched exactly what the consumer behavior was what plans. They were selecting after we launched our with secure five what features they were going after them.
Speaker Change: On board at all of that and it's starting to look at our annual operating plan for.
Speaker Change: For 2025 with that knowledge in place and so what you've actually seen US do is actually just remove a plan.
Speaker Change: And actually make it simpler because what we saw and you'll remember this from last quarter's call. We felt a lot of users stepping up and actually wanting to pay for the full AI.
Speaker Change: And kind of moved away from our basic plan on a mix shift. So we did as we got rid of the basic plan and we actually put the full AI.
Speaker Change: Suite of services on a single can plan and now on an <unk> base.
Speaker Change: Basically an unlimited can plan and actually reduced our plans by one so thats simplification, but also seeing people mix up and then building the plans around the consumer behavior. We are witnessing in Q4 is the change that we made.
Speaker Change: Now the change was made on people who are signing up for new plans on January one.
Speaker Change: And then over the course of this month February we've been migrating all of our existing users on older plans to these new plan basically mapping them to the most equivalent plan through the course of February so that should be done by.
Speaker Change: Probably by this weekend and that really just depends on what they they have their actual renewal date was going to be like we did our transition two years ago on this so.
Speaker Change: By the end of February everybody will be all of our paid subscribers will be on the new plans and again those were developed based on the data we're seeing in <unk>.
Speaker Change: As far as churn, yes, we are we are very focused on churn and customer retention.
Speaker Change: Anytime you do a transition youll see a little bit of a jump in churn.
Speaker Change: And then you see it moderate down very quickly I will say theres a couple of things working for US. One is we use the data and arlo secure five to make these choices.
Speaker Change: For how to.
Speaker Change: Position the plan this.
Speaker Change: This year, two we've actually seen some opportunities to increase conversion as well like in App payments and some things that were actually running as well. So there will be some puts and takes our expectation is while there might be a slight increase in churn temporarily.
Speaker Change: That will land back in that range of $1 one to one 3% like we've done over the last five or six years of deployment services.
Speaker Change: Got it alright, and maybe just one last one I've got a lot more but I know, we'll discuss that more at our conference next week, but on the product side, Matt you talked about the largest device launch in company history coming up I also noticed that your channel inventory in U S. Retail is a very very <unk>.
Speaker Change: The level that I think the lowest 2021, so a big launch ahead of a very clean channel I Wonder you know the question would be if you could compare this launch versus prior launches what you've maybe learn for prior launches and what you might do differently.
Speaker Change: Such a notable one and for Kurt just a little bit confused I wonder if theres, some timing or something here because I was backing into the product revenue growth expectations for 2025, and I think they are down double digits.
Speaker Change: So why would that be the case in a year, where we've got a big launch. Thank you.
Speaker Change: Yes, so from a launch and product perspective, like I said in the prepared remarks is this will touch basically every camera we ship.
Speaker Change: So think of the entire central lineup, which is our volume move or as you know the pro series, which is our kind of mid tier product a lot of people step up to and then ultra which hasn't been updated in at least two or two and a half years.
Speaker Change: Every single lineup will be updated.
Speaker Change: So that gives us an ability to kind of reset pricing reset the steps through the.
Speaker Change: Different price segmentation.
Speaker Change: Also what youre going to see in key areas, we're actually going to grow the assortment, meaning the number of SKU for instance inside of essential and it's doing a couple of things one it's tapping into some of the smaller segments.
Speaker Change: That are actually experiencing fast growth. So that's really important as we see consumers start to buy slightly different cameras year over year.
Speaker Change: But it is also.
Speaker Change: Driving new use model and new user experiences through that time period as well so what we're seeing like I mentioned in the prepared remarks does not only is our excitement about this large launch.
Speaker Change: But youre also seeing.
Speaker Change: Us be able to capture additional shelf share in some of our existing retailers. Because these are these are.
Speaker Change: Very popular type of products I'm trying to I'm trying to do it without giving you exactly what we're going to be shipping, but you can see the expansion has not just replacing existing products, that's actually creating incremental share and so most of that launch will be towards the end of the year. So just talking a little bit in front of occurred.
Speaker Change: A lot of the growth in the unit growth in the new products that will land will be kind of moving into that Q4 for the first three quarters will be on the existing product.
Speaker Change: Yeah.
Adam Tindle: In response to your question Adam on the <unk>.
Speaker Change: Product revenue.
Speaker Change: This will be a pretty broad assortment and as Matt just mentioned, we arent going to be targeting some price segments that historically.
Speaker Change: <unk> has not played and we saw this in Q4, a bit where the price segmentation around $50 and below was very active and a big part of the overall market share that was out there and we want to make sure that we are able to do that in 2025 on a very consistent basis across our entire portfolio. So.
Speaker Change: <unk> at our overall revenue assumptions you can expect a continuation of declines in Asps.
Speaker Change: And also aggressive promotional activity throughout the year in particular in the second half of 2025, but the great thing is is that we've been working closely with our supply chain and ultimately we've incorporated in somewhere between probably 25% to 35%, our bom cost down which will help us play in that price.
Speaker Change: Range and ultimately be profitable. So we're really excited about this this launch and we think that it'll really dovetail well into our ability to generate greater household formation and ultimately more subscribers to fuel our services business.
Speaker Change: Makes sense. Thank you.
Speaker Change: Thank you for your question next question is from the line of Jacobs The phone with Lake Street Capital. Your line is now open.
Speaker Change: Okay. I appreciate you taking the questions and congrats on the results and strong outlook here.
Speaker Change: And just wanted to touch on kind of customer acquisition costs, essentially doubling year over year, but L.
Speaker Change: LTV.
Speaker Change: It has actually grown so.
Speaker Change: The 401 is this kind of a comfortable level.
Speaker Change: How can we expect this to trend as we look through 2025.
Speaker Change: Yes, so in <unk>.
Speaker Change: Talking.
Speaker Change: With with <unk>.
Speaker Change: Analysts and everybody obviously anything over three to one we think is world class. So if you look at enterprise SaaS or other consumer service.
Speaker Change: Customers are companies Youll see the 301 is kind of where you want it to be a world class. So we're still well above that in fact as you know we've talked in the past we've had investors common say look 701, it's too high you're under investing in the customer acquisition.
Speaker Change: And the potential growth of the company. So I would say, we're targeting somewhere between call. It three and a half and maybe four five or five over time I think for US, it's really comfortable right now, but it will fluctuate up and down, especially if you look at it quarter to quarter as we will dig in deeper like you saw in Q4, and then youll see that rebound back.
Speaker Change: In Q1, ultimately what we're doing is we're optimizing the business to capture that shelf share, which then captures the household formation that is driving our subscription business just like Kurt.
Speaker Change: Just mentioned so we'll keep an eye on that and move it up and down I think when we were 701.
Speaker Change: Can we agree that we were under investing in the business a bit I think where we are now is probably an appropriate level and again, it will kind of move up and down.
Speaker Change: We're maximizing that household formation and generating future service revenue.
Speaker Change: Yeah got it okay that makes sense and maybe just the rebound in product margin.
Speaker Change: It was referenced in the.
Speaker Change: The outlook.
Speaker Change: From the negative 12%.
Speaker Change: In Q4 here.
Speaker Change: What kind of kind of rebound are we talking about either in terms of a percentage or dollar amount.
Speaker Change: Yes, so I'm not in a.
Speaker Change: Quantify it because obviously, we're going to be very opportunistic opportunistic to meet the consumer where they are for the quarter, but what I'll say is is that.
Speaker Change: Q4 was a very aggressive promotional quarter. There was a new number of factors going on and we felt it appropriate to go after and garner that demand obviously that was.
Speaker Change: A good decision considering we exited Q4 with 80 plus percent gross margin on the services and so that service business continues to perform very well as we look at Q1, I mean, I would expect it to rebound and I think that it'll be.
Speaker Change: Neutral probably at best we may be positive in the positive range, but we'll play that by ear as the AR.
Speaker Change: Quarter unfolds.
Speaker Change: Okay, and just one last one for me here.
Speaker Change: New subs at $17 <unk>.
Speaker Change: That's a nice step up is that inclusive of the.
Speaker Change: The central AD platform that you guys have been testing or does that not include the <unk>.
Speaker Change: And the.
Speaker Change: From that.
Speaker Change: No. It does not include anything from the AD platform. That's still in test I think you could expect us to update.
Speaker Change: Investors are a bit more of that on the next call.
Speaker Change: What youre seeing there is really just the impact of the new structure of the price. The plans that we made a change in January so that's the first data reading through after we made the change in January that we talked about earlier. So it's only subscription revenue on the plans that we've talked about is not including any other things like the <unk> platform.
Speaker Change: Thank you for your question. Your next question comes from the line of course.
Speaker Change: With BW financial your line is now open.
Speaker Change: Hi could you talk about just the competitive environment here.
Speaker Change: You were talking about you have to do a lot more promotions.
Speaker Change: Did you do you think you took market share here or.
Speaker Change: Are you maintaining it sounds like you're being very aggressive here.
Speaker Change: Yes, I'd say the competitive landscape hasn't changed a lot.
Speaker Change: It's the same players I would say the pricing and promotion in Q4.
Speaker Change: Slightly deeper than we probably anticipated at the beginning of the year. If youll remember we gave investors a.
Speaker Change: Heads up I think last quarter and kind of <unk> kind of mentioned that we're going to go a step deeper and try and drive some household formation, which we did from a share perspective Q3, we were a little bit lower and share that <unk> recovered in Q4 and I'll tell you during the holiday week, we gained significant share. So when we had our pricing at the lowest and we're testing.
Speaker Change: Some of the price points with some of our key retailers, we actually gained share during the quarter. So what we're seeing is there is some price elasticity.
Speaker Change: When we hit certain price points, we can see the growth in household formation Q4, obviously is a unique quarter in that it's very promotional and that's why we see the rebound coming back into Q1, but if I step back and just answer your question at a high level, we're not seeing a lot of change in the competitive dynamics. It was just Q4 was maybe one.
Speaker Change: Click.
Speaker Change: Deeper on the promotional scale and we saw that happening in summer that already communicated that to our investors. So it played out exactly as we thought.
Speaker Change: Okay and then.
Speaker Change: Any change as far as the timing as to when these customers who bought the units would actually convert to paid subscription.
Speaker Change: No it'll be very similar to what we saw last year.
Speaker Change: Historically, if you go back three or four years, we had a 90 day free trial and that would delay almost all of those customers into Q1.
Speaker Change: When we move to a 30 day trial, which was about I think most of our products about 18 months to 24 months ago.
Speaker Change: Then it's mix Youll feel a little bit in December and then a little bit more in Q1, because it's a shorter free trial. So it'll be a similar dynamic to what you saw last year.
Speaker Change: Okay, great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you for your question. Your next question comes from the line of Scott Searle with Roth Capital. Your line is now open.
Scott Searle: Hey, good afternoon, thanks for taking the questions great job on the outlet guys very exciting to look at 2025.
Speaker Change: I apologize to follow up on the pricing question, but just wanted to get clarification.
Speaker Change: The the price increases will go have gone into effect for those who are on monthly subscriptions, but annual subscriptions will kind of be a rolling basis as they come up for renewals is that the way to think about it and then just to clarify the impact of the price increase itself.
Speaker Change: Is there a blend you've given a target number but I'm kind of wondering what the average <unk> number will be in terms of the increase for this year a quick back of the napkin math when I look at the subscription range or net additions that you are talking about on a quarterly basis, it's mid teens kind of growth so to get to 25% I'm, assuming it's about 10% price increase.
Speaker Change: Overall is that the way to think about it.
Speaker Change: Yes, I think that in general, yes, I mean, we honestly wont know until the migration is totally done, but let me back up and because you touched on.
Speaker Change: Correct point the migration that we're doing through February is for the monthly Youre, 100% right there annually with click over when those annual has come up.
Speaker Change: So youre right. Some some of our annual which is still a vast minority of our plan, especially they start plans, but those would actually transfer through the year on whatever month and day that their renewal. So just to be very clear. So on January one the plan.
Speaker Change: Pricing and structures hit for all new subscribers coming into the Arlo system and finding up in February we migrated all of our monthly.
Speaker Change: Customers some of those annual customers also obviously moved over in February if that's when their plan renewals happening and then.
Speaker Change: Their annual customers, we'll turnover throughout the year. So that is a correct way to think about it we ended the year.
Speaker Change: Yes, we ended so we ended the year on <unk> around $11.
Speaker Change: Range I think is $11 50, some sense.
Speaker Change: Are going to $12.
Speaker Change: Seeing on the new subscribers over $17, so thats, a great indicator and so what youre going to see is probably a blend through the year. It will land somewhere in the middle and again I would I would wait to give you a number until we get more of the.
Speaker Change: The migrations of the plans and what's the plans they actually end up in afterwards.
Speaker Change: But you will see in <unk> expansion over this year.
Speaker Change: Obviously lead into some of the growth that we're talking about on both <unk> and service revenue.
Speaker Change: Got you very helpful and Matt you mentioned shelf space at one of your key retail partners.
Speaker Change: That due to promotional activity or is that due more to a realization from your retail partner that certain vendors are actually stealing revenue from them. They buy one and then the follow on comes through online sales or otherwise and just kind of curious how that that evolution is going within your retail customer base.
Speaker Change: Yes, that's a great question. So in this case, it's less about the latter part of your comment it's more about I think the success that they're seeing.
Speaker Change: Arlo on the shelf, but also drawing customers into the store because this is a physical store.
Speaker Change: Company, we're talking about but also the expanded assortment in our product launch that's coming in the September October timeframe for holiday. So they looked at our assortment and actually made an early commitment.
Speaker Change: Our commitment much earlier than they normally do when they do their shelf selection for the second half of the year.
Speaker Change: <unk> positioned all of the product.
Speaker Change: Like the expansion they like what they saw and they actually decided to nearly double our shelf plot.
Speaker Change: In their stores because of the expanded portfolio and how we performed with them over the last year or two.
Speaker Change: Got you and if I could then on the longer term horizon couple.
Speaker Change: Couple of things I'm not sure if I heard any any commentary specifically about insurance on the call I'm wondering if you could elaborate on that strategic partnership and then it sounds like the freemium model.
Speaker Change: Is starting to ramp up a little bit. It's I think it's in beta right now it sounds like that there might be more to come in the not too distant future.
Speaker Change: Any thoughts on both those fronts.
Speaker Change: Yes, I will make some general comments and then also touch on some of the specifics you talked about.
Speaker Change: I will tell you that the amount of activity and interest in just strategic accounts in general and I know I've said this on the last call you could see some of our platform agreements.
And partnerships come through and we announce flows over the last week with one of them. This morning, you'll see the announcement with Samsung.
And thats going to lead to additional things later in the year with Samsung.
Speaker Change: The origin announcement, meaning the ability to detect motion in a home without additional hardware and using AI to actually characterize what that is has generated a tremendous amount of interest and so the amount of inbound interest in using the <unk> platform.
Speaker Change: For additional services is at an all time high we are meeting with multiple insurance providers now, but that is accelerating again, it's a slow it's a slow go to market.
Speaker Change: <unk> don't move as fast as many technology companies in the way, they assess and actually roll things out.
Speaker Change: But I would say in general from our insurance vertical.
Speaker Change: It's gone from really engaging with one to talking to you and starting to engage with two or three so I hope by within the next six months, we'll be able to talk more specifically about some additional opportunities that are in front of us, but the activity is an all time high.
Speaker Change: And I think again some of that is from our <unk> five and the success Youre seeing there some of the technology and platform expansion announcements we have done.
Speaker Change: <unk> origin and now rapid Sof.
Speaker Change: And some of the product portfolio that we have.
Speaker Change: Not only are shared with them what we're doing this year, but assuming like I mentioned in the prepared remarks, we're going to start sharing our next generation platform and I would expect that to drive some additional interest as well so.
Speaker Change: And I think mentioned about a year ago that we thought looking over the long range plan.
Speaker Change: More of our incremental growth may come from strategic accounts over the more traditional retailers.
Speaker Change: Retailers were still seeing that and in fact, I think we are going to be proven right over the next let's call. It 12 months.
Speaker Change: Great very helpful and lastly, if I could maybe from a.
Speaker Change: I guess, a very high conceptual level. It starts to look at the new product portfolio and the expansion of or low into more of a platform to incorporate other technologies whether it's.
Sensing presence.
Speaker Change: Some of the other opportunities I think within the home that Youre talking about with AI and otherwise as we look into 'twenty and beyond is it safe to assume that we're going to continue to see <unk> picking up where we started moving back in the other direction, just because of pricing pressure within the marketplace.
Speaker Change: Yeah, Great question.
Speaker Change: What I will tell you at this early stages.
Speaker Change: Yes, I think the expectation should be that our crews continue to grow overtime.
Speaker Change: Some of that will come maybe from additional over the long range plan cycle. Some of that may come from additional plant optimizations and additional functionality, we can rollout to our existing customers.
Speaker Change: But I will tell you the next generation platform and some of the things we're seeing going into 'twenty. Six 'twenty. Seven is you should expect us to start moving into some adjacent markets.
Speaker Change: What I would tell you is there is a higher confidence than ever in our company and our execution as a team and the operational excellence the leverage we've got in our business that we feel the foundation of this company is now very very strong and so we're more comfortable than ever to start exploring some of these adjacent markets and new opportunities.
Speaker Change: And I think Youll see us maybe talk about some of those this year and execute some of those going into the back half of next year, but to your time horizon on the question kind of talking 'twenty six going into 'twenty seven yes, I think you should assume that <unk> will be in some adjacent markets by then and that you could likely see <unk> expansion via those those.
Speaker Change: That's a new opportunity.
Speaker Change: Yes.
Speaker Change: Thank you for your question.
Speaker Change: This concludes today's conference call you may now disconnect your lines.