Arlo Reports Record Q2 Revenue, Raises 2026 Guidance

On Thursday, Arlo Technologies (NYSE: ARLO ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Arlo Technologies reported record-breaking Q2 2026 financial results with total revenue of $156 million, up over 20% year-over-year, and service revenue of $93 million, up 19% year-over-year. 3 million, and saw improvements in average revenue per user, churn, and subscription renewals. 28, aided by a tariff refund, resulting in 70% year-over-year growth in adjusted EBITDA to $31 million. Arlo's strategic initiatives include launching Arlo Secure 7 in Q3 with advanced AI features, expanding into elder care and small business markets, and integrating with strategic partners like Comcast and ADT.

00. Arlo continues its share repurchase program, indicating confidence in the company's value, and plans further investments in strategic partnerships and market tests. Full Transcript OPERATOR Ladies and gentlemen, thank you for standing by. At this time, all participants are in listen-only mode.

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

Tomon Clark, Investor Relations 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 our description of revenue, gross margins, operating margins, earnings per share, expenses, cash outlook, free cash flow and free cash flow margin, ARR and other KPIs, guidance for the third quarter and full year 2026; the long-range plan targets; the rate and timing of paid subscriber growth; the commercial launch and momentum of new products and services; the timing and impact of tariffs; strategic objectives and initiatives; market expansion and future growth; partnerships with various market leaders and strategic collaborators; continued new product and service differentiation; and the impact of general macroeconomic conditions on our business, operating results, and financial condition.

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 Technologies' periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier today. Any forward-looking statements that we make on this call are based on assumptions as of today, and Arlo Technologies undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be discussed on this call.

A reconciliation of the GAAP to non-GAAP measures can be found in today's press release on our investor relations website. At this time, I would now like to turn the call over to Matt. Thank you. Matthew McRae, Chief Executive Officer Thanks, Tom, and thank you everyone for joining us today on Arlo's second quarter 2026 earnings call.

Arlo delivered outstanding results in Q2 with service revenue, total revenue, gross profit, and non-GAAP net income all setting new records for the company. We saw strength across the business and across all channels, which in addition to the team's great execution generated the excellent outcome you see today. Point-of-sale units in our retail and direct channel were up 8%, which contributed to the nearly 300,000 paid account additions in the quarter. 3 million, which is substantially ahead of the original trajectory to our long-range target of 10 million.

The quality of our paid accounts portfolio continues to increase when compared to the same period last year. Our average revenue per user is up, churn is down, and both monthly and annual subscription renewals came in higher than our forecast. These continuous improvements are due to several internal projects and programs that utilize deep user insights which are focused on delivering the best user experience in the world. The result is Arlo's lifetime value of a paid account has risen to $967, which is up 15% compared to a year ago.

Total revenue grew to $156 million, up more than 20% year over year and setting a new record for the company. Service revenue of $93 million, also a new record, grew 19% year over year and comprised 60% of our total revenue in the quarter. 28 per share, up 65% when compared to a year ago. As in past years, we used this mid-year checkpoint to assess the market conditions and our performance over the first half as we finalized plans for the second half and begin the development of our annual operating plan for 2027.

Our focus is to utilize Arlo's resources to deliver growth in both the short term and long term to drive the expansion of shareholder value. The capital allocation strategy that we rolled out nearly two years ago has served as an excellent framework to drive that growth in value. Our investments across the pillars of organic, inorganic, and shareholder return are delivering the desired outcomes, and I would like to spend a moment to update our invest. Our organic, or internal, investments fall into three main buckets: operational excellence, sales and marketing, and platform innovation.

Operationally, Arlo is deploying new tools and processes that, when coupled with our vast user data, are unlocking value and providing detailed insights that we are leveraging to improve the key metrics I mentioned earlier. We are still at an early phase and will continue to invest where we see the potential for high ROI or improvement in Arlo's key metrics. From a sales and marketing perspective, you'll see us balance both short-term and long-term growth. As in past years, we intend to invest in our retail channels during the holiday selling period to drive incremental growth in subscribers now worth nearly $1,000 each in LTV.

And you'll see us also invest in some market tests for both Care and small business segments to collect data that will help feed our 2027 business plan and other future opportunities for growth. It is exciting to see Arlo on the cusp of entering these large markets that can generate substantially higher ARPU and LTV. Finally, our internal innovation pipeline has never been stronger. Arlo will launch Secure 7 at the end of Q3 with several new features and capabilities that keep us at the forefront of smart security and open the door to additional service plan options at higher price points.

And looking into 2027, Arlo will be launching a next-generation product line coupled with Arlo Secure 8 that together will represent the most innovative and impactful advancement to customer experience in home security since Arlo's initial launch of DIY security more than 10 years ago. Looking at the inorganic area of our capital allocation plan, Arlo generated a greater than 50% return from our Origin AI investment, and the acquisition of Allocare has enabled Arlo to address the 30-plus-billion-dollar market for smart elder care and aging in place.

Based on the early progress since the acquisition closed, we expect to have several additional partner announcements that will contribute to growth in 2027. We remain bullish but selective on future inorganic investment opportunities and continue to look for either smaller adjacent assets or potentially larger options if they fit directly into our core market. From a return-to-shareholder perspective, Arlo has bought back nearly 6 million shares since the inception of our share repurchase program and more than $20 million of shares in Q2 alone.

The board and the management team continue to believe that Arlo's shares are substantially undervalued, and you should expect to see additional share repurchases going forward. Taking this all together, Arlo had a record-breaking Q2, strong first half, and is executing a capital allocation plan that is contributing to short-term growth while positioning the company for additional growth in 2027 and beyond. I have never been more excited about Arlo's potential and believe that the next 18 to 24 months will begin a new phase of success for the company. And now I'll turn it over to Kurt for a more detailed review of our Q2 results and our outlook for the remainder of 2026.

Kurt Binder, Chief Financial Officer Thank you, Matt, and thank you everyone for joining us today. First I will provide a detailed review of the key operational and financial results of the business. Then I will share an overview of our expectations for the third quarter, followed by an updated outlook for full year 2026. We continue to deliver outstanding top and bottom line growth driven by a quarter of record subscriptions and services revenue coupled with record total revenue.

Arlo continues to outperform expectations as a result of our subscriptions and services focus, which drives our expanding profitability metrics including record levels of non-GAAP gross margins, adjusted EBITDA, and non-GAAP net income, and we are well positioned to continue these trends into the back half of 2026. During the period we posted subscriptions and services revenue of $93 million, up 19% year over year and once again accounting for 60% of total revenues. Our subscriber base grew 23% year over year as we generated 298,000 new paid accounts in the period.

This double-digit subscriber growth was bolstered by our outstanding customer retention efforts, especially the results generated in our retail business. Our subscriber growth, coupled with a slight increase in ARPU, drove ARR to $365 million, up 16% year over year. 2 million in the same period last year, a trend driven by strong growth in international business as well as strong device shipments into retail channels in advance of Amazon's Prime Day, which began in late Q2 of this year. Both of these factors resulted in additional retail sales, with POS or point-of-sale volume increasing 9% for the first half of 2026 in comparison to the same period last year.

Our strategy to optimize our promotional campaigns around retail channels and product offerings that have higher subscription conversion rates helped enhance growth of our high-margin domestic retail subscription offerings. 9 million, a record and up 21% from the prior year, driven by the strong double-digit year-over-year growth in both subscriptions and services revenue as well as higher product revenue. Generating total revenue at this level is a testament not only to the strength of our services revenue trajectory but also to the diversification of our go-to-market strategy. 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 which was distributed earlier today. 1%, which was slightly impacted by non-recurring engineering services revenue, or NRE, associated with the ramp of our strategic partners. 8% in the prior year period, primarily related to the $8 million in tariff refunds that were recorded during the period as well as a higher mix of product sales coming from our strategic partners. 6%, which still represents an improvement of 220 basis points year over year.

With the improvement in both services and product gross margin, we again surpassed the 50% consolidated non-GAAP gross margin level, an increase of 480 basis points year over year. Consolidated gross margins at this level represent a new record and underscore the continuing uplift in profitability we are experiencing. 7 million in the same period last year. The year-over-year increase is driven by investments in R&D, including headcount, to continue to drive our technology innovation ahead of our Arlo Secure 7 launch.

Additionally, as mentioned earlier in the year, we are investing in delivering platform advancements for our strategic partners ahead of their launch of services. Lastly, we experienced an increase in fees associated with professional services to support our growth initiatives and deliver an enhanced customer experience. 6 million, up 70% year over year and representing an adjusted EBITDA margin of 20%.

Even in an investment year which requires additional spend to integrate large-scale strategic partners into our platform, we are still expanding our adjusted EBITDA and margins, a testament to the significant operational and financial progress Arlo has made in its transformation. 07 impact due to tariff refunds. 21, ahead of both the midpoint of our guidance range and consensus EPS estimates in the quarter. Regarding our balance sheet and liquidity position, we ended the quarter with $141 million in available cash, cash equivalents, and short-term investments.

This balance includes investments in various capital allocation initiatives including $22 million as part of our stock repurchase program and $15 million as the cash paid in the period to acquire Allocare. 9 million in free cash flow, or a free cash flow margin of 11%. 6 million at quarter end, with DSOs at 37 days, down from 43 days last year. 9 million level last year.

7 times last year as we look to optimize our inventory levels in an effort to reduce our shipping costs and manage any potential future increase in memory costs. Now turning to our outlook, we had an outstanding start to the year driven by ongoing strength in our subscriptions and services business, which drove both our revenue and profitability. Looking forward, we expect the momentum in our subscriptions and services business to continue into the second half of 2026, and we expect total revenue in the third quarter to be in the range of $140 to $150 million.

From a profitability perspective, we will leverage any Q3 tariff refund to further invest in the strategic areas that are fueling our growth. This includes strategic partners such as Comcast and ADT, second-half promotional campaigns with our top channel partners, innovation across our technology platform, and market tests ahead of our 2027 annual operating plan. 23. As a result of our strong first half and our outlook for the remainder of 2026, we are significantly increasing our outlook for total revenue and EPS for the full year.

00. And now I'll open it up for questions. OPERATOR At this time, I would like to remind you all that to ask a question, please press Star one on your telephone keypad. To withdraw your question, press Star one again.

We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jacob Steffen from Lake Street Capital Markets. Please go ahead. Jacob Steffen, Analyst at Lake Street Capital Markets Hey guys, appreciate you taking the questions.

Congrats on a really nice quarter here. Maybe just first, kind of looking at, you know, the full-year guide raise. I guess when you kind of think about ARR growth for the full year, I mean, where does that land and how comfortable are you with those targets? Matthew McRae, Chief Executive Officer Yeah, thanks for the question, Jacob.

As you saw, we had some really strong growth on the service revenue side, just touching about almost 20%. And what I would say is if you look at the metrics we talked about on the call—so churn improving, conversion improving, ARPU actually raising up a little bit—that is driving that LTV almost to a thousand dollars, and that's usually a leading indicator for further growth when you look out on ARR as you go through the year. I would couple that with Arlo Secure 7 launch that's going to be happening sometime in September, and that is not only going to bring a lot of new functionality to the table, it's enabling us to bring a higher tier of service.