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Arlo Technologies Reports Improved Q1 Performance

The company’s stock rose almost 13% in heavy aftermarket trading, fueled by a better-than-expected loss and strong revenue guidance for the current quarter.

SAN JOSE, Calif. — Arlo Technologies (NYSE: ARLO) on Tuesday reported first quarter revenue of $57.9 million in revenue, down 42.5% year-over-year but above the company’s guidance.

The company posted service revenue of $11.3 million during the first quarter, an increase of 37.3% over the prior year period. Non-GAAP gross profit for the first quarter was $2.7 million, resulting in a non-GAAP gross margin of 4.7% above the high end of the company’s guidance. That compared to $29.8 million in the year ago period and $5.6 million in the prior quarter.

Total non-GAAP operating expenses were $38.6 million, an increase of 50% year-over-year due mostly to carve-out financials, and up 2.3% sequentially.

Following the release of its Q1 earnings report, the company’s stock jumped more than 12% in heavy aftermarket trading fueled in part by a better-than-expected loss and strong revenue guidance for the current quarter. In the previous quarter, the company’s stock had slumped in the wake of a slowdown in the U.S. consumer connected camera market, impacting sales and causing a build-up of channel inventory.

In Q1, the company shipped approximately 650,000 devices of which about 621,000 were security cameras. The company said it added approximately 276,000 registered users to the Arlo platform during the quarter.

At the end of the quarter Arlo had about 3.13 million registered users, an increase of more than 62% from a year ago. The company added 30,000 paid subscribers in Q1 bringing its total paid subscribers to 174,000, an increase of more than 89% year-over-year.

During an earnings call Tuesday, Arlo CFO Christine Gorjanc said the company was pleased with the growth in its subscriber base, with expectations that a new business model for the Ultra product family will substantially drive recurring revenue growth going forward.

“Growing our registered user base is critical to growing our recurring subscription business, which we believe will help both improve our margins and revenue predictability,” Gorjanc said.

During the call, Arlo CEO Matt McRae explained the new business model for the Ultra platform now includes a bundled one-year subscription to Arlo Smart, an artificial intelligence (AI) and computer vision service he said was capable of detecting people, vehicles, packages and animals, among other feature sets.

“We believe this model will accelerate paid subscriber conversion when Ultra owners pass their one-year purchase anniversary,” McRae said.

McRae also highlighted a new partnership with I-View Now, a provider of Cloud-based video alarm verification services, that was announced at ISC West 2019. The collaboration will allow security dealers to offer verified alarm monitoring services across Arlo’s camera systems, with an aim to reduce false alarms and deliver faster response times.

“For Arlo this represents an expansion of our channel later this year into the large, professionally installed security market and a catalyst for additional growth.

Turning to Arlo’s second-quarter outlook, Gorjanc said the company will continue to work with its channel partners to return to normal inventory levels. She said the company expects to see a strong sequential increase from the first quarter to the second.

Q2 revenue in the second quarter is expected to be in the range of $75 million to $80 million. GAAP gross margin is forecast between 9% and 12%, and non-GAAP gross margins between 10% and 13%. The company expects a GAAP loss for diluted share to range between 55 cents and 51 cents, and non-GAAP loss per diluted share between 44 cents and 40 cents per share.

“We expect our GAAP and non-GAAP tax expense to be approximately 300,000 for Q2 ’19 and we are reaffirming the full-year 2019 guidance we gave in our last earnings announcement,” she said.

About the Author

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Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.

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