Arlo Technologies, Inc. (NYSE:ARLO) is an award-winning, industry leader that is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security solutions. The company's deep expertise in AI- and CV-powered analytics, cloud services, user experience and product design, and innovative wireless and RF connectivity enables the delivery of a seamless, smart security experience for Arlo users that is easy to set up and interact with every day.

Business Overview

Arlo's cloud-based platform provides users with visibility, insight, and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. The company has launched several categories of award-winning connected devices, software, and services, including wire-free, smart Wi-Fi and LTE-enabled security cameras, video doorbells, floodlights, security systems, and subscription services: Arlo Secure and Arlo Safe.

Financials

For the fiscal year ended December 31, 2023, Arlo reported annual revenue of $491.18 million and a net loss of $22.04 million. The company generated annual operating cash flow of $38.30 million and annual free cash flow of $35.46 million.

First Quarter 2024 Results

In the first quarter of 2024, Arlo reported total revenue of $124.2 million, up 12% year-over-year. Product revenue was $67.5 million, while service revenue reached $56.7 million, accounting for 45.7% of total revenue. The increase in service revenue was driven by a 58.3% year-over-year growth in the company's cumulative paid accounts, which reached 3.2 million as of March 31, 2024. This strong performance in paid accounts contributed to Arlo's annual recurring revenue (ARR) reaching $227.0 million, up 24.3% from the prior year period.

Arlo's gross profit for the first quarter of 2024 was $47.4 million, resulting in a gross margin of 38.1%. Non-GAAP gross profit was $49.0 million, with a non-GAAP gross margin of 39.0%. The company's non-GAAP service gross margin improved to 76.7% in the quarter, up from 73.5% in the same period last year, reflecting the continued expansion of Arlo's higher-margin services business.

On the operational front, Arlo reported a non-GAAP net income of $9.5 million, or $0.09 per diluted share, in the first quarter of 2024. This represents a significant improvement from the prior year period, as the company's focus on driving service revenue growth and maintaining disciplined cost management has resulted in a sixfold increase in non-GAAP operating profit.

Liquidity

Arlo's balance sheet and liquidity position remain strong, with $142.9 million in available cash, cash equivalents, and short-term investments as of March 31, 2024. The company generated a record $19.5 million in free cash flow during the quarter, representing a free cash flow margin of 15.7%.

Outlook

Looking ahead, Arlo provided guidance for the second quarter of 2024, expecting revenue to be in the range of $120 million to $130 million and non-GAAP net income per diluted share to be between $0.06 and $0.12. The company remains well-positioned to navigate the current consumer environment, leveraging its low-cost Essential 2 camera portfolio and continued growth in its higher-margin services business.

Recent Developments

Arlo's strategic focus on expanding its paid subscriber base, enhancing its AI-powered subscription offerings, and driving operational efficiency has positioned the company for long-term success. The company's recently announced renewal of its agreement with Verisure, a key strategic partner, further solidifies Arlo's position in the European and Latin American markets.

Furthermore, Arlo's capital allocation plan, which is currently under development, is expected to play a crucial role in the company's efforts to achieve its ambitious long-range targets of 10 million paid accounts, $700 million in annual recurring revenue, and over 25% non-GAAP operating margin by or before 2030.

Conclusion

Arlo's commitment to innovation, user experience, and data privacy has earned the company numerous industry accolades, including the American Business Award for Innovation of the Year, the Smart Security Camera Company of the Year award from IoT Breakthroughs, and recognition for Innovation and Excellence from Newsweek.

As Arlo continues to execute on its strategic initiatives and capitalize on the growing demand for smart home security solutions, the company is well-positioned to solidify its leadership position in the market and deliver long-term value for its shareholders.