Total revenue for the quarter ended September 28 rose to $139.5 million, a 1.3 % increase from $137.7 million in the same period last year. Subscription and services revenue climbed to $79.9 million, up 29 % from $61.8 million a year earlier, and annual recurring revenue accelerated to $323 million, a 33.8 % jump from $242 million in Q3 2024. The revenue growth was largely driven by higher average revenue per user in the subscription segment, while product revenue fell 21 % as the company phased out older hardware models.
GAAP gross margin held at 40.5 %, matching the prior‑year level, while non‑GAAP gross margin improved to 41.4 %. Subscription‑specific gross margin reached a record 85.1 %, reflecting pricing power and lower cost of service delivery. In contrast, product gross margin was negative, a result of tariff exposure, declining average selling prices, and promotional discounts used to clear end‑of‑life inventory. Management announced a planned 20‑35 % reduction in bill‑of‑materials costs in the second half of 2025, which should help lift product margins in future quarters.
Adjusted earnings per share were $0.16, beating the consensus estimate of $0.15 by $0.01 (8 %). The beat was driven by disciplined cost management and the high‑margin subscription mix, which offset the lower product margin. GAAP EPS of $0.07 also surpassed the $0.06 estimate, reflecting the company’s ability to maintain profitability despite the hardware headwinds.
For the fourth quarter, Arlo guided revenue to $131 million–$141 million, with a midpoint of $136 million that aligns with analyst expectations. Non‑GAAP net income per share was projected at $0.13–$0.19, a range that exceeds the prior guidance of $0.12–$0.18 and signals confidence in continued service‑driven growth.
After the release, the stock fell 4.35 % in after‑hours trading. The decline was attributed to investor concern over the persistent product margin pressure and the impact of tariffs and promotional spending on hardware profitability, which tempered enthusiasm for the earnings beat.
CEO Matthew McRae said the quarter was “another record‑breaking period” driven by the services business, and highlighted the launch of the Arlo Secure 6 AI‑powered platform and a refreshed product lineup that should support holiday‑season demand. CFO Kurt Binder noted that the company’s “services‑first strategy” is delivering strong revenue and margin expansion, while acknowledging that product gross margin compression is a short‑term trade‑off for customer acquisition and subscription growth.
The results reinforce Arlo’s transition to a high‑margin services model, with ARR growth and subscription revenue outpacing product sales. Headwinds from tariffs and inventory promotion remain, but the planned BOM cost reductions and the momentum in AI‑driven security solutions position the company for long‑term profitability and market share gains in the smart‑home and security space.
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