ARLO earnings call transcript, November 5, 2026

maybe partner economics as well, too, as we have ADT and Comcast ramping. Could you just give us a sense of how those unit economics shift relative to maybe some of your, not necessarily legacy, that's probably not fair, but some of your more traditional partners? What that kind of like economic uplift looks like as you move away from kind of a plus model there. Thank you. Yeah, absolutely. So we'll call them historic. Some of our older partner accounts, partners that are still our partner today, you know, when we get those deals, was very much about scaling ARLO, scaling our business, working on different regions of the United States in a partnership, or sorry, the world in a partnership across channels. And they were structured in a specific way. And some of our more historic partners are focused on more basic service level deployment. And not necessarily our entire stack of AI features. What you will see, and are seeing a little bit now, but we'll see as we scale into 2028, all of the new partners we're talking to are not just interested in the basic features, but actually the full. stack of AI functionality and some of the features that are coming next year. And so from a partner in unit economic perspective, expect to see a big shift towards service revenue and having that be a much more larger component. So I would have, you know, think of higher ARPU on a unit economic basis and higher just overall service revenue on a per subscriber basis. So that's the difference you'll see. We'll be able to talk a lot more about.

I think as we get into the year and start launching these publicly and you can see the pricing that's going on. But in general, what I can say is you're going to see on a pie chart of the deal, a much bigger emphasis on service revenue and kind of high profit service margin. coming through the new, the new partnerships that we're launching now and tend to scale as we go into 2027.

To target, not just selling hardware units, right, but selling hardware units that enter the top of the funnel and have a much higher likelihood of ending up being a subscriber out the bottom of the funnel. So to your point, going forward, so as we enter Q4 holiday period, we're using those same data analytics to determine where we're going to be emphasizing the marketing spend, what products will be on promotion, and you'll see that optimization continue, including an emphasis. on doorbells and some multi-camera kits during the holiday that drive a higher subscription attach. I can tell you that we've already seen a higher number of trials and a higher number of initial subscriptions off the Prime Day event this year. So that data analytics, you know, we're watching it week by week, and it's very early, but we're seeing it start to pull through, and our hope is that it would add additional service revenue than what we saw last year.

Okay, got it. And maybe if I could just ask on some of your pre-holiday planning here, you know, as we look at, you know, some of your channel partners like Walmart, Best Buy, just curious, you know, how you're thinking about the promotional activity at each one. And do you still expect Walmart to be a meaningful kind of partner in the, with their annual event coming up? Yeah, so I think what we're seeing is something very similar to last year. You know, it's different week by week, but I think it'll be a competitive holiday period like last year. I think we're set up very well with the offers. In fact, like I said, I think we have more optimized offers if you're looking at it from a resulting service revenue for ARLO. The channel spread is, I would say, similar as well. Expect us to do a pretty compelling event with Walmart again. And as I mentioned, coming into this holiday period, we've gained shell share in several areas and we're Walmart's number one brand in the space now. And that's important as this market segment starts to go more mass market. We start to see that acceleration, like I said, in my prepared remarks. So I think we're in a great position. We're not seeing any surprises. It looks very similar to last year. And I think we're at least as well situated as we were last year, probably better optimized from where we're putting our dollars as we go into the holiday period. Got it. I appreciate it.

Thanks, guys.

You're welcome.

And then Comcast is progressing exactly on target. And that development integration is going very well. There's some excitement. We're starting to get our forecast for next year already. And so we're expecting to see that sometime mid-year. And usually when they roll out, they'll roll out one region and then start expand that and roll that. So I think it'll be a little bit like ADT shifted out where we'll see it launch, scale, and then the full year impact wouldn't be until 2028, but obviously at a much larger scale. And from a commentary perspective, we've said, and I said it today, that I think Comcast relatively quickly could be our largest strategic partner pretty quickly because of their scale and their ability to access the 31 million broadband subscribers they've got in the United States.

Understood. Thank you. Um, I, I know promotions have been, uh, you guys have been rolling a lot of promotions this year and I think you guys have had a lot of success with those as well. Um, and part of those promotions, uh, have services attached part of that. I was just curious. Uh, could you clarify how much product revenue, if any, is carved out into services? Um, and how that's recognized? Just kind of curious how that allocation works. Thank you. Yeah, sure. Logan, I'll take that one. So, um, just to highlight. We run, uh, a lot of different promotions and deploy various sales strategies across all of our products and services. Um, this is something that a lot of consumer product subscription companies do. Um, we are required under ASC 606 to allocate a portion of the service. This is revenue to the device and vice versa. And we go through a process of allocation based upon the relative fair value to a consumer for that services that we offer. Um, as of to date, the services associated with, uh, that bundled arrangement or those promotional campaigns are actually less. Then $100,000 per quarter or 0.1% of total year to date service revenue.

Hey, Matt, maybe just to follow up on the 30% ARR for next year, alluding to secure eight ramping, as well as some of the pre-existing partnerships. Particularly Comcast. But I'm wondering, new partnerships, new strategic sets you've mentioned, are you expecting some to be signed and be able to ramp in the 27 timeframe to add to that? And also, if you could expand a little bit on your comments on allocation. big opportunity there, but you've been kind of working through just some different technology issues and implementation aspects. Does that become a major factor as we start thinking about that growth in 2027? Yeah, so good question. So on new partnerships, I think will you, our hope is we're going to be able to announce, I mean, there's several in discussions and or some level of negotiations right now. And I'm reasonably confident that we will be able to announce some new partnerships in the next couple, call it two or three quarters. Potentially, there's some impact in 2020. 27 towards the end of the year, it really depends on the level of integration that needs to be done and what the final specification is. More likely, it's mostly a 2028 impact. So when when we're speaking about the 30% target for ARR in 2027, I'm not including any substantial material revenue from brand new partnerships that we haven't, we haven't talked about. I think there could be a small amount, but it's probably more 2028. However, to the second part of your question, we are including a pretty strong ramp in the AlloCare space. The technology, the customer

base and some of the things that are being negotiated right now around AlloCare are extremely exciting. So I would say the three components that underline the bulk of the 30% ARR growth next year are the strategic accounts. The Arlo Secure 8 and AlloCare ramping year over year based on the wonderful technology they have. And by the way, we said when we first bought them, we bought it for the team, we bought it for the technology stack and some of the agentic AI. By stuff they're doing, but also because of the customer pipeline that was already there and needed some scale to really get it to move. That's what you're going to see a little bit more as we get into the back half of next year as well. Perfect. Very helpful. Thanks. Maybe to follow up on some of your earlier comments related to the evolution of the market into smart home, you guys are certainly making a move in that direction with AvoCare and then your comments about basically open ecosystem functionality where you can integrate with other players. But in terms of what you control, do you need to own more going forward? And as you think about. I think strategically over the next couple of years. Are you looking for incremental acquisitions and product development roadmaps then that bring some more of that capability and functionality directly into your platform? Thanks. Yeah, another great question. So we look at each.

area of the smart home security ecosystem and we determine, you know, is it something we want to own? Is it something we want to acquire? Is it something we want to partner on or just let the ecosystem handle it? It kind of arms length and we'll. Make those decisions on a piece by piece basis. Allocare is a great example of that. It's something we decided we want to own because we think we could take what we do well, a scaled platform, you know, robust AI capabilities and drive some substantial value that separates. We do in a way that we can capture more than our fair share of the market going forward. And I'll remind you and everyone else that that market's going to go from $25, $26 billion to over $300 billion from a TAM perspective over the next five years. So that informed us that this is something we wanted to control. This is something we wanted to innovate in unique ways that can differentiate something in the market and something we wanted to integrate into our backend processes so it could scale much better. Something like I'll throw out another example. Something like a thermostat. I don't know if we would be able to drive enough differentiation from the multiple examples that are already in the market but it's something we partner on and control from our home ecosystem user experience. So that's how we approach the decision making. I do believe that in most areas we'll partner especially these ecosystems and the matter standard is getting deployed in greater depth across the channels. We're going to see retailers invest in bringing shelf space for matter compliant devices in the smart home in general which is exciting.

Because that will drive awareness. But I believe there probably will be additional areas that we will make the assessment that this is something we want to own. More likely because we think by adding our innovation engine to it we could do something that's truly differentiated and drive and drive. The things we care about, which is that subscription revenue, that long term relationship with that end user and shareholder value. So I would say it's probably not a tremendous number of acquisitions, but anything that's down the line that we're. headed on or an area that we think we could do something different and differentiated a market helps build a moat and we could go drive innovation and drive a market faster than it's currently projecting at, then we would make that decision. Otherwise, we'll focus on partnership. enabling the ecosystem. Great.

Thanks so much.

Thank you, Scott.

We have reached the end of the Q&A session.