Arlo Technologies ((ARLO)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Arlo Technologies’ recent earnings call painted a positive picture of the company’s financial health and strategic direction. The sentiment was largely optimistic, underscored by strong revenue growth, increased profitability, and strategic partnerships. Despite facing challenges such as declining product revenue and tariff impacts, Arlo’s focus on subscriptions and services has been a key driver of its impressive financial performance.
Record Revenue and Service Growth
Arlo Technologies reported total revenue of $129 million for Q2 2025, marking an increase of over $10 million sequentially. Service revenue was a standout, reaching $78 million, which is up 30% year-over-year and now comprises more than 60% of the total revenue. This shift towards service-based revenue highlights the company’s strategic pivot to more sustainable income streams.
Significant Increase in Profitability
The company achieved a notable increase in profitability, with non-GAAP earnings per share rising to $0.17, a 70% increase year-over-year. Additionally, GAAP earnings turned positive, swinging to a profit of $0.03 from a loss of $0.12 a year ago, reflecting improved operational efficiency and cost management.
Strong ARR and EBITDA Growth
Arlo’s annual recurring revenue (ARR) reached $316 million, up 34%, while adjusted EBITDA rose to $18 million, an 82% increase, achieving an EBITDA margin of 14%. These metrics underscore the company’s successful transition to a subscription-based model, providing a stable and growing revenue base.
Strategic Partnership with ADT
A strategic partnership with ADT, North America’s largest security company, was announced, which is expected to significantly boost subscriptions and services revenue starting in 2026. This partnership is a strategic move to leverage ADT’s market presence and enhance Arlo’s service offerings.
Large-Scale Product Launch
Arlo plans to launch over 100 new SKUs, expanding its product lines and increasing retail shelf space. The company expects a 20% to 30% growth in camera unit sales year-over-year in Q3 and Q4, driven by this large-scale product launch, which is anticipated to further solidify its market position.
Improved Financial Metrics
The company reported a record free cash flow of $34 million in the first half of the year, with a free cash flow margin of nearly 14%. Inventory turns improved significantly to 7.7x from 5.8x last year, indicating better inventory management and operational efficiency.
Decline in Product Revenue
Despite the overall positive financial performance, product revenue for Q2 was $51.2 million, down from the previous year. This decline is attributed to decreasing average selling prices (ASPs) across the industry and promotional activities, highlighting a challenge in the product segment.
Impact of Tariffs
Tariffs introduced during the quarter negatively impacted product margins, representing a gross margin headwind of approximately 100 basis points. This external factor posed a challenge to maintaining product profitability.
Decrease in International Revenue Contribution
International operations generated $50 million in Q2, accounting for 39% of total revenue, down from $64 million, or 50% in the prior year period. This decrease is due to a higher level of subscriptions and services revenue and seasonal factors affecting international sales.
Forward-Looking Guidance
Looking ahead, Arlo Technologies provided optimistic guidance for the upcoming quarters. The company projects consolidated revenue between $133 million and $143 million for Q3 2025, with non-GAAP net income per diluted share ranging from $0.12 to $0.18. Arlo anticipates its ARR to reach $335 million by year-end, with subscriptions and services revenue potentially exceeding $310 million, reflecting a growth rate of over 27%. The company also aims for a non-GAAP subscriptions and services gross margin of 85%. The strategic partnership with ADT is expected to contribute significantly to revenue starting in 2026, supporting Arlo’s growth trajectory.
In conclusion, Arlo Technologies’ earnings call showcased a company on a strong growth path, driven by strategic shifts towards services and subscriptions. Despite some challenges, the overall sentiment was positive, with key partnerships and product launches poised to fuel future growth. Investors and market watchers will likely keep a close eye on Arlo’s performance as it continues to execute its strategic plans.