Arlo Technologies at Raymond James Conference: Strategic Growth in AI and Subscriptions

On Wednesday, 05 March 2025, at the Raymond James & Associates’ 46th Annual Institutional Investors Conference, Arlo Technologies (NYSE: ARLO) outlined its strategic shift from a hardware-centric model to a subscription-based service provider. The company emphasized significant growth in subscribers and annual recurring revenue, showcasing its competitive edge in the home security market. While Arlo’s innovation in AI and strategic partnerships were highlighted as strengths, the company’s ambitious growth targets present both opportunities and challenges.

Key Takeaways

• Arlo is transitioning to a subscription-based model with 4.6 million subscribers and aims to reach 5 million.
• The company reported $250 million in annual recurring revenue (ARR), growing at 20% year-over-year, with a target of 25% growth in 2025.
• Arlo’s AI capabilities process 170 billion alerts per year, emphasizing innovation in the security space.
• Strategic partnerships are expected to drive 60% of incremental growth over the next five years.
• A major product launch is planned for Q3, refreshing and expanding Arlo’s product lines.

Financial Results

• Subscribers and Revenue:

- 4.6 million paid subscribers, targeting 5 million.

- $250 million ARR, growing at 20% year-over-year.

- Q4 2024 ARR reached $257 million, a 22% increase from the previous year.

• Margins and Ratios:

- Service gross margin at approximately 80%, with subscription service margins around 92%.

- LTV to CAC ratio stands at 4.

• Guidance:

- Service revenue projected to exceed $300 million.

- Long-term goal of $5.3 billion in ARR and over 10% operating margin by 2030.

Operational Updates

• Innovation and AI:

- Leader in AI, offering subscription AI services since 2018.

- Processes 170 billion AI alerts annually and uploads 1,700 hours of video footage per minute.

- Advanced AI capabilities include object and fire detection, and personal AI engine customization.

• Platform and Partnerships:

- Fully scaled cloud platform with 26 billion API calls per year.

- Strategic partnerships, such as with Verisure in Europe, expand Arlo’s reach.

Future Outlook

• Product Launch and Integration:

- Largest product launch in Q3, refreshing all product lines.

- Enhancements in smart home integration with cross-triggers and detailed video/audio descriptions.

• Growth Strategy:

- Targeting the broadband household market, with strategic partnerships driving 60% of growth.

- Market penetration of smart security systems is increasing, currently at 18-20%.

Q&A Highlights

• Market Share and Compatibility:

- Capturing market share from traditional security companies and DIY competitors.

- Services remain compatible with older hardware, benefiting existing users.

• Strategic Partnerships:

- Additional partners expected to contribute to business growth.

- Market is moving towards mass adoption of smart security solutions.

Readers are encouraged to refer to the full transcript for a detailed understanding of Arlo Technologies’ strategic plans and financial outlook.

Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:

Adam Tindle, Analyst, Raymond James: right. We’re going to go ahead and get started. Thanks, everyone, for joining as we begin to wrap up the conference. I appreciate everybody staying. Got a nice pretty full room here for the end of the day on the last day.

So I do appreciate that. I’m Adam Tindle, and this is part of my connected devices coverage here at Raymond James. Very happy to have the team from Arlo here. CEO, Matt, CFO, Kurt, are both here in attendance. In terms of the format, Matt’s going to give us a high level overview.

I know we’ve got some that are newer to the story. And if you’re looking at the stock chart, obviously, it’s been over a long period of time a very strong evolution of the company and that’s starting to get recognized in the market. So very timely presentation for us to have. We will have some time for questions at the end, but I’m sure Matt would love if you would raise your hand during the presentation and ask any questions that you have. And of course, we’ll have a breakout afterwards in Cordova Four.

So with that, Matt, thanks for joining us. Take it away.

Matt, CEO, Arlo: Appreciate it. Thank you, Adam. Like Adam said, I this is a subset of the earnings deck we gave on Thursday of last week. So I’ll run you through some of the highlights of the company. But I would encourage anybody who wants the kind of the deeper, fuller story.

Number one, feel free to ask me a question during this presentation. But if you we did a webcast of our earnings deck last week, and it’s got a full voiceover and everything. And within about thirty, forty minutes, you would get the full update on Arlo as a company. So first of all, who are we? So Arlo, if you’re familiar with the brand, started off as really a hardware company.

It was developed inside of Netgear, when they were looking for a way to get people to upgrade their wireless routers. And so they came up with a video product, which uses up a lot of bandwidth to try and get people to upgrade. I think at the time it was 802.11n version of WiFi. And so they hit upon, instead of streaming video for entertainment purposes or others, they hit upon the idea of using streaming video for security. And so Arlo was born just over ten years ago, as a division inside of NETGEAR.

It took off like a rocket and created a whole new market segment in the security business for DIY security, and was growing so fast that ultimately NETGEAR decided to spin it into its own company, which we did in 2018. Like I said, it started a whole market segment of DIY home security. And the real reason for that is it was the first product in the market that provided full video security access, battery operated, so you didn’t have to run power cables to where you wanted to place the cameras, fully Wi Fi, so you didn’t have to run Internet, you know, Ethernet cables to the cameras either. And so you had full flexibility to set up an entire security system in less than ten minutes and actually get visual cues of not only did my front door open, but who opened it, and full access from your mobile phone. Since the spin, we’ve become really a services business.

So over the three years or so after spin, it became very clear that the security industry is one of services first and the hardware is really just the physical instantiation of that service, a way to create a relationship with that end user that lasts over time. Our average user stays a subscriber for about seven point five years. So it’s very sticky. Our churn rate is one of the lowest in the industry, which I’ll touch on. But really, today, we are a subscription software company in the home security space and a little bit of small business.

Most of our culture at Arlo is around innovation. So like I said, we invented the category about ten years ago. We are a leader in AI. We’ve actually been selling consumer subscription AI services since 2018. Before any of the buzz of AI has come out, we’re actually monetizing subscription services that are based on AI features for nearly seven years now.

Quick highlights in the company, just to kind of show you where we are today if we take a quick snapshot. So we have about 11,000,000 registered accounts. From that, we have about 4,500,000. In fact, end of last quarter, we had 4,600,000 paid subscribers, and that’s growing quite quickly year over year. Annual recurring revenue from subscription services is about $250,000,000 So we have over $250,000,000 in recurring revenue, and that’s growing at 20% or more year over year.

In fact, and I’ll touch on this later, our guide for 2025 shows us growing at 25% or more year over year. So we’re seeing an acceleration of our subscription businesses and ARR. Service gross margin exited at about 80% gross margin. If you take just our subscription, direct and retail subscription revenue, because we do other service revenue like NRE, non recurring engineering and a couple of other things. But if you look at just the subscription piece, which is the vast majority of our service revenue, that’s around 92% margin from an annual perspective.

And our LTV to CAC ratio, for those of you that are subscription service companies or SaaS company investors, our LTV to CAC ratio is four. Obviously, anything over three is considered world class and we’re actually at a four, sometimes even higher than that going forward. So again, what started as really a hardware business inside of a hardware company has been transformed into a services business that’s actually growing quite quickly. Real quick, just to give you a little bit of history of where we’ve been and to show you how fast this company has been transformed. You’ll see a couple of our kind of key metrics on our subscription side.

This is how things like registered accounts, paid accounts, obviously, recurring revenue and our gross margin has been growing. And you can see the trajectory it’s been on, but also how fast this happened. So this is a look back just over the last five years. Again, $10,800,000 was at the end of the year. We’re already over $11,000,000 4 point 6 million dollars was our last reported paid accounts.

We’re quickly marching towards $5,000,000 and then we’ll start to our push to $10,000,000 paid accounts. Over $100,000,000 2 50 million dollars in ARR, like I mentioned, you can see how fast that’s scaling. And then service margin, as we’ve been growing and increasing our recurring revenue, at the same time, we’re actually increasing gross margin on the service and, of course, company gross margin. We exited at a velocity over 80%, and that’s continuing to go up. Especially, like I mentioned, our service subscription gross margin is 92%, and that continues to mix into the overall service revenue.

So we expect this to continue. Real quick, we decided to kind of compare ourselves to a lot of SaaS companies. One of the reasons we did this is Arlo, often with investors or people who knew company in the early days, either as part of Netgear or right after Spin, still think of us a little bit as a hardware company, even though we’ve transitioned out of that over the past couple of years. If you look at all of the SaaS companies that are public and look at how long it took them to reach $250,000,000 in ARR, we’re in a very small cohort of those that did it in six years or less. And there’s some pretty big companies here.

So the acceleration of our subscription business is absolutely outstanding. The other thing we’ve looked at, as we looked at our guide going forward, we looked at how many companies are actually going to be in the rule of 40. So for those of you who are SaaS investors, you know there’s a rule of 40 where you take kind of the growth rate and operating income and see if it meets 40 or not. Our guide for 2025 is actually rule of 40. So that puts us in a class if you add the 20% growth, it puts us a class of only four other public companies, public SaaS companies in the world right now.

So very fast growth, really separating from the pack, and clearly a SaaS company that’s growing quite quickly. If you look at the TAM, what market do we play in? Obviously, security and DIY security, and that’s a relatively large market. If you take the hardware part of that TAM and the services part of that TAM, you’re looking at roughly around $25,000,000,000 or so from a market perspective. We are now also moving into the broader smart home category, which adds another $13,000,000,000 And there’s several adjacencies that we’ll start to be addressing over the next twelve to twenty four months.

So this is a fast growing market. It’s a very large market. These numbers are U. S. Only in the dark blue.

You can put a multiple on those when you start looking internationally or you start looking into things like small business, age in place market, other things our platform could actually address. Like I said, our history is really around innovation. So we are a product technology and consumer experience led company. We invented the space about ten years ago. And every year, we bring multiple innovations to the market, stay ahead of many of the competition that’s out there.

And some of that innovation is on the hardware side. So that could be RF, power design, new optics, other things that we do to make sure that our cameras and our other devices are top of class. But increasingly, it’s been around AI, platform development, subscription services and other capabilities that are bringing that user experience to the end user. If you take a look at our platform, and this is really the asset we’ve built over the last ten years and a big part of the company value, it is a fully operational scaled cloud platform, specifically built for low latency applications like home security or small business security, but can be leveraged into many different markets. We just happen to be using it right now specifically for scaling the DIY security business through multiple channels.

When I talk about scale, we send out about $170,000,000,000 AI alerts per year. That is obviously a lot. Those are AI driven, so that’s off our subscription services where we’re actually able to characterize what’s happening in a scene and actually convey that to the user so they can filter out the different notifications that they don’t want and get the ones that they really care about. We upload about seventeen hundred hours of video footage from our cameras per minute. That’s about two to three times the size of YouTube, just to give you an idea of the scale of the platform we’re driving.

Part of what we do is we obviously call have a lot of APIs that we use internally. But one of the fastest parts of our business from a growth perspective is what we call strategic accounts. And so yes, we use our platform to go with the Arlo brand through retail and Arlo.com and through some partners. But also, we’re powering the security platforms for other companies. One big example of that is Verisure in Europe, where their entire cloud back end for video storage, video AI and other security components from those cameras were actually running on their behalf on a background as a partner.

And so if you add up all that as well, we’re doing about 26,000,000,000 API calls per year across the platform. We’ve shipped over nearly now about 35,000,000 devices. So this is a business that’s operating at scale. And part of the expansion you’re seeing in gross margins is us being able to leverage our current business as the top line continues to grow. If you look at the services that we sell to users, so our subscription services that we sell to users after they’ve purchased some product from us.

We have basically three plans. It’s really two plans. The first plan has a single or unlimited cam plan that provides all of our AI capabilities. And then you can step up to the premium plan, which also includes professional monitoring, cellular backup, battery backup, and really a full user experience that you would get from any other big security company. While they charge $60.70 dollars a month, our top plan is $25 a month if you buy it on an annual basis.

So even today, we are about half the price of what a traditional security provider would charge. And so we think there’s a lot of potential pricing opportunity options for additional tiers of plans as we go forward. If you look, I captured a couple of stats here just for review as well. So our monthly average revenue per user for subscribers is now risen to $7.5 roughly. If you go back about a year and these are these are the new subscribers coming in after we made a couple of plan changes at the beginning of this year.

Last year was about $12 Year before that was about $10 to $11 And the year before that was about $7 or $8 So one of the things you’re seeing is ARPU expansion. That’s being driven off our AI services and AI capabilities that the users are really responding to, and they’re mixing up their plans. And we’re changing the the plan tiers to actually include more AI capabilities because we’re seeing users really demand that in the field. We have an annual plan and then monthly. Most of our users are still on monthly plans, no contract.

And I’ll show you, we still have world class churn even though 75% roughly or more of our customers are actually on monthly. They can churn any single month. So when you look at churn from other companies where they may have locked their customers into a three year contract, it’s very different. Ours is a real transparent organic churn rate where others may be locked into certain contracts. As we launched Arlo Secure five, which is our new service plan that we launched in October, November and saw that mix up in ARPU.

Part of that was we saw a 20% lift in users actually selecting the premier plan when we made that change, so indicating additional ARPU increase. And then if you look at the devices that we ship that are active in the field, roughly 65% of those are actually tied to a paid plan already. So we have a pretty good attach rate, conversion rate. When somebody buys hardware, how likely are there to actually pay for service, even if they just buy it at a Walmart or a Best Buy. Real quick, wanted to dive into one of the specific areas of our platform, and that’s our AI capabilities.

This is something we’ve been investing in, like I said, since 2018. In fact, the original models that we wrote were built in 2017. It seems so long ago. And we’ve been doing object detection, so we can tell the difference between a vehicle or a person or a pet. We can detect packages at your front door.

We can detect if somebody took the package from your front door. We’re also doing now fire detection. And what’s interesting is with fire detection, often the flames can trigger the image analysis and a detection and alert for fire three to six, seven minutes ahead of smoke actually hitting a smoke alarm and going off. So this is important for several areas of the home, but we’ve had some small business requests for fire detection as well. We also built a very robust recognition engine.

And so we can do full person recognition. So think of facial recognition determining who came in the front door, who came home, being able to trigger either alerts or automations based on that. So we’ve been doing that for quite a while, but we’ve also added vehicle recognition. So if a car pulls in your driveway, we can detect whose vehicle that is. So is it, you know, is it your wife’s vehicle?

Is it your daughter driving home from school? You can ask for alerts on specific vehicles or, for instance, say, I only want alerts, if it’s an unknown vehicle. So a vehicle pulls in and I don’t know, I don’t recognize it, then give me an alert. We also do a lot of audio recognition. So we have smoke and carbon monoxide alarms.

We can also tell the difference between the two using AI. And then you’ll see us roll out gunshot detection, screen detection, dog barking. There’s a ton of AI components coming on the audio path as well. We can even listen for car alarms and other things and give you specific alerts. And then the one that we’ve innovated the most, and this is what drove a lot of interest in Arlo Secure five, is we’re the only company in the world to offer what’s called a personal AI engine.

So what happens is you can come into the system and just type in what you want to detect. You can type in, did I leave my garbage cans on the street? Or did I leave the back gate open? Or did I leave the lights on? And what we do is we take that text, and our AI engine actually starts to develop a model around what does a garbage can look like, what is a street, what is a garbage can on the street, and starts to build a model to detect what you’ve asked our engine to do.

You can then add images. You can add an image of your garbage cans on the street and one without and actually help train it. And that’ll get it from about 88% accuracy to over 95% accuracy. And then it actually learns over time and gets smarter over time. So this opens up unlimited AI capabilities for security or smart home use cases.

And what’s interesting is what we’re doing with our platform is every single person user on our platform, these are specific to. So this has not been going into our general larger model that we use for general detections. These models are actually personal, fully encrypted, and none of the information or the model itself is shared with any other user on our platform. So our platform is moving from a couple of very large models that we leverage for all the users to what will be hundreds of thousands and eventually millions of micro models that users can actually train on their own. It’s a huge innovation in the platform and something that drove a lot of demand in Q4.

What’s coming? So we did announce last week a couple of things that are coming in Arlo Secure six. One is smart home integration. So we’re going to start to add a lot more cross triggers. Think of using your soundbar to bark like a dog if somebody comes to your front door really loud or doing other things with other capabilities, you know, turn all the lights if somebody, you know, is in your backyard, other things to actually mitigate or deter.

So that’s coming. Full video and audio descriptions, and you’ll see some examples on the left. So instead of car detected, it’ll say a blue SUV pulled into the driveway, two people were pulling packages out of the back and somebody walked into the home wearing a red shirt. And then you’ll be able to go back and actually search on that. So you could search on red shirt and suddenly all the videos in your platform would actually show that had a red shirt in the video.

So very specific. And then we’ll be rolling a beta of threat assessment. And this will be one of the biggest innovations, I think, in the next year. We think we’re years ahead of other people, where we have a model that we’re developing. We’ll actually take a look at everything that’s happening on the video, the audio path and other sensors in the home and actually score from a threat assessment perspective, how significant that is across multiple scores.

So maybe personal safety, property damage, other things. And that score will then change how the system alerts you on what’s happening. So is it an escalated alert? Is it a normal alert? Is muted so it doesn’t bother you?

But also, if the call center professional monitors have to respond, they will get a lot more metadata and be able to respond a lot faster because they’ll have a threat assessment score and they know how to prioritize the calls that are coming in. So all of this will come out later this year. In fact, some of this we might launch a little bit early because we’re actually ahead on our development cycle. So again, a lot of the value we provide is that innovation cycle that’s driving consumer demand to the subscription services and staying ahead of any of the other user experiences that are out on the market. I mentioned this already.

So a lot of the security companies don’t provide churn metrics. They don’t like to share because it’s a lot higher than ours. But if you look at just consumer services in general, the ones that actually do report churn metrics, you can see that we have a world class retention from a subscription services company. And this helps drive our LTV of over $700 per user. So this is something we focus on very much.

Some of this, I think, is driven by the subscription services and the great user experience and everything else. And some of this is driven because security is an extraordinarily sticky subscription service and one of the last things that consumers tend to cancel. Real quick, just on our Q4 metrics, just to give an update. Again, there’s a lot more information in the deck that we provided on Thursday or if you want to watch the webcast. But just a couple of ideas.

We’ve already talked about hitting 4,600,000 paid subscribers. That’s up significantly. $257,000,000 in ARR, that’s up 22% year over year. Service revenues to total revenue mix is now over 50%. And then service gross margin actually hit 82% in the quarter of Q4, and we see that continuing as we go forward.

Real quick on the guidance, as I mentioned earlier. So we’ve given guidance for both Q1, which was up from consensus in the quarter and also full year, which was also significantly up. And we decided to give guidance not only in the typical metrics like revenue and EPS, but to help people peg how fast the growth is happening on the services business, which is really driving the financial metrics of the company. We decided to show that we’re going to hit $300,000,000 or more in service revenue and that our service gross margin will stay above 80% as we go through that year and drive that growth. So this is contemplating roughly a 25% growth on ARR, which is an acceleration of ARR growth year over year.

And then we did do a long range plan a couple of years ago, which was $5,000,000 3 hundred million dollars in ARR and over 10 operating margin. Our goal was to hit that in 2027. We’re going to hit that probably midpoint this year. So it was pretty clear to a lot of our investors that these targets, which seemed huge at the time, when we put out the original long range plan, we call it LRP1, it seemed like these were going to take five years to hit. We hit them in basically 2.5 or will hit them in about 2.5.

So we’ve actually set out as of last year, we set out a new long range plan and actually doubled or more than doubled every key metric. And I mentioned on the call on Thursday, it’s very likely given our current trajectory, we’ll probably hit these early as well. Yes. Yes. So the question is, who are we taking market share from as part of this growth?

So I think there’s two major categories. One is there’s just a lot of new market, Okay? So if you look, the penetration for, securities well, we we call it smart security, security experiences that are connected to the Internet, is around 18%. Some subcategories may be about 20%. So there’s a huge greenfield ahead of us in The United States alone, let alone internationally.

So that’s one. Two, the market’s really starting to move mass market. So the next 50,000,000 households of capture are going to start happening soon, this year. In fact, we’re seeing Walmart and other kind of mainstream customer outlets start to really grow in their share of the market. And that’s a signal to us that this is going mass market and we’re going to see a lot of growth.

So first, I would say some of the growth, a good part of the growth is coming from just new customers coming into smart security and actually adopting this for the first time, whether it’s a home or an apartment or some other thing that they’re trying to do like a small business. From a competitive share capture, the biggest share capture is from traditional security companies. So think of the ADTs, the Vivint, the Brinks, the Resideo’s that are charging $50.70 dollars a month. And our top tier on an annual basis is only $25 a month and the service is substantially better from a technology perspective, but also a user experience perspective. If you double click just into then the DIY space, we’re seeing customers like Ring start to lose some market share.

Google’s losing share. Our plan is to capture additional share throughout this year. And last week, I mentioned on the call, we’re going to have our largest product launch in company history in Q3 for the holiday season, where we’re refreshing every single line and actually expanding our product portfolio. We’re already confirmed to double our shelf space at one of our key retailers, and I think there’s more to come. So I think we’re capturing some share in our subsegment in the DIY kind of smart area.

We’re definitely share shifting share from traditional security just because the value is so much better and the experience is so much better. But also, I would tell you that there’s just an underpenetrated broadband household market that is just starting to go mass market. And I think that’ll be the next leg of kind of major growth. Yes. Yes.

So great question. So the question is, the Q3 launch that I’m talking about of the new hardware that’s coming, does that work with the new software or do the old cameras work with the new software? One of the strategic decisions we’ve made as a company is that we’re really a services company and the hardware is the enabler. And that’s what fills our funnel at the top of the funnel. So actually, all of the services I’ve shown you to date actually continue to work on cameras that we shipped eight years ago.

So because it’s a cloud platform, even our oldest cameras can actually take advantage of all these newest features. And that’s, I think, been part of our success of bringing even older users into the subscription realm and going forward. So really, when people make a choice around buying new hardware, it’s the hardware capabilities or attend what we see is they’re expanding their system from two cameras to four cameras, and they’re just kind of building out because they have a new floodlight or there’s a new form factor they want. But most almost all of our features that we roll out can roll out against all 35,000,000 devices that we’ve shipped. So here’s the new long range plan, like I said.

So we’re targeting this by 02/1930. But again, on the current trajectory, we’re going to hit it pretty early. We decided not to update it again because we’ve updated a couple of times. So we’re going to clear LRP one way early and we think we’re on track to clear LRP two early as well. So in summary, just to kind of wrap up, one is we’re a company that has a SaaS platform, right, and an innovation engine that’s running very quickly.

And being I’ll tell you, being focused in the space, meaning not being part of a large company, and sometimes I’m an ad company, and then I’ve got to build a general purpose AI, and then I’ve got all this other stuff I have to do. We wake up every morning and just work on consumer small business security and maximizing the potential of our platform to monetize and create great experiences for our end users. That has let us outpace both on a growth perspective, but also on an innovation perspective. And the platform we’ve built is a huge part of that. We have a big device launch, like I said, coming in Q4 that we think is going to add additional growth as we exit this year.

I mentioned already, we’ve already got commitments from our retail side to expand our shelf share and potentially grow unit velocity through that channel. About half of our business is through strategic partners. And those are, like I said, like Verisure or other service providers that actually sell our go to market with our platform in the back. We announced three new strategic partners on the earnings call. And you should expect, our hope is within the next two, three quarters, we’re going to announce some additional strategic partners to grow that piece of our business even faster.

Kurt and I, when we look out over the next five years, we think about 60% of the incremental growth will actually come from additional strategic partners on a global basis. $300,000,000 in service revenue, which was a surprise. A lot of people thought we were going to target maybe $280,000,000 2 90 million dollars We think it’s going to be $300,000,000 or more. And so that growth and acceleration of our service business continues. And then like I mentioned earlier, these metrics, including our growth, actually put us in a very rare space where even in a somewhat muted consumer environment and what people are not sure, a very volatile consumer market for 2025, our guidance puts us into a rule of four to company this year.

I don’t think that’s been reflected obviously in the stock or anything else.

Adam Tindle, Analyst, Raymond James: Well done. Right on time, Matt. We’re out of time, but Cordova four is going to be

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