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Arlo Technologies, Inc. (ARLO)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered record non-GAAP EPS of $0.15, record free cash flow of $28.1M (23.6% margin), and subscriptions/services gross margin of 83.1%, powered by ARR of $276.4M (+21.8% YoY) and services revenue of $68.8M (+21.4% YoY) .
  • Revenue of $119.1M was slightly down YoY but ahead of consensus; EPS materially beat: revenue $119.1M vs $118.4M consensus*, EPS $0.15 vs $0.117 consensus*; sequential gross margin expansion to 45.5% non-GAAP and 44.3% GAAP .*
  • Mix shift continued: services were 58% of revenue; product margins remained slightly negative as Arlo uses hardware as CAC to drive subscriber LTV ($700) and ARPU rose to a record $13.48 .
  • Q2 2025 guidance: revenue $119–$129M and non-GAAP EPS $0.11–$0.17; management reaffirmed full-year guidance and highlighted resilience to tariffs given services-driven model and planned 20–35% product BOM cost reductions in H2 .
  • Catalysts: launch of Arlo Secure 6 AI features, surpassing 5M paid subscribers, growing partner ecosystem (Origin Wireless, RapidSOS, Samsung), and the largest device refresh planned for holiday 2025 .

What Went Well and What Went Wrong

What Went Well

  • Record profitability: non-GAAP EPS $0.15, adjusted EBITDA $16.4M (+76% YoY), free cash flow $28.1M with a 23.6% margin; GAAP and non-GAAP gross margins up >600 bps YoY .
  • Services momentum: ARR $276.4M (+21.8% YoY), services revenue $68.8M (+21.4% YoY), services GM 83.1% non-GAAP; ARPU rose to $13.48 on plan simplification and premium mix .
  • Strategic execution: buyback of $15.2M and $12.5M Origin Wireless investment; announced Arlo Secure 6 and surpassed 5M paid subscribers ahead of plan; “we are confident in reaffirming our full-year guidance” .

What Went Wrong

  • Product gross margin remained negative (GAAP -7.7%; non-GAAP -6.2%) as Arlo leaned into promotions; management expects improvement with H2 cost downs but remains opportunistic on pricing .
  • EMEA revenue fell ~30% YoY (Q1 EMEA $42.9M vs Q1 2024 $61.4M) due to stocking timing, pulled-forward Chinese New Year impacts, and USB-C connector transition; Verisure catch-up still influenced subscriber adds .
  • Tariff uncertainty persists; management modeled 10% blanket regime for Q2 and post–July 8, but highlighted insulation given services mix and hardware CAC framing .

Financial Results

Consolidated Performance (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$137.7 $121.6 $119.1
GAAP Gross Margin %35.2% 36.9% 44.3%
Non-GAAP Gross Margin %36.0% 37.5% 45.5%
GAAP EPS ($)$(0.04) $(0.05) $(0.01)
Non-GAAP EPS ($)$0.11 $0.10 $0.15

Segment Revenue (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Subscriptions & Services ($USD Millions)$61.9 $64.1 $68.8
Products ($USD Millions)$75.8 $57.4 $50.2
Services Mix (% of Revenue)45% 53% 58%

KPIs and Operating Metrics (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
ARR ($USD Millions)$241.6 $257.3 $276.4
Cumulative Paid Accounts (Millions)4.235 4.599 4.897
ARPU ($)—$12.60 (retail paid) $13.48 (record)
Free Cash Flow ($USD Millions)$17.4 $5.6 $28.1
FCF Margin %12.6% 4.6% 23.6%
Cash, Cash Equivalents & ST Investments ($USD Millions)$146.6 $151.5 $153.1
DSOs (days)45 44 34

Revenue by Geography (oldest → newest)

RegionQ3 2024Q4 2024Q1 2025
Americas ($, %)$73.3, 53.2% $70.3, 57.8% $70.1, 58.9%
EMEA ($, %)$57.8, 42.0% $44.8, 36.9% $42.9, 36.0%
APAC ($, %)$6.6, 4.8% $6.4, 5.3% $6.1, 5.1%

Actual vs Consensus – Q1 2025

MetricConsensus*ActualSurprise
Revenue ($USD Millions)$118.4*$119.1 +$0.7 (+0.6%)*
Primary EPS ($)$0.117*$0.150 +$0.033 (+28%)*

*Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2025$114–$124 Actual $119.1 Met (mid-range)
Non-GAAP EPS ($)Q1 2025$0.09–$0.15 Actual $0.15 At high end
Revenue ($M)Q2 2025—$119–$129 New
Non-GAAP EPS ($)Q2 2025—$0.11–$0.17 New
Consolidated Revenue ($M)FY 2025$510–$540 Reaffirmed Maintained
Services Revenue ($M)FY 2025≥$300 Reaffirmed Maintained
Non-GAAP Services GM (%)FY 2025>80% Reaffirmed Maintained
Non-GAAP EPS ($)FY 2025$0.56–$0.66 Reaffirmed Maintained

Earnings Call Themes & Trends

TopicQ3 2024 (Prev)Q4 2024 (Prev)Q1 2025 (Current)Trend
AI/Technology (Secure 5/6)Launched Secure 5.0; services GM ~77% Plan simplification, Secure 5 drove ARPU and premium mix Secure 6 features rolling out (fire/audio detection, search); ad platform Phase 1 live Expanding capabilities; accelerating ARPU
Tariffs/Macro—Aggressive promotions in Q4; CAC increased to $200 Modeled 10% tariff regime; services-centric insulation; BOM -20–35% in H2 Managed risk; cost-down mitigation
Product PerformanceQ3 product margin low-single-digit; POS growth Product GM deeply negative in Q4; rebound expected Q1 Product GM slightly negative; hardware used as CAC; 1.1M devices shipped Promotion-led CAC; positioning for H2 cost downs
Regional TrendsEMEA strong in Q3 Americas mix rising EMEA down YoY; stocking/USB-C shift; Verisure still key Mix shifting to Americas; EMEA normalization
Partnerships—RapidSOS, Origin, Samsung announced Origin $12.5M investment; ecosystem growth; insurance conversations expanding Building ecosystem; new channels

Management Commentary

  • “Our subscriptions and services revenue grew more than 20% and drove a record non-GAAP subscriptions and services gross margin of 83.1%” — Matthew McRae, CEO .
  • “We expect to achieve the full year financial outlook we gave last quarter… total revenue and EPS” — Kurt Binder, CFO/COO .
  • “We announced we surpassed 5 million subscribers… ahead of our 2025 forecast” — Matthew McRae .
  • “We assume Arlo will be operating under the 10% blanket tariff regime for the duration of Q2… we don’t have any plans to increase prices at this time” — Matthew McRae .
  • “Adjusted EBITDA was $16.4M… non-GAAP net income per diluted share of $0.15 thereby exceeding the consensus figure of $0.12” — Kurt Binder .*

*Consensus figure referenced via S&P Global.

Q&A Highlights

  • Tariffs and inventory planning: Arlo is actively managing inventory ahead of July timelines; majority of revenue/profit insulated as services; maintaining weekly monitoring and supplier engagement .
  • Product margins strategy: Will remain opportunistic; combined margins expanding despite negative product GM; hardware as CAC to fill funnel; expects BOM -20–35% to aid margins in H2 .
  • ARPU and churn: ARPU trending to ~$14; new subs nearer $17; churn spike from plan changes normalized and improving; conversion robust across cohorts .
  • Verisure catch-up: ~300k net adds included catch-up; underlying new paid adds ~170–190k; last quarter of catch-up expected .
  • Ad platform: Phase 1 launched May 1 to upsell own services/hardware; strong CTR in beta; third-party ads possible later .

Estimates Context

  • Q1 2025 beat on both revenue and EPS: $119.1M actual vs $118.4M consensus*; $0.15 EPS vs $0.117 consensus*, aided by services margin expansion and higher ARPU .*
  • With reaffirmed FY guidance and Q2 outlook intact, near-term EPS estimates may bias upward, while product margin assumptions should reflect continued CAC-driven promotions offset by H2 cost downs .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Services-led model is driving durable profitability: record non-GAAP EPS and FCF, with non-GAAP gross margin reaching 45.5% and services GM at 83.1% .
  • Growth flywheel intact: ARPU expansion ($13.48), 5M+ paid subscribers, ARR $276.4M (+21.8% YoY) underpin visibility to FY services ≥$300M and Rule-of-40 aspirations .
  • Hardware as CAC continues: expect negative/low product GM near term; H2 BOM -20–35% targeted to mitigate tariffs and support holiday launch across 100+ SKUs .
  • Q2 setup constructive: revenue $119–$129M and non-GAAP EPS $0.11–$0.17; management reaffirmed FY guidance despite tariff uncertainties .
  • Partnership optionality: Origin Wireless, RapidSOS, and Samsung expand platform differentiation and potential distribution/monetization avenues; insurance discussions broadening .
  • Geographic mix shift toward Americas and services composition reduces volatility; monitor EMEA normalization post stocking/USB-C transition .
  • Trading implications: Positive EPS/FCF beat and services margins are supportive; watch for ARPU trajectory and Secure 6 adoption to sustain estimate momentum into H2 .