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Arlo Technologies, Inc. (ARLO)·Q2 2025 Earnings Summary

Executive Summary

  • Arlo delivered a strong Q2 2025 with total revenue of $129.4M and non-GAAP EPS of $0.17, beating S&P Global consensus on both metrics; services revenue rose 30% to a record $78.2M and now represents 60% of revenue .
  • Gross margins expanded sharply: GAAP GM to 44.9% and non-GAAP GM to 45.8%; non-GAAP services GM hit a record 84.9%, despite ~100 bps tariff headwind on consolidated GM .
  • Management raised full-year services revenue outlook to “above $310M” (prior ~$300M), lifted full-year services GM target to ~85% (prior ~80%), and guided Q3 revenue to $133–$143M and non-GAAP EPS to $0.12–$0.18 .
  • Execution highlights: 218k net paid adds in Q2 (5.1M total), retail ARPU moved above $15 on Arlo Secure 6 pricing; largest product refresh ever launching >100 SKUs with 20–30% COGS reductions to offset tariffs and fuel unit growth .
  • Catalysts: continued services mix shift, ADT partnership (devices + services) set to contribute materially in 2026, aggressive holiday pricing to drive 20–30% camera unit growth in Q3/Q4, and consensus-matching Q3 guide midpoints .

What Went Well and What Went Wrong

What Went Well

  • Record services revenue ($78.2M, +29.7% YoY) and services GM (non-GAAP 84.9%), driving consolidated GM expansion (~800 bps YoY) .
  • Strong subscriber KPIs: 218k net adds; paid accounts reached 5.1M; ARR hit $315.7M (+34.3% YoY) .
  • Strategic momentum: announced ADT partnership with unique structure (devices + services), positioned for material services upside in 2026; CEO: “ADT…will provide material upside…starting in 2026” .

What Went Wrong

  • Product revenue declined YoY to $51.2M on industry-wide ASP pressure, promotional depth/frequency, and tariffs; product GM landed in mid-teens and negative on GAAP basis due to pricing and tariffs .
  • Tariffs added ~100 bps headwind to consolidated GM in Q2 and are expected to be 300–400 bps per quarter going forward, requiring COGS reductions and freight optimization to offset .
  • Operating expenses increased to $41.7M (+6.6% YoY), driven by credit card fees for in-app subscription processing and elevated R&D tied to portfolio refresh and Secure 6 rollout .

Financial Results

Core P&L vs prior periods and estimates

MetricQ2 2024Q1 2025Q2 2025Notes
Revenue ($USD Millions)$127.447 $119.066 $129.405 Beat S&P est. $123.463M*
GAAP Gross Margin (%)36.8% 44.3% 44.9% +800 bps YoY
Non-GAAP Gross Margin (%)37.9% 45.5% 45.8% +790 bps YoY
Non-GAAP Diluted EPS ($)$0.10 $0.15 $0.17 Beat S&P est. $0.1528*
GAAP Diluted EPS ($)$(0.12) $(0.01) $0.03 Swing to profit

S&P Global disclaimer: Values retrieved from S&P Global.
Estimates used: Q2 2025 Revenue Consensus Mean $123.463M*, Primary EPS Consensus Mean $0.1528*.

Segment Revenue Mix

SegmentQ2 2024Q1 2025Q2 2025
Subscriptions & Services Revenue ($USD Millions)$60.261 $68.849 $78.175
Subscriptions & Services % of Total47.3% 57.8% 60.4%
Products Revenue ($USD Millions)$67.186 $50.217 $51.230

Margin Detail

MarginQ2 2024Q1 2025Q2 2025
Services GM (GAAP)75.8% 82.2% 84.3%
Services GM (Non-GAAP)76.4% 83.1% 84.9%
Product GM (GAAP)1.7% (7.7%) (15.4%)
Product GM (Non-GAAP)3.4% (6.2%) (13.8%)
Consolidated GM (GAAP)36.8% 44.3% 44.9%
Consolidated GM (Non-GAAP)37.9% 45.5% 45.8%

Tariff impact: ~100 bps headwind to consolidated GM in Q2; expected 300–400 bps per quarter ahead .

KPIs

KPIQ4 2024Q1 2025Q2 2025
Cumulative Paid Accounts (Millions)4.599 4.897 5.115
Net Paid Adds (Thousands)N/AN/A218
ARR ($USD Millions)$257.332 $276.357 $315.655
Retail ARPU ($/Month)N/AN/A>$15
Monthly Churn (%)~1.1–1.3 typical; ~1.0% in Q2—~1.0% observed; management still guides 1.1–1.3%
LTV per Paid Account ($)——~$840
Cash, ST Investments ($USD Millions)$151.451 $153.106 $160.401
Free Cash Flow ($USD Millions)$5.595 (Q4) $28.116 (Q1) $5.855 (Q2)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q3 2025N/A$133–$143 New
Non-GAAP EPS (Diluted, $)Q3 2025N/A$0.12–$0.18 New
Subscriptions & Services Revenue ($USD Millions)FY 2025~$300 (mgmt prior estimate) Above $310 Raised
Services Gross Margin (Non-GAAP, %)FY 2025~80 (mgmt prior estimate) ~85 Raised
ARR ($USD Millions)FY 2025 YEN/A~$335 New
Paid Subscriber Adds (Thousands per Qtr)H2 2025160–200 (prior range implied)190–230 Raised
Camera Unit Growth (%)Q3/Q4 2025N/A20–30% YoY New
Combined GM Tariff Impact (bps)Q3/Q4 2025N/A~300–400 per quarter New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
AI/Technology InitiativesSecure 5.0 drove premium adds, service GM expansion Secure 6 drove ARPU >$15, services GM record, continued rollout planned Strengthening; ARPU mix up
Supply Chain & TariffsCaution on tariffs and trade landscape Tariffs ~100 bps GM hit in Q2; plan to offset via 20–35% COGS reductions, freight optimization Manageable headwind; offset via COGS
Product Performance & PricingProduct ASP pressure in late 2024 Largest refresh (>100 SKUs), aggressive ASPs similar to 2023 to drive services; unit growth targeted 20–30% Pricing to acquire subscribers
Regional TrendsEMEA strong; shifting mix Intl revenue ~$50M (39%); mix tilted to Americas with services growth Americas mix rising
Strategic PartnershipsOrigin AI, RapidSOS, Samsung expansions New ADT partnership (devices + services), two more strategic accounts in pipeline Expanding; 2026 revenue driver
R&D ExecutionOngoing investment; 2024 innovation Capitalized $2M software dev; flawless portfolio refresh execution ahead of schedule Execution on track

Management Commentary

  • CEO: “Arlo’s performance in the quarter was nothing short of outstanding… Service revenue hit $78,000,000… non-GAAP service gross margin increased to a record 85%. This performance propelled non-GAAP EPS to $0.17…” .
  • CEO: “We believe our 2025 service revenue estimate of $300,000,000 will be closer to $310,000,000 while our full year subscription and services gross margin will… land closer to 85.” .
  • CFO: “Retail ARPU in the second quarter rose to $15… delivered $78,000,000 in subscriptions and services revenue… paid accounts… 5,100,000, an increase of 29% year over year.” .
  • CFO: “We were able to expand our consolidated non-GAAP gross margins to 46%, up nearly 800 basis points year over year… tariffs represented a gross margin headwind of approximately 100 basis points.” .
  • CEO on ADT: “It is a partnership that will involve devices and service revenue… a substantial deal… rolled out and executed in 2026.” .

Q&A Highlights

  • ADT partnership: Structure unique vs Verisure; includes devices and service revenue; timeline near end of 2025/early 2026 for more details; expected material services upside starting 2026 .
  • Product launch and margins: >100 SKUs; 20–30% COGS reductions to offset tariffs and deepen promotions; unit growth targeted 20–30% YoY in Q3/Q4; aim to expand shelf space at Walmart and others .
  • Gross margin modeling: Product GM “mid-teens”; consolidated GM expansion to continue; tariffs expected at 300–400 bps per quarter but largely offset by lower BOM and other techniques .
  • Subscriber dynamics: Net adds driven primarily by unit growth across channels; holiday POS in Q4 converts into subscribers across Q4/Q1 given free trial lags; raised paid adds target to 190–230k/Qtr .
  • Churn: Q2 churn near 1% (vs historical 1.1–1.3% range); retention improvements from “save journeys” and operational tweaks .

Estimates Context

  • Q2 2025 actuals vs S&P consensus: Revenue $129.405M vs $123.463M*; Non-GAAP EPS $0.17 vs $0.1528* — both beats. Values retrieved from S&P Global.
  • Q3 2025 guidance vs S&P consensus: Guidance revenue $133–$143M vs $138.689M*; guidance non-GAAP EPS $0.12–$0.18 vs $0.1482* — midpoints broadly in line. Values retrieved from S&P Global.
PeriodMetricS&P Consensus*Actual/Guide
Q2 2025Revenue ($USD Millions)123.463129.405
Q2 2025Primary EPS ($)0.15280.17
Q3 2025Revenue ($USD Millions)138.689$133–$143
Q3 2025Primary EPS ($)0.1482$0.12–$0.18

S&P Global disclaimer: Values retrieved from S&P Global.

Key Takeaways for Investors

  • The services-led model is scaling: services at 60% of revenue, record services GM ~85%, and ARR growth >34% YoY — expect continued mix shift to drive margin durability even with tariffs .
  • Arlo Secure 6 is lifting ARPU and retention; the full benefit started in Q2 with ARPU >$15 and should continue as annual plans roll through H2 — supportive of sustained services growth .
  • Near-term revenue cadence: higher Q3 “gross ship” for new devices and aggressive holiday pricing should lift unit formation, with subscriber conversions staggered across Q4/Q1 .
  • Tariff mitigation credible: 20–35% BOM reductions and freight optimization aim to offset a 300–400 bps quarterly GM headwind; expect consolidated GM expansion YoY despite macro .
  • Strategic optionality: ADT partnership (devices + services) plus pipeline of additional accounts could be material in 2026 — optionality not in near-term guidance but supports medium-term ARR upside .
  • Estimate revisions: Q2 beats and raised services guidance (>$310M) should prompt upward revisions to FY services and margin assumptions; Q3 guide midpoints roughly match consensus, limiting near-term estimate volatility .
  • Trading lens: The narrative is about sustained margin/ARR expansion and unit growth as CAC; watch holiday execution and tariff offsets — beats on services KPIs and confirmation of >85% services GM are likely stock-positive drivers .
Notes on non-GAAP: Arlo’s non-GAAP metrics exclude stock-based compensation, certain operating items, amortization of software development cost, and tax effects; see press release/8-K reconciliations for details **[1736946_18d0f8e4c7a6420d94f7fe59cd4a675c_5]** **[1736946_0001736946-25-000030_arloearningsrelease20250807.htm:5]** **[1736946_0001736946-25-000030_arloearningsrelease20250807.htm:10]** **[1736946_0001736946-25-000030_arloearningsrelease20250807.htm:11]**.