Arlo Technologies Q2 Earnings Call Highlights

Key Points

• Record Q2 performance: Revenue rose 21% year over year to $155.9 million, while subscriptions and services revenue increased 19% to $93 million. Arlo added 298,000 paid accounts, reaching 6.3 million, and annual recurring revenue grew 16% to $365 million.
• Profitability improved, but tariff refunds helped: Adjusted EBITDA increased 70% to $30.6 million, and consolidated non-GAAP gross margin reached a record 50% plus. However, $8 million in tariff refunds boosted product gross margin and contributed approximately $0.07 to adjusted EPS.
• 2026 outlook raised: Arlo now expects full-year revenue of $580 million to $600 million and non-GAAP EPS of $0.90 to $1.00. Growth plans include the September launch of higher-priced Secure 7 services, expanding partnerships with ADT and Comcast, Aloe Care market tests, and additional share repurchases.

Arlo Technologies NYSE: ARLO reported record second-quarter results, citing growth in subscription services, paid accounts and total revenue as the company raised its full-year 2026 outlook.

Chief Executive Officer Matt McRae said service revenue, total revenue, gross profit and non-GAAP net income all reached company records during the quarter. Total revenue rose 21% year over year to $155.9 million, while subscriptions and services revenue increased 19% to $93 million and represented 60% of total sales.

The company added 298,000 paid accounts during the period, bringing its paid-account base to 6.3 million. McRae said point-of-sale unit volume across retail and direct channels increased 8% during the quarter, while the quality of the paid subscriber portfolio improved through higher average revenue per user, lower churn and stronger-than-forecast subscription renewals.

Arlo said the lifetime value of a paid account reached $967, up 15% from a year earlier. Annual recurring revenue grew 16% year over year to $365 million, supported by subscriber growth and a slight increase in ARPU.

Profitability and tariff refund impact

Chief Financial Officer and Chief Operating Officer Kurt Binder said non-GAAP subscriptions and services gross margin was 84.1% in the quarter. Product gross margin was 1%, compared with negative 13.8% in the prior-year period, aided by approximately $8 million in tariff refunds recorded during the quarter and a higher mix of strategic-partner product sales.

Excluding the tariff refunds, Binder said product gross margin would have been negative 11.6%, an improvement of 220 basis points from a year earlier. Consolidated non-GAAP gross margin exceeded 50%, rising 480 basis points year over year to a company record.

Non-GAAP operating expenses increased 16.5% to $48.6 million, driven by research and development investment, platform work for strategic partners and professional-services costs tied to growth initiatives. Adjusted EBITDA rose 70% from a year earlier to $30.6 million, representing a 20% margin.

Non-GAAP earnings per diluted share were $0.28, including a $0.07 favorable impact from tariff refunds. On a pro forma basis excluding those refunds, Binder said non-GAAP EPS would have been $0.21, above the midpoint of the company’s guidance range and consensus estimates.

Arlo ended the quarter with $141 million in cash equivalents and short-term investments. During the first six months of 2026, the company generated $33.9 million in free cash flow, equal to an 11% free-cash-flow margin.

Products, subscriptions and channel activity

Product revenue rose 23% year over year to $62.9 million. Binder attributed the increase to international growth and retail-channel shipments ahead of Amazon Prime Day, which occurred in late in the second quarter this year. Point-of-sale volume rose 9% in the first half compared with the same period in 2025.

Management said promotional spending on hardware is intended to acquire and activate new households that can later convert into high-margin subscription customers. Binder said product gross margins are expected to return to negative mid- to high-single-digit levels, potentially reaching the negative teens, as Arlo continues to use product sales and promotions as a customer-acquisition tool.

McRae said the company has used advertising targeted at unpaid users to convert “tens of thousands” of subscribers to paid plans this year. He added that Arlo sees higher subscription conversion when households expand from one camera to multiple cameras.

Arlo also said customers have been shifting toward higher-tier service offerings, contributing to ARR growth. The company plans to launch Arlo Secure 7 in September, including a new service tier priced above its current offerings. McRae said the release will include additional AI capabilities designed to assess an entire security event and its potential threat level, as well as customer-requested application and service enhancements.

Partnerships, Aloe Care and capital allocation

McRae said ADT’s Blu offering has launched and is expected to ramp through the second half of 2026, with greater activity anticipated next year. He said work with Comcast remains on track, with the company seeking to launch closer to the first quarter of 2027 rather than the second quarter, subject to field testing.

The company also discussed its acquisition of Aloe Care, which expands Arlo’s presence in smart elder care and aging-in-place services. McRae said Home Helpers is an early commercial partner and that Arlo expects several additional partner announcements over the next six to nine months. The company plans market tests for Aloe Care’s direct-to-consumer, do-it-yourself channel in the fourth quarter.

Arlo repurchased more than $20 million of stock during the second quarter and has bought back nearly 6 million shares since launching its repurchase program. McRae said management and the board believe the shares are undervalued and expect additional repurchases.

Raised 2026 outlook

For the third quarter, Arlo expects total revenue of $140 million to $150 million and non-GAAP diluted EPS of $0.17 to $0.23. The company said it plans to use any third-quarter tariff refunds to fund investments in strategic partners, promotions, technology development and market tests.

For the full year, Arlo raised its outlook and now expects:

• Total revenue of $580 million to $600 million.
• Non-GAAP net income per diluted share of $0.90 to $1.00.

McRae said Arlo is targeting roughly 20% ARR growth as it exits 2026, supported by continuing subscriber additions, improving account metrics and the planned Secure 7 launch.

About Arlo Technologies (NYSE:ARLO)

Arlo Technologies, Inc NYSE: ARLO is a provider of smart home security products and services designed for residential and small business customers. The company offers a portfolio of wireless and Wi-Fi-enabled security cameras, video doorbells, smart lighting solutions, and associated accessories. Arlo integrates advanced video analytics, motion detection, cloud storage, and two-way audio capabilities to deliver end-to-end security and monitoring solutions accessible through mobile applications and web interfaces.

Founded as a division of Netgear, Inc in 2014 and spun off as an independent public company in 2018, Arlo Technologies has established a presence in North America, Europe, Australia and parts of Asia.

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