Arlo Technologies (NYSE:ARLO) Q1 2026 Earnings Call

0:00 Showing how we can perform very well in a market dynamic that may be a bit uncertain, but we're obviously executing extremely well. So thanks, John. Since you already hit on ADT, Matt, maybe could you extrapolate a little bit on Samsung in terms of how that relationship is evolving and what kind of form it's going to take and how we should think about that monetization? Yes. So Samsung provided a lot of public description of what the service was at CES. So I can talk about what the user experience will be. And it's really a safety services widget and application button that is going to go across their devices. They'll start on mobile phones tablets, but you're likely to see it progress even across appliances and things where you can walk up, touch a button, have immediate access to emergency services.

0:51 And so they showed that at CES, they demoed it and got a great response. Again, can't give you too much detail of when exactly it will roll out except to say that, like I said before, it's imminent. So all the testing is done, and it's out in the field being tested now. And you're likely to see that rollout relatively soon and there'll be a small subscription component across that. It's exciting for us for a couple of reasons. One is, it's the first partnership deal that we've done where what's being rolled out by a partner is purely service and software, right? There's not a hardware component coming from Arlo as a portion of this. So that's exciting. Two, from an Arlo perspective, it's exciting to see the progression of the SmartThings platform from Samsung continue to kind of broaden out. And we believe that some of these platforms are going to gain share and relevance in the market as we see standards like Matter continue to roll out across multiple channels. And Samsung is a very strong supporter of the Matter alliance and the standard being rolled out. And you can see that if you look at some of their announcements recently.

1:58 And what we believe is that, that will open up additional opportunities for Arlo to partner with Samsung inside of SmartThings and potentially across other areas of the business. So we've done a lot of interop and made sure that the SmartThings experience with Arlo products is top tier, and we did some of that last year. What you'll see very, very soon is a first small subscription service being rolled out by Samsung, co branded by the way. So it'll say Samsung powered by ARLO. So we're excited about that. But we think this area is it's going be an area of growth, only in the market segment, but also within Samsung and we're excited to explore additional opportunities with them over time. Got you. And lastly, if I could, a lot of exciting things going on, particularly as we start to ramp into '27, with it sounds like Comcast will be more commercial at that point in time, maybe age in place. It has some former commercial services, but you've also got other strategics building in the pipeline. I'm wondering if you could flush that out a little bit, maybe give us an idea in terms of some of the comparative magnitude. When I look at what you've done in the past couple of quarters with ADT and Comcast, that adds almost 40,000,000 homes in terms of your addressable market to go after. So I don't know if there's some color in terms of the pipeline, how that's building, the magnitude of the customers to give us some idea about where we're going in 2026 and 2027? Thanks. Yes, that's a great question. And I think I mentioned on the previous call, we find ourselves as a company and as a team

3:30 in the enviable position of seeing a great trajectory in 2026, but already building and seeing a great trajectory in 2027. And it's one of the first times I can really say that, that a lot of the things that we've announced and have built are going to provide performance not only for this year, but also next year. And so you're touching on a bunch of those areas. I would broaden it a little bit and tell you that our product roadmap is very exciting going into 2027. Some of the things we're doing across multiple of our channels are exciting going into 2027. But to your point, we have three partnerships that we announced over the last six months, ADT, Samsung and Comcast. ADT and Samsung will launch relatively soon, ramp through the second half and have a full year impact next year. Comcast, that integration will go through most of this year and likely launch sometime in the first half of next year and start to impact 2027 as well. From a magnitude perspective, I would say Samsung, we're not sure exactly what to expect out of this. It's exciting. You're looking at hundreds of millions of devices that this will roll out to over time. So there's a huge potential TAM there, both Comcast and ADT. You're correct, that's roughly sixty forty million households just here in The United States alone that we're going to be able to address through those. And I would say, especially if you look at Comcast having about 31,000,000 broadband households, we think that one has the opportunity

5:02 from a service revenue impact over time to be as big as Verisure as far as materiality and impact to our performance over time. The others, I think, can grow and be very material as well. It's a little bit more nebulous because they we're not sure what the adoption rate will be with Samsung and where that's going to lead to over time. But I'd say they have a very high potential as well. On top of that, what I would say, and I've kind of hinted this in the call is you should expect us to announce maybe one or two small to medium size or medium to even kind of medium to large partners over the next twelve to eighteen months as well. So there is a pipeline even beyond what we've already announced, and that will lead into probably more work being done in 2027 with revenue maybe be in the second half of twenty twenty seven, but leading into 2028.

5:52 So feeling really good about where we are in 2026, strong start with the quarter results we just put up, already feeling good about the trajectory going into 2027. And there's a pipeline that will add some strength to 2027 and even 2028. So feeling like I said, really good about the performance and where we're headed. And if you add market consolidation just happening in general, we think we're in a really good position to just generally perform well and be rewarded for where we are in the market segment and the solutions that we have and can bring to the market. Great. Thanks so much. You're welcome. Your next question comes from the line of Anthony Stoss with Craig Hallum Capital Group. Your line is open.

6:45 Hey guys, this is Ryan on for Tony Stoss. Thanks for taking my questions. I'm curious with just the amount of partnerships that you guys have announced in the past year or so and which will continue to expand I guess, but how are you guys looking at the business customers like enterprise customers versus general consumer plans, maybe how you expect those to grow over the next year or two with the partnerships and without? Thanks. Yes. So if you're speaking about like small business and like other market segments, we did speak on the last call about starting to explore the small business market. What I would say today is we're still very consumer focused across all our channels, and that includes partnerships. So when you look at our partnership with ADT, it's primarily targeting additional consumer households.

7:30 Same with Comcast. Comcast has 31,000,000 broadband households. We're going after those consumer broadband households initially from a go to market perspective. But like I said, we've started to look at building out some technology stack and start to look at solutions for the small business space. I think it's something we'll be able to put more formality to sometime in 2027. But that is another market segment where you look at potential market size of tens of billions of dollars. It's very fragmented. And I believe that you're not going to see true commercial enterprise solution providers come down market successfully. I think it's much more likely that a company like Arlo, who has a great technology stack, inexpensive hardware, very easy to set up and robust service set is likely to be more successful going up market into the very small business, small business and eventually the medium sized business. So again, you'll see a little bit of us doing some tests and some things this year with the idea of maybe adding that to our portfolio in 2027.

8:37 And going to your point, is I think the go to market in that area would likely be heavily reliant on working with several of these partners to actually address that market. Because the fragmentation in the small business market isn't just from a competitive set, it's also fragmented from a go to market set. You have tens of thousands of resellers and integrators And partner who already has some routes to market or is addressing that market already could be a good way to leverage the ARLO technology and start to address that market in a very efficient manner. Got it. Super helpful. And then my follow-up, I think you guys talked about it last quarter. Memory is a pretty small percentage of your guys' BOM cost. And you use kind of lower level DRAM, maybe not as much of the constrained stuff in your products. I'm just wondering if there's been any change on that front or if there's any visibility that's kind of changed since last quarter on the memory side? Thanks.

9:35 No, Ryan. As you mentioned, and we talked about this last quarter, in terms of our overall BOM, memory is about six to 8% of the total BOM. So it's not a huge part of the BOM. The cost of memory absolutely has gone up. Based upon our records right now, first half probably up 160%. Second half, there will be an increase or continued increase in memory costs. The great thing is we have a fantastic supply chain team that has deep relationships across the entire supply chain. They've been leveraging those relationships. Obviously, we are working with pretty sophisticated ODMs that do a lot of advanced purchasing. So right now, we feel very good about the supply we have for not just the first half but for the entire year. Feeling really confident about that. And we'll continue to work those relationships and negotiate price concessions throughout the year. And we'll manage that BOM cost down as best we can. What I'd like to just say is, it's like anything else, when we look at these price or cost increase, we kind of look at it in terms of the overall CAC or cost of customer acquisition.

10:41 And we just see that this particular instance, albeit a bit unusual in terms of the overall market, from our standpoint, it's just a modest increase in overall CAC. And if we continue with our strategy and seeing the results that we've shown here this past quarter as well as over the last several quarters, I think we're on a good path forward. So no major disruption, and we're managing the whole situation really, really well. Got it. Thanks guys. Congrats on the results. Yes. Thank you. Next question comes from the line of Joseph with Biesecker Asset Management. Your line is open. Hey guys, Joe Biesecker. Great quarter and keep going at it. You had a brief comment on tariffs.

11:29 How do you will you get do you anticipate getting tariff relief? How do you view tariffs? And then I have a follow-up to that. Yes. Great. And great to meet you, Joe. So similar to the conversation I was just having with Ryan on the overall cost of memory, we kind of look at the tariff cost or the tariff increase as also a portion of our overall CAC, and we've been able to manage that particularly well last year and into this year. It's pretty remarkable. When you look at our product gross margin on a non GAAP basis for this quarter, it was actually at a negative 2.8%. But if you pull out tariffs, we were actually at 1.5% positive gross margin on our overall products. So we think that's a good place to be because if we're managing it to that, what we said, low single digits negative margin, that puts it in a real nice place for managing it as CAC, cost of customer acquisition, and we'll continue to do that.

12:32 You are correct. We did actually place our claims shortly after the tariff relief portal was opened. We're still in the process of evaluating whether or not we'll be eligible for claims. There's a lot of uncertainty around the processing and ultimately the timing of those. Just know that we are in the queue. We're managing tariff relief process very carefully, and we'll provide more information as it becomes available to us over the next several months or quarters. Thank you. And there are no further questions at this time. This concludes today's conference call. You may now disconnect.