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    ARLO
    Earnings call· Jun 2026(Q2 FY26)

    Arlo Technologies Q2 FY26 earnings call ARLO

    Aug 6, 2026 Source

    Executive summary

    Arlo Technologies, Inc. Q2 FY26 — Record Revenue and Profitability Driven by Subscription Growth

    Arlo delivered a record-breaking quarter, driven by strong subscription growth and expanding profitability, with service revenue now comprising 60% of the total. The company is strategically reinvesting tariff refunds into growth initiatives, including new product launches and strategic partnerships, while maintaining a focus on shareholder returns through continued share repurchases. Management is optimistic about future growth, particularly in the elder care and small business segments.

    Highlights

    5

    • Total revenue grew to $156 million, up more than 20% year over year, setting a new company record.

    • Service revenue reached $93 million, a new record, growing 19% year over year and comprising 60% of total revenue.

    • Adjusted EBITDA grew 70% year over year to $31 million, with an adjusted EBITDA margin of 20%.

    • Non-GAAP EPS was $0.28, up 65% year over year, including a $0.07 favorable impact from tariff refunds.

    • Total paid accounts reached 6.3 million, with 298,000 net additions in the quarter, substantially ahead of the 10 million long-range target trajectory.

    Concerns

    2

    • Non-GAAP product gross margin was negative 11.6% on a pro forma basis (excluding tariff refunds), indicating continued losses on product sales.

    • Inventory balance increased to $48.4 million from $30.9 million last year, and inventory turns declined to 5.5 times from 7.7 times.

    Guidance & targets

    5
    CategoryTargetConfidence
    Total Revenue
    $140 million to $150 million
    high materiality
    High
    Non-GAAP Net Income per Dilutive Share
    $0.17 to $0.23
    high materiality
    High
    Total Revenue
    $580 million to $600 million
    high materiality
    High
    Non-GAAP Net Income per Dilutive Share
    $0.90 to $1.00
    high materiality
    High
    ARR Growth
    20%
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Subscriptions and Services
    Record revenue for the segment, accounting for 60% of total revenues. Gross margin slightly impacted by non-recurring engineering services revenue.
    		$93 million19%—84.1% (non-GAAP gross margin)
    Product
    Revenue driven by strong international business and device shipments ahead of Amazon's Prime Day. Pro forma non-GAAP gross margin (excluding tariff refunds) was negative 11.6%, still an improvement of 220 bps YoY.
    		$62.9 million23%—1% (non-GAAP gross margin)

    Operational metrics

    25
    Paid account additions
    298,000
    Q2 FY26

    Contributed to total paid accounts reaching 6.3 million.

    Total paid accounts
    6.3 million
    Q2 FY26

    Substantially ahead of the original trajectory to 10 million long-range target.

    Lifetime value of a paid account (LTV)
    $967up 15% YoY
    Q2 FY26

    Driven by improved ARPU and reduced churn.

    Adjusted EBITDA
    $31 millionup 70% YoY
    Q2 FY26

    Achieved despite investments in strategic partners and growth initiatives.

    Non-GAAP EPS
    $0.28up 65% YoY
    Q2 FY26

    Pro forma EPS, excluding tariff refunds, would have been $0.21.

    Sales of units in retail and direct channel
    up 8%
    Q2 FY26

    Contributed to paid account additions.

    Subscriber base growth
    23%YoY
    Q2 FY26

    Bolstered by customer retention efforts.

    ARR
    $365 millionup 16% YoY
    Q2 FY26

    Driven by subscriber growth and slight ARPU increase.

    Point of sale (POS) volume
    up 9%YoY
    H1 FY26

    Resulted from strong device shipments into retail channels ahead of Prime Day.

    Non-GAAP product gross margin (pro forma)
    -11.6%improved 220 bps YoY
    Q2 FY26

    Still represents an improvement year over year.

    Consolidated non-GAAP gross margin
    above 50%up 480 bps YoY
    Q2 FY26

    Represents a new record and underscores continuing uplift in profitability.

    Non-GAAP operating expenses
    $48.6 millionup 16.5% YoY
    Q2 FY26

    Increase driven by investments in technology innovation and growth initiatives.

    Adjusted EBITDA margin
    20%
    Q2 FY26

    Expanding even in an investment year.

    Cash and investments balance
    $141 million
    Q2 FY26

    Includes investments in capital allocation initiatives.

    Stock repurchase program spend
    $22 million
    Q2 FY26

    Part of capital allocation initiatives.

    Allocare acquisition cash paid
    $15 million
    Q2 FY26

    Part of capital allocation initiatives.

    Free cash flow margin
    11%
    H1 FY26

    Generated for the six months ended June 28, 2026.

    Accounts receivable balance
    $63.6 million
    Q2 FY26

    Reflects DSOs of 37 days.

    Days Sales Outstanding (DSOs)
    37 daysdown from 43 days last year
    Q2 FY26

    Driven by more subscribers moving to annual service offerings.

    Inventory balance
    $48.4 millionup from $30.9 million last year
    Q2 FY26

    Optimizing inventory levels to reduce shipping costs and manage memory costs.

    Inventory turns (excluding acquired inventory)
    5.5 timesdecline from 7.7 times last year
    Q2 FY26

    Reflects efforts to optimize inventory levels.

    Tariff refund (Q2)
    $8 million
    Q2 FY26

    Recorded during the period, impacting product gross margins and EPS.

    Tariff refund (Q3 expected)
    $6 million
    Q3 FY26

    Expected to be used for strategic investments rather than dropping to the bottom line.

    Origin AI investment return
    greater than 50%
    Q2 FY26

    Generated from the investment.

    Shares repurchased since inception
    nearly 6 million
    since inception

    Part of the share repurchase program.

    Industry KPIs

    6
    MetricValueDetails
    M a contributionAllocare acquisition; Origin AI investment
    Segment revenue growthSubscriptions and Services: $93 million; Product: $62.9 millionUSD
    Design wins product cycle rampsArlo Secure 7 launch; Next generation product line + Arlo Secure 8 in 2027
    Recurring software services mix60%%
    End market revenue mix organic growthInternational business: strong growth; Retail and direct channel: strong growth
    Operating margin incremental leverage20%%

    Product announcements

    2
    ProductTypeDetails
    Arlo Secure 7launch
    Next generation product line + Arlo Secure 8roadmap

    Deals & partnerships

    4
    AllocareAcquisition of smart elder care technology company.$15 million

    Acquisition for technology and pipeline of potential customers in the elder care market. Early progress is promising, with several additional partner announcements expected.

    Home HelpersDeployment of Allocare technology for onsite support for elderly care providers.

    Initial example of Allocare's expansion, utilizing advanced AI technologies for health monitoring and predictive insights.

    ADTStrategic partnership for ADT Blue offering.

    ADT Blue has launched and is progressing as expected, with Arlo anticipating increased growth and expansion.

    Comcast (Xfinity)Strategic partnership for integration and deployment of services.

    Integration and development are on track, with a desire to launch closer to H1 FY27. Management sees potential for broader service deployment.

    Risks & headwinds

    3
    Product gross margin remains negativeH2 FY26

    Pro forma non-GAAP product gross margin was -11.6% in Q2 FY26, and is expected to be in the mid-to-high single digits negative, potentially up to the teens, for the remainder of the year.

    Mitigation: Product sales are viewed as a cost of customer acquisition to drive higher-margin subscription revenue and household activation. The company is optimizing promotional campaigns for higher subscription conversion rates.

    Increased inventory balance and lower inventory turnsQ2 FY26

    Inventory balance increased to $48.4 million from $30.9 million last year; inventory turns declined to 5.5 times from 7.7 times.

    Mitigation: The company is optimizing inventory levels to reduce shipping costs and manage potential future increases in memory costs, framing it as a strategic build.

    Investment year with additional spendFY26

    Non-GAAP operating expenses increased 16.5% YoY to $48.6 million, driven by R&D, platform advancements for strategic partners, and professional services.

    Mitigation: Despite increased spend, adjusted EBITDA and margins are expanding, indicating significant operational and financial progress. Strategic investments are expected to fuel growth in 2027 and beyond.

    What to watch in Q3 FY26

    5

    Arlo Secure 7 Launch and Adoption

    Q3 FY26 / Q4 FY26
    CurrentScheduled for end of Q3 FY26
    TargetSuccessful launch, initial adoption rates, and impact on ARPU/subscription tiers.

    Why it matters

    Secure 7 is expected to introduce advanced AI features and higher-priced subscription tiers, which are critical for future ARPU expansion and service revenue growth.

    Arlo will launch Secure 7 at the end of Q3 with several new features and capabilities that keep us at the forefront of smart security and open the door to additional service plan options at higher price points.

    Q&A highlights

    6

    What is the full-year ARR growth target, and what specific features of Secure 7 will drive higher ARPU?

    Arlo is targeting 20% ARR growth by year-end, supported by improved churn, conversion, and ARPU. Secure 7 will introduce next-level AI for threat assessment, improving user experience and emergency response, and will enable a new, higher-priced subscription tier above current offerings.

    “So we are targeting towards that 20%, not only on service revenue, which we're basically at now, but also on ARR as we exit the year. ... What we have been working on for more than a year now is actually going to that next level and actually assessing the entire event and what is the threat level given for that.”

    asked by Jacob Steffen · answered by Matthew McRae

    2 min read6 chapters

    Detailed Narrative

    01

    Record Performance and Strategic Reinvestment

    Arlo achieved record total revenue of $156 million and service revenue of $93 million in Q2 FY26, driven by strong execution across all channels. The company's adjusted EBITDA surged 70% year-over-year to $31 million, reflecting expanding profitability. Management is strategically reinvesting a $6 million tariff rebate in Q3 into key growth areas, including strategic partnerships, promotional campaigns, and platform innovation, aiming to drive both short-term and long-term growth.

    02

    Subscription Growth and Lifetime Value Expansion

    The company added nearly 300,000 paid accounts, bringing the total to 6.3 million, significantly ahead of its long-range target of 10 million. Improvements in churn, conversion, and ARPU have increased the lifetime value (LTV) of a paid account to $967, up 15% year-over-year. This strong subscriber growth, coupled with enhanced customer retention, contributed to a 16% year-over-year increase in ARR to $365 million.

    03

    Product Innovation and Future Roadmap

    Arlo is set to launch Secure 7 at the end of Q3, introducing advanced AI capabilities for threat assessment and new service plan options at higher price points. Looking into 2027, the company plans to launch a next-generation product line alongside Arlo Secure 8, which is expected to be a significant advancement in home security. These innovations aim to enhance user experience and unlock additional revenue streams.

    04

    Strategic Partnerships and Allocare Integration

    Progress with strategic partners like ADT and Comcast is on track, with ADT's Blue offering ramping up and Comcast's integration progressing well for a potential launch in H1 2027. The acquisition of Allocare has opened up the smart elder care market, with early progress and partner announcements expected to contribute to 2027 growth. Arlo is also exploring market tests for Allocare in the D2C DIY channel and small business segments.

    05

    Capital Allocation and Shareholder Returns

    Arlo's capital allocation strategy focuses on organic investments (operational excellence, sales & marketing, platform innovation), inorganic growth (Allocare acquisition, Origin AI investment), and shareholder returns. The company repurchased over $20 million in shares during Q2, totaling nearly 6 million shares since the program's inception, signaling continued belief in the undervaluation of its stock.

    06

    Product Gross Margin and Inventory Management

    Non-GAAP product gross margin was 1% in Q2, significantly up from negative 13.8% last year, primarily due to an $8 million tariff refund. On a pro forma basis, excluding the refund, product gross margin was negative 11.6%, an improvement of 220 basis points year-over-year. Inventory increased to $48.4 million, with turns declining to 5.5 times, as the company optimizes levels to reduce shipping costs and manage future memory costs.

    AI-generated summary of the company’s earnings call. Not investment advice.