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Arlo Technologies (ARLO) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 6, 2026

Source: earnings call transcript

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

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

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)

Product announcements

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

Deals & partnerships

Allocare Acquisition 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 Helpers Deployment 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.

ADT Strategic 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

Product gross margin remains negative H2 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 turns Q2 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 spend FY26

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

Arlo Secure 7 Launch and Adoption

Q3 FY26 / Q4 FY26
Current Scheduled for end of Q3 FY26
Target Successful 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.

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Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.