connected. smart. security....(1) 5.28m paid accounts (cumulative) (2) 549k employees 355 us...
TRANSCRIPT
Connected. Smart. Security.
Copyright 2021, Arlo Technologies Inc. All Rights Reserved.
May 2021
Copyright 2021, Arlo Technologies Inc. All rights reserved. 2
This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,”
“estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not
forward-looking. The forward-looking statements represent the expectations or beliefs of Arlo Technologies, Inc. (the “Company” or “Arlo”) concerning future events based on information available at the
time such statements were made and include statements regarding: the future financial flexibility and ability to pursue long-term strategies; the Company’s future operating performance and financial
condition; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; future
market growth; and expectations regarding seasonal changes in the Company’s business performance. These statements are based on management's current expectations and are subject to certain
risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or
adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing
its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to
collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company
may incur additional costs and charges associated with the transactions contemplated by the Verisure partnership; the Company may not receive the minimum commitment amounts from Verisure; the
COVID-19 pandemic could have an adverse impact on the Company's business, operations and the markets and communities in which the Company and its partners and customers operate; the
Company may fail to successfully continue to effect operating expense savings; changes in the level of Arlo's cash resources and the Company's planned usage of such resources; changes in the
Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; the actions and financial health of the Company's
customers; the anticipated financial capacity under Arlo’s revolving credit line may not be available when expected, or at all; and the Company may not be able to carry out its restructuring plan. Further,
certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed
or forecast in such forward-looking statements. Further information on potential risk factors that could affect the Company and its business are detailed in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2020 and other periodic filings with the Securities and Exchange Commission. Given these circumstances, you should not place undue reliance on these forward-
looking statements. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
All product and company names herein are or may be trademarks of their respective owners.
SAFE HARBOR DISCLOSURE
Devices Shipped (cumulative)
5.28MRegistered Accounts (cumulative)(1)
549KPaid Accounts (cumulative)(2)
355Employees
CAUS Headquarters
IPO August 2018, NYSE ARLO
Note: Devices shipped, registered accounts and paid accounts are measured cumulatively as of March 28, 2021.
(1) We define our registered accounts at the end of a particular period as the number of unique registered accounts on the Arlo platform as of the end of such particular period, and includes accounts owned by Verisure S.a.r.l.. The number of registered accounts does not necessarily reflect the number of end-users on the Arlo platform, as one registered account may be used by multiple people.
(2) Paid accounts worldwide measured as any account where a subscription to a paid service is being collected (either by the Company or by the Company’s customers or channel partners), plus paid service plans of a duration of more than 3 months bundled with products (such bundles being counted as a paid account after 90 days have elapsed from the date of registration). Paid accounts includes accounts transferred to
Verisure S.a.r.l..
ARLO AT-A-GLANCE
19.8M
MISSION STATEMENT
We build trusted, lifelong
customer relationships by
creating innovative, smart
security solutions that deliver
an exceptional user
experience.
VISION STATEMENT
To bring peace of mind by
connecting and protecting
what people care about the
most.
Copyright 2021, Arlo Technologies Inc. All rights reserved. 5
Superior Quality
▪ DIY wire-free design with best-in-class video / audio
performance
▪ Intuitive and powerful app experience
▪ Cross-compatible with Alexa, Google Home, Apple Home
Kit and more
Category Leadership in AI
• High precision, low latency AI-enabled computer vision
and audio analytics
• Personalized, relevant notifications that matter
• Actionable alerts enable users to react and get help faster
Commitment to Privacy
• We protect our community with the highest levels of
privacy and security.
• We don’t monetize personal data. Videos and data belong
solely to our users.
• We support privacy and cybersecurity best practices and
standards.
1
2
3
*During Arlo Smart Trial or as a subscriber to Arlo Smart Services
SMARTER SECURITY. TRUSTED BY MILLIONS.
The Arlo difference
Copyright 2021, Arlo Technologies Inc. All rights reserved. 6
COMPREHENSIVE PRODUCT PORTFOLIO
Ultra Cameras
The highest performance smart
camera platform with 4K video
recording, 180° field of view,
dual-band WIFI, dual noise
cancelling microphones,
integrated spotlight, color night
vision and an advanced modular
design.
Pro Cameras
A platform that balances
performance and price with
advanced features such as 2K
video recording, 160° field of
view, 2-way audio, integrated
spotlight, color night vision, and
an advanced modular design.
Essential Cameras
The entry level platform proving
1080p video recording, 130°
field of view, and 2-way audio in
a sealed design with several
options including base, spotlight
and the XL version with up to 12
months of battery life.
Video Doorbells
Innovative video doorbells
featuring a 1:1 aspect ratio and
VoIP calling for superior
performance. Available in wired
and battery-operated versions
and compatible with existing
wiring, chimes.
Video Floodlight
The world’s first battery
operated floodlight with up to
3,000 lumens brightness, 2K
video recording, 160° field of
view, high quality 2-way audio,
integrated siren, and included
security mount.
Copyright 2021, Arlo Technologies Inc. All rights reserved. 7
SUPERIOR USER EXPERIENCE
Enhanced 911Smart emergency call routing
Person DetectionAI detection for persons
Package DetectionAI protection of deliveries
Rich NotificationsActionable event snapshots
Vehicle DetectionAI detection for vehicles
Animal DetectionAI protection of animals
Cloud Storage30 days of protected videos
Activity ZonesSmart motion boundaries
Alarm DetectionAI detection of Smoke/CO alarms
ARLO SMART FEATURES
The Arlo user experience is a multi-platform solution that
empowers users to protect what they care about most. It is
simple, intuitive and yet provides powerful features such as AI
based computer vision, intelligent emergency call routing, and
extensive features to customize the experience to fit the
user’s needs.
Arlo is also broadly compatible with various ecosystems to
provide maximum flexibility with access to videos and events.
Copyright 2021, Arlo Technologies Inc. All rights reserved. 8
ACCELERATING PAID ACCOUNT GROWTH
Net in quarter Paid Account additions, In Thousands
Legacy Business Model,
no Arlo Smart ServiceLegacy Business Model,
with Arlo Smart Service
New Business Model,
with Arlo Smart Service
New Business Model, with Arlo Smart Service
+72%
YOY
+141%
YOY
+316%
YOY
Free 7-day cloud storage
of triggered events with
device purchase.
30-day trial of Arlo Smart.
~5% conversion rate to
Arlo Smart subscription
after trial expires.
90 days of Arlo Smart service
included with device
purchase. Live view only after
90 days
~50% conversion rate to
Arlo Smart subscription
after initial service expires.*
Legacy Business Model w/
Arlo Smart Service
New Business Model
w/ Arlo Smart Service
*Conversion rate observed since Q1 2020 for New Business Model products
1013
17
1310
23
19 18
25 24
19
25
43
58
79
114
Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
+356%
YOY
Copyright 2021, Arlo Technologies Inc. All rights reserved. 9
ACCELERATING TOTAL PAID ACCOUNTS
Total Net Paid Accounts In Thousands
Legacy Business Model,
no Arlo Smart ServiceLegacy Business Model,
with Arlo Smart Service
New Business Model,
with Arlo Smart Service
Legacy Business Model w/
Arlo Smart Service
New Business Model
w/ Arlo Smart Service
*Conversion rate observed since Q1 2020 for New Business Model products
Free 7-day cloud storage
of triggered events with
device purchase.
30-day trial of Arlo Smart.
~5% conversion rate to
Arlo Smart subscription
after trial expires.
90 days of Arlo Smart service
included with device
purchase. Live view only after
90 days
~50% conversion rate to
Arlo Smart subscription
after initial service expires.*
4861
7892
102
125
144
162
187
211
230
255
298
356
435
549
Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
115% YoY Growth
Copyright 2021, Arlo Technologies Inc. All rights reserved. 10
EXTENSIVE AWARDS & RECOGNITION
Arlo's Pro 3 Floodlight Camera
is by far the best floodlight
camera I've tested… There's a
reason we've already given
the Arlo Pro 3 and the Arlo Video
Doorbell Editors' Choice Awards.
The Pro 3 Floodlight Camera
continues Arlo's trend of
innovating… I'm giving it a CNET
Editor’s Choice Award.
- Megan Wollerton
The Arlo Pro 3 is my new
favorite outdoor home security
camera. The Arlo Pro 3 has crisp
live streaming, fast alerts and a
wide range of advanced features
that set it apart from other outdoor
security cameras. The Pro works
with Alexa and Google Assistant…
The 2K streaming is stellar.
- Megan Wollerton
Arlo Video Doorbell is the best
video doorbell you can buy. It
works with every smart home
ecosystem you might have, and
its features rival that of every
competitor. Plus, the unique
aspect ratio lets you see more of
your porch, which is the most
important factor.
- Nicholas Sutrich
The Arlo Pro 3 is like the Iron
Man of smart security, offering
powerful technical capabilities in a
slick package that makes it largely
easy to unleash that power…
Image quality is superb… Some
really useful smart features …
Arlo Pro 3 is a worthy T3 Awards
2020 winner for Best Smart
Security.
- Matthew Bolton
Copyright 2021, Arlo Technologies Inc. All rights reserved. 11
ROBUST SERVICE PLATFORM
850+ hours of video uploading per
minute* more than YouTube
190+ million videos uploaded per day* more than Instagram
2+ billion API calls per day
* Tubefliter 2019 and omnicoreagency.com, 2019
22+ million smart notifications per day
15+ petabytes of cloud-based storage
SmartCloud Snapshot
SmartCloud powering users in 100+ countries
Arlo’s SmartCloud™ platform is a high-precision, low-latency tuned neural network and
scaled compute environment architected to provide unparalleled performance and
reliability. It uses the latest in modern practices in including self-scaling, self-healing
microservices, advanced fault tolerance, real-time analytics, embedded security and
24x7 monitoring to deliver competitive advantages for Arlo services and best-in-class
capabilities for our partners.
Copyright 2021, Arlo Technologies Inc. All rights reserved. 12
EXTENSIVE & EXPANDING PATHS TO MARKET
Paths to Market
North America
Channel
North America
Partnerships
Europe
Omni-Channel
APAC
Channel
Direct
To Consumer
and more….
arlo.com
Strategic partnership
across all channels
including retail, e-
commerce, regional
partnerships, and
Verisure’s direct
security channels.
and more….and more….
Copyright 2021, Arlo Technologies Inc. All rights reserved. 13
NEW BUSINESS MODEL – DRIVE TO PROFITABILITY
In $’Millions
Services
Product
Revenue Non-GAAP Gross Profit* Non-GAAP Operating Expense* Non-GAAP Operating Loss*
+144% YoY
+456% YoY -7.8% YoY
Driving Toward Cash flow
Break-evenExpense Discipline
New Business Model Transition
+ Paid Service Growth Drives
Gross Profit Expansion
New Business Model Drives
Paid Service Growth
*The most directly comparable GAAP financial measures are presented in the GAAP to non-GAAP reconciliation in the Appendix
+18% YoY
+55% YoY
-88.7% YoY
$50.7
$59.8
$14.7
$22.8
Q1'20 Q1'21
$65.4
$82.6 +26% YoY
$13.5
$5.4
$13.2
Q1'20 Q1'21
$4.8
$26.7
-$0.6
$32.2
$29.7
Q1'20 Q1'21
$27.4
$3.1
Q1'20 Q1'21
Copyright 2021, Arlo Technologies Inc. All rights reserved. 14
EXPANDING GROSS MARGIN
Service Gross Margin Total Non-GAAP Gross Margin**
Paid Account Growth +
Cost Optimization =
Service Gross Margin Expansion
New Business Model Transition +
Service Gross Margin Expansion =
Overall Gross Margin Expansion
* = On a sell-in basis
**The most directly comparable GAAP financial measures are presented in the GAAP to non-GAAP reconciliation in the Appendix
36.8%
41.5%
48.8%
58.9% 57.9%
Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
7.4%
9.6%
20.6%
22.4%
32.3%
Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
Transition to New Business
Model in Process*Transition to New Business Model
Complete*
Copyright 2021, Arlo Technologies Inc. All rights reserved. 15
ACCELERATING TOWARDS PROFITABILITY
**The most directly comparable GAAP financial measures are presented in the GAAP to non-GAAP reconciliation in the Appendix
-$120.1
-$109.1
-$100.6-$98.1
-$81.9
-$67.3
-$43.0
-$27.4
-$3.1
Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q1 20 Q1 21
Trailing 12 Month Non-GAAP Operating Loss Quarterly Non-GAAP Operating Loss
In $’Millions
Copyright 2021, Arlo Technologies Inc. All rights reserved. 16
FOCUSED CASH MANAGEMENT
In $’ Millions
Cash, Cash Equivalents, Short-Term Investments ($0 Debt)
$180
$138
$154
$257
$207 $205$194
$206
$177
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
Copyright 2021, Arlo Technologies Inc. All rights reserved. 17
FOCUSED CASH MANAGEMENTINVESTMENT HIGHLIGHTS
• AWARD-WINNING & COMPREHENSIVE SMART
SECURITY PRODUCT PORTFOLIO
• NEW BUSINESS MODEL DRIVING SIGNIFICANT
PAID ACCOUNT & RECURRING REVENUE GROWTH
• TECHNOLOGY FOUNDED ON INDUSTRY-LEADING
AI, TRUSTED BY MILLIONS
• EXTENSIVE AND EXPANDING ROUTES TO MARKET
• ARLO SMARTCLOUD™ PLATFORM DRIVING NEW
B2B GROWTH OPPORTUNITIES
• EXPANDING PRODUCT & SERVICE GROSS
MARGIN DRIVING PATH TO PROFITABILITY
Appendix – GAAP to non-GAAP Reconciliations
Copyright 2021, Arlo Technologies Inc. All rights reserved. 19
Reconciliations of GAAP Measures to Non-GAAP Measures
Gross Profit, In Thousands, except percentage data
Three Months Ended
March 29,
2020
June 28,
2020
September 27,
2020
December 31,
2020
March 28,
2021
GAAP gross profit:
Products $ (1,465) $ (1,583) $ 12,164 $ 11,847 $ 12,604
Services 5,418 7,072 9,245 12,691 13,203
Total GAAP gross profit 3,953 5,489 21,409 24,538 25,807
GAAP gross margin:
Products (2.9)% (3.2)% 13.3 % 12.7 % 21.1 %
Services 36.8 % 41.5 % 48.8 % 58.9 % 57.9 %
Total GAAP gross margin 6.0 % 8.2 % 19.4 % 21.4 % 31.3 %
Stock-based compensation expense 503 562 942 955 874
Amortization of intangibles 356 357 356 237 —
Restructuring and other charges 23 — — — —
Non-GAAP gross profit:
Products (583) (664) 13,462 13,039 13,478
Services 5,418 7,072 9,245 12,691 13,203
Total Non-GAAP gross profit $ 4,835 $ 6,408 $ 22,707 $ 25,730 $ 26,681
Non-GAAP gross margin:
Products (1.2)% (1.3)% 14.7 % 14.0 % 22.6 %
Services 36.8 % 41.5 % 48.8 % 58.9 % 57.9 %
Total Non-GAAP gross margin 7.4 % 9.6 % 20.6 % 22.4 % 32.3 %
Copyright 2021, Arlo Technologies Inc. All rights reserved. 20
Reconciliations of GAAP Measures to Non-GAAP Measures
OPEX, In Thousands
Three Months Ended
March 29,
2020
March 28,
2021
GAAP total operating expenses $ 44,852 $ 37,279
Separation expense (79) (54)
Strategic initiative and transaction expenses (545) —
Stock-based compensation expense (12,270) (7,466)
Restructuring and other charges (21) —
Litigation reserves, net (7) (10)
Gain on sale of business 292 —
Non-GAAP total operating expenses $ 32,222 $ 29,749
Copyright 2021, Arlo Technologies Inc. All rights reserved. 21
Reconciliations of GAAP Measures to Non-GAAP Measures
Operating Income (Loss), In Thousands, except percentage data
Three Months Ended
December 31,
2018
March 31,
2019
June 30,
2019
September 29,
2019
December 31,
2019
March 29,
2020
June 28,
2020
September 27,
2020
December 31,
2020
March 28,
2021
GAAP operating income (loss) $ (39,613) $ (41,879) $ (34,086) $ (31,054) $ 21,798 $ (40,899) $ (30,335) $ (17,961) $ (15,669) $ (11,472)
GAAP operating margin (32.4)% (72.4)% (40.8)% (29.3)% 17.8 % (62.5)% (45.5)% (16.3)% (13.6)% (13.9)%
Separation expense 3,603 906 717 136 154 79 82 77 10 54
Strategic initiative and transaction expenses — — — 502 1,868 545 206 17 2 —
Stock-based compensation expense 3,495 4,653 5,389 5,219 7,633 12,773 4,564 9,001 8,909 8,340
Amortization of intangibles 382 381 382 381 373 356 357 356 237 —
Restructuring and other charges — — — — 631 44 — — — —
Litigation reserves, net — — 140 1,287 7 249 — — 10
Activist shareholder response costs — — 237 — — — — — — —
Gain on sale of business — — — — (54,881) (292) — — — —
Non-GAAP operating loss $ (32,133) $ (35,939) $ (27,361) $ (24,676) $ (21,137) $ (27,387) $ (24,877) $ (8,510) $ (6,511) $ (3,068)
Non-GAAP operating margin (26.3)% (62.1)% (32.7)% (23.3)% (17.3)% (41.8)% (37.3)% (7.7)% (5.7)% (3.7)%
Trailing 12 months Non-GAAP Operating Loss $ (120,109) $ (109,113) $ (100,561) $ (98,077) $ (81,911) $ (67,285) $ (42,966)