Arlo (ARLO) Q1 2026 Earnings Call Transcript

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Date

Thursday, May 7, 2026 at 5 p.m. ET

Call participants

• Chief Executive Officer — Matthew McRae
• Chief Operating Officer and Chief Financial Officer — Kurt Binder

Takeaways

• Total revenue -- $150.4 million, a 26% increase year over year, establishing a new quarterly record.
• Non-GAAP EPS -- $0.28, up 86% year over year and above company guidance.
• Paid account additions -- 318,000 net additions, exceeding the target range of 190,000 to 230,000, and surpassing 6 million total paid accounts ahead of schedule.
• Annual recurring revenue (ARR) -- $357 million, representing 29% growth year over year.
• Subscriptions and services revenue -- $90 million, an increase of 31% year over year and comprising 60% of total revenue; includes a $5 million nonrecurring license fee from a strategic partner.
• ARPU (average revenue per user) -- $15.60, up 16% year over year due to higher adoption of AI-enabled and premium service plans.
• Rule of 40 (services segment) -- Metric reached 49, indicating a combination of growth and profitability management regards as “elite.”
• Non-GAAP gross margin -- Consolidated margin rose to 50%, up 460 basis points year over year; services gross margin was 85.4%, up 230 basis points, while product margins improved by 340 basis points despite a 430 basis point headwind from tariffs.
• Product revenue -- $60.3 million, up from $50.2 million year over year, supported by international growth and channel mix optimization without sacrificing unit volume.
• Adjusted EBITDA -- $30.4 million, an 85% year-over-year increase, with EBITDA margin at 20%.
• Free cash flow -- $25.4 million, representing a free cash flow margin of nearly 17%.
• Cash balance -- $167.5 million in cash, cash equivalents, and short-term investments, an increase of $14.4 million from the same period last year, net of $44 million in outflows for investments and repurchases, and $19 million in inflows from a strategic divestment.
• Q2 2026 financial outlook -- Total revenue projected at $145 million to $155 million; non-GAAP EPS guidance of $0.17 to $0.23.
• Strategic partnerships -- Commercial launches with ADT and Samsung described as imminent; Comcast integration expected to materially impact results beginning in 2027.
• Acquisition activity -- Aloe Care, targeting the age-in-place market, acquired to expand Arlo’s reach into a substantial and fragmented segment.
• Stock repurchase program -- $50 million authorization highlighted as a belief the company remains undervalued despite performance.
• Inventory -- Inventory of $44 million at quarter end, up from $35 million last year; inventory turns at approximately 6x, a decline from 6.3x as the company optimizes for shipping costs.
• Accounts receivable -- $52 million, with days sales outstanding (DSOs) reduced to 31 from 34, driven by growth in annual prepaid service offerings.
• Capital allocation -- Management reiterated its focus on continued organic investment, opportunistic acquisitions, and buybacks evaluated based on return potential.

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Risks

• Chief Financial Officer Kurt Binder said tariffs led to a negative 2.8% non-GAAP product gross margin; if you pull out tariffs, we were actually at 1.5% positive gross margin, highlighting tariff-related headwinds directly impacting profitability.
• Kurt Binder cited a 160% increase in memory costs for the first half, noting that second-half costs are also expected to rise, though current supply is managed.
• Kurt Binder stated, regarding tariff relief, there's a lot of uncertainty around the processing and ultimately the timing of those, making recovery of costs unpredictable.
• Operating expenses increased by 18% year over year to $45.2 million, primarily due to higher R&D investment and costs tied to subscription growth.

Summary

Arlo Technologies (NYSE:ARLO) delivered record revenue and profitability, driven by significant expansion in its subscription and services business and accelerated paid account growth. Commercial launch timelines for ADT and Samsung partnerships were described as imminent, and the company indicated Comcast integration will be a material contributor beginning in 2027. Management announced the acquisition of Aloe Care to address the growing age-in-place technology market, and reinforced its approach to capital allocation by actively balancing investment, acquisitions, and share buybacks. Guidance for the next quarter included sustained top-line momentum and ongoing investment to support new partnerships and integration activities.

• Management described the hardware-software platform as differentiating Arlo from pure SaaS competitors through device-cloud integration.
• McRae stated, Arlo has become the preferred partner in the Security segment, signaling confidence in further partnership announcements in the coming year.
• The SaaS-only partnership with Samsung was described as the first partnership deal where what is being rolled out by a partner is purely service and software, marking a shift in Arlo's partner monetization model.
• Binder highlighted the resilience of revenue and margin even excluding the $5 million one-time license fee, stating metrics would remain relatively in the same ZIP code.
• McRae said the Comcast opportunity has the opportunity from a service revenue impact over time to be as big as Verisure as far as materiality.
• The company plans further expansion into small business segments and anticipates formal offerings and additional partnerships by 2027.
• No additional commercial or enterprise revenue is reflected, as the current business remains consumer-focused with small business seen as a longer-term opportunity.
• Q1 free cash flow was strong despite outflows for investments and share repurchases, with inflows from the sale of a strategic investment helping maintain the cash balance.

Industry glossary

• ARPU (average revenue per user): The average recurring revenue generated per paid account, excluding nonrecurring license fees.
• ARR (annual recurring revenue): Total subscription revenue annualized, reflecting the company’s base of paid accounts and prevailing ARPU.
• Rule of 40: A SaaS industry metric measuring the combined growth rate and profit margin; a score above 40% is considered strong performance for growth-stage software or services businesses.
• Verisure: A strategic institutional partner focused on international EMEA channel distribution for security products and services.
• TAM (total addressable market): The total revenue opportunity available from a specific market segment, used to frame long-term growth prospects.
• BOM (bill of materials): The total direct costs of components and assembly for each finished product sold, including memory as a cited cost driver.
• DSOs (days sales outstanding): The average number of days it takes to collect payment after a sale, used as an indicator for working capital efficiency.
• ODM (original design manufacturer): Third-party entities that design and manufacture products under Arlo’s specifications, impacting supply chain management and cost controls.

Full Conference Call Transcript

Matthew McRae, CEO; and Mr. Kurt Binder, COO and CFO. If you have not received a copy of today's release, please visit Arlo's Investor Relations website at investor.arlo.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements.

Forward-looking statements include statements regarding our potential future business, operating results and financial condition, including description of our revenue, gross margins, operating margins, earnings per share, expenses, cash outlook, free cash flow and free cash flow margin, ARR, Rule of 40 and other KPIs, guidance for the first quarter of 2026, the long-range plan targets, the rate and timing of paid subscriber growth, the commercial launch and momentum of new products and services, the timing and impact of tariffs, strategic objectives and initiatives, market expansion and future growth, partnerships with various market leaders and strategic collaborators, continued new product and service differentiation and the impact of general macroeconomic conditions on our business, operating results and financial condition.

Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in Arlo's periodic filings with the SEC, including our annual report on Form 10-K and our quarterly report on Form 10-Q filed earlier today. Any forward-looking statements that we make on this call are based on assumptions as of today, and Arlo undertakes no obligations to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be discussed on this call. A reconciliation of the GAAP to non-GAAP financial measures can be found in today's press release on our Investor Relations website.

At this time, I would now like to turn the call over to Matt.

Matthew McRae: Thank you, Tahmin, and thank you, everyone, for joining us today on Arlo's First Quarter 2026 Earnings Call. During the exhaustive earnings process, the repetition of superlatives probably rings hollow, but I hope that you can see by any measure, Arlo truly had a spectacular quarter built on strong execution across our entire business and across all our key metrics. Both revenue and EPS were records, underscoring the strength of our results and came in well above the top end of our guidance range for the quarter. In fact, total revenue was up 26% year-over-year and hit $150 million, while non-GAAP EPS came in at an incredible $0.28 per share, which was up 86% year-over-year.

Diving into the details, Arlo added 318,000 paid accounts in the period, well above our target range of 190,000 to 230,000 and driven by net additions in our retail and direct channel, coupled with continued strength by our partner, Verisure. This performance catapulted us past 6 million paid accounts substantially earlier than expected. Growth in paid accounts, coupled with ARPU increasing to $15.60 brought Arlo's annual recurring revenue up to $357 million, up an outstanding 29% year-over-year. This, in turn, propelled our consolidated non-GAAP gross margin by 460 basis points year-over-year to reach the 50% threshold.

For those seeking score, our performance resulted in a Rule of 40 metric for our services business of 49, which puts us in a truly elite class of public companies with this level of profitable growth. However, what really separates Arlo from the pure SaaS companies is the unbreakable link to our customers created by our hardware devices. This connection means we can't be disintermediated by a third-party solution as our customers have invested in devices that are linked to our cloud for services and support. Arlo is not only growing faster than most SaaS companies, but we also have the benefit of customer lock-in through our world-class hardware.

This best of both world scenario that is in place irrespective of distribution channel is a unique differentiator. Arlo's management team and Board still believe the value that we have created is not reflected in the market, which is why our Board authorized the recent $50 million stock buyback program. Our flagship partnership engagements are progressing well with both ADT and Samsung commercial launches likely occurring in the near-term. And our integration with Comcast is under active development and progressing as expected to have a material impact in 2027.

As I mentioned on the last call, it is clear to me that Arlo has become the preferred partner in the Security segment, and I expect more strategic partnership announcements before the end of the year. And finally, in addition to achieving the 6 million paid account milestone, Arlo also announced the acquisition of Aloe Care, a company focused on bringing truly innovative solutions to the age-in-place and home care market. This is a massive $23 billion market that will grow more than tenfold over the next decade to reach a TAM of nearly $300 billion by 2034.

It is also a fragmented market, characterized by antiquated offerings and a lack of true innovation that desperately requires a better solution for families wanting better outcomes. Aloe Care brings a broad spectrum of hardware, services and an exciting road map of AI-enabled features such as fall prediction instead of just fall detection. And while this is a small acquisition, it is a focused bet on a huge market with class-leading technology and a world-class team, but also a bet that will unlock new opportunities as we drive towards our long-range plan. We will share more information as we integrate Aloe Care, develop additional go-to-market opportunities and build out a plan for growth heading into 2027.

I would like to welcome the Aloe Care team to Arlo. Our vision and mission are completely aligned, and we are so excited to make a truly positive impact together. And now I'll turn it over to Kurt for a more detailed review of our Q1 results and our financial outlook.

Kurt Binder: Thank you, Matt, and thank you, everyone, for joining us today. First, let me provide a detailed review of the key operational and financial results of the business, and then I will share an overview of our outlook for the second quarter. Our strong momentum from last year continued into 2026 with the shift to services revenue continuing to drive our profitability metrics, including adjusted EBITDA and free cash flow. This shift has accelerated as a result of our outstanding operating leverage inherent within our proven business model. In the first quarter, we were able to generate record subscriptions and services revenue of $90 million, up 31% year-over-year and accounting for 60% of total revenues.

The growth was driven by strong expansion in our subscriber base, coupled with continued improvement in ARPU trends as well as the inclusion of nonrecurring revenue approximating $5 million received from a strategic partner. Our subscriber base grew 23% year-over-year as we secured 318,000 new paid accounts in Q1. Our positive subscriber growth was supported by our outstanding customer retention efforts, especially focused on our retail business. Our ARPU in the quarter was $15.60, up 16% over the same period last year, driven by ongoing adoption of our AI-enabled service plan offerings. We continue to benefit from upgrades to higher service plans, coupled with new subscribers selecting our premium rate plans.

The improvement in ARPU drove strong growth of our ARR to $357 million, up 29% year-over-year. Total revenue for the period came in at $150.4 million, a record and up 26% from the prior year. This was driven primarily by growth in subscriptions and services revenue, coupled with increased product revenue resulting from the strong demand of our strategic partners. This level of total revenue growth is a testament to the strength of our services revenue trajectory as well as the diversification of our go-to-market strategy. Product revenue was $60.3 million, up from $50.2 million compared to the same period last year.

This is driven by strong growth in international business as well as our intentional decision to be less promotional on specific SKUs that have a lower service conversion rate. Leveraging this approach did not come at the expense of unit volume as we were still able to drive higher POS volume in our retail channels by almost 10%. From this point on, my discussion will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP figures is detailed in our earnings release, which was distributed earlier today. Our non-GAAP subscriptions and services gross margin was 85.4%, a new record and up 230 basis points year-over-year.

Product margins also improved, up 340 basis points when compared to the same period last year, resulting from higher mix of purchases from strategic partners and a reduction in the overall bill of material costs for devices sold to our retail partners. Notably, the team delivered this strong result against a headwind of a 430 basis point impact from tariffs, which were not in place when we reported last year. With the improvement in both services and product gross margins, we were able to surpass the 50% consolidated non-GAAP gross margin level, delivering a growth of 460 basis points year-over-year. Consolidated gross margins at this level represent a new record and underscore the continuing uplift in profitability we are experiencing.

Total non-GAAP operating expenses for the first quarter were $45.2 million, up 18% from $38.3 million in the same period last year. The year-over-year increase is driven by investments in R&D, including headcount as well as general operational expenses that result from the growth in our subscription business, such as higher credit card fees and increased professional services. During the quarter, adjusted EBITDA was $30.4 million, up a tremendous 85% year-over-year and represented adjusted EBITDA margin of 20%. Even in an investment year requiring integration of large-scale strategic partners onto our platform, we are still generating outstanding margins. Profitability at this level translated into net income per diluted share of $0.28.

Regarding our balance sheet and liquidity position, we ended the quarter with $167.5 million in available cash, cash equivalents and short-term investments. This balance is up $14.4 million compared to the same period last year, even considering the recent launch of various capital allocation initiatives. It is remarkable that our cash balance remains constant over the past 2 quarters, while we experienced outflows of $44 million in cash used for recent inorganic investments and our share repurchase program, offset by inflows of about $19 million from the return of capital on the sale of a strategic investment, all in Q1.

As you're aware, we made a $12.5 million investment in Origin Wireless last year, a strategic partner, which was recently acquired by ADT. During the period, we generated $25.4 million in free cash flow or a free cash flow margin of almost 17%. Our Q1 accounts receivable balance was $52 million at quarter end, with DSOs at 31 days, down from 34 days last year as we continue to drive more subscribers to annual service offerings. Our Q1 inventory balance was $44 million, up from $35 million last year. Inventory turns were approximately 6x, a modest decline from 6.3x last year as we look to optimize our inventory levels in an effort to reduce our shipping costs, especially air freight.

Now turning to our outlook. We expect the strong operational momentum in our business to continue into the second quarter as subscriptions and services revenue will continue to grow and product revenue should remain solid as a result of the demand coming from our strategic partners. Considering these factors, we are expecting total revenue in the second quarter to be in the range of $145 million to $155 million with the continued investment to integrate our strategic partners and support our recent inorganic investments such as Aloe Care. We expect our non-GAAP net income per diluted share in the second quarter to be in the range of $0.17 to $0.23.

Additionally, we remain confident that we will achieve the full year 2026 financial outlook, which we provided last quarter on subscriptions and services revenue as well as total revenue and EPS. And now I'll open up the call for questions.

Operator: [Operator Instructions] And your first question comes from the line of Jacob Stephan with Lake Street Capital Markets.

Jacob Stephan: Nice quarter. Maybe just first, I wanted to touch on the Aloe Health acquisition. You guys have talked about this in the past, age-in-place being a kind of strategic market you'd like to get into. But maybe what specifically about Aloe was attractive for you guys?

Matthew McRae: Yes. So it's really 2 layers. So at the beginning, we talked about in the prepared remarks around the size of the market. And like we mentioned, over the next 10 years, it's going to grow tenfold. And then when we look at Aloe Care in particular, first, it's the team. So I've known Evan, who's the CEO for probably 3 or 4 years and been talking on and off and getting educated around the market and what Aloe Care is doing. And we think that it's absolutely a phenomenal team that's dedicated to really providing innovative solutions in the market instead of just spinning out what's been done in the past. And that's number two. So innovation.

What you see with Aloe Care is not just the off-the-shelf hardware wrapped in some monitoring services. They're actually driving real transformation and innovation from -- I'll give you a couple of examples, using AI chat and calling to drive behavior and check-ins with seniors, instead of just focusing on fall detection, really starting to work on AI models that can do fall prediction. And this is where I think the market, especially this segment, is going to be transformed over the next 3 to 5 years.

And that's why we decided now is the time, even though it's a small bet, it's a small bet on a huge market with a team that has shown that they can provide actual technology and innovation leadership. And of course, Arlo then brings the scale and the ability to go drive the routes to market. So we are extremely excited. If I just give you like just a glimpse of some of the market stats, and you look out in the marketplace and 87% of adults that are over 65 want to stay in their homes, but 90% of the homes aren't safe for them to do so.

They haven't been set up with the right technology or the services. So this market is going to continue to grow just from a demographic perspective. And it's from an ability to actually transform from a savings perspective on the cost 1 out of 3 nearly, it's like 30% of seniors fall on an annual basis, and the cost of that fall is $20,000. So imagine not only being able to detect that and reduce the cost of some of these incidents but being able to predict it ahead of time. So this is really transformative. And just a falling section of the market is $80 billion a year.

So it's -- going to your question, again, it's a huge market. It's a market that's going to grow dramatically. And this team and the technology that they brought to the table is really exciting to us. And we think coupling it with what we do well, scaling and using our back-end platform and providing those routes to market is going to come together nicely in 2027 as we go forward.

Jacob Stephan: Got it. Very helpful. Maybe just next, I'll talk on the ADT partnership a little bit. Can you kind of give us a little bit more insight on the overall rollout there? I mean it feels like it's been 6 months since you first started testing. But curious what the update is there.

Matthew McRae: Yes. So they started testing earlier this year, as you mentioned. And I think in their earnings call, I'll tell you what they've communicated is that it's branded ADT Blue. They see it as a big area of focus for them for growth. And I would say, like I said in my prepared remarks, the launch is probably imminent. It's coming very, very soon. And they're doing -- I think they're doing the final preparations for to bring that into market. We expect, as I've mentioned in the past, that to kind of scale through this year.

So you may see them launch in a couple of channels and then add some channels as they progress and learn and start to roll out some marketing out through the year and then be able to have a first full year of deployment of it in 2027. So all the work is done. They're putting the final touches on it as they discussed on their earnings call, and we're excited to see it get into the marketplace.

Jacob Stephan: Got it. And just last one for me. I saw you guys have bought back some stock this quarter. Just curious how you think about M&A versus buybacks versus maybe internal investment throughout the remainder of the year?

Matthew McRae: Yes. So I mean, you're basically referring to the 3 pillars of our capital allocation plan. And you can see that we've been doing some organic investment. I think that was evidenced by the large product launch that we had towards the end of last year. We're going to benefit from those products being refreshed last year through this entire year. You'll see some additional SKUs launched this year in some of the key areas, and we're setting up for a big product launch and kind of technology launch next year. Arlo Secure 7 will come out this year, we're already working on that and Arlo Secure 8 for next year.

So that internal investment is ratcheting up a little bit. And now that Aloe Care is inside, that will soak up some internal investment as well as we prepare for 2027. When I look at -- going to the core of your question, though, which I think is how do we balance buybacks with external acquisitions. Pretty simply, actually, we look at both on a valuation basis in a lot of ways. So what's the upside potential? Where do we think that technology is going? What's that worth over the long run? And when we buy our own stock, we very much look at that as an acquisition.

We think, as we mentioned in the prepared remarks, that we're still undervalued compared to how we're performing. So you'll likely see us continue to buy stock as part of that $50 million stock buyback. It served us extraordinarily well. And we know that we're performing very well compared to the market and compared to our peers. And so we think that's a great return on capital and a great way to give some money back.

You'll see us look at acquisitions, especially if we see -- I'll go back to how we've described how we approach these acquisitions, either it's something like Aloe Care, where it's something that's tangential or it's a market segment that's on an adjacency, we'll take a smaller bet like we've done here in a big market to start to drive towards opening up additional opportunity and growth in the future or you could see us do something that's more core to what we're doing, maybe a larger bet because we do believe we're seeing continued market consolidation.

So the organic investment internally to what we're doing is going to continue to grow because we see so much market potential in front of us. We will do stock buybacks, especially as we see that we think the stock is undervalued in the marketplace, and we think that's a great return on capital. And we will place and have placed some bets in the acquisition market, and we'll keep an eye out over the next 12 to 18 months on additional opportunities.

Operator: Your next question comes from the line of Scott Searle with ROTH Capital.

Scott Searle: Great job on the quarter. Maybe just to start, a couple of quick clarifications. Kurt, I think you said that there was a $5 million nonrecurring fee. I just want to clarify if that was the case and if that's in software and services. Also, European numbers were really big this quarter. Historically, in the past, sometimes we've had some big prebuys with Verisure and otherwise on the product front. I'm wondering if that was this case again. And maybe an idea of what you're seeing on the retail front, kind of the retail mix there.

There are a lot of changing dynamics with what's going on with the FCC and exclusion list as well as maybe some of the bigger guys getting less shelf space. So I'm wondering if you could give us a quick update on that front.

Kurt Binder: Yes, Scott, thanks. I'll unpack that. So first off, I just want to say how pleased and excited we were about the overall trajectory of our business. Obviously, you pointed out the growth in our services business, which was remarkable this quarter and as was our product revenue growth, we had a really strong quarter from a product revenue growth, which fed through to our overall profitability. So extremely excited. We did have a onetime item. We referenced it as a license fee from one of our strategic partners related to our technologies.

As we've done in the past, and we've highlighted things like, for instance, our NRE type services, we'd like to make sure that you all are aware of some of the onetime nature items that may be in our revenue. That $5 million license fee is included in our services revenue. But the interesting thing is if you were to pull it out, actually, all of the growth metrics that we've highlighted, whether it's the growth in absolute dollars on our services revenue, our overall service gross margin percentage or our EBITDA growth or EBITDA percentage all would remain relatively in the same ZIP code. So no necessarily change to the overall trajectory of our business. You highlighted Verisure.

Verisure came in at -- it was a very strong quarter for Verisure. As we've talked to you in the past about some of their destocking and stocking trends, oftentimes in the third and fourth quarter, we'll experience a bit of a destocking trend with Verisure. But then in the follow-on quarters, they have to stock back up because of their demand. And that's what's happened this quarter. Q1 was a strong quarter from a Verisure standpoint. And it just highlights the overall strength in that relationship. And certainly, we want to work with them and make sure we're doing everything to optimize our supply chain and meet the demand that they have in the EMEA market.

So that was a positive trend. But overall, we're really pleased with the way the business is trending. We believe that the strategic partners and the impact there, coupled with the robust nature of our retail business is reading through, and it's really 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, Scott.

Scott Searle: And 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?

Matthew McRae: 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. We'll start on mobile phones and tablets, but you're likely to see it progress even across appliances and things where you can walk up, touch a button and have immediate access to emergency services. And so they showed that at CES, they've done with it and got a great response. Again, I 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 roll out relatively soon, and there will 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 then you can see that if you look at some of their announcements recently. 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 make 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 will say Samsung powered by Arlo. So we're excited about that. But we think this area is going to be an area of growth, not only in the market segment, but also within Samsung, and we're excited to explore additional opportunities with them over time.

Scott Searle: Got you. And lastly, if I could. A lot of exciting things going on, particularly as we start to ramp into '27, which it sounds like Comcast will be more commercial at that point in time, maybe age-in-place, it has some form of commercial services, but you've also got other strategic 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 million 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 '26 and '27.

Matthew McRae: 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 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 road map 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 3 partnerships that we announced over the last 6 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 40 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 million broadband households, we think that one has the opportunity 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 1 or 2 small to medium-sized or medium to even kind of medium or large partners over the next 12 to 18 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 '27, but leading into 2028. 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 '27. And there's a pipeline that will add some strength to '27 and even 2028. So feeling -- like I said, feeling 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.

Operator: [Operator Instructions] Your next question comes from the line of Anthony Stoss with Craig-Hallum Capital Group.

Rian Bisson: This is Rian on for Tony Stoss. 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 2 with the partnerships and without?

Matthew McRae: 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. Same with Comcast. Comcast has 31 million 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 -- a 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 a 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 upmarket into the very 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. 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 a 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.

Rian Bisson: Got it. Super helpful. And then as 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?

Kurt Binder: No, Rian. As you mentioned, and we talked about this last quarter, in terms of our overall BOM, memory is about 6% 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 -- 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 the price or cost increase, we kind of look at it in terms of the overall CAC or cost of customer acquisition.

And we just see that this particular instance, albeit a bit unusual in terms of the overall market, from our standpoint, it's just -- it's 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.

Operator: Your next question comes from the line of Joseph Besecker with [ Besecker Asset Management. ]

Unknown Analyst: Great quarter and keep going at it. And you had a brief comment on tariffs. 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.

Kurt Binder: Yes. Great. And great to meet you, Joe. So similar to the conversation I was just having with Rian on the overall cost of memory, we kind of look at the tariff cost of 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-digit negative margin, that puts it in a real nice place for managing it as a CAC cost of customer acquisition, and we'll continue to do that. You are correct. We did actually place our claims shortly after the tariff relief portal was open. 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. So just know that we are in the queue.

We're managing the tariff relief process very carefully, and we'll provide more information as it becomes available to us over the next several months or quarters.

Operator: Thank you. And there are no further questions at this time. This concludes today's conference call. You may now disconnect.

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