Arlo Technologies Q3 2026 Earnings Call Transcript

Arlo Technologies (NYSE:ARLO) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://events.q4inc.com/attendee/199057300

Summary

Arlo Technologies reported strong financial performance in Q3 2026, with subscriptions and services revenue up 20% year over year to $96 million, and adjusted EBITDA increasing by 58% to $27 million.

The company highlighted strategic partnerships, notably with Comcast and ADT, which are expected to contribute significantly to future ARR growth, with a target of 30% ARR growth in 2027.

Arlo launched Arlo Secure 7, featuring an AI-powered Threat Assessment service, and saw early adoption without marketing support, indicating potential for increased ARPU over time.

Operational highlights include a 41% year-over-year increase in multi-camera kit sales during Amazon Prime Day, demonstrating the effectiveness of Arlo’s data-driven marketing strategies.

The company announced a larger stock buyback program, reflecting management’s confidence in future growth and strategic initiatives, including the integration of smart home security solutions and potential market consolidation.

Full Transcript

OPERATOR

Min Clark, please go ahead, sir.

Min Clark (Investor Relations)

Thank you. Good afternoon and welcome to Arlo Technologies’ third quarter 2026 financial results conference call. Joining us from the company are Mr. 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. 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 descriptions 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 fourth quarter of 2026, the long-range plan targets, the rate and timing of paid subscriber and ARR growth, the commercial launch and momentum of 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 those 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 obligation 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 measures can be found in today’s press release on our investor relations website. At this time, I’d now like to turn the call over to Matt.

Blake Matthew Mcrae (Chief Executive Officer)

Thank you, Tomon, and thank you everyone for joining us today on Arlo’s third quarter 2026 earnings call. Given recent announcements and the level of excitement in our market, I would like to begin the call by providing updated insights into our stated strategy and operating thesis at Arlo. As we have discussed with investors over the last couple of years, we anticipated that our segment was beginning a transition to the mass market. As Kurt and I experienced with the smart TV industry, this transition typically coincides with increasing awareness, lower upfront costs, and a user experience that combines simplicity with a clear value proposition to the end customer. Arlo has done a great job addressing this opportunity by introducing our low-cost Essential product line, partnering deeply with mass market channels such as Walmart, where we are now the number one brand, and expanding the capability of our service offering, driving true ease of use for the larger market.

Apple’s Home View announcement is a signal that we are now entering the mass market acceleration phase of smart home security. Awareness will spike. Innovation cycles will speed up. The next 30 to 50 million households will seek these solutions in the near future. We believe that Arlo is well positioned to capitalize on this opportunity. Those products are compatible with the widest assortment of ecosystems including Apple, Alexa, Google Home, and Samsung SmartThings, and we expect to see increased channel and strategic account investment driven by the tailwind of this market acceleration.

The other major component of our thesis is that we will see smart home and home security combining into a single market and solution in the consumer’s mind. Industry standards are now mature enough to facilitate this combination, and layering in artificial intelligence will make the experience easy enough to drive real adoption. It is also clear that the recurring revenue opportunity resides with those solution providers. On the security side of the equation, no user will pay a monthly fee to turn their lights on and off or change the thermostat.

The user value, trust, and peace of mind from security is worth a long-term subscription relationship. Again, Arlo is well positioned to gain share in this transition to a much bigger TAM. The last component of our thesis revolves around market consolidation, the topic we have discussed with investors and partners over the last 18 months. In this phase, winners tend to win more and losers either hemorrhage share or exit the market completely. What separates a winner is a deep commitment to innovation to expand customer value, a scaled services business, diversified go-to-market strategy, and a reputation built on trust, data security, and privacy.

When properly executed, the unit economics are highly desirable and contribute to the deal-making activity you are witnessing in the segment. For Arlo, this has led to impressive growth, partner wins, operating margin expansion, and an increased activity in strategic discussions to propel future shareholder value. With this backdrop in mind, let’s dive into some highlights from the third quarter. In the retail channel, Arlo grew our shelf count and gained unit share during the key promotional period while Roku and other small competitors exited the space. During the recent Amazon Prime event, we grew units by 7% year over year, but more importantly, we grew multi-camera kit units by 41% year over year, a direct result of our strategy. Given that multi-camera kits fuel additional growth in retail subscriptions, the Arlo Solar Camera was launched in time for the holiday period and is experiencing strong early demand.

You can also expect us to participate aggressively in the upcoming holiday promotional period with another market-leading offer for Walmart’s annual event. Our key strategic accounts are progressing well. Most importantly, our integration with Comcast is on schedule for a mid-2027 launch with the prospect of quickly becoming our largest strategic partner and driving significant ARR growth as it rolls out. ADT is continuing to expand their channel assortment of the DIY ADT Blue solution ahead of a more robust push in 2027. I believe we will announce additional strategic partners in the coming quarters.

We also rolled out Arlo Secure 7, the latest in our subscription offering, which features Threat Assessment, an AI-powered service that moves beyond object detection or scene description to assess the threat level of events and respond in a manner that is more attuned to the exact situation. Arlo Secure 7 also features a new $50 per month plan, includes continuous video recording, or CVR, for up to three cameras, and will feature a new CVR user experience.

Without marketing support, approximately 6% of our new users are already selecting this new subscription tier, and you’ll see us utilize plan mix to drive ARPU higher over time. From a financial performance point of view, subscriptions and services revenue was up 20% to $96 million when compared to driven by paid account growth of 23% as tireless execution of the Arlo team on customer retention has led to consolidated churn dropping below 1% for the last several quarters, which continued in Q3. This, coupled with our monthly retail ARPU of $15.50, lifted the long-term value per pay retail user over $900. The strength in our subscription and services business drove non-GAAP total gross margin up by 760 basis points year over year, and Arlo’s adjusted EBITDA was up an outstanding 58% to $27 million.

All these factors helped accelerate non-GAAP EPS to $0.24 about 50% from the prior year period. Before I turn the call over to Kurt for a deeper dive into the quarter, I would like to comment on our long-range plan. At the beginning of 2026, I conveyed that our visibility into growth and potential strong performance extended into 2027 due to the longer-term initiatives, strategic accounts, and our capital allocation plan. Our visibility is even stronger now, and based on our expected paths with Comcast, Outlookare, and Arlo Secure 8, I expect that we will target roughly 30% ARR growth in 2027.

I say that to underscore why Arlo decided to approve a substantially larger stock buyback program. The confidence in our current business operations and our future growth opportunities is shared across the management team and our Board of Directors. Expect to hear a lot more detail in our year-end earnings call where we will discuss our 2027 annual operating plan and the drivers accelerating our annual recurring revenue. Now I’ll turn it over to Kurt to provide our Q3 results and outlook for the final quarter of the year.

Kurt Binder (Chief Financial Officer)

Thank you, Matt, and thank you everyone for joining us today. We continued our strong execution in Q3 as we generated solid growth in both revenue and profitability, again reporting record subscriptions and services revenue and strong adjusted EBITDA. During the period we posted subscriptions and services revenue of $96 million, up 20% year over year and representing almost two thirds of total revenues. We are proud that this quarter represents the fourth consecutive quarter where subscriptions and services revenue comprised at least 60% or more of total revenues, and we expect the fourth quarter subscriptions and services revenue to continue this trend with an even larger percentage of total revenue being generated from our subscriptions and services business.

Our consolidated subscriber base grew 23% year over year, ending with 6.6 million paid accounts. Paid account growth was driven by proactive customer retention initiatives across our retail channel customers coupled with growth from our principal strategic partners. Further, we enhanced our household acquisition by targeting sales and promotional activities on doorbells and multi-cam kits that increase household activations. Our subscriber growth, coupled with a slight increase in ARPU, drove ARR to $370 million, up 14% year over year.

Total revenue for the period was $149.2 million, up $9.6 million or 7% from the prior year, driven by the growth in subscriptions and services revenue and robust product orders from our strategic partners. Product revenue was $53.1 million, down in comparison to last quarter and prior year’s quarter due to the timing of Amazon’s Prime Day and related promotional activities impacting industry-wide average selling prices. Our approach of leveraging our broad and price-competitive product portfolio to drive household formation remains intact and continues to drive exceptional results within our subscriptions and services business.

From this point on, my discussion will focus on non-GAAP numbers. A reconciliation from GAAP to non-GAAP figures is detailed in our earnings release which was distributed earlier today. We reported non-GAAP subscriptions and services gross margin of 84%, which includes the impact of non-recurring engineering services revenue associated with the ramp of strategic partners, driven by a higher mix of subscriptions and services revenue. We generated total non-GAAP gross margins of 49% in Q3, an increase of 760 basis points year over year.

Total non-GAAP operating expenses for the third quarter were $46.5 million, up 13% from $41.1 million in the same period last year. The year-over-year increase is driven by increased headcount to support the growing demand from strategic partners, coupled with investments in R&D and sales and marketing in an effort to launch our Arlo Secure 7 platform and execute on a robust innovation roadmap. During the quarter, adjusted EBITDA was $26.9 million, up 58% year over year with an adjusted EBITDA margin of 18%. I’d like to briefly take a step back to share a metric that represents how much Arlo has scaled and expanded its profitability. For the first three quarters of 2026, adjusted EBITDA was $88 million, up 71% year over year for an adjusted EBITDA margin of 19%. It is truly remarkable that Arlo is now approaching an annual adjusted EBITDA level of more than $100 million in 2026, even as we invest in developing our next generation platform and customer experience.

Profitability at this level translates into non-GAAP net income per diluted share of $0.24 in the third quarter and $0.80 in the year-to-date period, up 63% year over year. Regarding our balance sheet and liquidity position, we ended the quarter with $144 million in available cash, cash equivalents and short-term investments. Year to date we have generated $51 million in free cash flow, or a free cash flow margin of 11%. Our Q3 accounts receivable balance was $61.3 million at quarter end with DSOs at 37 days, down from 50 days last year, as we continue to drive more subscribers to annual service offerings. Our Q3 inventory balance was $52.3 million, up from the $44.44 million level last year.

Inventory turns were 4.7 times, a decline from 6.4 times last year, as we optimize our inventory levels in an effort to reduce our shipping cost and manage any potential future increase in memory costs while ensuring we have adequate stock to meet consumer demand during an aggressive promotional campaign in the fourth quarter. Now turning to our outlook: to date, we have generated outstanding results driven by the ongoing strength in our subscriptions and services business, which delivered top- and bottom-line growth. As we head into the fourth quarter of 2026, we expect this trend to continue with total revenue in the range of $137 to $147 million with subscriptions and services revenue comprising more than 70% of total revenue. Looking at our profitability, we expect our non-GAAP net income per diluted share in the fourth quarter to be in the range of $0.17 to $0.23.

And now I’ll open it up for questions.

OPERATOR

At this time I would like to remind everyone, in order to ask a question please press star then the number one on your telephone keypad. As a reminder, we ask that you please limit yourselves to one question and one follow up so we can get through as many people as possible. We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Dylan Becker from William Blair. Your line is open. Please go ahead.

Dylan Becker (Analyst)

Hey guys, really appreciate it and nice job here. Great to see the healthy paid account growth. Matt, I think you kind of called out on the long-term plan. I guess just the question is how we reconcile the 23% paid account growth. Obviously a lot of initiatives to expand ARPU both across retail and partners, but maybe how that kind of bridges to your comments around the 30% ARR growth outlook into 2027. Thank you.

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, that’s a great question. So I think a lot of that is us looking at the timing of some of the engagement and launch and expansion of some of our strategic accounts and coupled with Arlo Secure 8 which coincides with the next generation platform launch in the middle of next year. So as we are beginning our 2027 annual operating plan, we’re looking out next year and our target will be to hit 30% ARR. Part of that is new account formation, faster account formation through our strategic partners and also ARR/ARPU mix up due to not only our new $50 plan starting to take effect, but the new plan structure that will be part of Arlo Secure 8.

So those are the two levers that have us believing we’re going to shoot for 30% ARR growth, which, you know, is, you know, double the growth this year where we’ve had strategic partners under integration and development and launching and starting to scale. But we think the full impact of that will actually happen next year.

Dylan Becker (Analyst)

Got it. Okay, that’s very helpful, and it’s a good segue to maybe partner economics as well too as we have ADT and Comcast ramping. Could you just give us a sense of how those unit economics shift relative to maybe some of your, not necessarily legacy — that’s probably not fair — but some of your more traditional partners, what that kind of economic uplift looks like as you move away from kind of cost-plus model there? Thank you.

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, absolutely. So we’ll call them historic. Some of our older partner accounts, partners that are still our partner today, you know, when we did those deals, it was very much about scaling Arlo, scaling our business, working on different regions of the world in a partnership across channels. And they were structured in a specific way. And some of our more historic partners are focused on more basic service-level deployment and not necessarily our entire stack of AI features.

What you will see, and are seeing a little bit now but will see as we scale into 2028, all of the new partners we’re talking to are not just interested in the basic features, but actually the full stack of AI functionality and some of the features that are coming next year. And so from a partner unit economic perspective, expect to see a big shift towards service revenue and having that be a much larger component. So it would have, you know, think of higher ARPU on a unit economic basis and higher just overall service revenue on a per-subscriber basis.

So that’s the difference you’ll see. We’ll be able to talk a lot more about that I think as we get into the year and start launching these publicly. And you can see the pricing that’s going on. But in general, what I can say is you’re going to see on a pie chart of the deal a much bigger emphasis on service revenue and kind of high-profit service margin coming through the deal — the new partnerships that we’re launching now and intend to scale as we go into 2027.

Dylan Becker (Analyst)

Thank you.

OPERATOR

Your next question comes from the line of Jacob Steffen from Lake Street Capital Markets. Your line is open. Please go ahead.

Jacob Steffen (Analyst)

Thank you. Appreciate you taking my questions. Nice quarter, guys. Maybe just first, Amazon Prime Day — you talked a little bit about some of your multi-cam packs and that being an area of strength. Maybe you could just touch on some of the things you’re doing there differently than what you were doing before, and, you know, if that plays into how you think about the rest of the year with holiday season coming up.

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, great question. And that’s, you know, something we mentioned on a prior call where the sophistication of our data analytics team and the insights we’re getting from users across multiple channels and what those attach rates look like to service and, you know, pricing and kind of service mix across our plan tiers has really driven some of the decisions we’ve made to optimize the holiday quarter. And if you remember, we talked back maybe six months ago, we did a little bit of that in last holiday period, and I would say this year we’ve, you know, we’re doing 10 times more of that.

So a couple of examples: I mentioned in the prepared remarks that we saw a lift in units of roughly 7% across the key promotional period in that key event, but over 40% lift in multiple camera kits. Now the reason that’s important is based on the data analytics we have, the propensity to subscribe and subscribe at a higher subscription tier is a lot higher on a multicam pack. So what we’re doing is really optimizing our marketing spend and our promotional activity to target not just selling hardware units, right, but selling hardware units that enter the top of the funnel and have a much higher likelihood of ending up being a subscriber out the bottom of the funnel. So to your point, going forward, as we enter Q4 holiday period, we’re using those same data analytics to determine where we’re going to be emphasizing the marketing spend, what products will be on promotion.

And you’ll see that optimization continue, including an emphasis on doorbells and some multi-camera kits during the holiday that drive a higher subscription attach. I can tell you that we’ve already seen a higher number of trials and a higher number of initial subscriptions off the Prime Day event this year. So that data analytics, you know, we’re watching it week by week, and it’s very early, but we’re seeing it start to pull through, and our hope is that would add additional service revenue than what we saw last year.

Jacob Steffen (Analyst)

Okay, got it. And maybe if I could just ask on some of your pre-holiday planning here, you know, as we look at, you know, some of your channel partners like Walmart, Best Buy, just curious how you’re thinking about the promotional activity at each one, and do you still expect Walmart to be a meaningful kind of partner with their annual event coming up?

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, so I think what we’re seeing is something very similar to last year. You know, it’s different week by week, but I think it’ll be a competitive holiday period like last year. I think we’re set up very well with the offers. In fact, like I said, I think we have more optimized offers. If you’re looking at it from a resulting service revenue for Arlo, the channel spread is, I would say, similar as well. Expect us to do a pretty compelling event with Walmart again and, as I mentioned, coming into this holiday period, we’ve gained shelf share in several areas and we’re Walmart’s number one brand in the space now.

And that’s important. As this market segment starts to go more mass market, we start to see that acceleration, like I said in my prepared remarks. So I think we’re in a great position. We’re not seeing any surprises. At least, it looks very similar to last year. And I think we’re at least as well situated as we were last year—probably better optimized from where we’re putting our dollars as we go into the holiday period. You’re welcome.

OPERATOR

Your next question comes from the line of Logan Katzman from Raymond James. Your line is open. Please go ahead.

Logan Katzman (Analyst)

Yeah, this is Logan on for Adam. Thanks for taking our question. I guess first, broadly, can you just give us an update on the traction you guys are having with your partners? Maybe how some of the newer ones are developing? Did any of those contribute in the quarter, and then where your expectations kind of stand for those still? And then obviously we saw the news with ADT. I’m just curious if there’s any impact to the partnership following that. Thank you.

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, you’re welcome. Yeah, the partners are progressing as expected. So, you know, I think at the beginning of the year, we had three partners that we had announced very early on in the year, either at the end of last year or the beginning of this year, and that was Samsung, ADT, and Comcast. And we let you know that, hey, we’re doing a lot of work with Samsung. We don’t know when or if that’s going to materialize into something more substantial, but it’s access to a huge user count and something we’re really excited about building over time.

And that’s exactly what we’re seeing. ADT, we mentioned, was going to be a soft launch in the middle of the year and that they would be ramping through the course of this year with the idea of moving into more physical retail and some other expansion next year. None of that has changed at this time yet. You’re right. You know, Thrive Capital is looking to potentially take them private. We don’t have any updates on that, but if they’re focused on growth, obviously our partnership with ADT is a primary growth driver since there’s so much volume of household adoption happening in the DIY and retail locations.

So that’s all I can tell you there. And then Comcast is progressing exactly on target and that development integration is going very well. There’s some excitement. We’re starting to get our forecast for next year already and so we’re expecting to see that sometime mid-year. And usually when they roll out, they’ll roll out one region and then start to expand that, roll that. So I think it’ll be a little bit like ADT shifted out where we’ll see it launch, scale, and then the full-year impact wouldn’t be until 2028—but obviously at a much larger scale.

And from a commentary perspective, we’ve said, and I said it today, that I think Comcast relatively quickly could be our largest strategic partner pretty quickly because of their scale and their ability to access the 31 million broadband subscribers they’ve got in the United States.

Logan Katzman (Analyst)

Understood, thank you. I know promotions have been—you guys have been rolling out a lot of promotions this year and I think you guys have had a lot of success with those as well. And part of those promotions have services attached to part of that. I was just curious, could you clarify how much product revenue, if any, is carved out into services and how that’s recognized? Just kind of curious how that allocation works. Thank you.

Kurt Binder (Chief Financial Officer)

Yeah, sure, Logan. I’ll take that one. So just to highlight, we run a lot of different promotions and deploy various sales strategies across all of our products and services. This is something that a lot of consumer product subscription companies do. We are required under ASC 606 to allocate a portion of the services revenue to the device and vice versa. And we go through a process of allocation based upon the relative fair value to a consumer for the services that we offer.

As of to date, the services associated with that bundled arrangement or those promotional campaigns are actually less than $100,000 per quarter or 0.1% of total year-to-date service revenue.

Logan Katzman (Analyst)

Got it. Thank you.

OPERATOR

Your next question comes from the line of Martin Yang from Oppenheimer. Your line is open. Please go ahead.

Martin Yang (Analyst)

Hi, good afternoon. Thank you for taking my question. First question on the U.S. distribution channel, weeks of inventory—that ticks up quite a bit this quarter, both on a quarter-to-quarter basis and year-over-year basis. Can you comment on that? What is the reason—anything worth pointing out there? Thank you.

Blake Matthew Mcrae (Chief Executive Officer)

I’m sorry, Martin, you kind of broke up there a little bit. You were referencing the inventory in channel. Was that what you were referencing?

Martin Yang (Analyst)

Yeah, the U.S. distribution channel—weeks of inventory there ticks up quite a bit relative to last year’s seasonal.

Blake Matthew Mcrae (Chief Executive Officer)

Sure, yeah. You know, this is an interesting conversation. This year, the simple answer is that we’ve been preparing in particular for a very aggressive Q4 promotional campaign period as we’ve done in the past. And the supply chain team has done a phenomenal job getting ready for Walmart and the event and some of the other channels that we have out there. Interesting enough, when you look at what happened last year—and I hate to bring this up—but last year we had multiple catastrophic events occur at this time. In particular, you may remember the Long Beach port where close to 4,000 containers fell into the water. And we had a freight liner, ocean liner coming from Korea that caught on fire. And so we had to do a lot more air shipments in last year’s Q3 and Q4 in order to be prepared. Ultimately, that cost us incremental money.

So this year we were just planning it out a bit more evenly so that we could use ocean freight and ultimately have the inventory ready to start shipping in by the must-arrive-by dates. As a result of that, the inventory in the channel is actually a much more healthy balance and one which is better orchestrated and prepared to meet the consumer demand for Q4.

Martin Yang (Analyst)

Got it, thank you. More of a general question—product design. You’ve seen newer products coming from both Amazon and Apple where the security monitoring function is integrated into a smart display or smart speaker. What’s your view on those multipurpose devices? How does that inform your future product design approach? Thank you.

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, Martin, this is a great question and I can give you a short version of the answer now. And this is something I think you’re going to hear a lot more from us in the first part of next year as we start to look at our next-generation strategy. When it comes from a platform and hardware perspective and when we start to preview some of the Arlo Secure 8 features, in general what I’d say is our approach is to be compatible with all of the ecosystems.

So you’re 100% right—that visual component, Apple adding a screen to a HomePod basically, which is Home View—we think will drive more user adoption of the category in general and actually more usage, which usually drives a higher subscription attach rate. Like I said, we’re compatible with Apple, we’re compatible with Amazon Alexa, we’re compatible with Google Home, and we’re compatible with Samsung SmartThings. We’re one of the only companies that offers a platform and a collection of devices that are compatible across the board.

There, I agree with you—and I think this is kind of the underlying part of the question—that we’re starting to see users interface or engage not only through a single app, and I think this multimodal way to utilize the platform in general. And as we see smart home and home security combine into really what we call smart home security, that these use cases will blur and start to merge. And so, to answer your question, from a product and services strategy and R&D perspective, this is something we’ve been working on for nearly two years as part of our thesis and as part of our roadmap.

And I think it’s going to be increasingly important as we go forward. The other item of it that’s exciting is what we’re also seeing is that this opens up a lot of new avenues for different service tiers, different service features, additional subscription opportunities. And by the way, it cuts across not only home security, but also some of the things we’re planning to do with our Allocare acquisition in the aging-in-place space and market segment as well.

So that’s a short answer and maybe a little bit vague. Expect to see a lot more from us in the first six months of the year as we get ahead and start to preview a little bit of what’s coming in the second half as part of our Arlo Secure 8 next-generation launch.

Martin Yang (Analyst)

Thanks, Matt. Looking forward to the new lineup.

Blake Matthew Mcrae (Chief Executive Officer)

Thank you, Martin.

OPERATOR

Your next question comes from the line of Scott Searle from Roth Capital Partners. We are just opening up your line.

Scott Searle (Analyst)

Good afternoon. Thanks for taking the questions. Nice job on the quarter, guys. Hey Matt, maybe just to follow up on the 30% ARR for next year, alluding to Secure 8 ramping as well as some of the preexisting partnerships, particularly Comcast. But I’m wondering, new partnerships, new strategic sets you’ve mentioned—are you expecting some to be signed and be able to ramp in the ’27 timeframe to add to that? And also if you could expand a little bit on your comments on Allocare.

Big opportunity there, but you’ve been kind of working through just some different technology issues and implementation aspects. Does that become a major factor as we start thinking about that growth in 2027?

Blake Matthew Mcrae (Chief Executive Officer)

Yeah. So, good question. So on new partnerships, our hope is we’re going to be able to announce—I mean, there’s several in discussions and/or some level of negotiations right now—and I’m reasonably confident that we’ll be able to announce some new partnerships in the next couple, call it, two or three quarters. Potentially there’s some impact in 2027 towards the end of the year. It really depends on the level of integration that needs to be done and what the final specification is.

More likely, it’s mostly a 2028 impact. So when we’re speaking about the 30% target for ARR in 2027, I’m not including any substantial, material revenue from brand new partnerships that we haven’t talked about. I think there could be a small amount, but it’s probably more 2028. However, to the second part of your question, we are including pretty strong ramp in the Allocare space. The technology, the customer base, and some of the things that are being negotiated right now around Allocare are extremely exciting. So I would say the three components that underline the bulk of the 30% ARR growth next year are the strategic accounts, the Arlo Secure 8, and Allocare ramping year over year based on, you know, the wonderful technology they have.

And, by the way, we said when we first bought them, we bought it for the team, we bought it for the technology stack and some of the agentic AI stuff they’re doing, but also because of the customer pipeline that was already there and needed some scale to really, really get it to move. That’s what you’re going to see a little bit more as we get into the back half of next year as well.

Scott Searle (Analyst)

Perfect. Very helpful, thanks. And maybe To follow up on some of your earlier comments related to the evolution of the market into smart home, you guys are certainly making a move in that direction with ArloCare. And then your comments about basically open ecosystem functionality where you can integrate with other players, but in terms of what you control, do you need to own more going forward? And as you think about things strategically over the next couple of years, are you looking for incremental acquisitions and product development roadmaps then that bring some more of that capability and functionality directly into your platform?

Blake Matthew Mcrae (Chief Executive Officer)

Yeah, another great question. So we look at each area of the smart home security ecosystem and we determine, you know, is it something we want to own? Is it something we, you know, want to acquire? Is this something we want to partner on or just let the ecosystem handle it at kind of arm’s length? And we’ll make those decisions on a piece-by-piece basis. ArloCare is a great example of that. It’s something we decided we want to own because we think we could take what we do well, a scaled platform, robust AI capabilities, and drive some substantial value that separates what we do in a way that we can capture more than our fair share of the market going forward. And I’ll remind you and everyone else that market’s going to go from $25–$26 billion to over $300 billion from a TAM perspective over the next five years or so. So that informed us that this is something we wanted to control.

This is something we wanted to innovate in unique ways that can differentiate something in the market and something we wanted to integrate into our backend processes so it could scale much better. Something like, I’ll throw out another example, something like a thermostat. I don’t know if we would be able to drive enough differentiation from the multiple examples that are already in the market, but it’s something we partner on and control from our home ecosystem user experience. So that’s how we approach the decision-making. I do believe that in most areas we’ll partner, especially as these ecosystems and the Matter standard is getting deployed in greater depth across the channels.

We’re going to see retailers invest in bringing shelf space for Matter-compliant devices in the smart home in general, which is exciting because that’ll drive awareness. But I believe there probably will be additional areas that we will make the assessment that this is something we want to own. More likely because we think by adding our innovation engine to it, we could do something that’s truly differentiated and drive the things we care about, which is that subscription revenue, that long-term relationship with that end user, and shareholder value.

So I would say it’s probably not, you know, a tremendous number of acquisitions, but anything that’s down the line that we’re headed on or an area that we think we could do something different and differentiated, a market that helps build a moat and we could go drive innovation and drive a market faster than it’s currently projecting at, then we would make that decision. Otherwise we’ll focus on partnership and enabling the ecosystem.

Scott Searle (Analyst)

Great. Thanks so much.

Blake Matthew Mcrae (Chief Executive Officer)

Thank you, Scott.

OPERATOR

We have reached the end of the Q and A session. This concludes today’s call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.