Thank you everybody. Appreciate your interest here at the William Blair Growth Stock Conference. My name is Dylan Becker. I'm the vertical software analyst. Here we have Matt McRae from Arlo Technologies. Matt, thank you for joining us. Yeah, thank you. Appreciate it. I think maybe as a place to start the conversation, there's probably varying levels of familiarity with the business and the story, right? If you were to level set the conversation for those maybe newer to the business, could you give us some context on Arlo, what you guys are doing, and how you're solving this smart security space? Yeah. I'll give just a brief history on the company. We started actually as a startup inside of a company called Netgear, which you're probably familiar with on Wi-Fi routing. They were looking for technologies and user scenarios that would actually drive people to upgrade their wireless routers, because people at that point weren't buying the latest routers. They hit upon video use cases as a way to really eat up a lot of bandwidth and get people to drive upgrades. They surveyed different product ideas and came up with basically streaming cameras, so IP-based cameras. Also in the consumer market, really focused on, at that time, mostly battery-operated cameras, so they're extraordinarily simple to set up. What they did was actually kick off the DIY security market segment, which didn't exist before. It grew so fast that it ended up being separated from the company, so we spun Arlo from Netgear in 2018. Actually at that point, as a public company, set on transforming the company into really a services group. At that point, it was mostly hardware from a company perspective, making 40 to 50 points hardware margin, and that's it. We noticed that this actually had a real high probability of actually becoming a great services company. We set about deploying some of the first AI-based subscription services in the world in 2018 and have grown now the subscription services on security from, at the time was probably about 50,000 subscribers to now over 6 million. The services we provide, so if you're not familiar with the product line, people typically buy a set of cameras. It's similar to Ring, if you're familiar with that brand. There's subscription services on top of that provide object detection, recognition of the actual person or vehicle, AI capabilities. As an example, in scene description, we're doing threat assessment. We've seen our attach rate on services actually grow quite a bit over time. Now services revenue is actually over 60% of our total revenue, and we really are a services business that uses the hardware as a way to create that relationship with the end user. Last year, we saw anywhere from 20%-30% growth on services. We're seeing very fast growth on that. Services business is roughly 85% gross margin. It's been absolutely transformative for the company at a bottom-line level from a profitability perspective. Perfect. I do want to get into the kind of financial transformation. Yeah of the business. Maybe if we take the market as a place to start as well too. Yeah. Can you give us a sense on how that's dynamically changed, how the smart security space, connected home, has evolved, and maybe why you're seeing an uptick in adoption around devices and the connected services? Yeah. When I say we've transformed as a company, we also transformed the security industry quite dramatically. If you go back 10 years plus, almost the entire market, 95% plus of the market, was professionally installed home security and small business security. Arlo hit the scene. Now anywhere from 65%-70% of all the growth and installs happening in security is now DIY, is do it yourself. About 25%-30%, or 30%-35% is now what they call DIFM. If you look at just DIY and the hardware and the actual devices is $8.2 billion. You combine that with the subscription on top of that, and you're looking at about a $25 billion market that has grown from nowhere in the last 10-15 years. That's the market we primarily are in. Again, the biggest transition has been from DIFM, do it for me, or installation, to DIY. At the same time, you're seeing the attach rate and the importance of the service layer become more and more important. That's why you've seen our service revenue grow so dramatically. There are some additional markets that we're starting to move into as well when we look to the future and what's happening in the marketplace, and that's the broader smart home category. You've seen there's smart home and home security, and our thesis is actually it's going to become smart home security. People will buy smart home devices, but they're going to subscribe to security. That's the actual subscription that people pay for every month. Nobody pays for smart home on a subscription basis. The recurring revenue is going to come from the security portion, but it's important for the user experience to be capable of driving a user experience across smart home and home security. You'll see a couple others. Small business, which is a huge market. Smart aging, which we just did a small acquisition we may talk about in a little bit. We just did an acquisition in that market as well. You have the global market. In total, you're looking at hundreds and hundreds of billions of dollars of TAM, of which we're primarily playing in about $25 billion, and expanding into the rest over the next three to five years. Fantastic. You touched on the fact of the value proposition of connecting hardware, servicing and solving, and giving you the opportunity for the software business. I guess, could you give us a sense of, again, that connectivity, that importance, right? Yes. Why hardware unlocks the services and the software opportunity, and the value that the dataset that that creates for you. Yeah. There's several aspects to this. One, creating that physical link to the customer is one of the very important things. Our average lifespan of a customer is over seven years now. That starts the first touch base we have with them is that hardware purchase. Number one, it's an investment. The user's making an investment, they do the installation. That helps to reduce churn, and it helps them to have a great user experience. They interact with our hardware and our service interface quite a bit. Anywhere from 10 to 15 times per day is the level of engagement we get. It's a very engaging service. Second, that hardware, like you were saying, is our physical link to the user. It's encrypted. It connects to our back end. In some cases, we look very much like a normal SaaS company. We have very high growth service revenue, extremely high service gross margins. It's great. We're a SaaS company. There's been a lot of talk about SaaS companies being disintermediated by AI coming in and maybe getting in between and stealing some of those markets. That can't happen in our business. That physical hardware, that link we have with the end user, we cannot be disintermediated. That hardware only works with our back end and only works with our services. In some ways, we're the best of both worlds. We have the growth and the profitability of a fast-growing SaaS company, but we have a physical linkage to those end users, and that's produced by that hardware that they physically buy and install. We have two main businesses in Arlo. We have what we call direct and retail, which is probably what you're familiar with. People go to Best Buy, buy an Arlo package, take it home, install, and sign up for service. We have a partnership side of our business as well, where a lot of that is actually one-to-one attach. If that hardware is purchased and installed, there's 100% attach to that service. Again, it's all being driven off that initial hardware installation. You hinted at the fact that there are very attractive, if you will, unit economics here. Yeah. Low churn, high customer LTV. Right. How do you see that evolution playing out from a financial framework perspective? You talked about the mix shift accelerating. Yes Higher margin subscription revenue, faster growth in that segment. How should we think about that? Yeah. There's been a financial transition and transformation of the company as well, and putting up the Q1 numbers just as an example. What you've seen is you've seen service revenue growing very quickly. Because of the high profit margin on that, we've seen EPS grow quite quickly. It's been transformative to both the service revenue line and blended gross margin and obviously our operating income over time. That will continue. Part of our business model as a company is to be highly leveraged, and I don't mean that from a debt perspective, but we're basically 400 employees or less driving a relatively large business partnered with some of the biggest companies in the world on a channel basis and on the partner side and on the supply chain side. If you look at the expanded profitability over time, that's been something that I think will continue. For those of you who are SaaS investors and you look at Rule of 40, our score last quarter was 49, which puts us, I think, in the top four public companies in the world right now as far as profitable growth. We really are looking from a financial perspective like a services business, but we have that hardware layer that provides that lock-in with the end users out in the field. That probably drives a lot of data differentiation. Yeah as well too. As we think about the data platform, not only scale, but how you think about that unlocking value and context for customers over time. The data is good for a couple things. One, obviously, we get a lot of data of what's happening in the home. You're going to see more advanced AI and additional use cases happening based on presence detection. Are they home? Are they on vacation? Did they leave? Who's home? Who's not home? What time of day is it? Are they going to bed? Did they wake up? There's a lot of smart home activities and general usage patterns that people want to be automated, where that context and that data is extraordinarily important, and we're one of the few companies in the world that actually has that. Because we're being told, "Are you home or not?" all the time when they arm, disarm the system, geofencing in the app, and all that. From a user experience perspective, the data puts us in a very strong position, not only to generate the recurring service revenue because people will pay for security, but to actually provide a better user experience across the entire smart home. Again, I think you're going to see those two worlds blend together, where you're going to see smart home activities augmenting security. I'll give you an example. If somebody approaches the front door at night, I can flash the lights. I could make a German Shepherd sound like it's coming out of my Sonos system. There are ways to use the smart home capabilities to actually augment the security subscription. The data that we have puts us in a very strong position to own that user experience and be able to innovate in ways others can't. At the same time, the data's really important to us. Over the last 6-12 months, we've been doing a lot of work on data insights and really understanding our customers and what's happening at a much deeper level. We now separate user journeys depending on where they bought the product. Did they buy the product at Walmart versus Best Buy? We can track that and provide different journeys and different promotional strategies there. How many cameras do they have? Do they have a doorbell? Is it a floodlight? How often do they use the product? All those data insights are allowing us to actually tailor our promotions, our communications, and some of the features that we provide, based on all those data insights that we're seeing from the field. It's improved our conversion, it's reduced our churn, and it's helping us be more successful from an operational perspective as well. I definitely want to touch on the go-to-market dynamics as well too, but since we're on the topic of data, I guess a key differentiator for the platform as well is the emphasis on privacy. Yes. At least as it relates to home security and personal information. How do you guys think about privacy as a differentiator in the platform? Yeah. Strangely enough, we're in the security business, and we're one of the few companies in the segment that actually really cares about data security and privacy. For us, it's non-negotiable. We've built the company from the ground up, where our architecture believes that the data is not our data, it's the user's data, and we're hosting and processing it based on their request. That's just fundamentally how we've set the business up very differently than maybe an Amazon or somebody else who views it as their data, and they can use it for advertising or potentially other purposes. That's not us. We're one of the few companies that actually has a data security and privacy committee at the board level. We have governance at the board level that looks at all the actions we take, all the things we deploy, and making sure that we're aligned with that. That has become increasingly a competitive differentiator in the market. It happens with consumers, so when they're doing research and they find out who's had security issues or who's maybe not being that clean with data privacy. There's been some things around Super Bowl ads that caused a lot of controversy recently in the space. That helps from an end user when they're making a choice. I would also tell you, in the partnership, the B2B space, it's become a substantial differentiator. When a Comcast or an ADT or Verisure in Europe, when some of our partners were evaluating who they would want to go deep from an architectural perspective and solution provider perspective, it's extraordinarily important for them that they know that partner will protect and secure the data, their customer data in this case, and be aligned with the best practices in the world. It's something that's been in our DNA since we started the company, but it's increasingly becoming, I think, a differentiator from a lot of competition in the market. You touched on how it kind of helps with the go-to-market motion, and you said Best Buy, some of the direct, also increasing the partnership channel, I guess. How should we think about resource allocation and the channel mix between direct and partners today, where that was and maybe where it's going over time? There's a lot of seasonality, roughly I would say 60% is coming from retail and direct. When I say direct, I mean arlo.com type channels and 40% from partners. Kurt and I have said that between now and the end of our long-range plan, which is to get from 6 million paid subs to 10, and to get from, at the time, was roughly $300, now it's like $350 in ARR to $700 million in ARR. 60% of that incremental growth will come from partners. Some of that is because of just the size of the opportunity and that it's coming later. The retail market is relatively more mature. We're growing in that market. We're growing faster than the market is growing on that space. We're going to capture some additional shelf share this second half as well. We're growing and doing a great job competing there. Market's a little more mature. It's growing at 5%-10%. We're growing 10%-15% when you look at it on a unit basis. The partnership opportunity is really greenfield. Our first large partner was Verisure, and we've had great success in Europe with them. Recently we have announced ADT, Samsung, and Comcast. Three extraordinarily large and impactful partners. I will tell you, there's more coming after that. That area, I think, has a higher relative growth, only because it has such a huge market potential from a household formation perspective for us. That it's in an earlier stage, and we seem to be the number one partner out there. Partially because of the data privacy. Because when people look at our technology stack and our AI capabilities and they do any head-to-head matchups, we tend to win all of those. Yep. It's probably a good segue to the competition question, right? Yeah. Obviously, we talked about why partners are choosing you, but how should we think about the competitive landscape more broadly and any kind of statistics you have around win rates, kind of mix shift, anything on that front? Yeah. Unfortunately, there's not a lot of great data in the retail anymore because a lot of reporting's not happening. Circana has some data, but not all. The competition for us is really in two buckets, I would say. One is the kind of bigger company brand names, so like an Amazon or a Google, right? Amazon is aggressive in some areas. They can't operate in other areas like Walmart and some other areas, so we've got some really good strategic partnerships in the main channels. Google is tending to de-emphasize and treat this area as more of a platform play. We see them starting to pull back a little bit. Then the other bucket is kind of low cost, I would say more non-subscriber based low cost. We see some consolidation maybe happening there. Competition in the retail and direct space really hasn't changed much in the last two, three years, except that we've had some success, and I think that we'll see some consolidation over the next couple of years. On the partner side, we're Number 1. I think we are out front, both because of our culture and the way we approach data privacy and the sophistication of our back end and the services we provide. I think we will continue to capture more than our fair share in that space. I'm not aware at this point of an opportunity that's come to our desk that we didn't win. on that side. I think that'll continue. You touched on the healthy kind of, I think, consumer unit economics. Yes. I think you said one to one attach within the partner channel. Right. Any kind of sense, too, in how that evolves with partners of, again, maybe a higher propensity, higher ARPU, better attach on subscription services? Yep. It feels like not only is there more white space, if you will, and a captive audience to go against, but the attractiveness of that persona or that user profile also is valuable to the business. Yeah. They typically have lower churn. If you look at our two business segments, the way we look at it is retail will have higher ARPU, and then it has CAC, it has our customer acquisition cost, and then we have support costs and other things, but it's a higher ARPU, and then we net out to the numbers you're seeing there. which are obviously very good. On the partner side, you'll see a lower ARPU. Our CAC is typically zero. Right? The partner in that case is taking all the sales and marketing costs, all the support costs, right? Our goal as a company is to be relatively agnostic between the two. At the bottom, when you look at it like the operating dollar perspective or operating margin perspective, we should be relatively agnostic between the two at the bottom line. That allows us to then push either or both out to the marketplace. At the top level, we want to address as many households as possible. We think the partnership area is a way to capture substantial household formation. It can be just as possible as the other side with lower risk, lower churn, even though it has lower ARPU because there's no CAC. That's the idea. If you look at a Comcast as an example, they have 31 million broadband households in the U.S. We will become Xfinity home security solution for them next year. We're in the middle of integration with them. Even relatively small penetration is a sizable increase in paid accounts for us and can drive some significant service revenue. Sure. Especially relative to kind of the 6 million subscribers. Absolutely you have today. Yes. Yeah. Okay. That's a good, I think, stepping stone for the growth algorithm, right? I guess maybe if I think about kind of three pillars, correct me if there are others, adding households- Yeah whether direct or through partners, cross-selling additional cameras and modules, and then converting services off of the existing base as well too. Yeah. How should we think about kind of the inputs within each of those? Yeah. They're all important. I would say today, when I look at the bulk of new household formation or new subscriber formation, let's say, it's coming from new households. That's because the market penetration is still only about 20%. Even in the retail and direct business, the next 30 million households are going to come online in the next, call it three to four years or so. There is still a tremendous amount of households to capture, and we're still, I would say, if you're using baseball analogies, maybe we're just entering the third inning or something. There's a lot of market potential just in the United States. If you look globally, it's even behind that. Penetration globally is anywhere from seven to maybe 14%. United States is just cresting 20%. Partnerships like Walmart, which is really important to us, is one of the ways that we're going to grow and drive some of that. As the technology segment becomes more mass market, people are going to be looking for solutions from Walmart, and they're one of our fastest-growing partners, as an example. I would say still new household formation, whether that's through partners or in the direct channel, is still a bulk of it. We do optimize around upselling existing customers and a lot of other things, and I think we do that better than anyone. We're doing a lot of data insights and driving that. Because we're still in the early days of the market and there's still so much growth out there, the bulk of new household and then subscriber formation is coming from new customers coming into the market segment. Okay. Yeah as well too, households that have kind of devices, the ability to sign them up for recurring services. Is that an area of emphasis, I guess? Yeah. It is. Yeah. Yeah. If you look, the metrics we really pay attention to every day at this point is unit sales on the hardware, right? That's what I was talking about. A lot of new hardware sales going out. Sometimes it's partner, sometimes it's an existing subscriber buying a new piece of hardware. A new hardware device going out, that puts them in the top of our subscription funnel, right? We look at what's the initial conversion rate, and we measure that as did the person subscribe to a service tier within the first 30 days of that free trial ending? That's our conversion rate. We follow those cohorts for six months, and we call that our attach rate. We're doing a lot of work around data insights and A/B testing around, okay, what's going on conversion? How do we boost conversion of existing subs and new subs coming in? We've done a lot of work on what does conversion look like on different types of products, different retail channels, different partners. That is to all, not only boost conversion but also boost the lift from conversion to attach. Typical conversion is anywhere from 40%-50% right out of the gate. That's in that first 30-day period. Then we see that grow anywhere from 10%-15% more, as we follow that cohort out to six months, and then it goes from there. About two-thirds on the kind of the top level over time subscribe. Average subscriber is over seven years. Then our churn is about 1% per month. We have one of the lowest churn rates of any consumer subscription service in the world. I would think that, as you add more devices, you get more conversions, obviously, drives the value of that customer and the stickiness of that customer. Yes. As you think about compounding the data set beyond kind of home security, I know you guys just made a recent acquisition into the broader home health space. Yeah. Maybe the evolution of what that data set can unlock, from an incremental kind of monetization perspective. Yeah. That's a very long discussion. We have a user base now of over 6 million subscribers. Actually, active households are over 10 million. Like I said, I think the smart home and the home security are coming together, one of the first steps of us leveraging that data will be into new use cases, new user experiences going into next year with the capability of potentially new subscription services and features that drives either higher conversion or higher ARPU. That's one way we're going to use that data to actually leverage into some exciting new capabilities that will drive incremental revenue. You brought the acquisition of Aloe Care up. Recently, we bought a small company in the age-in-place area. From a demographic perspective, this is going to be an area of huge growth. The market in the U.S. alone is about $24 billion right now, will grow to nearly $300 billion in less than 10 years. You're looking at a CAGR of 25%-32%. It is one in dire need. You're looking at ARPUs of $50-$60 per month. It's an area that fits right into our vision and mission of keeping people safe and secure. You look at the cross-sale opportunities of our six million, we think there's an opportunity there. Ultimately, we want to serve and create a safe and secure life for our users for basically their entire lifespan. This helps us extend that out, where some of our customers will be caregivers for moms and dads. We'll have some of our customers now will be starting to age in place as they go along. Ultimately, where we want to get to is there's a set of devices that can be deployed by a partner or through retail, and then there will be a set of subscription services you can bring on to create different value propositions, whether that's security or aging in place, home health care, or some other areas that we'll be working on over time. This adjacency is a small acquisition in a huge market that's going to be growing at an extremely fast rate, and it's a market that's relatively antiquated, fragmented, and it really hasn't had much disruption. Our goal is to do in the age-in-place market what we've already done in security and have a complete change of the go-to-market and the unit economics. It definitely, I think, validates the fact that we're not at any shortage of opportunity for the business, right? No. If I think about the long term, we talked about the mix-shift dynamics, the long-term kind of financial profile. You guys had a 27 framework, if I'm correct, right? You've executed against that and are beyond those targets. Yes as of the end of 2025, if I'm not mistaken. Yeah target framework, I guess. Could you give us a sense of your vision-? Yeah of maybe the next five years for the business looks like? Yeah. We try and give investors a view over a couple time frames. We always obviously provide the quarter, what we think's happening either in the quarter or the next quarter. We talk about the full year and what's happening over the next 12 months. We often give a long-range plan out to users, and our first one we gave out, I think, in 2022 or 2023. They're typically five-year plans. Within a couple of years, we had already beaten most of the metrics. We're on a clear trajectory where we had investors come to us and say, "It looks like it's actually limiting what your future growth will be because you've already outexecuted the first couple of years." About two years ago, we put out a new one that goes through 2029, the end of 2029. The goals I mentioned before is 10 million subs, $700 million in ARR, and over 25% operating margin as a company. You can think of what would a company be worth if they could hit those metrics? It is clear, especially after this last quarter, that we're on a trajectory to probably obliterate that as well. We're starting to hear from investors that, again, it's looking like that long-range plan, which seemed audacious when we first rolled it out a couple of years ago, probably feels a little limiting, especially with some of the things that we're planning for growth into 2027, some of the partners we've signed up. I think over the course of this year, we're likely to update that long-range plan again and probably put out either new targets or bring in some of the dates of when we'll accomplish that. The good news is the management team and the company, we've had a demonstrated capability over the last five years of setting relatively aggressive targets, beating them relatively quickly, and then resetting where we think we're going to be able to achieve. You said it, there's no shortage of growth. Much of what we're doing from a capital allocation perspective inside the company is deciding where, based on the capital we have, to place specific bets. There's no shortage of bets to be placed. There's no shortage of $50 billion markets all around us. Really, what we're focused on is, what are the smartest bets for shareholder return over a given time frame? Those time frames are typically 12-24 months, and then on our five-year plans. How do you balance those decisions, right? There is a lot to go after. You're generating cash. Yeah the margin's expanding. Maybe the prioritization between reinvestment organically back into the business. Obviously, we've seen some targeted M&A, and I do think you guys have a buyback authorization as well too. The blend between the three. Yeah. Briefly, I know we're getting close on time, our capital allocation plan is the typical three-tiered or three-pillared capital allocation plan. We're doing a buyback. I would tell you the overall sentiment in the company is we're habitually undervalued. We had a $50 million buyback that was put in place. Prior to that finished, I think towards the end of the year, just the beginning of Q1, the board immediately put in another $50 million buyback plan. We will be buying stock, especially when we feel like our stock price is not reflective of the performance that we're putting out there. Two is investments or acquisitions. We've done our first small acquisition. We've told investors for the last couple of years that if we do an acquisition and it's an adjacency, we'll make a smaller bet to make sure that we don't get distracted off our long-range plan. If we do one that's more market consolidation, then we would go a little bit bigger. We made our first acquisition, and we're always going to be really smart about how we do that and very disciplined. Then the third pillar is the organic investment. You've seen some of that last year. We launched nearly 200 SKUs in a big product reset last year. There's some really exciting AI and new service features coming this year. We're telling investors to expect another big product technology and service deployment next year as well. So, we are investing in some of those areas. It's a balance. I think obviously, when the stock price is where it's at, you'll see the buyback come up even more. I think we're doing a great job at balancing both the organic and inorganic investment, where we're executing on a fast-growing market, but not shy of making some small bets and some tactical adjacencies that we think are going to be really important over the next five to 10 years. Fantastic. I think that's a perfect teaser to continue the conversation upstairs in the breakout. Matt, thank you very much. Appreciate it. Yeah, appreciate it. Thank you. We'll be in Jenny.