Arlo Technologies, Inc.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press star 1 on your push-button phone. I would now like to turn the conference over to Eric Bilen. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Arlo Technologies' fourth quarter and full-year 2020 financial results conference call. Joining us from the company are Mr. Matthew McCrae, CEO, and Mr. Gordon Mattingly, CFO. The format of the call will start with an introduction and commentary on the business provided by Matt, followed by a review of the financials for the fourth quarter and full year, along with guidance provided by Gordon. We'll then have some closing remarks from Matt before we enter Q&A. At that time, we will have time for any questions. If you have not received a copy of today's press 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 expected revenue, gross margins, operating margins, tax rates, expenses, future cash outlook, our partnership with Verisher, continued new product and service differentiation, future business outlook, and the impact of COVID-19 pandemic business and operations. 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 the most recent annual report on Form 10-K and quarterly report on Form 10-Q. 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 mentioned on this call. A reconciliation of the GAAP to non-GAAP measures can be found at today's press release and on Investor Relations' website. At this time, I would now like to turn the call over to Matt.

Thank you, Eric, and thank you, everyone, for joining us today on ARLO's fourth quarter 2020 earnings call. On today's call, Gordon and I will walk you through Arlo's results for the quarter, which include an overview, commentary on paid account growth, new product announcements, an update on partnerships, and financial results. We will also provide some expanded commentary on our outlook going forward based on the foundation we built in 2020. During a very tumultuous 2020, Arlo set about implementing a business model transition that cut across our entire organization. We refreshed most of our product portfolio. We launched new service plans. We won more awards than any other time in our company history. We diversified our revenue through key partnerships, and we optimized business operations. All while we fought through the pandemic-induced disruptions that swept through our industry, our markets, and indeed our world. With a dramatically stronger financial foundation, Arlo is not the same company it was a year ago. We are stronger and on a new upward path, and I could not be prouder of the entire Arlo team for what we accomplished in 2020. And now on to our Q4 results. I'm pleased to share that we delivered $114.8 million in revenue at the top end of our guidance. Our non-GAAP gross margin grew by more than 10 percentage points year over year, while our service gross margin improved by more than 10 percentage points sequentially. In addition to our substantial gross margin expansion, our unrelenting focus on operational efficiency and excellence delivered nearly $4 million of non-GAAP operating expense reduction year over year. That combined performance created significant leverage in our business, improving our non-GAAP net loss by $14 million when compared with last year and sending us well past the high end of our guidance for non-GAAP net loss per share, which came in at a loss of 8 cents. In rounding out our financial metrics, our cash, cash equivalents, and short-term investment balance improved by $12.5 million sequentially. Underpinning this outstanding quarter is the continued acceleration of our paid accounts, which set yet another record as we added 79,000 paid accounts in Q4, which is a 36% increase over Q3. Arlo ended the year with approximately 435,000 paid accounts, which is an 89% increase on a year-over-year basis. And Q4 was our sixth consecutive quarter of record services revenue at $21.6 million, up 72% year over year and putting an exclamation point at the end of a truly transformative year. Arlo's move to our new business model is the driving force behind the transformation and provides 90 days of Arlo Smart Service with the purchase of a hardware device. Arlo Smart is our best-in-class AI-powered motion identification and security service, which enhances the product's capabilities and transforms the user experience. Upon expiration of the initial service period, we have consistently seen a 50% subscription attach rate to the paid service, a rate 10 times higher than our old business model. Sales of old business model products phased out as our relentless product portfolio refresh launched new products through 2020, and beginning in 2021, virtually all of our retail sales will be products under our new business model. This success would not be possible without Arlo's unwavering commitment to innovation. In Q4, we launched our wire-free video doorbell that brings Arlo's best-in-class technology to a new form factor that addresses a large, fast-growing market segment. The product is clearly resonating with users and critics, with TechGuide calling it a, quote-unquote, game changer and, quote-unquote, the one to buy, while commenting on the responsiveness and our unique image format as key differentiators. And Review.com praised our wire-free video doorbell by saying, quote, it's the best smart video doorbell we've ever tested. Arlo also started the year strong by winning two CES Innovation Awards, one for our new essential indoor camera that incorporates all of our award-winning features from that product line, combined with an innovative motorized privacy shutter that directly addresses concerns around typical indoor camera offerings. The second award was given to our touchless video doorbell concept that utilizes a unique proximity sensing technology to ring the doorbell with a wave of a hand instead of a physical touch, thus reducing potential spread of viruses or other pathogens via a button repeatedly used by numerous people. In December, we announced a strategic partnership with Calix that enables expanded distribution of Arlo's award-winning products and services. Calix will now offer Arlo's smart security solutions to their broad network of communication service providers. These local, trusted CSP will bundle Arlo's products and services with their other offerings, such as managed Wi-Fi, and address regional customers that may be underserved by traditional retail channels. This partnership opens up another exciting route to market across the U.S. and Canada. Our VeriShare partnership continues to proceed as planned. We achieved all in-quarter milestones and are targeting a wider rollout as the year progresses. As a reminder, the partnership with VeriShare includes a $500 million hardware purchase minimum guarantee over five years from 2020 to 2024, in addition to ramping paid accounts in the region. The minimum guarantee alone represents a 25% caterer for the European market over the five years, and the partnership serves as a great example of our ability to execute in the B2B channel. And now I would like to hand over the call to Gordon, who will provide more insight into our financial performance, operational details, and outlook for the first quarter and full year.