Arlo Technologies, Inc.

Ladies and gentlemen, thank you for standing by. 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' first quarter of 2021 Financial Results Commerce Call. Joining us from the company are Mr. Matthew McRae, CEO, and Mr. Gordon Madeline, 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 first quarter, along with guidance provided by Gordon. We'll then 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 Verisure, continued new product and service differentiation, future business outlook, and the impact of the COVID-19 pandemic on our 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. 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. Reconciliation of the GAAP to non-GAAP measures can be found on today's press release on our Investor Relations website. And 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 first quarter 2021 earnings call. In my past commentary, I mentioned that Arlo is not the same company it was a year ago, and clearly our Q1 results put an exclamation point on that statement. Revenue is up 26% year-over-year. Service revenue is up 55% year-over-year. Paid accounts are up 115% year over year, and non-GAAP gross margin is up an incredible 336% year over year, reaching an all-time high for Arlo. Diving a bit deeper into our Q1 results, Revenue came in above the top end of our guidance at $82.6 million, and our strong operational discipline lowered non-GAAP operating expenses by nearly $2.5 million year over year. Q1 marked the seventh consecutive quarter of record services revenue at $22.8 million. This drove non-GAAP gross margin of nearly 10% sequentially, again, to reach an all-time record for the company. This performance, coupled with our commitment to maintaining leverage, led to us soundly outperforming the high end of our guidance for non-GAAP net loss per share, which came in at a loss of just 3 cents. In our cash, cash equivalents, and short-term investments balance remain solidly healthy at $177.1 million. Our strategic shift towards services, the success of our new business model, and the resulting momentum are undeniable as we look forward to reaching $100 million in service revenue this year and 1 million paid subscribers by our year-end earnings call after just passing through 500,000 subscribers on March 1st. We anticipate our trajectory will have us reach break-even on a non-GAAP basis in the second half of this year, and with this, will not need to raise additional capital. Our current performance and these near-term milestones demonstrate the profound impact of Arlo's successful transition to a services-first company. In Q1, we had 114,000 paid account additions, which represents an increase of 44% sequentially and 356% year-over-year. As a reminder, last year Arlo carried out a refresh of our product portfolio, phasing out legacy offerings under the old business model in favor of an entirely new suite of products that feature a free 90-day trial of Arlo Smart, our unique and unmatched AI-powered motion identification and security service. Through features like advanced computer vision-based object identification, audio analytics, customizable notification, activity zones, and cloud video storage, we are honored to provide home and business owners with total peace of mind. Arlo Smart is truly a value add for our customers, leading us to maintain a consistent 50% subscription conversion rate upon expiration of the initial trial period. And as we follow cohorts over a six-month period, we see the attach rate to our subscription services grow towards 65%. Arlo's newest product, the Essential Indoor Camera, which includes an automatic privacy shutter, represents the final product transition to our new business model and is available now at a suggested retail price of $99.99. It has already been named a winner of the TechRadar Pro TWICE and Residential Systems PICS Award, honoring the best and most influential customer technology at CES. Over the last quarter, Arlo's engine of innovation also turned to our user experience. We launched version 3.0 of our application for Apple iOS and Google Android devices with a wide collection of new features and improvements. App and live stream performance are increased up to two times. Deep linking from notifications allows faster access to past events. Smarter and richer notifications are now available through Google Home, Amazon Alexa, Samsung SmartThings, and ISTPP ecosystems, and video events can be viewed directly on Google Nest House. In addition, Arlo 3.0 enables an industry-first animated clip inside of the notification window on iOS and Android, providing a clear indication to the user what kinds of motion trigger the event in a much better context to determine threat level. This is the beginning of an innovation cycle from Arlo that will span across our experiences, services, and new segments. Our current solutions continue to win acclaim across the industry. U.S. News & World Report awarded the Pro Series the best security camera of 2021 in multiple categories. Pocket Lint recognized the essential indoor camera as the best indoor security camera. Our Pro 4 series won Editor's Choice Awards from both PC Magazine and Digital Trends. The Essential Wire-Free Doorbell won a claim from Android Central, The Ambient, and beat Google's Nest Doorbell in a head-to-head review posted by Review.com. And finally, Arlo was recognized for excellence in design by winning three coveted Red Dot Design Awards for our Pro 3 Floodlight, Essential Spotlight Camera, and the Essential Wire-Free Video Doorbell. I would like to take a moment to thank all the teams at Arlo for their outstanding work to deliver the world's best and most recognized smart security ecosystem. We have launched more than 10 products under our new business model, and our innovation has clearly spread across our hardware as well as our services, all designed to continue to enhance the entire Arlo experience. And our teams have successfully completed a major program with our partner, VeriShirt. A new camera designed specifically to their needs that will move into production in Q2 for initial rollouts this year and full volume deployments in 2022. This is a significant milestone in our relationship and will drive future growth in product and service revenue. As a reminder, our strategic engagement with Verisure includes a guaranteed minimum of $500 million of product purchases alone over the five-year term from the start of 2020 and service acceleration through the direct sales channel. You can see in our quarter results the traction we are seeing in Europe as Verisure invests across the channels and continues their rollout of the Argo solution. Our programs and rollouts remain on track in 2021, and we look forward to the full benefit of the relationship in 2022. And now, I would like to hand the call over to Gordon, who will provide more insight into our financial performance, operational details, and outlook for the second quarter and full year.