Arlo Technologies, Inc.

you will need to press star 1 on your push-button phone. I would now like to turn the conference over to Eric Byland. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Arlo Technologies' second quarter of 2021 Financial Results Conference Call. Joining us for the company are Mr. Matthew McRae, CEO, and Mr. Gordon Mattingly, CFO. 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 second 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 RLO'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, results of operations, and financial condition, including descriptions of our revenue, gross margins, operating margins, tax rates, expenses, cash outlook, guidance for the second half and full year 2021, transition to a services-first business model, the commercial launch and momentum of Arlo Secure and Arlo Secure Plus, strategic objectives and initiatives, market expansion and future growth, our partnership with VeriShare, continued new product and service differentiation, supply chain challenges, and the impact of the COVID-19 pandemic on our business, operating results, and financial condition. Actual results or trends could differ materially from those contemplated by these four looking statements. For more information, please refer to the risk vectors discussed in Arlo's periodic filings with the FCC, including the most recent 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 gap to non-gap 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.

Thank you, Eric, and thank you, everyone, for joining us today on Arlo's second quarter 2021 earnings call. Our team, again, outperformed our expectations while navigating the considerable supply chain challenges that so many companies are currently facing. And with the excellent second quarter performance, we continue to see acceleration across key metrics. Product revenue, service revenue, and total revenue for the quarter were all up 48% year-over-year. Total paid accounts were up 133% year-over-year, and non-GAAP gross profit dollars were up an incredible 328% year-over-year. Our strategic shift towards services, the success of our new business model, and the resulting transformative improvement in our profitability are undeniable. And while we expect the supply chain challenges to continue in the near term, we see continued strong demand and are reconfirming our expectations for the full year. And now I will dive a bit deeper into our Q2 results. Revenue came in comfortably above the top end of our guidance at $98.6 million. Q2 marked the eighth consecutive quarter of record service revenue at $25.3 million. The strength in our services business coupled with double-digit year-over-year revenue growth in Americas and Asia Pacific and triple-digit year-over-year revenue growth in EMEA, drove non-GAAP gross margin up over 18% year-over-year. This strong performance 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 $0.04. And our cash cash equivalents and short-term investments balance increased by $1.6 million during the quarter, landing at a healthy $178.7 million. We have lowered our non-GAAP operating loss by an impressive 86% year-over-year in the first half of 2021. from a $52.3 million loss in 2020 to a $7.4 million loss in 2021. And with our current cash position, we anticipate reaching profitability without the need to raise additional capital. Our current performance and these results underline the profound impact of Arlo's successful transition to a services-first company. In Q2, we added 146,000 paid accounts a record high which represents an increase of 28% sequentially and 240% year-over-year. To put that paid account growth into context, under our legacy business model, it took us more than one and a half years to add the same number of paid accounts we just added in the second quarter alone. On July 4th, we reached more than 700,000 paid accounts and believe we are well positioned to achieve our 1 million paid account goal by our year-end earnings call. And as previously mentioned, service revenue in Q2 was over $25 million, giving us a clear path to hit our projection of $100 million of service revenue for the year. As we experience this tremendous growth in services, Arlo is also driving innovation to further enhance service the value provided to our users. In July, we announced a major update to our service plans, which have replaced Arlo Smart. Arlo Secure features computer vision-based object detection, AI-based audio detection, interactive notifications, animated event preview, secure cloud storage of video up to 2K resolution, 24-7 premium support, and 10% off Arlo.com purchases. Arlo Secure is $9.99 per month and now supports an unlimited number of devices. Arlo Secure Plus includes all of the features from Arlo Secure, increases the resolution of cloud video storage to 4K, and includes Arlo's new 24-7 emergency response, which provides a new level of assistance when every second counts. A single tap allows the user to request specific emergency resources to be immediately dispatched with a choice of fire, police, or medical. In addition, users can rapidly share critical information saved to their Arlo app with emergency personnel to better prepare first responders en route. Information can include addresses, gate access codes, medical conditions of family members, pet details, and more. Live, trained emergency response agents will assist by providing continuous updates to users and first responders via the preferred method of communication, whether that be through the Arlo app, SMS messaging, or a voice call. Arlo Secure Plus is $14.99 per month and also supports an unlimited number of devices. The new Arlo Secure service plans extend further Arlo's technology leadership while providing significant value to our users. And the industry-first emergency response functionality provides a compelling case for users to step up to Arlo Secure+. As a reminder, under our new business model, where we included a free 90-day trial of Arlo Smart, we see 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%. Going forward, our new business model products will contain a free 90-day trial of Arlo Secure+, so users can experience the full breadth of capabilities provided by the Arlo platform. Our industry-leading technology continues to outclass the competition on the hardware side as well. Since our last earnings call in May, Arlo's Pro 4 Series won the Editor's Choice Award from TechHive, the Essential Spotlight Camera won a claim from T3, Digital Trends awarded our Essential Indoor Camera a Recommended Buy, the Ultra 2 won Tom's Guide Highly Recommended Award, and numerous Arlo solutions are featured in Best of 2021 lists across the industry. The glowing reception our technology continues to garner is a testament to Arlo's commitment to innovation and bringing peace of mind to our customers. Finally, I would like to update you on our strategic partnership with Verisure. To date, Arlo's existing suite of products and services are being sold by Verisure not only through its retail channel, but also through its direct security channel, where it has more than 3.6 million customers across Europe and Latin America. We're excited to share that a new camera system designed specifically to meet the needs of their security channel was successfully moved into production in Q2, and we expect initial field rollouts in Europe in the second half of this year and full volume deployments in 2022. That success led to current quarter revenue in Europe growing 123% year over year, and we expect Europe to deliver more than $100 million in 2021 for a growth rate of more than 60%. 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 significant service subscription acceleration. Our programs and initial rollout remains on track for 2021 and we look forward to realizing the full benefit of the relationship in 2022 and beyond. 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 third quarter.