Arlo Technologies, Inc.

If you have a question, you will need to press the star, then one on your push button phone. I would now like to turn the conference over to Tom and Clark. Please go ahead, sir.

Good afternoon, everyone, and welcome to Arlo Technologies' fourth quarter and full year 2023 financial results conference call. Joining us from the company are Mr. Matthew McRae, CEO, and Mr. Kurt Binder, CFO. Hello. The format of the call will start with an introduction and overview provided by Matt, and followed by a review of the financial results by Kurt. Matt will then share an update on technology and innovation, and Kurt will deliver guidance for the first quarter and full year. Then we will wrap up with Matt providing an update on the long range targets, and the team will then answer any questions that you may have. If you have not received a copy of today's 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 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, guidance for the first quarter and full year of 2024, long range targets, the rate and timing of paid subscriber growth, the transition to a services first business model, the commercial launch and momentum of new products and services, 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 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 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 would now like to turn the call over to Matt. Matt?

Thank you, Tommen. And thank you, everyone, for joining us today on Arlo's fourth quarter and full year 2023 earnings call. Two years ago, Arlo unveiled our long range plan to provide visibility into our forward operational goals and to set clear goalposts for investors to measure our transformation and acceleration into a services business. The team's stellar performance of the last two years has put Arlo on a trajectory to surpass those targets. Our business has clearly hit an inflection point that warrants us updating our long range plan targets to more accurately convey where the business is headed and set newer and higher goalposts for us to focus on. As part of this long-range planning process refresh, we evaluated our execution from Arlo's IPO in 2018 to where we stand at the end of 2023. I would like to share some highlights of that review before we get started today. First, let's take a look at our paid accounts, the underlying growth driver of Arlo's transformation. At our IPO, we had just over 100,000 subscribers that were a result of a 5% service attach rate. I remember standing in front of the entire company at the time and saying our first goal was to hit 1 million subscribers. Given the fundamental change required in technology, operations, and culture, it seemed an almost insurmountable goal. Since then, we have increased our paid accounts 25 fold and more than doubled our subscriber base since we rolled out our long range plan in 2021. It is a similar story for annual recurring revenue, which has shot up 16 fold since our IPO and again has more than doubled since the rollout of our long range plan to reach $210 million. And finally, a quick look at non-GAAP operating margin, which has swung more than 12 percentage points since our IPO and is continuing to expand since hitting the 2 million paid account number. This was not an easy journey. Transforming a public company from the inside out without raising capital or taking on debt was an extraordinarily difficult task that required belief, discipline, and best-in-class execution. I would like to take a moment to thank the entire Arlo team for their hard work and dedication to our customers, suppliers, and all our stakeholders. Arlo is so focused on where we are headed that it is easy to forget how far we have come. We have achieved an incredible feat and I look forward to climbing the next mountain together. Who is Arlo now after this transformation? Arlo is a service business, providing consumers and small businesses peace of mind by connecting and protecting everything that matters to them. We have a core belief that everyone has a right to feel safe and in control of their lives. The entire company is built around fulfilling this need. Arlo users have an emotional and personal connection to their use cases, which transcends a typical transactional or one-time engagement. I learned early on that we play an extremely important role in our users' lives. And by providing this value to them every day of every week of every month, we can become a trusted companion that becomes a part of their daily life. and the need is large and growing. People feel less safe as they see and experience a rise in burglaries, theft, and assault. Property damage from fire and water leaks have grown to nearly $50 billion a year in the US alone, creating a huge burden on families and insurance companies. These are large problems with a massive impact in both life and financial terms that, if properly addressed, could increase the quality of life and drive significant savings to numerous industries. These trends are driving substantial growth in our market. Offerings that can detect, control, and mitigate these negative events are seeing rapid growth that will ultimately grow to a $50 billion market by 2027. Arlo is leading a wave of innovation that is bringing these capabilities to mass market consumers through simple, elegant, innovative, and powerful solutions available through numerous channels. This leadership has propelled Arlo's meteoric rise in annual recurring revenue and our recognition as a world-class SaaS business. The SaaS ecosystem is filled with well-known companies. In fact, we studied the business models of our best-in-class peers as we set about building a world-class services-focused company. Our execution after launch puts Arlo in rarefied air when looking at how fast a SaaS company reached the critical $100 million of ARR milestone. Only a handful of companies have achieved this feat in five years and Arlo is the most recent example. What is driving the success is our retail and direct paid accounts, which represents the majority of that service revenue and ARR. Our average revenue per user is now over $11 per month or $135 on an annual basis. And this business is operating at nearly 90% gross margins. If we look at these users on a lifetime basis, the customer lifetime value is roughly $700, while our acquisition costs for that customer is $100. This results in an LTV to CAC ratio of seven. How does that compare with other world-class SaaS companies? Again, you can see that Arlo's service business is operating at an extremely high level when compared to the top peers in the industry. Our LTV to CAC ratio of seven puts us above some of the largest and well-known SaaS companies in the world and well above the industry average of three. This also illustrates we have significant room to invest in customer acquisition to further drive growth in ARR and shareholder value. Underpinning that impressive LTV number is another world-class metric, our churn rate. Arlo experiences a churn rate of between 1.1% and 1.3%, which stands apart from the top consumer SaaS businesses in the world. This churn rate has held across the pandemic, price increases, and macroeconomic challenges, and is evidence for the depth of the value Arlo provides our users, how peace of mind is so sticky, and the importance of the role we play in our users' lives. Recently, Arlo was awarded the IoT Security Camera of the Year Award by the Tech Breakthrough Organization. This award honors companies based on innovation, creativity, hard work, and ultimately success on a global basis in the IoT and smart home markets. And Newsweek selected Arlo as a winner of its Excellence 1000 Index for 2024, which recognizes companies based on their commitment to best practices and growth while serving customers, stakeholders, and communities with a dedication to social responsibility and ethical standards. Arlo was ranked number 14 out of 1000 global companies and was placed in the top five for the IoT category, an honor we share with Intel, Nokia, Verizon, and Microsoft. Arlo is a world-class company punching well above our weight and focused on leading the market through innovation and discipline execution of our operating plan. And now I will turn it over to Kurt who will provide an overview of our Q4 and full year 2023 results.