Arlo(US:ARLO)2020-08-06 03:28Financial Data and Key Metrics Changes - The company reported revenue of $66.6 million for Q2 2020, exceeding the upper end of guidance by $6.6 million, representing a 1.8% sequential increase but a 20.3% year-over-year decline [5][12] - Non-GAAP operating expenses were $31.3 million, down $900,000 sequentially and down more than $6.6 million year-over-year, significantly better than the target of $33 million to $34 million [5][12] - The company ended the quarter with $205.5 million in cash, cash equivalents, and short-term investments, down $1.1 million sequentially [18] Business Line Data and Key Metrics Changes - Product revenue for Q2 2020 was $49.6 million, down 31.5% year-over-year and down 2.2% sequentially, primarily due to COVID-19 impacts [12] - Service revenue reached $17 million, up 52.7% year-over-year and up 15.6% sequentially, driven by paid account growth under the new business model [13] - The company ended the quarter with approximately 298,000 paid accounts, a 59% year-over-year increase, with a record growth of 43,000 new paid accounts in the quarter [6][10] Market Data and Key Metrics Changes - The company shipped approximately 516,000 devices in Q2 2020, with around 511,000 being cameras [13] - The Essential Spotlight security camera was launched, targeting the fast-growing $100 price segment, and received positive early reviews [7][8] Company Strategy and Development Direction - The company is transitioning to a new business model featuring a 90-day trial of Arlo Smart, which has resulted in a 50% subscription attach rate, significantly higher than the previous model [6][7] - A partnership with Verisure is progressing as planned, with milestones achieved, and a new agreement with Securitas Security Services USA was announced, marking the first U.S. SmartCloud SaaS customer [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's execution and results despite challenges posed by the COVID-19 pandemic [10] - The company has withdrawn full-year guidance due to uncertainty from COVID-19 but expects Q3 revenue to be in the range of $85 million to $95 million [19][20] Other Important Information - Non-GAAP gross profit for Q2 2020 was $6.4 million, with a non-GAAP gross margin of 9.6%, an improvement from the previous quarter [14] - The company expects to see improvements in product gross margin as it transitions to the new business model [14][15] Q&A Session Summary Question: Can you talk about the traction of the Arlo Essential Camera? - Management is pleased with early sales of the Essential camera but noted it is too early to comment on the subscription attach rate [21][22] Question: Can you elaborate on the Securitas opportunity? - The Securitas deal is significant as it diversifies the channel and is expected to have a one-to-one attach rate for services [23][24] Question: What is the state of the industry and competitive environment? - ASPs have stabilized, and the company expects improved gross margins as new products are launched [26][27] Question: How should we judge the subscription attach rate moving forward? - The transition period is complex, but the company expects to predominantly operate under the new business model by next year [29][30] Question: What are the implications of competitors having more cash? - The market is heating up, and Arlo is well-positioned due to its technology and partnerships [32][34] Question: How is the company converting webpage traffic to sales? - The online store has seen incremental growth, and the company plans to invest more in its direct channel [40][41] Question: What are the ramifications of Prime Day being in Q4? - The timing of Prime Day will affect POS and shipment dynamics, but the company is prepared for the changes [42][43]