Yeah. Help us understand what Arlo is from a platform standpoint, why it's differentiated, and then let's talk a little bit about the AI impact, both good and bad.
Yeah. Maybe I'll back up a little bit and just talk a little bit about the journey Arlo's been through, and that kinda gives you a good idea of you know, where we are today. For those of you familiar, Arlo's a spin from a company called NETGEAR years ago in 2018, focused on the DIY security space. Back at that point, it was really focused on hardware. It developed the DIY security market with internet-connected cameras. It was initially created as a company to try and drive home networking traffic, so people would upgrade their wireless routers. That's really where it started. As we spun, we realized that actually the core asset of the company is really the platform, the cloud platform, and the services that could be derived from that cloud platform.
'Cause when people are looking for security, it's not one-and-done hardware purchase. They're really looking for a service that's ongoing relationship through in our case cloud and AI services. We started to pivot the company and really invest in the underlying platform, and we spent hundreds of millions of dollars developing the platform over the last decade. It really is a differentiated source of where we provide where we get all of our income. If you look, 63% of our revenue is now services revenue. We look at the hardware as really that way to create that relationship with that end user and actually start the service relationship, which I'll come back to 'cause that's one of the big differentiating points. Scott, you brought up strategic partners as well.
When we spun, we were basically 100% a retail company, and now we find ourselves nearly 50/50. We're about 40%-45% strategic partners or B2B2C, working with companies like Verisure. We announced a deal with ADT. We just announced a deal with Comcast, where we can get to consumers through partnerships or through our traditional channels like Best Buy, Costco, Amazon, and our direct channels. If you're going back to the platform perspective, what really differentiates that is, number one, we build all of our own AI models. And we leverage those to be very specifically oriented towards the security use case, which is different than a lot of generic models.
In security, you want extreme low latency, and you want very domain-specific training, so that you're not making silly mistakes when you're in the field and people are relying on this for security. The other big differentiator, I think, from kind of the broader software story is we find ourselves in this really great spot where we're deriving almost all of our profit and a huge part of our revenue now from services, but we can't be disintermediated like a lot of the other software companies out there, right? That hardware component that we distribute to the end user and becomes that connection to our back-end platform, that remains encrypted and linked to our back end only.
We have the beauty of having millions of households that we can supply services to, and nobody can come in and disintermediate us. We're on just an innovation cycle of constantly renewing services and raising ARPU over time.
Matt, just to drive that point home, though. When we think about what's happened in the software and the SaaS market from a-
Yeah
An investor market valuation standpoint over the past, you know, six to nine months, you guys are insulated from that because of the ties to hardware and what you can do and differentiate on that front. Is that correct?
Yeah, that's absolutely correct. You know, we are a fast-growing SaaS business, but, where the hardware piece was maybe looked down upon years ago when that was the only part of our business, now that we use it as a way to create that link to that end user, not only does it create that relationship and that recurring revenue stream, but it also locks that customer in and makes it so somebody can't, come in and steal that customer.
Gotcha. A couple things there. I wanna just follow up on the platform standpoint again and just in terms of how robust and how flexible that is because now you're starting to talk about adjacencies, and we're gonna get to that in more detail in a little bit. The platform enables you to do that, to be able to incorporate adjacencies, 'cause I think you get thought about as a DIY home security company, and what in fact you are is a home automation platform. Is that?
Yeah, I think that's fair. If you look, one of the most difficult things to do if you're building a real-time AI cloud platform is actually the low latency, very fast performance and very high accuracy. I actually believe that because we came from the security industry first, meaning we had to solve the security use case first, meaning very low false positives, right? Very low false negatives, very high performance, very low latency linked to emergency services, 24/7 availability. All of the most difficult things that are required in a security use case. That platform now, I think, stands alone as being top of its class and can be easily leveraged into additional adjacent services or market segments.
In some way, we solved the most difficult problem first, and that means our platform is a step above a lot of the other competitors that would be out there.
Now, one of the simple yet high-level questions I always get asked is, how do you compete in a marketplace that has a lot of competition out there that tends to be price insensitive? At the low end, it's your Amazon, it's also your Google, and then at the higher end, it's your ADT, but which oddly enough now is a strategic customer of yours.
Yeah.
How do you differentiate? How do you compete in that environment?
Well, I think the partnership with ADT, I think, is a proof point that there really is some significant differentiation in our platform. You know, they've been in the industry for over 100 years, and they've realized that we had the best platform solution to actually bet on for their growth going forward. If I step back and you look at an Amazon or a Google, and Google's pulled back from the space a little bit. Amazon's still quite active. It actually goes back to the platform again. If you look at these large companies, what they're mostly focused on is building these huge LLMs, these huge models, not specific for certain use cases.
Because Amazon's really in the business of data centers and e-commerce, Google's in the business of really advertising, and you know, Gemini, so they're in the data center business as well. That's where we see the big difference. When you know, Google, for instance, when they first rolled out Gemini on their cameras, had a ton of false positives and negatives, was reporting that there was deer leaping through people's kitchens and all these things that were happening because the model wasn't geared towards the specific security use case, and their accuracy was actually quite poor.
Remember, they're building a huge model that supposedly is gonna help you know, pass the SAT exam, teach you how to cook chicken cacciatore, and, you know, figure out how to change oil on a Porsche. It's a very general purpose model. That's not what we do. We build very specific models that are highly tuned for the use case, and that's how we drive very high accuracy, and it drives the trust in the partners. When they test these models side by side, we win almost every time.
You and I have been having this conversation for a while, and it kind of hit home very strongly during the Super Bowl, privacy, right? For those of you who didn't see it during the Super Bowl, there was a nice little ad from Amazon Ring where they helped someone find their lost dog in the neighborhood, right? It was an allegedly opt-in partnership with Flock, upload your data from your Ring doorbell into the cloud, and it kinda set off a whole lot of privacy issues and doorbells. How do you see the privacy market? I know you guys from a DNA standpoint are very attuned to that and what that means to your customers. What are you doing on that front? How is it differentiated?
That really leads into what's driving a lot of strategic relationships too.
Yeah. Yeah. For us, privacy and data security is non-negotiable. We're the only company in the space that actually has a cybersecurity and data privacy board level committee. We designed everything from the ground up to be secure, again, because we came from a security background. The advertisement you're referring to created a very huge backlash around mass surveillance and, you know, data sharing and video sharing without the user's knowledge. We don't do that. Our whole approach to privacy is it's, if it's the user's, let's say it's their video doorbell, it's their data. It's not our data. We don't use it to train our models unless they donate it to us. We don't do unexpected use cases there.
We don't use that to sell you socks on an e-commerce site, and we don't use that for advertising. We approach it from a very, very different perspective in that it is our users' data. We're processing it on their behalf as long as they want us to, and they have full access to control that data in what we call our privacy center, that's part of our user experience. That, exactly what you said, Scott, that approach to privacy also massively differentiates us, not only for the consumer, who's getting more and more concerned about this when they're shopping on a retail shelf, as an example, but also partners. You know, think of a Samsung, an ADT, a Comcast, a Verisure, some of our biggest partners. We approach them the same way. It's not our user data.
It's their users' data through them, and we're processing it on their behalf. We've set the company up to be very easy to partner with, both at the technology level, but also in the way that we run our business.
How important is that for these strategics? Now, which you've announced a bunch. We're gonna talk a little bit more about that, but is that a key element and one of the reasons or one of the primary reasons why they're working with you as opposed to somebody else?
Yeah. It's really three things that they're looking for. They're looking for a pipeline of innovation. They're looking for, you know, absolute performance out the back end, meaning the platform performance and how you run the company, the APIs and everything else, and then again, privacy because it's their reputation on the line. In many respects, these services will go out either co-branded or branded under their name, and they need to make sure that they can trust the company they're partnered with. These partnerships are typically close to 10 years plus. Our average lifespan of a customer is eight years. Part of what these partners are looking for is a long-term relationship that'll extend the life of whatever existing customer they have, let's say it's a broadband customer, in addition to raising the ARPU.
The one thing that could blow that up would be a big privacy or data security breach, so it matters tremendously to them.
You've announced a whole slew of strategic relationships in the last several months. You conservatively add up the potential households that are addressable under your strategic relationships. It's probably 50 million-70 million households and probably more than that. What's most exciting to you? What's got you completely jazzed up where you see the opportunity being absolutely phenomenal?
Yeah, it's hard to pick. Over the last 12-18 months, we've told investors that, "Hey, expect more strategic partners coming," 'cause we knew a lot of these were in the works. We've also mentioned that as we're reaching for our long-range plans, that roughly 60% of our incremental growth is gonna come from strategics. I think when we started saying that about two years ago, as we saw some of this starting to develop, I think we got a little bit of tilted heads, but now that's not the case. If I run through them real quickly, ADT is exciting because they have access to and a brand to go drive households. Their demographic's very different than our demographic, so these are really incremental customers we can go after.
They're looking at us to drive innovation and growth. ADT's big thing, if you look, listen to their recent earnings calls, is figuring out where the catalysts of growth are gonna be, and I think the solution with us and our platform will help drive that. Samsung's interesting. Samsung, and they announced at CES, is our first no hardware partnership. On Galaxy phones and tablets and eventually even appliances and other things, there will be a subscription service for emergency response. You know, imagine in the future you're in your kitchen, and someone starts choking. If you have a Samsung fridge, you can just tap, and actually have, you know, help arrive very quickly, right through the interface in your home. We'll be powering that whole thing, so it's a pure SaaS relationship with Samsung.
It's actually leveraging Samsung hardware, and they've got, you know, 400 million-plus SmartThings users around the world.
Just to clarify on that front.
Yeah.
Do you need to be installed as an Arlo security system within the household?
No
or no? Okay.
No, it requires no hardware. Samsung's gonna be updating the software on their devices. It'll be a pull-down widget in their mobile phones and tablets, and it'll be part of the SmartThings application.
The financial model for that will look like what? It's gonna be.
So-
on a user basis or per sub or how does it work?
Yeah, it's per household in that case.
Okay.
In that case, which is really per-user basis. We have a rate to Samsung, and Samsung will then bill out to end users. Comcast is a great relationship. Can't say too much about that. We announced it, but it'll probably launch closer early next year. There's usually about a nine to 10-month integration cycle. Really what we're doing is they've realized that the innovation pace in this market segment is extraordinarily fast, and they wanna bet on a company that already has a pipeline of innovation, both on the hardware side, but more importantly on the AI and platform services side. We, you know, showed them our two-year roadmap, and they were very excited.
The other things came into play: privacy, you know, being able to produce an entire supply chain for them at scale. Everything else came into play and, once it's integrated, we will be the Xfinity home security platform for Comcast, branded under their brand, but deployed to their 31 million broadband customers in the U.S.
Let's go through some timelines.
Yeah.
ADT. Yeah, you said Comcast is probably beginning of 2027.
Yeah.
What about Samsung and ADT? When can we start to see that?
ADT, they haven't announced the launch date, but I would say it's within months. You know, figure middle of this year at some point probably. Our integration's all done. They're working on billing and customer care and all the other things you need to do to have a large consumer service deployed. Samsung is similar, so it's probably roughly similar timeframe. They're actually in final QA right now. We expect both of those to provide some revenue in the second half as they roll out and kinda scale through the year and really provide a full year of impact in 2027. Like I said, Comcast is really gonna be in development integration this year.
Mm-hmm.
We'll see that come in and start to scale maybe in the first half of next year.
Now, you've had some other relationships that have been announced. Verisure has been a customer.
...for a long time. How does that go? Are they taking you more deeply penetrating into Europe and into some other geographies as well? Then Allstate, something that got announced at this point was almost two years ago.
Yeah.
Um-
Verisure's our flagship deal we did, roughly six years ago now or it launched just over six years ago. We're in the second five-year term with Verisure. They've been our partner in the European region. You're correct. They acquired a business called ADT Mexico. They're moving into Mexico and probably down through South America, and we're gonna be supporting them there. That's been a great win-win relationship. To me, that was, Verisure was years ahead of other companies thinking around the importance of visual-based security technology and services that were gonna take over the industry. Some of that was regulatory in Europe. What we find, especially in the security space, even with ADT, there's a push and pull, meaning consumers now expect the visual-based user experience and AI capabilities.
They wanna know not just who opened the door with a sensor or what. Like, if the door is opened, they wanna know who did it. They wanna see it on their phone, as our phone has become really the remote control to our lives. There's a pull from the consumers wanting this as part of a security experience, but there's also a push. It happened in Europe first. It's happening here now, where police and first responders are not responding or delaying massively, like an hour-long response, if there is not video verification of an emergency.
There's so many false alarms from the sensor-based systems out there that if it's not video verified, several municipalities, they won't even roll the police, or they'll put them on a low, you know, EVS one or zero or whatever, and it takes like an hour. If it's video verified, it's, you know, the standard five to 15-minute response. There's a push from a regulatory perspective to bring this in. Verisure was at the forefront of that because they were dealing with the regulatory environment in Europe. They're a huge partner. We're continuing to grow with them, and we're excited to see where they go next. We don't really wanna talk about what Verisure is doing 'cause they're now a public company.
They did pull down a lot of capital, and I think you're gonna see them grow quite well.
Pipeline opportunities on the strategic front. It seems like you continue to be pretty actively engaged. You know, I know you can't name names, but what are the areas that we should be thinking about more? MSOs, insurers, other geographies? How big, how active is that pipeline?
Yeah. What's interesting is, you know, partnerships tend to beget additional partnerships. When you announce these large deals, often there's inbound requests or inbound interest from others. I think you'll see maybe one or two more this year going into next year, on the strategic side. We really believe this is the beginning of a momentum and a trajectory. The areas as far as segmentation, I think any kind of broadband service provider, whether that's MSOs from a cable perspective, whether that's fixed mobile wireless, from a mobile carrier perspective, they're all realizing that the business around video delivery is declining, that really the broadband is their core service to the end user.
They're starting to layer on. In an MSO perspective, they're layering on MVNO and kinda, you know, mobile mobility, and they're looking for additional ARPU, and like I mentioned before, retention of users, which is worth hundreds of millions of dollars to them over time. It turns out home security has the highest retention rate, and it's got great ARPU, right? You're looking at, you know, it can be as high as $60-$70 a month for some of these carriers, and it fits right into their billing.
I think there's interest from broadband in general. I would say insurance companies, other security providers, in the ADT space, and I would say anybody who has, kind of a kitchen sink of any company who wants to develop or wants to increase their engagement with consumers or small businesses, around ARPU enhancement, because it's turned out to be one of the best consumer services out there.
Let's shift gears to talk about adjacencies.
Yeah.
You and I have been having this conversation for a while.
We have.
I was pleasantly surprised you guys got aggressive on it, talking about it on the-
Yeah
... the most recent earnings call. You know, SMB, as well as aging in place, you guys going back, I think it was CES 2025, you invested in a little company Origin that-
That's right.
had some presence
Just over a year ago.
... kind of gives you some indications or insights into what you guys are doing. What's got you excited about adjacencies? Why now? You know, what are the key areas that we should be thinking of?
Yeah. First, we wanted to time any movement into adjacencies or other areas so that it sits on top of the strongest foundation possible. We are lined up for our long range plan of getting to 10 million subscribers and $700 million in ARR and getting operating margin above 25%. Those are our targets. We're well on our way. I actually said on the last call, I think we're gonna hit that early. Given that as the background, we feel now is the time to start looking at where are the adjacencies we can start to move into. Why are we doing it now, or what are we looking at? You brought up small business and age in place.
Those are both businesses or market segments that are worth tens of billions of dollars. I mean, some of them between $50 billion and $100 billion. Super fragmented. A very antiquated technology, especially in the aging in place market. Demographics are saying they're gonna get bigger and bigger over time. When we look at the solutions for aging in place, we already have about 90% of what's required from a platform perspective to service those markets, right? Small incremental changes to our portfolio or new incremental services we can apply, and suddenly it opens up a pretty vast market. Now, how do we approach those? The biggest difference for both of those is really the go-to-market.
In small business, what we've said is you'll see us kind of soft launch some small business services and initial hardware later this year with an idea of refining that and making a small business push in 2027. Part of our kind of 2026 to 2027 growth on top of the strategic deals we've already talked about, some expansion into small business, you'll likely see. The aging in place is again a huge market. It's an area where we may do an acquisition. We may do a partnership or something in that space because again, I think there's a huge opportunity there. The demographics are saying it's gonna be a $230 billion market by 2030 or 2031.
Again, very fragmented and there's nobody really taking it seriously. It's very old technology that's out there. That's what's getting us excited. It's a small change from what we currently do in the core, and you're looking at huge market opportunities. You'll see us lean into them a bit in 2026, more in 2027. You brought up Origin Wireless, which was really our first capital allocation as far as inorganic or outside investment. We did that just over a year ago. Origin Wireless does Wi-Fi motion sensing. It basically uses the Wi-Fi energy in your home that when you walk through, your body's actually perturbing the Wi-Fi waves and can tell there's motion without having to have motion sensors in the home.
It's kind of an ambient motion technology that uses the natural Wi-Fi energy you already have coming from your routers and other devices to sense motion. That is not only good for home security, 'cause obviously we can detect motion with less hardware, but in places like aging in place and some of these other markets it feeds in. You're seeing us already plant a couple seeds in that, in those areas to make sure we have the right technology stack. They were our first investment we've ever made. They just got acquired by ADT. We're gonna have a nice return on our investment. We get to keep the exclusivity in the technology that we're most interested in. I believe it'll make us closer to ADT when we start looking at joint roadmaps with them going forward.
Just from a timeline perspective.
Yeah
It's SMB somewhat this year.
Yeah.
Aging in place, it's gonna be evolving, it sounds like, based on technology.
The path we take. Yeah.
Yeah.
When you look at it from a capital allocation perspective, we're taking a very balanced approach. The board just approved another $50 million stock buyback because we believe we're undervalued compared to our performance. That's happening. We've done a big investment in our core technologies, the platform. We just had the largest product launch in history. We shipped 109 new SKUs right before last holiday. That gave us more shelf space and growth. Then inorganic, like we mentioned, if it's an adjacency, it's likely a smaller acquisition or investment.
If it's in our core, 'cause we see the market starting to consolidate a little bit, it could be a larger investment, or acquisition if it's gonna lead to that long-range plan being hit earlier.
Just to bring it back to big picture and financials, you know, you talked about that $700 million ARR figure.
Yeah.
Kind of do the math on it. That's in the ballpark of 20%-ish kinda growth or so.
Yeah
depending on when you hit it. That's a comfortable number in terms of what you're seeing in the marketplace today and then starting to layer on the strategics and adjacencies on top of that in 2027- 2028.
We're experiencing very strong growth. We had a great year-over-year and had a great Q4. We're looking to hit a minimum of 20% growth on the service revenue and ARR line. I would tell you it's probably between 20% and 30%. What's great is, not only are we set up for a good 2026 because we've captured some share in some of our key channels, we've got a couple of partners that are starting to grow, and some things that we've set up in 2026, but given the strategic partnerships and some of the other announcements we've made, we think we're already set up for a strong 2026-2027 growth.
I can look out the next two or three years, and our target will be 20% plus growth on the service revenue and ARR line.
Great. Matt, on that note, we've run out of time, but thank you very much. Absolute pleasure, speaking with you. Thank you so much for being here.
Yeah, it was great. Thanks for having us.