Description

Short: Arlo Technologies (NYSE: ARLO)

Event Summary / One-Page Trade Overview

• On Feb. 29th at 5:00pm EST, Arlo Technologies (NYSE: ARLO) reports 4Q 2023 earnings and will provide updated long-term financial and key metric guidance as part of a virtual investor day.

• The stock is up 156% over the last year due to impressive SaaS metric growth presented by management. These metrics seem to mislead investors on the actual underlying economics of the business, which are hard to understand without extensive diligence as management is not transparent regarding relevant KPIs.

• Given this work on the underlying unit economics of the business, we believe that ARLO will significantly revise long-term revenue guidance downwards on Feb. 29th. as it appears highly unlikely they will be able to hit their previous LT guidance. It also appears that current sell-side revenue projections for FY’24 are far too optimistic and that sell-side analysts will have to revise their projections downwards as well following this guidance update. 

• We recommend initiating a short position ahead of this guidance update as any downward revisions would disrupt the market consensus growth story and serve as a catalyst. The risk/reward on this short looks favorable given the optimistic sell-side projections / management guidance, the trading history, and what seems to be priced in. 

• On average, ARLO trades ~$8M worth of volume a day. Borrow cost is low at 0.4% annualized. 

• Retail subscriber growth has stagnated in the last few quarters, with the majority of subscriber growth being driven by Arlo’s partnership channel (Verisure) in which they earn a significantly worse ARPU. The strategic use of a large price increase masks the fact that to grow revenue enough in FY’24 to meet sell-side and management projections, by our math Arlo would have to add ~0.6M-0.7M retail subscribers in FY’24 which appears highly unlikely. 

• Arlo’s European customer Verisure, which accounted for 40.1% of revenue in FY’22 and 30.9% in FY’21 has a mandatory $500M purchase agreement that expires January 1st, 2025. We think management may be under-stating the risk that this contract does not renew, and $439M of the $500M has already been purchased through 3Q‘23 by Verisure. Verisure is owned by private equity fund Hellman and Friedman, and given their ownership of competitor SimpliSafe as well as their leverage over Arlo due to the high customer concentration, it is also possible that a renewal happens on worse terms. 

Company Background

Note: The write up posted on VIC in March, 2022 by Go2bl93 originally piqued our interest in ARLO and is a great read for more details and historical context. 

Arlo Technologies was spun-off from Netgear and subsequently taken public in 2018. Arlo manufactures smart doorbells (think very similar to the Ring doorbell), in-house cameras and other sensors. They earn revenue through a razor blade model where they attempt to attach a cloud-storage monthly-subscription plan to a hardware product sold roughly at cost. Thus, the company generates revenue through 2 segments: Product Revenue (GPM of 7.1% in 3Q’23) and Services Revenue (GPM of 73.5% in 3Q’23). Last quarter, product revenue accounted for ~60.7% of revenue and services ~39.3%.

In 2019, the company signed a $500M purchase-agreement with Verisure, essentially the ADT of Europe, and sold them their commercial European operations for $50M in exchange for Versiure receiving exclusive access to marketing and distribution of Arlo’s products and services in the EMEA region. 

Because of the sale of Arlo’s European business to Verisure, Arlo has two significant segments with very different economics. Roughly ~60-70% of Arlo’s revenue comes from sales of cameras and subscriptions to retail customers, either D2C through their website or through standard retail supply agreements with BestBuy, Walmart, etc. The other ~30-40% comes solely from sales to Verisure which Arlo discloses as EMEA revenue. 

Notably, the company changed their business model significantly in 2Q'20. Pre 2Q’20, when still operating under the legacy business model, the company did not emphasize attaching cloud-storage subscription plans. Pre 2023, Arlo offered free 7 day cloud-storage on the majority of cameras and had significantly higher prices / gross margins on product revenue. 

Since the business model change, the company has begun to trade in-line with cloud storage software peers and currently trades at ~2.0x EV / TTM Sales and ~ 4.7x EV / ARR. (Market price as of 2/28/2024 at close).

ER Valuation - Lake Street Capital Markets and Craig Hallum Capital Group

• Lake Street: “Our [$14] target is based on a blended 2.2x EV/2023 revenue multiple (3.5x EV/recurring services revenues and 1.0x for its product/hardware business) on our $539M FY’24 sales estimate” 

• Craig Hallum: “We are reiterating our Buy rating while lowering our price target to $14. Our price target is based on ~2.7x EV/Sales on our FY23 sales estimate of $490.1M.” "We believe the company’s SaaS business will earn a higher multiple over time as they grow subscribers, bringing their overall EV/Sales multiple closer to the pure SaaS plays that trade at ~11x EV/Sales."

Incremental ARPU Suggests Stagnant Growth in Retail Subs. Lower Quality Verisure Growth is Driving Total Subscriber Growth

Arlo has reported the following metrics for paid accounts and total services revenue over the last few quarters. Given management’s guidance for FY 2024 services revenue (“When you look at last year's full year service revenue versus this year's full year service revenue, we exactly will be up probably 45%. That's what we're targeting.”), and guidance for paid account increases, it is easy to back into their 4Q services revenue guide as well as 4Q expected paid subs growth. 

Interestingly, total service revenue is only up 4.5% from Q2‘23 to Q4’23, despite Arlo guiding to an 18.0% increase in paid accounts. Given that an increase in paid accounts should be a driver of service revenue, how is this possible? We believe that this is the case because the majority of the increase in consolidated paid account numbers comes from Arlo’s distribution agreement with Verisure and not from higher-quality retail subscriber growth.

Arlo management conveniently does not disclose the breakdown of retail and partnership paid accounts, only showcasing the consolidated paid account growth and only consistently mentioning the $11.50 retail ARPU statistic. To date, Arlo management has never reported partnership paid accounts or partnership ARPU metrics independently. CEO McRae states that “The ARPU on the strategic account side is heavily driven around the actual revenue model. As we've mentioned in the past, it's more of a cost consumption SaaS-based pricing type model. So that tends to be lower than our retail channel ARPU” - Q3’23 Transcript. 

Arlo’s CEO mentioning that partnership (Verisure) ARPU “Tends to be lower” vs. retail ARPU is an understatement - we believe this is because by our calculations, Arlo’s partnership ARPU is ~$2.35 vs. their retail ARPU of $11.50, despite Arlo’s partnership revenue constituting 30-40% of total revenue.

Evidence for the lack of retail subscriber growth trend can be seen when calculating the consolidated incremental ARPU numbers. For instance, see the graphs below included in the investor presentation demonstrating 59% YoY growth in ARR and a 49% YoY growth in paid accounts.

The Q2’23 10-Q also has an interesting disclosure, it states the increase in cumulative paid accounts compared to the prior year “reflects an increase in the number of paid accounts in our EMEA region which were managed by Verisure and now onboarded with us.”  The deterioration of paid account composition is evident in the incremental ARPU trend included below. Of note, the consolidated incremental ARPU for 3Q’23 of $2.71 is ~23.5% of the retail ARPU of $11.50. It is ~33.9% of the lowest advertised subscription plan. It is not a coincidence that Arlo’s consolidated incremental ARPU of $2.71 in 3Q’23 is much closer to our calculated Verisure ARPU than it is to management’s disclosed $11.50 for retail ARPU - by digging through the filings, one can back into the implied retail subscriber growth to see that it is stagnant while the implied partnership subscriber growth is driving the advertised increase in total paid accounts. 

Note: Pricing change for retail subscribers occurs in 1Q23. While subscriber growth looks consistent quarterly in the range 150k-250k, the ARR growth is significantly lumpier because of management’s pricing strategy change beginning 1Q 2023. They implemented a large services price increase and product (hardware) price decrease as part of their ongoing strategy to shift revenue composition towards higher-margin recurring revenue. CEO Matt McRae comments on the 4Q22 call: “and so what you've seen us do is lower some entry point pricing for some of our hardware, and we've actually increased service pricing on a monthly basis”. At the time of 2Q22, it appears the cheapest “single camera” plan went from $2.99 / month to $7.99 / month - a ~166% increase. See the screenshot included below for current pricing:

Methodology

Because Arlo management does not disclose the paid subscriber breakdown between Verisure and Retail channels, it is an interesting exercise to back into it to reveal the true breakdown of the business which drives the deteriorating ARPU / incremental ARPU trends seen above. 

1. Arlo releases updated KPIs for their purchase agreement with Verisure every quarter, including the updated amount of the total $500M total purchase commitment that has been purchased by Verisure. We also know that this revenue is exclusively hardware revenue: “And so, in January 2001, we created a five-year deal with them (Verisure) that had a $500 million guarantee on hardware purchases, plus service revenue on top of that. We're about $439 million, $440 million, I think, through the purchases on the $500 million. We'll probably hit the $500 million minimum guarantee sometime in the middle of next year.” - Raymond James Conference Dec. 2023. 

2. As shown above, the delta in the purchase commitment fulfilled metric period-to-period reported by Arlo represents the amount of product revenue Verisure has purchased in that time period. 

3. The assumption for $25.9M in Verisure revenue is backed up by three factors

   1. As shown in the shaded areas, the backlog figure has historically been a good proxy for forward period Verisure revenue

   2. Verisure revenue has been down YoY through the first 3 quarters of 2023

   3. Management believes they will hit the $500M guarantee from Verisure sometime in the middle of FY’24, which means the implied $35.2M in remaining commitment heading into 1Q’24 is directionally accurate

4. Because Arlo reports consolidated product revenue, this allows us to back into what exclusively retail product revenue is every period (total product revenue - Verisure product revenue). 

5. Because Arlo reports consolidated EMEA revenue (product + service), and knowing that Verisure is Arlo’s only European customer, we can back into the amount of service revenue Arlo receives from Verisure (Total EMEA revenue - Verisure product revenue.)

   1. Have made a $8.0M assumption for 4Q Verisure revenue (slightly up from the quarterly $6-7M over last 4 quarters). 

6. Given that we can back into Verisure service revenue, and that Arlo releases total consolidated service revenue, this allows us to isolate the implied retail channel service revenue (Total service revenue - Verisure service revenue.)

   1. Using management’s guide for a 45.0% YoY consolidated service revenue increase in FY’23 to back into what consolidated 4Q service revenue has to be. 

7. After calculating Verisure product revenue, Verisure service revenue, and retail service revenue, the remaining delta between the sum of these three and Arlo’s total reported revenue represents the Retail product revenue. This gives us all 4 segments (Retail product & service, Verisure product & service) to build to total revenue. 

8. Because management repeatedly provides the $11.50 monthly Retail ARPU metric, we can back into what the monthly Verisure ARPU has to be to arrive at an implied subscriber count that matches what Arlo releases. See the below table for a consolidated breakdown:

Model

Takeaways:

• In our model we are in-line with management guidance of $129-139M in 4Q revenue and $485M-$495M in FY 2023 Revenue. 

• It appears that Verisure subscribers are ~41% of total subscribers, despite having significantly worse economics than Retail subscribers. 

• Given the $11.50 ARPU statistic management puts out, it appears that Retail sub growth has been stagnant from 2Q’23 to 3Q’23, which makes sense given the flat overall service revenue trend discussed above despite large increases in total paid subscribers. 

• It appears that Verisure subscriber growth has been the biggest driver of total subscriber growth over the last few quarters. 

• Given management’s guide for FY’23 Service revenue, it appears that management is implying that Retail service revenue and Retail subscriber growth will actually decrease sequentially in 4Q’23. 

• To back into an implied total subscriber count that matches management’s historical paid account metrics and projections, we have to project Verisure ARPU sequentially decreasing every quarter in FY’23 - this makes sense as Arlo bills Verisure for service revenue on a usage / consumption basis, so given how Verisure subs have outpaced retail sub growth, this checks out. 

• Based on our model, Arlo has to see a significant ~35% YoY increase in Retail product revenue to meet guidance, which given the price decrease of hardware means they have to have a record quarter for retail product sales. Granted, management has alluded to Arlo being on track for a record 4Q holiday season this year in terms of units shipped, so maybe this is realistic.

Valuation / Future Outlook

• Current Management LT guidance from Q4 2021 Investor Day: 

  • “We would like to share the new long-term targets which we expect to reach in the next three-plus years. We believe our strategy will produce more than 5 million paid accounts and result in a greater than $1 billion business. We expect our ARR will more than triple in that time to over $300 million.”

• Current Sell-Side Revenue Projections for FY ‘24 (See Appendix for full Sell-Side model screenshots):

  • Craig Hallum:

    • Product Revenue: $267M

    • Services Revenue: $243M

    • Total Revenue: $510M

  • Lake Street:

    • Product Revenue: $285M

    • Services Revenue: $254M

    • Total Revenue: $539M

Using Craig-Hallum’s assumptions for FY’24 in our model, we can back into what retail subscriber growth would have to be to meet these revenue targets. We have made % of revenue assumptions for Verisure and Retail segments that are in-line with historical trends (Retail seeing an increase of service revenue as a % of mix, Verisure revenue bouncing back from 2023 inventory de-stocking as mentioned by management, management guidance on paid sub growth, etc.) 

In short, it looks like for Arlo to meet these FY '24 projections, they would have to have the majority of new subscriber growth be Retail subscribers at ~0.6-0.7M new retail subscribers added in FY’24. Given the 2023 2Q’4QE retail subscriber growth trends and the below qualitative research on Arlo’s customer reputation, this appears highly unlikely. 

Catalyst (Feb. 29th release / Investor Day)

• On Feb. 26th, Arlo announced through a press release that they plan to “Update Long-Term Financial Targets during Virtual Investor Day” scheduled for Feb. 29th at 5:00pm EST. 

  • “The Company will provide a slide presentation focused on a detailed strategic overview and update to its long-term financial outlook in addition to discussing fourth quarter and full year 2023 results. During the event, Arlo management will discuss the Company’s outlook for the first quarter and full year 2024, provide a comprehensive strategy review, and update its targets on key metrics associated with the development of a new long-range plan.”

• Our bet would be that Arlo management revises guidance downwards for FY’24 as well as their long-term goals. Given the underlying unit economic / incremental ARPU trends, it seems unlikely that Arlo will be able to meet the strong growth that the sell-side projects for FY’24 services revenue (~23% YoY). 

• This also assumes that Verisure renews their contract, which as discussed below, represents additional risk to Arlo either on a non-renewal or a renewal on worse terms. Please see below an analysis of these factors:

EOL Policy Destroys Customer Goodwill

While customer experience / reviews tends to normally be circumstantial and relatively inconsequential, Arlo’s customer base does seem to be upset. Originally, to boost product sales, Arlo offered 7-day free cloud storage for nearly all of its doorbells. In January 2023, Arlo announced that it would be discontinuing services such as 7-day free cloud-storage and moving many products to the end-of-life stage where they essentially stop working. Customers were outraged to the point where Arlo had to go back on this a month later and extend the EOL for many products/services to January 1st, 2024. This video explains it well, but essentially if you purchased an Arlo doorbell without a subscription plan and your residence was robbed, unless you check your camera in real-time which is unrealistic, you are unable to see any security footage - essentially rendering the doorbell completely useless. For a complete list of EOL dates / customer commentary, see this Reddit megathread and BBB reviews where ARLO carries an average rating of 1.06 / 5.00 stars across 495 customer reviews. The lowest rating one can give is a 1 star. Arlo has also been sued numerous times by customers and is currently going through a class-action lawsuit in the Northern District Court of California where they are being sued for recording biometrics. Notably, as stated in the complaint, none of Arlo’s competitors record biometrics in California where that is illegal.

We do believe there will be 2 key consequences resulting from this EOL policy fiasco. 1.) A significant decrease in future retail product sales. In the smart doorbell/camera industry, customers tend to do significant research before making a purchase, which is largely a function of the # of commercial users and the relative cost of a smart doorbell/camera relative to a normal camera. 2.) Retail subscriber churn rate will increase significantly as poor treatment of customers and public groupthink compounds. One risk to our short thesis would be if many EOL customers that were previously unpaid accounts purchased the Arlo subscription plan, although given the commentary included earlier, we view this as unlikely.

Verisure Contract Drives Revenue Growth Q/Q - Risk of Contract Running Off in Mid-2024

As mentioned earlier, in 2019 the company sold the marketing and distribution rights of their European operations to Verisure for $50mm as well as signed a $500mm 5-year purchase agreement (Jan 1st, 2020 - Jan1st, 2025) for Arlo products and services. As of 3Q’23, ~$439mm / $500mm or 87.8% of the contract has been completed. Equity research views this as a positive; for instance, Jacob Stephan of Lake Street in his most recent report “we expect to see this agreement renewed in 2024, potentially with an expanded scope, and would view a renewal as a catalyst for shares.” We have a different take on this contract.

Instead, we believe H&F owned Verisure took advantage of Arlo and included multiple provisions in the contract to set themselves up to operate independently from Arlo. For instance,  Article III, IV and V of the supply agreement outline developmental and associated services included below.

Article 3, Section 1.02: Exclusivity in respect of Verisure Developed Products. Supplier shall not supply (i) Verisure Developed Products or (ii) any products that incorporate any Verisure Developed IP not licensed to Supplier under a Statement of Work to any Person

Article 4, Section 1.01: Development Services. Effective as of the Effective Date, subject to the terms and conditions of this Agreement, Supplier shall provide to the Customer Entity the following development services (each, a “Development Service” and, collectively, the “Development Services”):

1. develop Verisure Developed Products in accordance with specifications agreed in a Statement of Work. [***]16;

16 [***] = Certain Confidential Information Omitted, © also omitted

2. provide commercially reasonable ongoing development services and provide all levels of support to Customer for the ongoing maintenance and support of the Verisure Developed Products, including bug fixes, patches, updates, upgrades and similar items

     (d)  provide quarterly updates on plans and key technical resources for           

           Verisure Developed Products and for support of the same.

See Article 5 for more development related services such as “(a) for Verisure Developed Products, work with Customer to integrate the camera experience within the Customer application, including installation and configuration (the“Integration Services”). To summarize, the development services described in Article IV and V are paid for by Verisure and are considered to be “Verisure Developed Products” where in Article III they are granted the IP to these developed products / integrated services, essentially rendering Arlo useless.

A Former Managing Director at Ring Europe gives his take on the deal in 2020: “I think it's more Verisure using Arlo's retail distribution, potentially, bailing them out also, my understanding is that they've just been also having a really rough past couple of years and the Europe business is probably still quite small compared to what the US is.” While we caution not to overweight expert network transcripts, in 3Q’19 when the Verisure deal was announced, Arlo had liquidity issues (cash + short term investments didn’t cover current liabilities at least) and had announced a restructuring plan. At the time, the EMEA segment only generated ~ $13mm / quarter revenue and was unprofitable. 

Finally, we believe given H&F’s current ownership of Verisure they are incentivized to not renew the contract or renew it on significantly better terms as Verisure has all the leverage in the relationship. H&F partners Stefan Goetz (Chairman of the Verisure BOD) and Adrien Motte (fellow BOD member) also serve on the board of SimpliSafe: one of Arlo’s largest and well-documented competitors. SimpliSafe is also currently owned by H&F. Given how similar the two companies are, we are surprised to see the Arlo deal in 3Q’19 when H&F acquired SimpliSafe in 2018 and Verisure in 2011 - another indicator for us that this wasn’t a great deal for Arlo. Finally, given H&F’s numerous dividend recaps done on Verisure, we can assume Verisure management will look to be in expense cutting mode in a higher-rate environment; especially given the author of the previously linked article states the company was at “7x” leveraged an adjusted earnings metric in a low-2021 rate environment. Backlog attributable to Verisure decreased significantly last quarter from $38.7mm to $25.9mm. Arlo defines the Verisure backlog as the revenue expected to be fulfilled next quarter. McRae states on the 3Q’23 earnings call that Verisure is working down their inventory to a target level and this is the reason for the decline in EMEA backlog, we believe he is underselling the fact the purchase agreement could run-off or be renegotiated at less favorable terms.

Another reason we have confidence that the agreement will not be renewed or it will be renegotiated is the recent Google-ADT partnership. It is to no surprise to us that Google was able to undermine Alarm.com with significantly better cloud costs, better products and the Nest brand name recognition. At the most recent investor conference, the Raymond James Analyst asks CEO McRae about the risk of Verisure contract run off and cites ADT’s recent replacement of their Alarm.com partnership with Google (Nest) - which we view as extremely comparable. McRae stated that Arlo’s value proposition was in products that can be installed DIY (many competitors advertise this, including SimpliSafe) and services such as “we're providing the entire cloud back-end for them, for AI, computer vision, everything on an exclusive basis. We provide them Arlo branded hardware for certain deployments, and we've even created two custom SKUs for them that match European regulatory requirements for security systems with different motion detectors and different capabilities, different radios on it for them.”

The two custom SKUs would presumably be considered the IP of Verisure, and the “cloud back-end” and “AI” services Arlo provides likely don’t compare at all to those of Google and Amazon on a cost/efficiency basis. Because of all this, we fail to see Arlo’s value proposition to Verisure and believe that given Verisure is in expense cutting mode, Arlo’s EMEA revenue could be in more jeopardy than the CEO leads investors to believe. For instance, McRae states multiple times that the contract “auto-renews”; while technically, he is right, we believe a further examination of Section 11.02 of the supply agreement reveals renegotiation is much more likely.

Section 11.02, the “Renewal” part of the agreement states that it will automatically renew for five-year terms unless either party provides written notice to renegotiate at least twelve months before the expiration date. If renegotiation is initiated, the parties have six months to reach agreement on new terms. If no agreement is reached, the customer can choose to terminate the agreement or renew it for another five years with the existing terms. If the customer takes no action, the agreement will continue to automatically renew for additional five-year terms. Thus, we believe management would either notify investors at this quarterly conference call, as January 1st was the notification date of renegotiation, or the 2Q'23 call when the deal is renegotiated/terminated.

Given the price provisions included in partnership agreements that don’t allow for price increases to be passed onto partners, at the least it doesn’t seem that on a renewal Arlo would receive incrementally favorable economics. For instance see the Verisure agreement where price is linked to a minimum fixed margin with built in cost decreases that will presumably affect Arlo’s margins over time (see Verisure ARPU trend above.)

Extreme Competition by Very Well-Capitalized Competitors, Poor Strategic Shift Away from their Core Competency and Cutting S&M and G&A Creates a Death Spiral

The smart doorbell industry is extremely competitive; well-capitalized competitors include Amazon (Blink and Ring), Canary, D-Link, Eufy, Google (Nest), Foxconn Corporation (Belkin), Night Owl, Samsung, SimpliSafe and Wyze. Arlo adequately summarizes their competitive disadvantage in the 10-K, “Many of our competitors price their products significantly below our product costs. Average sales prices have declined in the past and may again decline in the future. These competitors may have more advanced technology, more extensive distribution channels, stronger brand names, greater access to shelf space in retail locations, bigger promotional budgets, and larger retailers, distributors, and other channel partners, and end-user bases than we do.” A review of subscription price points corroborate this assertion; it is tough to see how Arlo’s cheapest plan ($7.99 / month) can compete with Ring’s cheapest ($3.99 / month), Eufy (no monthly fee and similarly priced hardware), Wyze ($1.67 / month), Nest ($8.00 / month, with significantly cheaper hardware) who offer the same basic cloud-storage features for much cheaper. Other brands such as SimpliSafe do a significantly better job at bundling other home necessities, such as a C02 detector and motion sensors, for cheaper. 

Originally, we believed that Arlo’s core competency was having higher-quality hardware and LTE enabled doorbells. However, as Arlo looks to adopt the razor blade model, their core competency has become cloud-storage / AI facial detection services - an area where they can’t compete with the likes of Google and Amazon. Instead of focusing on growing Arlo’s market share in the highly competitive space, management has been focused on driving the company to near-term profitability to increase the share price. For instance, see the chart included below that demonstrates management pulling the S&M lever last Q to meet profitability guidance. S&M was down ~ 29% YoY in a quarter where they tend to spend more because of seasonality. 

See below for organic website traffic statistics generated by SemRush:

Risks

• Company gets acquired by a well-capitalized competitor

  • With the exception of interoperability and hardware quality, we fail to see what the strategic rationale of any well-capitalized competitor would be in acquiring Arlo. It seems as if it would be more efficient to spend on R&D than it would be to purchase Arlo

  • Verisure contract renewal / renegotiation risk would deter a well-capitalized strategic from acquiring Arlo

• Large # of 7-Day cloud EOL users migrate to become paid retail subscribers

  • We view this risk to be mitigated by the aforementioned poor customer Goodwill created by the 7-Day free cloud EOL policy

• Verisure contract renewed at more favorable terms for Arlo

  • As discussed earlier, Verisure has all the leverage in the relationship with Arlo, as they could replace Arlo with Google (Nest) or Amazon (Ring) who could offer significantly cheaper cloud services and DIY installation as well.

Supplementary Information on Verisure

(Client)

“So the number of devices always selling has actually increased and now if you look at the quarterly number of devices Arlo is selling, you can actually see that it's trending upwards and is even going to hit a new high this year. So obviously, these are new customers, new households that are aware that there is no seven-free days of cloud storage, right? They're aware and they are willing to pay that price.”

FORMER VICE PRESIDENT OF PRODUCT AND SERVICES AT ARLO TECHNOLOGIES

Yes. They are Verisure in Europe. Verisure it's like ADT of Europe. Now Arlo has an agreement with them. Of course, that is increasing, because every single camera Verisure is buying and deploying. Now, one of the things they have done in the U.S. with the Calix, every camera they're buying has a solution. But Calix numbers are still very small. But most of these numbers are driven by these partners. And people who are buying Arlo, they're buying the home security and then Arlo is bundled with that. And with these service providers, it's definitely their long-term partner, but I would not call it as Arlo. These are Verisure customers, they do engagement and Arlo is basically you can think of the high level of ODM providing them products and services.

(Raymond James Conference)

"And so, today, functionally, the partnership is so deep that we have one customer in Europe and that's Verisure."

Full Sell-Side Projections

Catalyst

See above notes on Feb. 29th release and guidance update.