Arlo Technologies' Q2 2025: Unraveling Contradictions in Partnerships, Churn Rates, and Profit Margins

Strategic partnership with ADT, churn rate and retention efforts, product gross margins, product margin expectations, and the partnership with ADT are the key contradictions discussed in Arlo Technologies' latest 2025Q2 earnings call.



Revenue and Service Growth:
- Arlo Technologies reported total revenue of $129 million for Q2, up year-over-year and over $10 million sequentially.
- Subscription and services revenue reached $78 million, up 30% year-over-year, now comprising more than 60% of total revenue.
- The growth was driven by the expansion of the subscription base and higher ARPU due to new service plans.

Annual Recurring Revenue (ARR) and Free Cash Flow:
- Arlo's ARR hit $316 million, up 34% year-over-year, with a Rule of 40 score of 48 in the second quarter.
- Free cash flow for the year was a record $34 million, representing a margin of almost 14%.
- These increases were due to the strategic shift towards a services-first business model and improved operational efficiencies.

Product Launch and Strategic Partnerships:
- Arlo is planning an aggressive holiday season with over 100 new product SKUs to launch, aiming for 20% to 30% camera unit growth year-over-year.
- A strategic partnership with ADT, the largest security company in North America, is expected to materially increase subscriptions and services revenue starting in 2026.
- These initiatives are designed to drive market share and revenue expansion.

Operational Efficiency and Cost Management:
- The company achieved a non-GAAP gross margin of 46%, up nearly 800 basis points year-over-year, despite tariff impacts.
- Inventory turns improved to 7.7x, up from 5.8x last year, demonstrating effective inventory management.
- Efficiency and cost management were key factors, including reduced product costs and strategic investments in new product launches.