Arlo Q3 2026 Services Revenue Rises 20%, EBITDA Jumps 58%

Arlo Technologies (NYSE: ARLO) reported stronger third-quarter 2026 profitability as subscription and services growth increased recurring revenue’s share of the business. Total revenue reached $149 million, at the high end of the company’s guidance range, while non-GAAP diluted earnings of $0.24 per share exceeded the top of its guided range.

Revenue increased $10 million, or 7%, from the prior-year quarter. Subscriptions and services revenue rose 20% year over year to $96 million and accounted for about 64% of total revenue, highlighting the growing contribution from Arlo’s software and security-service offerings.

Annual recurring revenue reached $369.9 million, up 14% year over year. Paid accounts increased 23% to 6.64 million after Arlo added approximately 340,000 accounts during the quarter. Consolidated monthly churn remained below 1%, while monthly retail average revenue per paid account rose to $15.50.

Margins and cash flow expand

Non-GAAP gross profit increased 27% year over year to $73 million. Non-GAAP gross margin was 49%, up 760 basis points from the year-earlier period, including the benefit of a tariff refund. Subscriptions and services non-GAAP gross margin was 84.1%, compared with 85.1% a year earlier. The quarter included $1.7 million of non-recurring engineering revenue that affected services gross margin.

Adjusted EBITDA climbed more than 58% to $26.9 million, lifting the adjusted EBITDA margin to 18% from 12.2% in the third quarter of 2025. Non-GAAP net income was also $26.9 million, up 49%, while non-GAAP diluted earnings per share increased 50% from $0.16.

Free cash flow rose 11% to $16.6 million despite larger share repurchases than in the prior-year period. Arlo ended September with $144 million in cash and short-term investments after repurchasing $14 million of stock.

Days sales outstanding declined to 37 from 50 a year earlier, which the company associated with increased annual-plan sales. Inventory turns fell to 4.7 from 6.4 as Arlo optimized inventory levels to reduce shipping costs and manage higher memory costs.

Retail expansion and AI services remain priorities

Arlo said year-to-date point-of-sale unit volumes increased 3%, driven by retail market-share gains. Retail accounts represented 89% of annual recurring revenue, making performance in the company’s direct and retail channels central to its subscription strategy.

Management’s growth plans include expanding product assortment and shelf presence, adding strategic business-to-business partners, entering new geographic and adjacent markets, and developing additional subscription services. The company is also investing in Arlo Intelligence, its artificial intelligence-based software platform, and in new features under Arlo Secure 7.0, including threat assessment, an early-warning system and AI-generated summaries of recorded activity.

Arlo’s capital allocation plan prioritizes organic investment in next-generation platforms, its SaaS infrastructure and device roadmap. The company also plans to consider strategic partnerships, technology investments and acquisitions, while using share repurchases to reduce dilution. The board has approved additional share repurchases, according to the presentation.

2026 outlook

For the fourth quarter, Arlo expects revenue of $137 million to $147 million and non-GAAP diluted earnings of $0.17 to $0.23 per share.

Its updated full-year 2026 outlook calls for total revenue of $592 million to $602 million, subscriptions and services revenue of $375 million to $385 million, and non-GAAP diluted earnings of $0.97 to $1.03 per share. Management is targeting service revenue growth of more than 20% in 2026 and beyond.

The outlook remains subject to demand and execution risks. Arlo identified inflation, consumer confidence, interest rates and potentially weaker-than-expected product demand as possible constraints. Other risks include slower adoption of paid services or new products, competition, manufacturing and distribution delays, cost pressures, and difficulties integrating acquisitions or realizing anticipated benefits from strategic investments.