Arlo Q2 2026 Earnings: Gross Margin Expands as Product Losses Narrow

Arlo Technologies (NYSE: ARLO) reported Q2 2026 revenue of $155.9 million, up 20.5% from $129.4 million a year earlier, while GAAP diluted EPS remained $0.03. Subscriptions and services revenue rose 19% to $93.0 million, and adjusted EBITDA increased 70.3% to $30.6 million, but GAAP net income edged down to $3.0 million. The quarter ended June 28, 2026, and the results were released on August 6, 2026.

Core Results

Gross profit grew faster than revenue as the consolidated GAAP gross margin expanded to 48.2%. However, operating expenses increased nearly as quickly as gross profit, limiting the improvement in GAAP operating income.

Pretax income rose to $3.5 million from $2.9 million, but the prior-year tax benefit shifted to a tax provision this quarter. That change contributed to the slight decline in GAAP net income.

Non-GAAP EPS included a $0.07 tariff-refund impact, equal to one-quarter of the reported $0.28 result. Arlo’s non-GAAP measures exclude items including stock-based compensation, intangible-asset amortization and acquisition-related expenses.

Business and Segment Performance

Subscriptions and services remained Arlo’s largest revenue source, contributing $93.0 million, or 59.7% of total revenue. The segment grew 19% year over year, while product revenue increased approximately 22.8% to $62.9 million.

Paid accounts reached 6.3 million, up 23.2%, while annual recurring revenue rose 15.6% to $365.0 million. The faster increase in paid accounts than ARR is an important trend to monitor because it indicates that account growth is not translating into recurring revenue at the same rate.

Arlo also completed the acquisition of Aloe Care Health and announced an expanded partnership between Aloe Care Health and Home Helpers Home Care for an AI-powered wellness service. The company did not provide separate revenue or profit contributions from the acquired business.

Narrower Product Losses Lifted Gross Margin

The main driver of consolidated margin expansion was a substantial reduction in product gross losses. Product revenue of $62.9 million remained slightly below product cost of revenue of $63.1 million, producing an approximately $0.2 million gross loss and a gross margin near negative 0.4%. A year earlier, the product gross loss was approximately $7.9 million, with a margin near negative 15.4%.

That improvement more than offset pressure within subscriptions and services. The segment’s GAAP gross margin was 81.1%, down from approximately 84.3% a year earlier based on the reported revenue and cost figures. As a result, consolidated GAAP gross margin still increased 330 basis points even though the higher-margin subscription business represented a slightly smaller share of total revenue.

Operating Expenses Absorbed Most of the Gross-Profit Increase

GAAP gross profit increased by $17.1 million year over year, but operating expenses rose by $16.6 million to $72.8 million. Operating expenses grew approximately 29.6%, faster than the 20.5% increase in revenue, leaving GAAP operating margin nearly unchanged at 1.6%.

General and administrative expense recorded the largest dollar increase, rising by $6.8 million, while research and development expense increased by $5.2 million. The contrast between modest GAAP operating-margin expansion and 70.3% adjusted EBITDA growth also makes the company’s non-GAAP exclusions important when assessing underlying profitability.

Cash Flow and Balance Sheet

Cash-flow figures were provided for the first half rather than Q2 alone. Operating cash flow was $39.3 million, compared with $39.7 million in the first half of 2025. Free cash flow was $33.9 million, nearly unchanged from approximately $34.0 million a year earlier, with an 11.1% free-cash-flow margin.

Working capital limited cash conversion despite the increase in first-half net income. Accounts receivable used $23.9 million of cash, compared with $4.2 million a year earlier, while inventory used another $4.1 million. A $13.2 million increase in deferred revenue partially offset those outflows.

Cash, cash equivalents and short-term investments totaled $141.1 million at quarter-end, down from $166.4 million at December 31, 2025. First-half investing cash flows included $48.2 million for business acquisitions, while stock repurchases used $30.3 million during the period. Of that amount, $22 million was repurchased in Q2 under Arlo’s $50 million authorization.

Guidance

Arlo raised its full-year revenue and EPS guidance. The company also provided Q3 ranges calling for GAAP results between a small loss and breakeven, while maintaining positive non-GAAP EPS expectations.

The non-GAAP EPS outlook includes an expected tariff refund. Management plans to reinvest the refund in growth initiatives supporting the subscriptions and services business rather than retain it entirely as incremental earnings.

Recent Insider Transactions

The supplied six-month insider summary reports 14 purchases totaling 1,071,928 shares and 16 sales totaling 832,457 shares, resulting in net purchases of 239,471 shares. It also reports 3.46 million total insider shares held and a 7.40% net-purchase ratio.

The 10 latest individual entries consist of four sales followed by six director stock grants. All were reported as direct holdings.

*The supplied insider dataset did not specify the currency for its price and value fields.

Risks Investors Should Watch

• Tariff exposure: Arlo manufactures its products outside the United States. Tariffs can increase product costs, pressure the still-negative product gross margin and affect the assumptions behind non-GAAP guidance.
• Operating-expense growth: Operating expenses rose faster than revenue and absorbed nearly all of the year-over-year gross-profit increase, keeping the GAAP operating margin at only 1.6%.
• Recurring-revenue monetization: Paid accounts grew 23.2%, compared with 15.6% ARR growth. A continued gap could limit recurring revenue generated per account.
• Cash conversion and acquisition integration: First-half free cash flow was nearly flat as receivables and inventory used cash. Arlo must also integrate Aloe Care Health while balancing investment and share repurchases.

Summary

Arlo’s Q2 2026 results combined 20.5% revenue growth with meaningful consolidated gross-margin expansion, primarily because product gross losses narrowed. Subscription revenue and paid accounts continued to grow, but ARR lagged account growth, operating expenses consumed most of the additional gross profit and first-half free cash flow remained nearly flat. The next points to monitor are product profitability, expense discipline, recurring revenue per account and execution against the raised full-year guidance.

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