Arlo Technologies just delivered a quarter that converts the bull case from projection into print. In the three months ended June 28, 2026, the company reported record total revenue of roughly $156 million, up about a fifth year over year, and a record adjusted EBITDA of approximately $31 million at a 19.6% margin, the strongest profitability print in the company's history as a public standalone. The combination of 20.5% revenue growth, 70.3% adjusted EBITDA expansion, and a 480-basis-point non-GAAP gross margin lift is the cleanest evidence yet that the business is no longer a hardware company learning to sell subscriptions but a subscription platform that uses hardware as a customer acquisition cost. Management responded by raising full-year 2026 guidance on both revenue and earnings per share, a signal that the demand environment is firming faster than internal forecasting was modeling just ninety days ago.
The single most important observation is that the subscription mix shift, which Arlo has been telegraphing since the IPO-era carrier business ran off, is no longer forward guidance but a hard structural fact. Annual recurring revenue closed the second quarter at $365.0 million, up 15.6% year over year, and cumulative paid accounts reached 6.3 million, up 23.2%. The model is migrating from a hardware-led, sell-through, low-margin unit sale to a services-led, installed-base, compounding-margin platform, and the latest income statement shows the second derivative of that migration turning positive: gross margin expansion of 330 basis points to 48.2% on a GAAP basis and 480 basis points to 50.6% on a non-GAAP basis is no longer the result of a one-time tariff refund but is the steady-state trajectory of a much higher-margin revenue mix.
The load-bearing risk is the tariff environment, where Arlo is manufacturing outside the United States, and the recent IEEPA tariff refund has been substantially retained in second-quarter earnings. Management disclosed that the non-GAAP EPS outlook for the full year includes an expected tariff refund, all of which is planned to be reinvested in growth initiatives, meaning the headline earnings power today is partly a function of policy timing. The next data point that tests the trade is the third-quarter 2026 print expected in early November, alongside the visibility into how the subscription attach rate holds if a more punitive tariff regime is layered onto the cost stack in the back half of the fiscal year.