UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April ~~3, 2022~~2, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38618

ARLO TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		38-4061754
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2200 Faraday Ave.,	Suite #150
Carlsbad,	California	92008
(Address of principal executive offices)		(Zip Code)

(408) 890-3900

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ARLO

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

☐

Accelerated filer

☒

Non-Accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was ~~86,861,053~~91,841,900 as of May ~~6, 2022.~~5, 2023.

Table of Contents

~~ARLO TECHNOLOGIES, INC.~~Arlo Technologies, Inc.

Form 10-Q

For the Quarterly Period Ended April 2, 2023

TABLE OF CONTENTS

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1.Financial Statements

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


		As of					As of
		April 3, 2022		December 31, 2021			April 2, 2023		December 31, 2022
		(In thousands, except share and per share data)					(In thousands, except share and per share data)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	100,975	$	175,749	Cash and cash equivalents	$	66,970	$	84,024
Short-term investments (amortized cost of $44,612 and $—)		44,566		—
Accounts receivable (net of allowance for credit losses of $339 and $337)		78,054		79,564
Short-term investments						Short-term investments	51,703		29,700
Accounts receivable, net						Accounts receivable, net	52,837		65,960
Inventories	Inventories	37,038		38,390		Inventories	39,922		46,554

Prepaid expenses and other current assets	Prepaid expenses and other current assets	9,015		9,919		Prepaid expenses and other current assets	7,415		6,544
Total current assets	Total current assets	269,648		303,622		Total current assets	218,847		232,782
Property and equipment, net	Property and equipment, net	8,522		9,595		Property and equipment, net	7,055		7,336
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	13,797		14,814		Operating lease right-of-use assets, net	11,985		12,809

Goodwill	Goodwill	11,038		11,038		Goodwill	11,038		11,038
Restricted cash	Restricted cash	4,114		4,107		Restricted cash	4,175		4,155
Other non-current assets	Other non-current assets	4,671		4,314		Other non-current assets	3,983		4,081
Total assets	Total assets	$	311,790	$	347,490	Total assets	$	257,083	$	272,201
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	68,266	$	84,098	Accounts payable	$	46,031	$	52,132
Deferred revenue	Deferred revenue	16,460		29,442		Deferred revenue	15,175		11,291
Accrued liabilities	Accrued liabilities	91,732		97,377		Accrued liabilities	88,216		98,855
Income tax payable		45		12
Total current liabilities	Total current liabilities	176,503		210,929		Total current liabilities	149,422		162,278
Non-current deferred revenue		915		1,344
Non-current operating lease liabilities	Non-current operating lease liabilities	20,308		21,470		Non-current operating lease liabilities	18,168		19,279

Non-current income taxes payable		94		94
Other non-current liabilities	Other non-current liabilities	1,966		1,001		Other non-current liabilities	3,242		2,949
Total liabilities	Total liabilities	199,786		234,838		Total liabilities	170,832		184,506
Commitments and contingencies (Note 9)		0		0
Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding	Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding	—		—		Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding	—		—
Common stock: $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 85,834,841 at April 3, 2022 and 84,453,212 at December 31, 2021		86		84
Common stock: $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 90,785,158 at April 2, 2023 and 88,887,139 at December 31, 2022						Common stock: $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 90,785,158 at April 2, 2023 and 88,887,139 at December 31, 2022	91		89
Additional paid-in capital	Additional paid-in capital	409,242		401,367		Additional paid-in capital	445,809		433,138
Accumulated other comprehensive income		(46)		—
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	21		(107)
Accumulated deficit	Accumulated deficit	(297,278)		(288,799)		Accumulated deficit	(359,670)		(345,425)
Total stockholders’ equity	Total stockholders’ equity	112,004		112,652		Total stockholders’ equity	86,251		87,695
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	311,790	$	347,490	Total liabilities and stockholders’ equity	$	257,083	$	272,201

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE LOSS


		Three Months Ended					Three Months Ended
		April 3, 2022		March 28, 2021					April 2, 2023		April 3, 2022
		(In thousands, except per share data)				(In thousands, except per share data)
Revenue:	Revenue:							Revenue:
Products	Products	$	94,825	$	59,761			Products	$	67,060	$	94,825

Services	Services	29,926		22,795				Services	43,944		29,926

Total revenue	Total revenue	124,751		82,556				Total revenue	111,004		124,751
Cost of revenue:	Cost of revenue:							Cost of revenue:
Products	Products	80,777		47,157				Products	64,041		80,777

Services	Services	10,399		9,592				Services	11,746		10,399

Total cost of revenue	Total cost of revenue	91,176		56,749				Total cost of revenue	75,787		91,176
Gross profit	Gross profit	33,575		25,807				Gross profit	35,217		33,575

Operating expenses:	Operating expenses:							Operating expenses:
Research and development	Research and development	16,379		14,791				Research and development	17,750		16,379
Sales and marketing	Sales and marketing	13,168		11,207				Sales and marketing	15,353		13,168
General and administrative	General and administrative	12,621		11,227				General and administrative	15,622		12,621

Separation expense		79		54

Others								Others	632		79
Total operating expenses	Total operating expenses	42,247		37,279				Total operating expenses	49,357		42,247

Loss from operations	Loss from operations	(8,672)		(11,472)				Loss from operations	(14,140)		(8,672)
Interest income (expense), net	Interest income (expense), net	(5)		24				Interest income (expense), net	726		(5)
Other income (expense), net	Other income (expense), net	411		909				Other income (expense), net	(39)		411
Loss before income taxes	Loss before income taxes	(8,266)		(10,539)				Loss before income taxes	(13,453)		(8,266)
Provision for income taxes	Provision for income taxes	213		180				Provision for income taxes	792		213
Net loss	Net loss	$	(8,479)	$	(10,719)			Net loss	$	(14,245)	$	(8,479)

Net loss per share:	Net loss per share:							Net loss per share:
Basic	Basic	$	(0.10)	$	(0.13)			Basic	$	(0.16)	$	(0.10)
Diluted	Diluted	$	(0.10)	$	(0.13)			Diluted	$	(0.16)	$	(0.10)
Weighted average shares used to compute net loss per share:	Weighted average shares used to compute net loss per share:							Weighted average shares used to compute net loss per share:
Basic	Basic	85,222		80,370				Basic	89,653		85,222
Diluted	Diluted	85,222		80,370				Diluted	89,653		85,222

Comprehensive loss:								Comprehensive loss:
Net loss								Net loss	$	(14,245)	$	(8,479)
Other comprehensive income (loss), net of tax								Other comprehensive income (loss), net of tax	128		(46)
Total comprehensive loss								Total comprehensive loss	$	(14,117)	$	(8,525)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~STOCKHOLDERS’ EQUITY

Three Months Ended
April 3,
2022 March 28,
2021
(In thousands)
Net loss $ (8,479) $ (10,719)
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on derivative instruments — (2)
Unrealized gain (loss) on available-for-sale securities (46) (1)
Total other comprehensive income (loss), before tax (46) (3)
Total other comprehensive income (loss), net of tax (46) (3)
Comprehensive loss $ (8,525) $ (10,722)


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
Total stockholders’ equity, beginning balances	$	87,695	$	112,652

Common stock:
Beginning balances	$	89	$	84
Issuance of common stock under stock-based compensation plans	3		3

Restricted stock unit withholdings	(1)		(1)
Ending balances	$	91	$	86

Additional paid-in capital:
Beginning balances	$	433,138	$	401,367
Stock-based compensation expense	10,270		8,183
Settlement of liability classified restricted stock units	6,739		4,966
Issuance of common stock under stock-based compensation plans	355		1,385

Restricted stock unit withholdings	(4,693)		(6,659)
Ending balances	$	445,809	$	409,242

Accumulated deficit:
Beginning balances	$	(345,425)	$	(288,799)
Net loss	(14,245)		(8,479)
Ending balances	$	(359,670)	$	(297,278)

Accumulated other comprehensive income (loss):
Beginning balances	$	(107)	$	—
Other comprehensive income (loss), net of tax	128		(46)
Ending balances	$	21	$	(46)

Total stockholders’ equity, ending balances	$	86,251	$	112,004

Common stock shares:
Beginning balances	88,887		84,453
Issuance of common stock under stock-based compensation plans	3,165		2,127

Restricted stock unit withholdings	(1,267)		(745)
Ending balances	90,785		85,835

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

~~ARLO TECHNOLOGIES, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

Common Stock

Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
(In thousands)
Balance as of December 31, 2021 84,453 $ 84 $ 401,367 $ — $ (288,799) $ 112,652
Net loss — — — — (8,479) (8,479)
Stock-based compensation expense — — 8,183 — — 8,183
Settlement of liability classified RSUs — — 4,966 — — 4,966
Issuance of common stock under stock-based compensation plans 2,127 3 1,385 — — 1,388
Restricted stock unit withholdings (745) (1) (6,659) — — (6,660)
Change in unrealized gains and losses on available-for-sale securities, net of tax — — — (46) — (46)
Balance as of April 3, 2022 85,835 $ 86 $ 409,242 $ (46) $ (297,278) $ 112,004
Common Stock

Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
(In thousands)
Balance as of December 31, 2020 79,336 $ 79 $ 366,455 $ 3 $ (232,770) $ 133,767
Net loss — — — — (10,719) (10,719)
Stock-based compensation expense — — 4,871 — — 4,871
Settlement of liability classified RSUs — — 6,458 — — 6,458
Issuance of common stock under stock-based compensation plans 2,133 3 4,433 — — 4,436
Issuance of common stock under Employee Stock Purchase Plan 353 — 1,697 1,697
Restricted stock unit withholdings (572) (1) (4,176) — — (4,177)
Change in unrealized gains and losses on available-for-sale securities, net of tax — — — (1) — (1)
Change in unrealized gains and losses on derivatives, net of tax — — — (2) — (2)
Balance as of March 28, 2021 81,250 $ 81 $ 379,738 $ — $ (243,489) $ 136,330

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

Table of Contents

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Three Months Ended					Three Months Ended
		April 3, 2022		March 28, 2021			April 2, 2023		April 3, 2022
		(In thousands)					(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(8,479)	$	(10,719)	Net loss	$	(14,245)	$	(8,479)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:						Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation expense	Stock-based compensation expense	9,589		8,340		Stock-based compensation expense	14,591		9,589

Depreciation and amortization	Depreciation and amortization	1,302		1,547		Depreciation and amortization	1,149		1,302
Allowance for credit losses and inventory reserves	Allowance for credit losses and inventory reserves	(135)		(562)		Allowance for credit losses and inventory reserves	198		(135)
Deferred income taxes	Deferred income taxes	(9)		(130)		Deferred income taxes	127		(9)

Premium amortization (discount accretion) on investments, net		28		(3)

Others						Others	(124)		28
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	1,508		26,522		Accounts receivable, net	13,216		1,508
Inventories	Inventories	1,490		9,296		Inventories	6,341		1,490

Prepaid expenses and other assets	Prepaid expenses and other assets	556		361		Prepaid expenses and other assets	(900)		556
Accounts payable	Accounts payable	(15,676)		(34,647)		Accounts payable	(6,093)		(15,676)
Deferred revenue	Deferred revenue	(13,411)		(8,101)		Deferred revenue	3,785		(13,411)
Accrued and other liabilities	Accrued and other liabilities	(1,320)		(22,072)		Accrued and other liabilities	(7,716)		(1,320)

Net cash used in operating activities		(24,557)		(30,168)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	10,329		(24,557)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(298)		(803)		Purchases of property and equipment	(923)		(298)

Purchases of short-term investments	Purchases of short-term investments	(44,640)		—		Purchases of short-term investments	(36,755)		(44,640)
Proceeds from maturities of short-term investments	Proceeds from maturities of short-term investments	—		15,000		Proceeds from maturities of short-term investments	15,006		—
Net cash provided by (used in) investing activities		(44,938)		14,197
Net cash used in investing activities						Net cash used in investing activities	(22,672)		(44,938)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds related to employee benefit plans	Proceeds related to employee benefit plans	1,388		6,133		Proceeds related to employee benefit plans	3		1,388
Restricted stock unit withholdings	Restricted stock unit withholdings	(6,660)		(4,177)		Restricted stock unit withholdings	(4,694)		(6,660)

Net cash provided by (used in) financing activities		(5,272)		1,956
Net decrease in cash and cash equivalents and restricted cash		(74,767)		(14,015)
Cash and cash equivalents and restricted cash, at beginning of period		179,856		190,291
Cash and cash equivalents and restricted cash, at end of period		$	105,089	$	176,276

Non-cash investing and financing activities:
Net cash used in financing activities						Net cash used in financing activities	(4,691)		(5,272)
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	(17,034)		(74,767)
Cash, cash equivalents, and restricted cash, at beginning of period						Cash, cash equivalents, and restricted cash, at beginning of period	88,179		179,856
Cash, cash equivalents, and restricted cash, at end of period						Cash, cash equivalents, and restricted cash, at end of period	$	71,145	$	105,089
Reconciliation of cash, cash equivalents, and restricted cash to Unaudited Condensed Consolidated Balance Sheets						Reconciliation of cash, cash equivalents, and restricted cash to Unaudited Condensed Consolidated Balance Sheets
Cash and cash equivalents						Cash and cash equivalents	$	66,970	$	100,975
Restricted cash						Restricted cash	4,175		4,114
Total cash, cash equivalents, and restricted cash						Total cash, cash equivalents, and restricted cash	$	71,145	$	105,089
Supplemental cash flow information:						Supplemental cash flow information:
Non-cash investing activities:						Non-cash investing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities	Purchases of property and equipment included in accounts payable and accrued liabilities	$	310	$	82	Purchases of property and equipment included in accounts payable and accrued liabilities	$	894	$	310

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. ~~The Company~~Description of Business and Basis of Presentation

~~The Company~~Description of Business

Arlo Technologies, Inc. ~~("Arlo" or the "Company"~~(“Arlo”) combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that transform the way people experience the connected lifestyle. ~~The Company's~~Our deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. ~~The Company's~~Our cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. ~~The Company conducts~~

We conduct business across 3three geographic ~~regions -~~regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”), —and primarily ~~generates~~generate revenue by selling devices through retail channels, wholesale distribution, wireless carrier channels, security solution providers, and ~~Arlo's~~Arlo’s direct to consumer store and paid subscription services.

~~The Company's~~Our corporate headquarters is located in Carlsbad, California with other satellite offices across North America and various other global locations.

Basis of Presentation

~~The~~We prepare our unaudited condensed consolidated financial statements ~~include the accounts of the Company and its wholly-owned subsidiaries. All periods presented have been accounted for~~ in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of Arlo and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in ~~the Company’s~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for fair statement of the unaudited condensed consolidated financial statements for interim periods.

Fiscal periods

~~The Company’s~~Our fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. ~~The Company reports its~~We report the results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.

Reclassification

Certain prior periods amounts have been reclassified to conform to the current period’s presentation. None of these reclassifications had a material impact to the unaudited condensed consolidated financial statements.

Table of Contents

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Use of estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Management bases its estimates on various assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates and operating results for the three months ended April ~~3, 2022~~2, 2023 and are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022~~2023 or any future period.

~~Table of Contents~~

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Note 2. Significant Accounting Policies and Recent Accounting Pronouncements

~~The Company’s~~Our significant accounting policies are disclosed in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes to such policies during the three months ended April ~~3, 2022.~~

~~Recent accounting pronouncements~~2, 2023.

Emerging Growth Company Status

As an emerging growth company (“EGC”), we may, under the Jumpstart Our Business Startups Act, ~~(“JOBS Act”) allows the Company to~~ delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless ~~the Company~~we otherwise irrevocably ~~elects~~elect not to avail ~~itself~~ourselves of this exemption. ~~The Company~~We did not make such an irrevocable election and ~~has~~have not delayed the adoption of any applicable accounting standards. We will no longer qualify as an EGC on December 31, 2023. Accordingly, our Annual Report on Form 10-K for the year ending December 31, 2023 will include an attestation report of our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.

Accounting Pronouncements Recently Adopted

There were no accounting pronouncements adopted during the three months ended April ~~3, 2022.~~2, 2023.

Accounting Pronouncements Not Yet Effective

~~In March 2020, the Financial Accounting Standards Board ("FASB")~~We have considered all recent accounting pronouncements issued, ~~Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform~~but not yet effective, and do not expect any to have a material effect on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on itsour financial statements and related disclosures.

With the exception of the new standard discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations, or cash flows.

Note 3. ~~Deferred~~ Revenue

~~Deferred Revenue~~

Deferred revenue consists of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Deferred revenue consists of prepaid services and customer billings in advance of revenues being recognized from the Company's subscription contracts. Advance payments include prepayments for products and Non-Recurring Engineering ("NRE") services under the Supply Agreement with ~~Verisure S.à.r.l. (“Verisure”).~~

~~Transaction Price Allocated to the Remaining~~ Performance Obligations

~~Remaining performance obligations represent~~The following table includes estimated revenue expected to be recognized in the ~~transaction price allocated~~future related to performance obligations that are unsatisfied orand partially unsatisfied as of ~~the end of the reporting period. Unsatisfied and partially unsatisfied~~April 2, 2023:


	1 year		2 years		Greater than 2 years		Total
	(In thousands)
Performance obligations	$	18,764	$	110	$	5	$	18,879

The performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted and that are scheduled or in the process of being scheduled for shipment.obligation classified as greater than one year pertains to revenue deferral from prepaid services.

Table of Contents

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of April 3, 2022:~~

1 year 2 years Greater than 2 years Total
(In thousands)
Performance obligations $ 21,122 $ 809 $ 107 $ 22,038

~~The performance obligation classified as greater than one year pertains to revenue deferral from prepaid services.~~

For the three months ended April 2, 2023 and April 3, 2022, ~~and March 28, 2021, $25.8~~$41.2 million and ~~$17.7~~$25.8 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and ~~$27.5~~$38.4 million and ~~$21.9~~$27.5 million of revenue was recognized for the satisfaction of performance obligations over time, respectively. ~~$9.0~~Approximately $8.4 million and ~~$10.5~~$9.0 million of this recognized revenue was included in the contract liability balance at the beginning of the periods. There were no significant changes in estimates during the period that would affect the contract balances.

During the five-year period that commenced on January 1, 2020, Verisure Sàrl (“Verisure”) has an aggregate purchase commitment of $500.0 million. As of April 2, 2023, $378.9 million of the purchase commitment has been fulfilled with a backlog of $25.9 million.

Disaggregation of Revenue

~~The Company conducts business across 3~~We disaggregate our revenue into three geographic regions: the Americas, EMEA, and ~~APAC. Sales and usage-based taxes are excluded from revenue. Refer to Note 13,~~ ~~Segment and Geographic Information, for~~APAC, where we conduct our business. The following table presents revenue by geography.


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
Americas	$	56,632	$	68,466
EMEA	48,472		49,975
APAC	5,900		6,310
Total	$	111,004	$	124,751

Note 4. Balance Sheet Components

~~Cash and Cash Equivalents and Restricted cash~~

The Company maintains certain cash balances restricted as to withdrawal or use. The restricted cash is comprised primarily of cash used as collateral for a letter of credit associated with the Company’s lease agreement in San Jose, California. The Company deposits restricted cash with high credit quality financial institutions. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown on the statements of cash flows:

As of
April 3,
2022 December 31,
2021
(In thousands)
Cash and cash equivalents $ 100,975 $ 175,749
Restricted cash 4,114 4,107
Total as presented on the unaudited condensed consolidated statements of cash flows $ 105,089 $ 179,856

As of
March 28,
2021 December 31,
2020
(In thousands)
Cash and cash equivalents $ 172,113 $ 186,127
Restricted cash 4,163 4,164
Total as presented on the unaudited condensed consolidated statements of cash flows $ 176,276 $ 190,291

~~Table of Contents~~

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Available-for-sale short-term~~Short-term investments

As of April 3, 2022 As of December 31, 2021
Cost Unrealized Gains Unrealized Losses Estimated Fair Value Cost Unrealized Gains Unrealized Losses Estimated Fair Value
(In thousands)
U.S. treasuries $ 44,612 $ — $ (46) $ 44,566 $ — $ — $ — $ —

The Company’s short-term investments are classified as available-for-sale and consist of government securities with an original maturity or remaining maturity at the time of purchase of greater than three months and no more than twelve months. Accordingly, none of the available-for-sale securities have unrealized losses greater than twelve months. The Company did not recognize any allowance for credit losses related to available for sale short-term investments for the three months ended April 3, 2022.


	As of April 2, 2023								As of December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. Treasuries	$	51,730	$	—	$	(27)	$	51,703	$	29,849	$	—	$	(149)	$	29,700

Accounts receivable, net


		As of					As of
		April 3, 2022		December 31, 2021			April 2, 2023		December 31, 2022
		(In thousands)					(In thousands)
Gross accounts receivable	Gross accounts receivable	$	78,393	$	79,901	Gross accounts receivable	$	53,166	$	66,383
Allowance for credit losses	Allowance for credit losses	(339)		(337)		Allowance for credit losses	(329)		(423)
Total accounts receivable, net		$	78,054	$	79,564
Total						Total	$	52,837	$	65,960

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.

Three Months Ended
April 3,
2022 March 28,
2021
(In thousands)
Balance at the beginning of the period $ 337 $ 519
Provision for expected credit losses 2 —
Amounts recovered due to collection — —
Balance at the end of the period $ 339 $ 519

~~Inventories~~

~~Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of April 3, 2022.~~

119

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
Balance at the beginning of the period	$	423	$	337
Provision for (release of) expected credit losses	(94)		2
Balance at the end of the period	$	329	$	339

Property and equipment, net

The components of property and equipment are as follows:


		As of					As of
		April 3, 2022		December 31, 2021			April 2, 2023		December 31, 2022
		(In thousands)					(In thousands)
Machinery and equipment	Machinery and equipment	$	13,531	$	13,302	Machinery and equipment	$	13,526	$	12,696
Software	Software	13,670		13,928		Software	15,635		15,606
Computer equipment	Computer equipment	4,074		4,062		Computer equipment	3,938		3,992
Leasehold improvements						Leasehold improvements	4,661		4,657
Furniture and fixtures	Furniture and fixtures	2,534		2,404		Furniture and fixtures	2,553		2,554
Leasehold improvements		4,935		4,922

Total property and equipment, gross	Total property and equipment, gross	38,744		38,618		Total property and equipment, gross	40,313		39,505
Accumulated depreciation and amortization		(30,222)		(29,023)
Accumulated depreciation						Accumulated depreciation	(33,258)		(32,169)
Total property and equipment, net (1)	Total property and equipment, net (1)	$	8,522	$	9,595	Total property and equipment, net (1)	$	7,055	$	7,336

_________________________

(1) ~~$2.2~~$1.5 million and ~~$2.4~~$1.7 million property and equipment, net, ~~respectively,~~ was included in the sublease arrangement for the San Jose office building as of April ~~3, 2022~~2, 2023 and December 31, ~~2021.~~2022, respectively.

Depreciation ~~and amortization~~ expense pertaining to property and equipment was ~~$1.3~~$1.1 million and ~~$1.5~~$1.3 million for the three months ended April 2, 2023 and April 3, 2022, ~~and March 28, 2021,~~ respectively.

Goodwill

~~There was no change in the carrying amount of goodwill during the three months ended April 3, 2022. The goodwill as of December 31, 2021 and April 3, 2022 was $11.0 million.~~

~~Goodwill Impairment~~

The Company performs an annual assessment of goodwill at the reporting unit level on the first day of the fourth fiscal quarter and during interim periods if there are triggering events to reassess goodwill. The Company operates as 1 operating and reportable segment.

~~The Company~~We have determined that no ~~events~~event occurred or circumstances changed during the three months ended April ~~3, 2022~~2, 2023 that would more likely than not reduce the fair value of ~~the Company~~goodwill below ~~its~~the carrying amount. ~~If there is a significant decline~~No goodwill impairment was recognized in the ~~Company’s stock price based on market conditions~~three months ended April 2, 2023 and ~~deterioration of the Company’s business, the Company may have to record a charge to its earnings for~~ the goodwill ~~impairment~~balance was $11.0 million as of ~~up to $11.0 million.~~

April 2, 2023 and December 31, 2022.

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other non-current assets

As of
April 3,
2022 December 31,
2021
(In thousands)
Net deferred tax assets $ 1,574 $ 1,565
Sublease 1,762 1,471
Deposits 122 122
Other 1,213 1,156
Total other non-current assets $ 4,671 $ 4,314


	As of
	April 2, 2023		December 31, 2022
	(In thousands)
Deferred income taxes	$	1,256	$	1,384
Sublease initial direct cost and adjustments	928		777
Other	1,799		1,920
Total	$	3,983	$	4,081

Accrued liabilities


	As of
	April 2, 2023		December 31, 2022
	(In thousands)
Sales incentives	$	33,943	$	36,271
Sales returns	15,000		18,656
Compensation	15,134		15,556
Cloud and other costs	7,196		11,154
Operating lease liabilities	3,880		4,190
Professional services	3,148		3,703
Income taxes payable	2,034		961
Warranty obligations	1,119		1,174
Freight cost	989		1,050
Service cost	907		806
Restructuring charges	749		1,265
Other	4,117		4,069
Total	$	88,216	$	98,855

As of
April 3,
2022 December 31,
2021
(In thousands)
Sales and marketing $ 31,252 $ 31,417
Sales returns
17,924 19,960
Accrued employee compensation 11,753 12,367
Current operating lease liabilities 4,529 4,609
Freight 5,551 8,086
Warranty obligation 1,330 1,330
Other 19,393 19,608
Total accrued liabilities $ 91,732 $ 97,377
Other non-current liabilities


	As of
	April 2, 2023		December 31, 2022
	(In thousands)
Non-current service cost	$	1,196	$	1,259
Non-current compensation	994		616
Non-current deferred revenue	114		212
Non-current income taxes payable	77		77
Other	861		785
Total	$	3,242	$	2,949

1311

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 5. Fair Value Measurements

Fair Value Measurements - Recurring Basis

The following table summarizes assets ~~and liabilities~~ measured at fair value on a recurring ~~basis as of April 3, 2022 and December 31, 2021:~~

basis:

As of April 3, 2022 As of December 31, 2021
Total Quoted market
prices in active
markets
(Level 1) Significant
other
observable
inputs
(Level 2) Total Quoted market
prices in active
markets
(Level 1) Significant
other
observable
inputs
(Level 2)
(In thousands)
Assets:
Cash equivalents: money-market funds (<90 days) $ 7,179 $ 7,179 $ — $ 21,935 $ 21,935 $ —
Available-for-sale securities: U.S. treasuries (1)
44,566 44,566 — — — —
Foreign currency forward contracts (2)
— — — 65 — 65
Total assets measured at fair value $ 51,745 $ 51,745 $ — $ 22,000 $ 21,935 $ 65
Liabilities:
Foreign currency forward contracts (3)
$ 37 $ — $ 37 $ 47 $ — $ 47
Total liabilities measured at fair value $ 37 $ — $ 37 $ 47 $ — $ 47


	As of
	April 2, 2023		December 31, 2022
	(In thousands)
Cash equivalents: money-market funds (<90 days)	$	1,450	$	12,614
Cash equivalents: U.S. Treasuries (<90 days)	10,174		20,274
Available-for-sale securities: U.S. Treasuries (1)	51,703		29,700
Total	$	63,327	$	62,588

_________________________

(1)Included in ~~Short-term~~short-term investments on ~~the Company’s unaudited condensed consolidated balance sheets.~~

~~(2)Included in Prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.~~

~~(3)Included in Accrued liabilities on the Company’s~~our unaudited condensed consolidated balance sheets.

~~The Company’s~~Our investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that take into account the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. Additionally, the Company includes an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments.

As of April ~~3, 2022~~2, 2023 and December 31, ~~2021, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts. The carrying value of non-financial~~2022, assets and liabilities measured atas Level 2 fair value ~~in the financial statements on a recurring basis, including accounts receivable~~were not material and ~~accounts payable, approximate fair value due to their short maturities. As of April 3, 2022 and December 31, 2021, the Company had~~there were no Level 3 fair value assets or liabilities measured on a recurring basis.

Fair Value Measurements - Nonrecurring Basis

~~The Company measures~~We measure the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For the three months ended April 2, 2023 and April 3, 2022, ~~and March 28, 2021, respectively, the Company~~we had no assets or liabilities measured on a nonrecurring basis.

~~Table of Contents~~Note 6. Restructuring

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Note 6. Derivative Financial Instruments~~In November 2022, we initiated a restructuring plan to reduce our cost structure to better align the operational needs of the business to current economic conditions while continuing to support our long-term strategy. This restructuring includes the reduction of headcount as well as the abandonment of certain lease contracts and the cancellation of contractual services arrangements with certain suppliers. We expect the completion date to be in the third quarter of 2023 with the total estimated restructuring charges of $2.1 million.

The ~~Company’s subsidiaries have had, and will continue to have material future cash flows, including revenue and expenses, which~~restructuring liabilities are ~~denominated~~included in ~~currencies other than the Company’s functional currency. The Company and all its subsidiaries designate the U.S. dollar as the functional currency. Changes~~accrued liabilities in exchange rates between the Company’s functional currency and other currencies in which the Company transacts business will cause fluctuations in cash flow expectations and cash flow realized or settled. Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk. The Company enters into foreign currency forward contracts in Australian dollars and Canadian dollars to manage its exposure to foreign exchange risk related to expected future cash flows on certain forecasted revenue, costs of revenue, operating expenses and existing assets and liabilities.

The Company’s foreign currency forward contracts do not contain any credit risk-related contingent features. The Company is exposed to credit losses in the event of nonperformance by the counter-parties of its forward contracts. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any one counter-party. In addition, the derivative contracts typically mature in less than six months and the Company continuously evaluates the credit standing of its counter-party financial institutions. The counter-parties to these arrangements are large highly rated financial institutions and the Company does not consider non-performance a material risk.

The Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, materiality, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with the authoritative guidance for derivatives and hedging. The Company records all derivatives on the balance sheets at fair value. Cash flow hedge gains and losses are recorded in other comprehensive income (“OCI”) until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in Other income (expense), net in the unaudited condensed consolidated statements of operations.

~~Fair value of derivative instruments~~

~~The fair values of the Company’s derivative instruments and the line items on the~~our unaudited condensed consolidated balance ~~sheets to which they were recorded as of April 3, 2022 and December 31, 2021 are summarized as follows:~~

Derivative Assets Balance Sheet
Location April 3, 2022 December 31, 2021 Balance Sheet
Location April 3, 2022 December 31, 2021
(In thousands) (In thousands)
Derivative assets not designated as hedging instruments Prepaid expenses and other current assets $ — $ 65 Accrued liabilities $ 37 $ 47

~~Refer to Note 5,~~ ~~Fair Value Measurements,~~ ~~for detailed disclosures regarding fair value measurements in accordance with the authoritative guidance for fair value measurements and disclosures.~~

~~Gross amounts offsetting of derivative instruments~~

The Company has entered into master netting arrangements which allow net settlements under certain conditions. Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the unaudited condensed consolidated balance sheets.

~~Table of Contents~~

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~There were no derivative assets recorded as of April 3, 2022. The following table sets forth the offsetting of derivative assets as of December 31, 2021:~~

December 31, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Gross Amounts of Recognized Assets Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets Net Amounts Of Assets Presented in the Unaudited Condensed Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Net Amount
(In thousands)
Wells Fargo Bank $ 65 $ — $ 65 $ (47) $ — $ 18

~~The following tables set forth the offsetting of derivative liabilities as of April 3, 2022 and December 31, 2021:~~

As of April 3, 2022 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets Net Amounts Of Liabilities Presented in the Unaudited Condensed Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Net Amount
(In thousands)
Wells Fargo Bank $ 37 $ — $ 37 $ — $ — $ 37

December 31, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets Net Amounts Of Liabilities Presented in the Unaudited Condensed Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Net Amount
(In thousands)
Wells Fargo Bank $ 47 $ — $ 47 $ (47) $ — $ —

~~Cash flow hedges~~

The Company typically hedges portions of its anticipated foreign currency exposure which generally are less than six months. The Company did not enter into any forward contracts related to its cash flow hedging program Restructuring activities for the three months ended April ~~3, 2022. There were no cash flow hedge effects on the unaudited condensed consolidated statements of operations for the three months ended April 3, 2022.~~

~~Table of Contents~~

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three months ended March 28, 2021~~2, 2023 are ~~summarized~~ as follows:

Three Months Ended March 28, 2021
Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
Revenue Cost of revenue Research and development Sales and marketing General and administrative
(In thousands)
Statements of operations $ 82,556 $ 56,749 $ 14,791 $ 11,207 $ 11,227
Gains (losses) on cash flow hedge — — — 2 —

The Company expects to reclassify to earnings all of the amounts recorded in AOCI (as defined below) associated with its cash flow hedges over the next twelve months. For information on the unrealized gains or losses on derivatives reclassified out of AOCI into the unaudited condensed consolidated statements of operations, refer to Note 7, ~~Accumulated Other Comprehensive Income (Loss).~~

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur within the designated hedge period or if not recognized within 60 days following the end of the hedge period. The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the three months ended April 3, 2022 and March 28, 2021.

~~Non-designated hedges~~

~~The Company adjusts its non-designated hedges monthly and enters into about 6 non-designated derivatives per quarter with an average size of $2.3 million. The hedges range typically from~~ ~~one~~ to three months in duration. The effects of the Company’s non-designated hedges, which are included in Other income (expense), net in the unaudited condensed consolidated statements of operations for the three months ended April 3, 2022 and March 28, 2021, were as follows:

Derivatives Not Designated as Hedging Instruments Location of Gains (Losses)
Recognized in Income on Derivative Three Months Ended
April 3, 2022 March 28, 2021
(In thousands)
Foreign currency forward contracts Other income (expense), net $ 128 $ (5)


	Total		Severance Expense		Office Exit Expense		Other Exit Expense
	(In thousands)
Balance at the beginning of the period	$	1,265	$	219	$	991	$	55
Restructuring charges	276		248		28		—
Cash payments	(792)		(440)		(333)		(19)
Non-cash and other adjustments	—		—		—		—
Balance at the end of the period	$	749	$	27	$	686	$	36
Total costs incurred inception to date	$	2,081	$	1,046	$	956	$	79

1712

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note 7. ~~Accumulated Other Comprehensive Income (Loss)~~

~~The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three months ended April 3, 2022 and March 28, 2021.~~

Unrealized gains (losses) on available-for-sale securities Unrealized gains (losses) on derivatives Estimated tax benefit (provision) Total
(In thousands)
Balance as of December 31, 2021 $ — $ — $ — $ —
Other comprehensive income (loss) before reclassifications (46) — — (46)
Less: Amount reclassified from accumulated other comprehensive income (loss) — — — —
Net current period other comprehensive income (loss) (46) — — (46)
Balance as of April 3, 2022 $ (46) $ — $ — $ (46)

Unrealized gains (losses) on available-for-sale securities Unrealized gains (losses) on derivatives Estimated tax benefit (provision) Total
(In thousands)
Balance as of December 31, 2020 $ 1 $ 2 $ — $ 3
Other comprehensive income (loss) before reclassifications (1) — — (1)
Less: Amount reclassified from accumulated other comprehensive income (loss) — 2 — 2
Net current period other comprehensive income (loss) (1) (2) — (3)
Balance as of March 28, 2021 $ — $ — $ — $ —

~~The following tables provide details about significant amounts reclassified out of each component of AOCI for the three months ended April 3, 2022 and March 28, 2021:~~


	~~Three Months Ended~~
	~~April 3, 2022~~				~~March 28, 2021~~
	~~Gains (Losses) Recognized in OCI - Effective Portion~~		~~Gains (Losses) Reclassified from OCI to Income - Effective Portion~~		~~Gains (Losses) Recognized in OCI - Effective Portion~~		~~Gains (Losses) Reclassified from OCI to Income - Effective Portion~~		~~Affected Line Item in the Statements of Operations~~
	~~(In thousands)~~
~~Gains (losses) on cash flow hedge:~~
~~Foreign currency contracts~~	$	—	$	—	$	—	$	—	~~Revenue~~
~~Foreign currency contracts~~	—		—		—		—		~~Cost of revenue~~
~~Foreign currency contracts~~	—		—		—		—		~~Research and development~~
~~Foreign currency contracts~~	—		—		—		2		~~Sales and marketing~~
~~Foreign currency contracts~~	—		—		—		—		~~General and administrative~~
	$	—	$	—	$	—	$	2	Total *

~~_________________________~~

* Tax impact to hedging gains and losses from derivative contracts was immaterial.

~~Note 8. Debt~~

Revolving Credit Facility

~~Table of Contents~~

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

On October 27, 2021, ~~the Company~~we entered into a Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., a national banking association, as lender (the “Lender”).

The Credit Agreement provides for a three-year revolving credit facility (the “Credit Facility”) that matures on October 27, 2024. Borrowings under the Credit Facility are limited to the lesser of (x) $40.0 million, and (y) an amount equal to the borrowing base. The borrowing base will be the sum of (i) 90% of investment grade eligible receivables and (ii) 85% of non-investment grade eligible accounts, less applicable reserves established by the Lender. The Credit Agreement also includes a $5.0 million sublimit for the issuance by the Lender of letters of credit. In addition, the Credit Agreement includes an uncommitted accordion feature that allows ~~the Company~~us to request, from time to time, that the Lender increase the aggregate revolving loan commitments by up to an additional $25.0 million in the aggregate, subject to the satisfaction of certain conditions, including obtaining the Lender’s agreement to participate in each increase. The proceeds of the borrowings under the Credit Facility may be used for working capital and general corporate purposes. Based on certain terms and conditions including eligible accounts receivable as of April 2, 2023, we had unused borrowing capacity of $8.4 million.

~~The~~Our obligations ~~of the Company~~ under the Credit Agreement are secured by substantially all of ~~the Company’s~~our domestic working capital assets, including accounts receivable, cash and cash equivalents, inventory, and other assets ~~of the Company~~ to the extent related to such working capital assets.

At ~~the Company’s~~our option, borrowings under the Credit Agreement will bear interest at a floating rate equal to: (i) the Bloomberg Short-Term Bank Yield Index rate plus the applicable rate of 2.0% to 2.5% determined based on ~~the Company’s~~our average daily availability for the prior fiscal quarter, or (ii) the base rate plus the applicable rate of 1.0% to 1.5% based on ~~the Company’s~~our average daily availability for the prior fiscal quarter. Among other fees, ~~the Company is~~we are required to pay a monthly unused fee of 0.2% per annum on the amount by which the Lender’s aggregate commitment under the Credit Facility exceeds the average daily revolver usage during such month.

The Credit Agreement contains events of default, representations and warranties, and affirmative and negative covenants customary for credit facilities of this type. The Credit Agreement also contains financial covenants that require ~~the Company~~us to (a) until ~~the Company achieves~~we achieve a fixed charge coverage ratio of at least 1.00 to 1.00 for 2two consecutive quarters, maintain minimum liquidity of not less than $20.0 million at all times and (b) thereafter, if the Financial Covenant Trigger Period (as defined in the Credit Agreement) is in effect, maintain a fixed charge coverage ratio, tested quarterly on a trailing twelve month basis, of at least 1.00 to 1.00 at any ~~time a Financial Covenant Trigger Period (as defined in the Credit Agreement) is in effect.~~time. As of April ~~3, 2022, the Company is~~2, 2023, we were in compliance with all the covenants of the Credit Agreement.

If an event of default under the Credit Agreement occurs, then the Lender may cease making advances under the Credit Agreement and declare any outstanding obligations under the Credit Agreement to be immediately due and payable. In addition, if ~~the Company files~~we file a bankruptcy petition, a bankruptcy petition is filed against ~~the Company~~us and is not dismissed or stayed within thirty days or ~~the Company makes~~we make a general assignment for the benefit of creditors, then any outstanding obligations under the Credit Agreement will automatically and without notice or demand become immediately due and payable.

No amounts had been drawn under the Credit Facility as of April ~~3, 2022.~~2, 2023.

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Note 9.8. Commitments and Contingencies

Operating Leases

~~The Company primarily~~Our operating leases ~~office space,~~comprise offices, equipment, data centers and distribution centers, with various expiration dates through June 2029. ~~Some of the leases~~Certain lease agreements include options to ~~extend such leases for up~~renew or terminate the lease, which are not reasonably certain to ~~five years,~~be exercised and ~~some include options to terminate such leases within one year.~~therefore are not factored into our determination of lease payments. The terms of certain ~~of the Company's~~ leases provide for rental payments on a graduated scale. ~~The Company determines if an arrangement is a~~Gross lease ~~at inception. Operating leases are included in operating~~expense was $1.5 million and $1.8 million for the three months ended April 2, 2023 and April 3, 2022, respectively. We recorded sublease income as reduction of lease ~~right-of-use (“ROU”) assets,~~ ~~accrued liabilities, and non-current operating lease liabilities~~expense, in the ~~unaudited condensed consolidated balance sheets. Leases with an initial~~amount of $0.5 million for each of the three months ended April 2, 2023 and April 3, 2022.

Supplemental cash flow information related to operating leases was as follows:


	Three Months Ended
	April 2, 2023		April 3, 2022
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,889	$	2,036
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	—	$	18

Weighted average remaining lease term ~~of 12 months or less are not recorded on the balance sheet. Lease expense for~~and weighted average discount rate related to operating leases were as follows:


	As of
	April 2, 2023		December 31, 2022
Weighted average remaining lease term	4.9 years		5.1 years
Weighted average discount rate	5.78	%	5.69	%

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fixed lease payments are recognized in the unaudited condensed consolidated statements of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. Gross lease expense was $1.8 million and $1.6 million for the three months ended April 3, 2022 and March 28, 2021, respectively. The lease expense was recorded within Cost of revenue, Research and development, Sales and marketing, and General and administrative expense in the Company's unaudited condensed consolidated statements of operations. Short-term leases and variable lease costs were included in the lease expense and they were immaterial. The Company recorded sublease income as reduction of lease expense, in the amount of $0.5 million for the three months ended April 3, 2022.

~~Supplemental cash flow information related to operating leases for the three months ended April 3, 2022 and March 28, 2021 was as follows:~~

April 3, 2022 March 28, 2021
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 2,036 $ 1,534
Right-of-use assets obtained in exchange for lease liabilities
Operating leases $ 18 $ —

~~Weighted average remaining lease term and weighted average discount rate related to operating leases were as follows:~~

As of
April 3, 2022 December 31, 2021
Weighted average remaining lease term 5.9 years 6.1 years
Weighted average discount rate 5.76 % 5.77 %

~~The Company's~~ future minimum undiscounted lease payments under operating leases and future non-cancelable rent payments from ~~its~~our subtenants for each of the next five years and thereafter as of April ~~3, 2022~~2, 2023 were as follows:

Operating Lease Payments Sublease Payments Net
(In thousands)
2022 (Remaining nine months) $ 4,362 $ (1,506) $ 2,856
2023 5,563 (1,891) 3,672
2024 4,885 (1,947) 2,938
2025 3,174 (2,006) 1,168
2026 3,267 (2,066) 1,201
Thereafter 8,217 (5,942) 2,275
Total future lease payments 29,468 $ (15,358) $ 14,110
Less: interest (1)
(4,631)
Present value of future minimum lease payments $ 24,837
Accrued liabilities $ 4,529
Non-current operating lease liabilities 20,308
Total lease liabilities $ 24,837

~~________________________~~

~~(1)~~ Leases that commenced before November 5, 2019 were calculated using the Company’s incremental borrowing rate on a collateralized basis plus LIBOR rate that closely matches contractual term of most leases. Leases that commenced between November 5, 2019 and October 27, 2021 were calculated using the Company's borrowing rate defined in the credit agreement with Western Alliance Bank. Leases that commenced after October 27, 2021 were calculated using the Company's borrowing rate defined in the Credit Agreement with Bank of America, N.A.

~~Table of Contents~~


	Operating Lease Payments		Sublease Payments		Net
	(In thousands)
2023 (Remaining nine months)	$	3,657	$	(1,551)	$	2,106
2024	5,251		(1,947)		3,304
2025	3,897		(2,006)		1,891
2026	4,011		(2,066)		1,945
2027	3,986		(2,322)		1,664
Thereafter	5,130		(3,620)		1,510
Total future lease payments	25,932		$	(13,512)	$	12,420
Less: interest	(3,884)
Present value of future minimum lease payments	$	22,048

Accrued liabilities	$	3,880
Non-current operating lease liabilities	18,168
Total lease liabilities	$	22,048

~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Letters of Credit

In connection with the lease agreement for ~~the~~our office space located in San Jose, California, ~~the Company~~we executed a letter of credit with the landlord as the beneficiary. As of April ~~3, 2022, the Company~~2, 2023, we had approximately $3.6 million of unused letters of credit outstanding, of which $3.1 million pertains to the lease arrangement in San Jose, California.

Purchase Obligations

~~The Company has~~We have entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-cancelable within 30 days prior to the expected shipment date. As of April ~~3, 2022, the Company~~2, 2023, we had approximately ~~$34.7~~$36.6 million in non-cancelable purchase commitments with suppliers.

As ~~a result~~ of ~~the COVID-19 pandemic, the Company has experienced~~April 2, 2023, an ~~elongation~~additional $24.2 million of ~~the time from order placement~~purchase orders beyond contractual termination periods have been issued to ~~production primarily due to component shortages and~~ supply chain ~~disruptions. In order to reduce manufacturing lead-times~~partners in anticipation of demand requirements. Consequently, we may incur expenses for the materials and to ensure an adequate supply of inventories, the Company has worked with its suppliers to place longer lead-time purchase orders to ensure availability of components and materials from its supply chain. Under this circumstance, the Company may be obligated to purchase long lead-time component inventory procured in accordance with its forecasts. The Company may become liable for non-cancellable material components, such as chipsets already purchased by the supplier to ~~meet its~~fulfill our orders if the purchase order ~~even if it~~ is ~~subsequently~~ cancelled.~~The Company establishes a loss liability for all products it does~~ Expenses incurred have historically not ~~expect~~been significant relative to ~~sell for which it has committed purchases from suppliers.~~the original order value. As of April ~~3, 2022,~~2, 2023, the loss liability from committed purchases was ~~$0.3 million. From time to time the Company’s suppliers procure unique complex components on the Company’s behalf. If these components do~~ not ~~meet specified technical criteria or are defective, the Company should not be obligated to purchase the materials.~~

~~Warranty Obligations~~

~~Changes in the Company’s warranty liability, which is included in Accrued liabilities in the unaudited condensed consolidated balance sheets, were as follows:~~

Three Months Ended
April 3,
2022 March 28,
2021
(In thousands)
Balance at the beginning of the period $ 1,330 $ 2,451
Provision for (release of) warranty obligation made during the period 79 (369)
Settlements made during the period (79) (145)
Balance at the end of the period $ 1,330 $ 1,937

~~Litigation and Other Legal Matters~~

~~Securities Class Action Lawsuits and Derivative Suit~~material.

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~~The Company is~~Warranty Obligations

Changes in warranty obligations, which are included in accrued liabilities in the unaudited condensed consolidated balance sheets, were as follows:


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
Balance at the beginning of the period	$	1,174	$	1,330
Provision for warranty obligations	15		79
Settlements	(70)		(79)
Balance at the end of the period	$	1,119	$	1,330

Litigation and Other Legal Matters

We are involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. In all cases, at each reporting period, ~~the Company evaluates~~we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, ~~the Company accrues~~we accrue for the amount or, if a range, ~~the Company accrues~~we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within ~~litigation reserves, net. The Company monitors~~general and administrative expenses. We monitor developments in these legal matters that could affect the estimate ~~the Company~~we had previously accrued. In relation to such matters, ~~the Company~~we currently ~~believes~~believe that there are no existing claims or proceedings that are likely to have a material adverse effect on ~~its~~our financial position within the next 12 months, or the outcome of these matters is currently not determinable. There are many uncertainties associated with any litigation, and these actions or other third-party claims against ~~the Company~~us may cause ~~the Company~~us to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require ~~the Company~~us to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, ~~the Company's~~our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from ~~the Company's~~our estimates, which could result in the need to adjust the liability and record additional expenses.

Securities Class Action Lawsuits and Derivative Suit

~~Beginning on~~

On December 11, 2018, purported stockholders of Arlo ~~Technologies, Inc.~~ filed 6six putative securities class action complaints in the Superior Court of California, County of Santa Clara (the “State Action”), and one complaint in the U.S. District Court for the Northern District of California (the “Federal Action”) against ~~the Company~~us and certain of ~~its~~our executives and directors. ~~Some of these actions also name as defendants the underwriters in the Company’s initial public offering ("IPO") and NETGEAR, Inc. ("NETGEAR"). The actions pending in state court are~~ ~~Aversa v. Arlo Technologies, Inc., et al., No. 18CV339231, filed Dec. 11, 2018;~~ ~~Pham v. Arlo Technologies, Inc. et al., No. 19CV340741, filed January 9, 2019;~~ ~~Patel v. Arlo Technologies, Inc., No. 19CV340758, filed January 10, 2019;~~ ~~Perros v. NetGear, Inc., No. 19CV342071, filed February 1, 2019;~~ ~~Vardanian v. Arlo Technologies, Inc., No. 19CV342318, filed February 8, 2019; and~~ ~~Hill v. Arlo Technologies, Inc. et al., No. 19CV343033, filed February 22, 2019. On April 26, 2019, the state court consolidated these actions as~~ ~~In re Arlo Technologies, Inc. Shareholder Litigation, No. 18CV339231 (the “State Action"). The action in federal court is~~ ~~Wong v. Arlo Technologies, Inc. et al., No. 19-CV-00372 (the “Federal Action”).~~

The plaintiffs in the State Action ~~filed a consolidated complaint on May 1, 2019. The plaintiffs~~ allege that ~~the Company~~we failed to adequately disclose quality control problems and adverse sales trends ahead of ~~its IPO,~~our initial public offering (the “IPO”), violating the Securities Act of 1933, as amended (the ~~"Securities Act"~~“Securities Act”). The complaint seeks unspecified monetary damages and other relief on behalf of investors who purchased Company common stock issued pursuant and/or traceable to the IPO. ~~On June 21, 2019, the court stayed the State Action pending resolution of the Federal Action, given the substantial overlap between the claims.~~

In the Federal Action, the court appointed a shareholder named Matis Nayman as lead plaintiff. ~~On June 7, 2019,~~Lead plaintiff ~~filed an amended complaint. Lead Plaintiff alleges~~alleged violations of the Securities Act and the Securities Exchange Act of 1934, as amended, based on alleged materially false and misleading statements about ~~the Company’s~~our sales trends and products. In the amended complaint, lead plaintiff sought to represent a class of persons who purchased or otherwise acquired ~~the Company’s~~our common stock (i) during the period between August 3, 2018 through December 3, 2018 and/or (ii) pursuant to or traceable to the IPO. Lead plaintiff ~~seeks~~sought class certification, an award of unspecified damages, an award of costs and expenses, including attorneys’ fees, and other further relief as the court may deem just and proper.

On August 6, 2019, defendants filed a motion to dismiss. The federal court granted that motion, and lead plaintiff filed ~~a second~~an amended complaint. On June 12, 2020, lead plaintiff filed an unopposed motion for preliminary approval of a class action settlement for $1.25 million, which was also the amount that ~~the Company~~we had accrued for loss contingency. ~~On September 24, 2020, the federal court entered an order preliminarily approving the settlement. On February 5, 2021, lead plaintiff filed a motion for final approval of the settlement.~~ In October 2020, ~~the Company~~we made a $1.25 million payment to an escrow account administered by the court and ~~plaintiff’s counsel (the “Settlement Fund”). The~~

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plaintiff’s counsel (the “Settlement Fund”). The Settlement Fund ~~shall be~~was deemed to be in the custody of the court and ~~shall remain~~remained subject to the jurisdiction of the court until such time as the Settlement Fund iswas distributed pursuant to the settlement agreement and/or further order of the court.

On February 5, 2021, lead plaintiff filed a motion for final approval of the settlement. In advance of the final approval hearing, three of the named plaintiffs in the State Action requested exclusion from the settlement. The court held a final approval hearing on March 11, 2021, and, on March 25, 2021, entered an order and final judgment approving the settlement and, among other things, ~~dismissing~~dismissed with prejudice all claims of lead plaintiff and the Settlement Class (as defined in the settlement agreement). ~~On April 19, 2021, the Court issued an amended order and corrected judgment to include defendant NETGEAR, who had been inadvertently omitted from the prior order and final judgment.~~ The Federal Action is now closed.

In the State Action, on May 5, 2021, the court held a status ~~conference. At that~~ conference ~~the state court~~and instructed plaintiffs Perros, Patel, and Pham (“Plaintiffs”), who were the only Arlo stockholders to opt out of the federal settlement, to file an amended complaint by June 4, 2021. Plaintiffs filed their ~~second~~ amended complaint, ~~on June 4, 2021,~~ asserting their individual Securities Act claims, but also purporting to represent a new class of Arlo stockholders who purchased Arlo shares between December 3, 2018 and February 22, ~~2019 and fell outside the Settlement Class (as defined in the federal settlement).~~2019. On June 21, 2021, the Arlo defendants filed a motion to dismiss the State Action (for forum non conveniens) based on the federal forum provision in Arlo’s certificate of incorporation. Plaintiffs opposed on July 28, 2021, and the Arlo defendants replied on August 13, ~~2021. On July 6, 2021, defendants filed multiple demurrers to the second amended complaint. Plaintiffs filed their oppositions on August 12, 2021, and defendants filed their replies on August 27,~~ 2021. On September 9, 2021, the court issued an order granting the Arlo defendants’ forum non conveniens motion, and on September 17, 2021, the court issued a final judgment dismissing the State Action in its entirety. On November 16, 2021, Plaintiffs filed a Notice of Appeal. The appeal ~~is pending~~occurred before the California Court of Appeal, Sixth Appellate District. ~~The~~Plaintiffs-Appellants filed their opening brief on May 20, 2022. Defendants-Respondents filed their responding brief on August 18, 2022, and Plaintiffs-Appellants filed their reply brief on September 7, 2022. On April 13, 2023, the court ~~has not yet set a date for~~heard oral ~~argument.~~argument on the appeal and the case was submitted. On May 5, 2023, the Court of Appeal affirmed by written order the trial court’s dismissal of the State Action based on the federal forum provision in Arlo’s certificate of incorporation and awarded costs to Arlo.

Leonard R. Pinto v. Arlo Technologies, Inc., et al.

In addition to the State Action and the Federal Action, a purported stockholder named Leonard Pinto filed a tagalong derivative action on June 13, 2019 in the U.S. District Court for the Northern District of California, captioned Pinto v. Arlo Technologies, Inc. et al., No. 19-CV-03354 (the “Derivative Action”). The Derivative Action is brought on behalf of ~~the Company~~Arlo against the majority of ~~the Company’s~~our current directors. The complaint is based on the same alleged misconduct as the securities class actions but asserts claims for breach of fiduciary duty, waste of corporate assets, and violation of the Securities Exchange Act of 1934, as amended. On August 20, 2019, the court stayed the Derivative Action in deference to the Federal Action. On April 8, 2021, because it had granted final approval of the settlement in the Federal Action, the court lifted the stay in the Derivative Action and asked the parties to file a joint status report by April 22, 2021. In their status report, the parties stipulated to a schedule for plaintiff to file an amended complaint and for the parties to brief a motion to dismiss. Plaintiff filed his amended complaint on May 24, 2021. Defendants moved to dismiss the amended complaint on July 9, 2021. On August 23, 2021, plaintiff filed a second amended complaint. Defendants moved to dismiss the second amended complaint on December 17, 2021. Plaintiff filed his opposition on January 31, 2022, and defendants filed their reply on March 2, 2022. ~~The~~On July 28, 2022, the Court heard defendants’ motion to dismiss. At the hearing, ~~on defendants'~~the Court informed the parties that it was inclined to grant defendants’ motion to dismiss for lack of jurisdiction, and the Court’s corresponding written order dismissing the case followed on August 8, 2022. The Derivative Action is ~~currently scheduled for July 28, 2022.~~now closed.

~~Skybell Technologies, Inc. v. Arlo Technologies, Inc.~~Indemnifications

~~On December 18, 2020, Skybell Technologies, Inc., SB IP Holdings, LLC,~~In the ordinary course of business, we may provide indemnification of varying scope and ~~Eyetalk365, LLC (collectively, “Complainants”~~terms to customers, distributors, resellers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or ~~“Skybell”) filed a Section 337 complaint~~from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with members of our board of directors and certain of our executive officers that require us, among other things, to indemnify them against ~~the Company, Vivint Smart Home, Inc. (“Vivint”), and SimpliSafe, Inc. (“SimpliSafe”) (collectively “Respondents”) at the U.S. International Trade Commission (“ITC”). The action alleges~~certain liabilities that the Company’s cameras and video doorbell cameras infringe seven patents: 10,097,796 (“the ’796 patent”), 10,200,660 (“the ’660 patent”), 10,523,906 (“the ’906 patent”), 10,097,797 (“the ’797 patent”), 9,485,478 (“the ’478 patent”), 10,674,120 (“the ’120 patent”), and 9,432,638 (“the ’638 patent”) (collectively, “the Asserted Patents”) in violation of Section 337 of the Tariff Act of 1930. The Asserted Patents are all from the same family and generallymay

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~~directed~~arise by reason of their status or service as directors or officers. The maximum potential amount of future payments we could be required to detecting a person at a camera and communicating video and audio from the camera to a cell phone along with various other features. The case was instituted on January 25, 2021 as Investigation No. 337-TA-1242.

On September 15, 2021, the Administrative Law Judge (“ALJ”) hearing the case at the ITC issued an Initial Determination (“ID”) ruling that all the Asserted Patents are invalid. The ALJ agreed with Respondents’ contention that there was an impermissible breakmake under these indemnification agreements is, in priority chains of the applications of the Asserted Patents during their prosecution – meaning that certain of Skybell’s prior issued patents fully anticipated or invalidated all the Asserted Patents. Therefore, the ALJ ruled that there can be no patent infringement or violation of Section 337 of the Tariff Act of 1930 by the Respondents.

Skybell appealed the ID by submitting its Petition for Review to the ITC on September 27, 2021, and the Respondents submitted their Response to the Petition to Review on October 4, 2021. On November 10, 2021, The ITC affirmed the ALJ’s ruling and did not grant any review of the ID, meaning that there is no trial on the ITC docket since there are no valid patents remaining, and the case is concluded at the ITC level. On January 9, 2022, Skybell filed its Notice of Appeal to the Federal Circuit to appeal the ITC’s rulings invalidating the Asserted Patents.

many cases, unlimited. As of April 3, 2022, the Company is unable to predict the outcome of this matter, and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceeding discussed herein.

~~Indemnification of Directors and Officers~~

The Company, as permitted under Delaware law and in accordance with its bylaws, has agreed to indemnify its officers and directors for certain events or occurrences, subject to certain conditions, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that will enable it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the fair value of each indemnification agreement will be minimal. The Company had no liabilities recorded for these agreements as of April 3, 20222, 2023 and December 31, ~~2021.~~

~~Indemnifications~~

Prior to the completion of the IPO, the Company historically participated in NETGEAR’s sales agreements. In its sales agreements, NETGEAR typically agrees to indemnify its direct customers, distributors and resellers (the “Indemnified Parties”) for2022, we have not incurred any expenses or liability resulting from claimed infringements by NETGEAR’s products of patents, trademarks or copyrights of third parties that are asserted against the Indemnified Parties, subject to customary carve-outs. The terms of these indemnification agreements are generally perpetual after execution of the agreement. The maximum amount of potential future indemnification is generally unlimited. From time to time, the Company receives requests for indemnity and may choose to assume the defense of such litigation asserted against the Indemnified Parties. The Company had no liabilities recorded for these agreements as of April 3, 2022 and December 31, 2021. In connection with the separation of Arlo from NETGEAR (the "Separation"), and after July 1, 2018, certain sales agreements were transferred to the Company, and the Company has replaced certain shared contracts, which include similar indemnification terms.

In addition, pursuant to the master separation agreement and certain other agreements entered into with NETGEAR in connection with the Separation and the IPO, NETGEAR has agreed to indemnify the Company for certain liabilities. The master separation agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of its business with the Company and financial responsibility for the obligations and liabilities of NETGEAR’s business with NETGEAR. Under the intellectual property rights cross-license agreement entered into between the Company and NETGEAR, each party, in its capacity as a licensee, indemnifies the other party, in its capacity as a licensor, and its directors, officers, agents, successors and subsidiaries against any losses suffered by such indemnified partymaterial costs as a result of ~~the indemnifying party’s practice of the intellectual property licensed to~~

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~~ARLO TECHNOLOGIES, INC.~~

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such ~~indemnifying party under the intellectual property rights cross-license agreement. Also, under the tax matters agreement entered into between the Company~~indemnifications and ~~NETGEAR, each party is liable for, and indemnifies the other party and its subsidiaries from and against any liability for, taxes that~~we are allocated to the indemnifying party under the tax matters agreement. In addition, the Company has agreed in the tax matters agreement that each party will generally be responsible for any taxes and related amounts imposed on it or NETGEAR as a result of the failure of the special stock dividend (the “Distribution”) by NETGEAR to NETGEAR stockholders of the 62,500,000 shares of Arlo common stock owned by NETGEAR that was made on December 31, 2018, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Internal Revenue Code (the "Code"), to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement. The transition services agreement generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement. Pursuant to the registration rights agreement, the Company has agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise. NETGEAR and its subsidiaries that hold registrable securities similarly indemnify the Company but such indemnification will be limited to an amount equal to the net proceeds received by such holder under the sale of registrable securities giving rise to the indemnification obligation.

~~Change in Control and Severance Agreements~~

The Company has entered into change in control and severance agreements with certain of its executive officers (the “Severance Agreements”). Pursuant to the Severance Agreements, upon a termination without cause or resignation with good reason, the individual would be entitled to (1) cash severance equal to (a) the individual’s annual base salary and an additional amount equal to his or her target annual bonus (for the Chief Executive Officer) or (b) the individual’s annual base salary (for other executive officers), (2) 12 months of health benefits continuation, and (3) accelerated vestingnot currently aware of any unvested time-based equity awards that would have vested during the 12 months following the termination date. Upon a termination without cause or resignation with good reason that occurs during the one month prior to or 12 months following a change in control, the individual would be entitled to (1) cash severance equal to a multiple (2 times for the Chief Executive Officer and 1 times for other executive officers) of the sum of the individual’s annual base salary and target annual bonus, (2) a number of months of health benefits continuation (24 months for the Chief Executive Officer and 12 months for other executive officers) and (3) vesting of all outstanding, unvested equity awards (for the Chief Executive Officer) and the vesting of all outstanding, unvested time-based equity awards (for other executive officers). Severance will be conditioned upon the execution and non-revocation of a release ofindemnification claims. ~~The Company had no liabilities recorded for these agreements as of April 3, 2022.~~

~~Environmental Regulation~~

The Company is required to comply and is currently in compliance with the European Union (“EU”) and other Directives on the Restrictions of the use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), Waste Electrical and Electronic Equipment (“WEEE”) requirements, Energy Using Product (“EuP”) requirements, the REACH Regulation, Packaging Directive and the Battery Directive.

The Company is subject to various federal, state, local, and foreign environmental laws and regulations, including those governing the use, discharge, and disposal of hazardous substances in the ordinary course of its manufacturing process. The Company believes that its current manufacturing and other operations comply in all material

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~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

respects with applicable environmental laws and regulations; however, it is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted to create an environmental liability with respect to its facilities, operations, or products.

Note ~~10.~~9. Employee Benefit Plans

~~2018 Equity Incentive Plan~~

~~The Company grants~~We grant options and restricted stock units ~~("RSUs"~~(“RSUs”) under the 2018 Equity Incentive Plan (the “2018 Plan”), under which awards may be granted to all employees. We also grant performance-based and market-based restricted stock units (“PSUs”) to our executive officers periodically. Award vesting periods for ~~this plan~~the 2018 Plan are generally three to four years. As of April 2, 2023, approximately 3.7 million shares were available for future grants. Options may be granted for periods of up to 10 years or such shorter term as may be provided in the ~~applicable option~~ agreement and at prices no less than 100% of the fair market value of ~~the Company’s~~Arlo’s common stock on the date of grant. Options granted under the 2018 Plan generally vest over four years, the first tranche at the end of 12 months and the remaining shares underlying the option vesting monthly over the remaining three years.

On July 28, 2021, the Compensation Committee of the Board of Directors (the “Committee”) of the unanimously approved an amendment to the 2018 Plan to, among other things, reserve an additional 1,500,000 shares of the Company’s common stock to be used exclusively for grants of awards to individuals who were not previously employees or non-employee directors of the Company (or following a bona fide period of non-employment with the Company), as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 303A.08 of the New York Stock Exchange (the “NYSE”) Listed Company Manual (“Rule 303A.08”). The 2018 Plan was amended by the Committee without stockholder approval pursuant to Rule 303A.08.

On January ~~21, 2022, the Company~~20, 2023, we registered an aggregate of up to ~~4,222,270~~4,444,072 shares of ~~the Company’s~~ common stock on a Registration Statement on Form S-8, including ~~3,377,816~~3,555,258 shares issuable pursuant to the ~~Company's~~ 2018 Plan that were automatically added to the shares authorized for issuance under the 2018 Plan ~~on January 1, 2022 pursuant to an “evergreen” provision contained in the 2018 Plan~~ and ~~844,454~~888,814 shares issuable pursuant to the ~~ESPP~~Employee Stock Purchase Plan (“ESPP”) that were automatically added to the shares authorized for issuance ~~under the ESPP~~ on January 1, ~~2022~~2023, both pursuant to an “evergreen” provision contained in the ~~ESPP.~~

The Company’s employees have historically participated in NETGEAR’s various stock-based plans, which are described below and represent the portion of NETGEAR’s stock-based plans in which Arlo employees participated as of April 3, 2022. The Company’s unaudited condensed consolidated statements of operations reflect compensation expense for these stock-based plans associated with the portion of NETGEAR’s plans in which Arlo employees participated.respective plans.

The following table sets forth the available shares for ~~grant under the 2018 Plan~~grants as of April ~~3, 2022:~~2, 2023:


			Number of Shares
			(In thousands)
Shares available for ~~grant~~grants as of December 31, ~~2021~~2022			~~2,509~~4,213
Additional authorized shares			~~3,378~~3,555
Granted			~~(4,141)~~(5,701)
Forfeited / cancelled			~~472~~356

Shares traded for taxes			~~745~~1,267
Shares available for ~~grant~~grants as of April ~~3, 2022~~2, 2023			~~2,963~~3,690

Employee Stock Purchase Plan

We sponsor the ESPP to eligible employees. As of April 2, 2023, 2.4 million shares were available for issuance under the ESPP.

Option Activity

Stock option activity during the three months ended April 2, 2023 was as follows:

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company sponsors an Employee Stock Purchase Plan (“ESPP”), pursuant to which eligible employees may contribute up to 15% of compensation, subject to certain income limits, to purchase shares of the Company’s common stock. The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85% of the lesser of the fair market value at the beginning of the offering period or the purchase date. The duration of each offering period is generally six months. As of April 3, 2022, 2,159,534 shares were available for issuance under the ESPP.

~~Option Activity~~

~~Arlo’s stock option activity during the three months ended April 3, 2022 was as follows:~~

Number of shares Weighted Average Exercise Price Per Share
(In thousands) (In dollars)
Outstanding as of December 31, 2021 2,574 $ 10.55
Granted — $ —
Exercised (204) $ 6.80
Expired (173) $ 15.99
Outstanding as of April 3, 2022 2,197 $ 10.47
Vested and expected to vest as of April 3, 2022 2,197 $ 10.47
Exercisable Options as of April 3, 2022 2,167 $ 10.42

~~NETGEAR’s stock option activity for Arlo employees during the three months ended April 3, 2022 was as follows:~~

Number of shares Weighted Average Exercise Price Per Share
(In thousands) (In dollars)
Outstanding as of December 31, 2021 11 $ 20.11
Exercised (3) $ 19.34
Forfeited / cancelled — $ —
Expired — $ —
Outstanding as of April 3, 2022 8 $ 20.42
Vested and expected to vest as of April 3, 2022 8 $ 20.42
Exercisable Options as of April 3, 2022 8 $ 20.42


	Number of Shares	Weighted Average Exercise Price Per Share
	(In thousands)	(In dollars)
Outstanding as of December 31, 2022	2,082	$	10.24
Granted	—	$	—
Exercised	—	$	—
Forfeited / cancelled	—	$	—
Expired	(12)	$	7.55
Outstanding as of April 2, 2023	2,070	$	10.26
Vested and expected to vest as of April 2, 2023	2,070	$	10.26
Exercisable Options as of April 2, 2023	2,070	$	10.26

RSU Activity

~~Arlo’s~~ RSU activity, excluding PSU ~~activity and MPSU~~ activity, during the three months ended April ~~3, 2022~~2, 2023 was as follows:


		Number of shares	Weighted Average Grant Date Fair Value Per Share			Number of Shares	Weighted Average Grant Date Fair Value Per Share
		(In thousands)	(In dollars)			(In thousands)	(In dollars)
Outstanding as of December 31, 2021		10,080	$	5.73
Outstanding as of December 31, 2022					Outstanding as of December 31, 2022	9,487	$	6.36
Granted ~~(1)~~	Granted ~~(1)~~	3,221	$	7.99	Granted ~~(1)~~	4,583	$	3.66
Vested	Vested	(1,844)	$	8.75	Vested	(3,072)	$	5.17
Forfeited	Forfeited	(299)	$	5.15	Forfeited	(342)	$	6.43

Outstanding as of April 3, 2022		11,158	$	5.90
Outstanding as of April 2, 2023					Outstanding as of April 2, 2023	10,656	$	5.54

PSU Activity

During the three months ended April 2, 2023 and April 3, 2022, our executive officers and other senior employees were granted performance-based awards with vesting occurring at the end of a three or five-year period if performance conditions or market conditions are met. The number of units earned and eligible to vest are determined based on the achievement of various performance conditions or market conditions, including the cumulative paid accounts targets, stock price, cash balances at reporting period, and the recipients’ continued services. At the end of each reporting period, we evaluate the probability of achieving the performance or market conditions and record the related stock-based compensation expense based on the achievement over the service period.

PSU activity during the three months ended April 2, 2023 was as follows:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
	(In thousands)	(In dollars)
Outstanding as of December 31, 2022	4,041	$	6.22
Granted	1,120	$	3.75
Vested	(94)	$	7.71
Forfeited	(3)	$	8.28
Outstanding as of April 2, 2023	5,064	$	5.64

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~PSU Activity~~

The Company grants restricted stock units to its NEOs periodically that vested based on the Company's attainment of cash balance goals as of December 31, 2020, 2021 and 2022 and the NEO's continued employment through the vesting dates ("PSUs"). The vesting periods for the PSUs are ~~three~~ or four years. The maximum number of shares that NEOs can earn is 120% of the target number of the PSUs. The minimum number of shares that NEOs can earn is 75% of the target number of the PSUs. The Company determined the fair value of the PSUs using the closing price of the Company's common stock as of the grant date. For PSUs, stock-based compensation expense of performance milestone is recognized over the expected performance achievement period when the achievement becomes probable.

~~The Company's PSU activity during the year ended of April 3, 2022 was as follows:~~

Number of Shares Weighted Average Grant Date Fair Value Per Share
(In thousands) (In dollars)
Outstanding as of December 31, 2021 527 $ 4.80
Granted 199 $ 8.28
Vested (59) $ 8.22
Forfeited — $ —
Outstanding as of April 3, 2022 (1)
667 $ 5.53
~~_________________________~~

~~(1)~~ Includes 329,178 shares of PSUs for the 2020 performance period, achieved at 120% of target, or 395,014 shares and vest over three years, and 148,368 shares of PSUs for the 2021 performance period, achieved at 120% of target, or 178,042 shares and vest over four years.

~~MPSU Activity~~

~~The Company grants restricted stock units to its NEOs that vest based on the Company's stock price performance relative to a broad-market index over a performance period of~~ ~~three~~ ~~to four years and the NEO's continued employment through the vesting date ("TSR MPSUs"). The TSR MPSUs will vest at the end of the~~ ~~three~~ to ~~four-year periods that begin on the TSR MPSUs' grant date based on performance of the Company's common stock relative to the Benchmark during the~~ ~~three~~ to ~~four~~-year periods from the grant dates. A positive 3.3x or negative 2.5x multiplier will be applied to the total shareholder returns (“TSR”), such that the number of shares vested will increase by 3.3% or decrease by 2.5% of the target numbers, for each 1% of positive or negative TSR relative to the Benchmark. In the event the Company's common stock performance is below negative 30% relative to the Benchmark, no shares will be vested. In no event will the number of shares vested exceed 200% of the target for that tranche.

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~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~The Company's TSR MPSU activity during the year ended of April 3, 2022 was as follows:~~

Number of Shares Weighted Average Grant Date Fair Value Per Share
(In thousands) (In dollars)
Outstanding as of December 31, 2021 841 $ 5.92
Granted 189 $ 12.25
Vested — $ —
Forfeited — $ —
Outstanding as of April 3, 2022 1,030 $ 7.08

The Company also grants restricted stock units to its CEO that vest based on the Company's achievement of its stock price performance targets and the CEO's continued employment through the vesting dates ("CEO MPSUs"). The CEO MPSUs will vest over four years in substantially equal quarterly installments that begin on the CEO MPSUs' grant date in five equal tranches based on the Company's achievement of certain average daily closing prices per share of the Company's common stock, as reported on the NYSE, for any 30 consecutive trading days on or prior to performance period end date. To the extent that the stock price of the tranche does not achieve its corresponding price target prior to the performance period end date, the CEO MPSUs expire or cancel.

~~The Company's CEO MPSU activity during the year ended of April 3, 2022 was as follows:~~

Number of Shares Weighted Average Grant Date Fair Value Per Share
(In thousands) (In dollars)
Outstanding as of December 31, 2021 739 $ 5.20
Granted 531 $ 7.18
Vested (19) $ 5.64
Forfeited — $ —
Outstanding as of April 3, 2022 1,251 $ 6.03

The Company determined the fair value of the shares offered under the ESPP using the Black-Scholes option pricing model as of the grant date. The following table sets forth the weighted average assumptions used to estimate the fair value of purchase rights granted under Arlo’s ESPP for the three months ended April 3, 2022 and March 28, 2021.

~~Three Months Ended~~

April 3,
2022

March 28,
2021

~~Expected life (in years)~~

~~0.5~~

~~Risk-free interest rate~~

~~0.06~~

~~Expected volatility~~

~~87.0~~

~~Dividend yield~~

—

The Company determined the fair value of the RSUs and PSUs using the closing price of the Company's common stock as of the grant date. For PSUs, stock-based compensation expense of performance milestone is recognized over the expected performance achievement period when the achievement becomes probable.

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~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

The Company utilized a Monte Carlo pricing model customized to the specific provisions of the 2018 Plan to value the MPSUs awards on the grant date. The weighted average assumptions used in this model to estimate fair value at the grant date are as follows:

TSR MPSU CEO MPSU
Three Months Ended Three Months Ended
April 3,
2022 March 28,
2021 April 3,
2022 March 28,
2021
Expected life 4.0 4.0 4.0 NA
Risk-free interest rate 1.49 % 0.33 % 1.54 % NA
Expected volatility 76.4 % 69.9 % 76.3 % NA
Dividend yield — — — NA
Stock Beta 0.42 0.45 NA NA

~~NETGEAR’s RSU activity for Arlo employees during the three months ended April 3, 2022 was as follows:~~

Number of shares Weighted Average Grant Date Fair Value Per Share
(In thousands) (In dollars)
Outstanding as of December 31, 2021 47 $ 39.67
Vested (31) $ 40.38
Forfeited — $ —
Outstanding as of April 3, 2022 16 $ 38.30

Stock-Based Compensation Expense

The Company's employees have historically participated in NETGEAR's various stock-based plans, which are described below and represent the portion of NETGEAR's stock-based plans in which Company employees participated. The Company's unaudited condensed consolidated statements of operations reflect compensation expense for these stock-based plans associated with the portion of NETGEAR's plans in which Company employees participated. The stock-based compensation expense for Company employees consist of Company RSUs, PSUs, MPSUs and stock options and NETGEAR RSUs and stock options granted to Company employees, employees' annual bonus in RSU form and the purchase rights under Company ESPP. The following table sets forth the stock-based compensation expense included in ~~the Company’s~~our unaudited condensed consolidated statements of ~~operations during the periods indicated:~~comprehensive loss:

Three Months Ended
April 3, 2022 March 28, 2021
(In thousands)
Cost of revenue $ 910 $ 874
Research and development 2,302 2,556
Sales and marketing 1,380 1,190
General and administrative 4,997 3,720
Total stock-based compensation $ 9,589 $ 8,340

~~The Company recognizes this compensation expense generally on a straight-line basis over the requisite service period of the award.~~


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
Cost of revenue	$	860	$	910
Research and development	3,911		2,302
Sales and marketing	1,722		1,380
General and administrative	8,098		4,997
Total	$	14,591	$	9,589

As of April ~~3, 2022, $0.2~~2, 2023, there was no unrecognized compensation cost related to stock options. Approximately $75.5 million of unrecognized compensation cost related to ~~Arlo’s stock options was~~unvested RSUs and PSUs is expected to be recognized over a weighted-average period of ~~0.3 years. $67.8 million of unrecognized compensation cost~~

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~~ARLO TECHNOLOGIES, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~related to unvested Arlo’s RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.4 years.~~

As1.9 years as of April 3, 2022, there was no unrecognized compensation cost related to NETGEAR’s stock options for Arlo employees. $87 thousand of unrecognized compensation cost related to unvested NETGEAR RSUs for Arlo employees was expected to be recognized over a weighted-average period of 0.1 years.2, 2023.

Note ~~11.~~10. Income Taxes

The provision for income taxes for the three months ended April 2, 2023 was $0.8 million, or an effective tax rate of (5.9)%. The provision for income taxes for the three months ended April 3, 2022 was $0.2 million, or an effective tax rate of (2.6)%. ~~The provision for income taxes for the three months ended March 28, 2021 was $0.2 million, or an effective tax rate of (1.7)%.~~ During the three months ended April 2, 2023 and April 3, 2022, ~~the Company~~we sustained ~~lower~~ U.S. book ~~losses than the same period in the prior year.~~losses. Consistent with the prior year, ~~the Company~~we maintained a valuation allowance against ~~its~~our U.S. federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since it is more likely than not that these deferred tax assets will not be realized. ~~The Company's provision~~Provision for income taxes ~~was primarily attributable to income taxes on foreign earnings. The increase in provision for income taxes~~increased for the three months ended April ~~3, 2022,~~2, 2023, compared to the prior year period, ~~was~~ primarily due to higher ~~foreign~~U.S. earnings ~~in fiscal 2022.~~and also the application of Section 174 of the Internal Revenue Code requiring capitalization of research and experimental expenses.

Note ~~12.~~11. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Potentially dilutive common shares, such as common shares issuable upon exercise of stock options and vesting of restricted stock awards are typically reflected in the computation of diluted net loss per share by application of the treasury stock method. For certain periods presented, due to the net losses reported, these potentially dilutive securities were excluded from the computation of diluted net loss per share, since their effect would be anti-dilutive.

~~Net loss per share for the three months ended April 3, 2022 and March 28, 2021 were as follows:~~


		Three Months Ended					Three Months Ended
		April 3, 2022		March 28, 2021					April 2, 2023		April 3, 2022
		(In thousands, except per share data)				(In thousands, except per share data)
Numerator:	Numerator:							Numerator:
Net loss	Net loss	$	(8,479)	$	(10,719)			Net loss	$	(14,245)	$	(8,479)
Denominator:	Denominator:							Denominator:
Weighted average common shares - basic	Weighted average common shares - basic	85,222		80,370				Weighted average common shares - basic	89,653		85,222
Potentially dilutive common share equivalent		—		—
Potentially dilutive common shares								Potentially dilutive common shares	—		—
Weighted average common shares - dilutive	Weighted average common shares - dilutive	85,222		80,370				Weighted average common shares - dilutive	89,653		85,222

Basic net loss per share	Basic net loss per share	$	(0.10)	$	(0.13)			Basic net loss per share	$	(0.16)	$	(0.10)
Diluted net loss per share	Diluted net loss per share	$	(0.10)	$	(0.13)			Diluted net loss per share	$	(0.16)	$	(0.10)

Anti-dilutive employee stock-based awards, excluded	Anti-dilutive employee stock-based awards, excluded	1,031		3,974				Anti-dilutive employee stock-based awards, excluded	7,859		1,031

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ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Note ~~13.~~12. Segment and Geographic Information

Segment Information

~~The Company operates~~We operate as 1one operating and reportable segment. ~~The Company has identified its~~Our Chief Executive Officer ~~("CEO"~~(“CEO”) is identified as the Chief Operating Decision Maker (“CODM”)~~. The CODM~~, who reviews financial information presented on a ~~combined~~consolidated basis for purposes of allocating resources and evaluating financial performance.

Geographic Information for Revenue

~~The Company conducts business across 3 geographic regions: Americas, EMEA and APAC.~~ Revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates, net changes in deferred revenue, and other channel sales incentives deemed to be a reduction of revenue per the authoritative ~~guidance for revenue recognition, net changes in deferred revenue,~~guidance. Sales and ~~gains or losses~~usage-based taxes are excluded from ~~hedging.~~revenue. For reporting purposes, revenue by geography is generally based upon the ship-to location of the customer for device sales and device location for service sales. The following table presents revenue by geography. For comparative purposes, amounts in prior periods have been recast.

~~The following table shows revenue by geography for the periods indicated:~~

Three Months Ended
April 3,
2022 March 28,
2021
(In thousands)
United States (“U.S.”) $ 65,237 $ 49,541
Americas (excluding U.S.) 3,229 95
EMEA 49,975 24,591
APAC 6,310 8,329
Total revenue $ 124,751 $ 82,556


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
United States	$	55,843	$	65,237
Spain	38,571		24,568
Ireland	4,879		22,087
Other countries	11,711		12,859
Total	$	111,004	$	124,751

~~The Company’s Property~~Geographic Information for Long-Lived Assets

Long-lived assets include property and equipment, net ~~is located in~~and operating lease right-of-use assets, net. Our long-lived assets are based on the physical location of the assets. The following ~~geographic locations:~~table presents long-lived assets by geography.

As of
April 3,
2022 December 31,
2021
(In thousands)
Americas
United States (“U.S.”) $ 6,352 $ 7,302
Americas (excluding U.S.) 510 520
EMEA 369 402
APAC
China 1,104 1,143
APAC (excluding China) 187 228
Total property and equipment, net $ 8,522 $ 9,595


	As of
	April 2, 2023		December 31, 2022
	(In thousands)
United States	$	16,262	$	17,762
Other countries	2,778		2,383
Total	$	19,040	$	20,145

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements, including statements concerning our business and the expected performance characteristics, specifications, reliability, market acceptance, market growth, specific uses, user feedback, and market position of our products and ~~technology and the potential adverse impact of the COVID-19 pandemic on our business and operations.~~technology. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below.

All forward-looking statements in this document are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this ~~quarterly report.~~Quarterly Report on Form 10-Q (the “Quarterly Report”). Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us,” the ~~"Company,~~“Company,” and “Arlo” refer to Arlo Technologies, Inc. and our subsidiaries.

Business and Executive Overview

Arlo combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that are transforming the way people experience the connected lifestyle. Arlo’s deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. Our cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. Since the launch of our first product in December 2014, we have shipped over ~~23.9~~28.4 million smart connected ~~devices, and as~~devices. As of April ~~3, 2022,~~2, 2023, the Arlo platform had approximately ~~6.4~~7.5 million cumulative registered accounts across more than 100 countries around the ~~world.~~world coupled with 2.0 million cumulative paid subscribers and annual recurring revenue of $182.6 million.

We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and we primarily generate revenue by selling devices through retail, wholesale distribution, wireless carrier channels, security solution providers, Arlo’s direct to consumer store and paid subscription services. ~~International revenue was 47.7% and 40.0% of our revenue for the three months ended April 3, 2022 and March 28, 2021, respectively.~~

For the three months ended April 2, 2023 and April 3, 2022, ~~and March 28, 2021,~~ we generated total revenue of $111.0 million and $124.8 million, ~~and $82.6 million, respectively, representing a year-over-year increase of 51.1%.~~respectively. Loss from operations ~~were $8.7~~was $14.1 million and ~~$11.5~~$8.7 million for the three months ended April 2, 2023 and April 3, 2022, ~~and March 28, 2021,~~ respectively.

Our goal is to continue to develop innovative, world-class connected lifestyle solutions to expand and further monetize our current and future user and paid account bases. We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in ~~brand awareness and~~ channel partnerships and to continue our global expansion. We expect to increase our investment in research and development going forward as we continue to introduce new and innovative products and services to enhance the Arlo platform and compete for engineering talent. We also expect our sales and marketing expense to ~~significantly~~ increase ~~our Sales and Marketing expense~~in the future as we invest in ~~new campaigns~~marketing to ~~increase~~drive awareness of our brand and ~~preference~~demand for ~~the Arlo brand.~~our products and services.

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Key Business Metrics

In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business. Our key business metrics may be calculated in a manner different from the same key business metrics used by other companies. We regularly review our processes for calculating these metrics, and from time to time we may discover inaccuracies in our metrics or make adjustments to better reflect our business or to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.

As of
April 3, 2022 % Change March 28, 2021
(In thousands, except percentage data)
Cumulative registered accounts 6,389 21.1 % 5,275
Cumulative paid accounts 1,272 131.7 % 549
Annual recurring revenue $ 101,341 74.0 % $ 58,238


	As of and for the Three Months Ended
	April 2, 2023		% Change		April 3, 2022
	(In thousands, except percentage data)
Cumulative registered accounts	7,510		17.5	%	6,389
Cumulative paid accounts	2,044		60.7	%	1,272
Annual recurring revenue	$	182,583	80.2	%	$	101,341

Cumulative Registered Accounts. We believe that our ability to increase our user base is an indicator of our market penetration and growth of our business as we continue to expand and innovate our Arlo platform. We define our registered accounts at the end of a particular period as the number of unique registered accounts on the Arlo platform as of the end of such ~~particular~~ period. The number of registered accounts does not necessarily reflect the number of end-users on the Arlo platform as one registered account may be used by multiple ~~people. We changed our definition from registered users~~end-users to ~~registered accounts starting in~~monitor the ~~fourth quarter of 2019 due~~devices attached to ~~the Verisure transaction. Verisure will own the registered accounts but we will continue to provide services to these European customers under the Verisure Agreements.~~that household.

Cumulative Paid ~~Accounts.~~Accounts. Paid accounts ~~worldwide measured~~are defined as any account worldwide where a subscription to a paid service is being collected (either by ~~the Company~~us or by ~~the Company’s~~our customers or channel ~~partners), plus paid service plans of a duration of more than 3 months bundled with products (such bundles being counted as a paid account after 90 days have elapsed from the date of registration)~~partners, including Verisure). In the fourth quarter of 2019, we redefined paid subscribers as paid accounts to include customers that were transferred to Verisure as part of the disposal of our commercial operations in Europe because we will continue to provide services to these European customers and receive payments associated with them, under the Verisure Agreements.

Annual Recurring Revenue ~~("ARR"~~(“ARR”). ~~Effective as of the quarter ended October 3, 2021, we have adopted ARR as one of the key indicators of our business performance.~~ We believe ARR enables measurement of our business initiatives, and serves as an indicator of our future growth. ARR represents the amount of paid service revenue that we expect to recur annually and is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognize from our paid accounts and excludes prepaid service revenue and Non-Recurring Engineering ~~("NRE"~~(“NRE”) service revenue from strategic partners. ~~The ARR for the comparative period presented was derived following the same methodology.~~ ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.

~~COVID-19 Update~~Impact of Global Geopolitical, Economic and Business Conditions

We continue to closely monitor developments and are taking steps to mitigate the potential risks related to the COVID-19 pandemic to us, our employees and our customers. The extent of the impact of the COVID-19 pandemic on our business operations will depend on future developments, including the duration of the pandemic, the broader implications of the macro-economic recovery and the impact on overall customer demand, all of which are uncertain and cannot be predicted. Our priorities and actions during the COVID-19 pandemic continue to be focused on protecting the health and

safety of all those we serve, our employees, our customers, our suppliers and our communities, including implementing continuous updates to our health and safety policies and processes and progress made through vaccinations. We continue to instruct all but a limited number of our global workforce to work remotely as a precautionary measure intended to minimize the risk of the virus to them and the communities in which we operate, while we continue to focus on providing our team with the resources that they need to meet the needs of our customers and deliver new innovations to the markets we serve, despite challenges presented by the COVID-19 pandemic. We also continue to work with our suppliers to address any supply chain disruptions, which might include larger component backlogs, component cost increases, travel restrictions and logistics changes that can impact our operations. For example, increased demand for electronics as a result of the COVID-19 pandemic increased demand for chips in the automotive industry and certain other factors have led to a global shortage of semiconductors. As a result, we have experienced component shortages, including longer lead times for components and supply constraints that have affected both our ability to meet scheduled product deliveries and worldwide demand for our products. Also, as a result of the COVID-19 pandemic, our supply chain partners are limited by production capacity, constrained by material availability, labor shortages, factory uptime and freight capacity, each of which constrains our ability to capitalize fully on end-market demand. As of April 3, 2022, international freight capacity has dropped, causing air and ocean freight rates to materially increase compared to pre-pandemic levels. Furthermore, transit times have also increased, causing us to rely more on air freight in order to meet our customers' demands. ForDuring the three months ended April 3, 2022, we saw a 606% increase in freight-in expense compared to the prior year period as a result of the higher sea and air freight rates and component shortages which necessitated use of air freight to meet customer requested delivery dates. We expect supply chain constraints to persist through 2022. While we believe we have been broadly successful in navigating COVID-19 related challenges to date, any further disruptions brought about by the COVID-19 pandemic to our supply chain and operations could have a significant negative impact on our net revenue, gross and operating margin performance. In addition, as a result of the COVID-19 pandemic, we could experience material charges from potential adjustments of the carrying value of our inventories and trade receivables, impairment charges on our long-lived assets, intangible assets and goodwill, and changes in the effectiveness of our hedging instruments, among others.

~~During the first quarter of 2022,~~2, 2023, we remained focused on ~~navigating these on-going challenges presented~~the ongoing conflict in Ukraine, supply chain disruptions, inflation, lower consumer confidence and rising interest rates by ~~the COVID-19 pandemic through~~ preserving our liquidity and managing our cash flow ~~through~~by taking preemptive action to enhance our ability to meet our short-term liquidity needs. These actions include, but are not limited to, proactively managing working capital by closely monitoring ~~customers'~~customers’ credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating headcount and non-essential spending, subleasing and not renewing excess office space, and ~~deferment of~~deferring hiring. We continue to monitor ~~this rapidly developing~~the situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the ~~COVID-19 pandemic.~~

ongoing conflict in Ukraine, supply chain disruptions, the inflationary macro environment, lower consumer confidence and rising interest rates and current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, and liquidity levels.

3523

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Results of Operations

We operate as one operating and reportable segment. The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of ~~operations~~comprehensive loss data, which we derived from the accompanying unaudited condensed consolidated financial statements:

Three Months Ended
April 3,
2022 March 28,
2021
(In thousands, except percentage data)
Revenue:
Products $ 94,825 76.0 % $ 59,761 72.4 %
Services 29,926 24.0 % 22,795 27.6 %
Total revenue 124,751 100.0 % 82,556 100.0 %
Cost of revenue:
Products 80,777 64.8 % 47,157 57.1 %
Services 10,399 8.3 % 9,592 11.6 %
Total cost of revenue 91,176 73.1 % 56,749 68.7 %
Gross profit 33,575 26.9 % 25,807 31.3 %
Operating expenses:
Research and development 16,379 13.1 % 14,791 17.9 %
Sales and marketing 13,168 10.6 % 11,207 13.6 %
General and administrative 12,621 10.1 % 11,227 13.6 %
Separation expense 79 0.1 % 54 0.1 %
Total operating expenses 42,247 33.9 % 37,279 45.2 %
Loss from operations (8,672) (7.0) % (11,472) (13.9) %
Interest income (expense), net (5) — % 24 — %
Other income (expense), net 411 0.3 % 909 1.1 %
Loss before income taxes (8,266) (6.7) % (10,539) (12.8) %
Provision for income taxes 213 0.2 % 180 0.2 %
Net loss $ (8,479) (6.9) % $ (10,719) (13.0) %


	Three Months Ended
	April 2, 2023				April 3, 2022
	(In thousands, except percentage data)
Revenue:
Products	$	67,060	60.4	%	$	94,825	76.0	%
Services	43,944		39.6	%	29,926		24.0	%
Total revenue	111,004		100.0	%	124,751		100.0	%
Cost of revenue:
Products	64,041		57.7	%	80,777		64.8	%
Services	11,746		10.6	%	10,399		8.3	%
Total cost of revenue	75,787		68.3	%	91,176		73.1	%
Gross profit	35,217		31.7	%	33,575		26.9	%
Operating expenses:
Research and development	17,750		16.0	%	16,379		13.1	%
Sales and marketing	15,353		13.8	%	13,168		10.6	%
General and administrative	15,622		14.1	%	12,621		10.1	%
Others	632		0.6	%	79		0.1	%
Total operating expenses	49,357		44.5	%	42,247		33.9	%
Loss from operations	(14,140)		(12.8)	%	(8,672)		(7.0)	%
Interest income (expense), net	726		0.7	%	(5)		—	%
Other income, net	(39)		—	%	411		0.3	%
Loss before income taxes	(13,453)		(12.1)	%	(8,266)		(6.7)	%
Provision for income taxes	792		0.7	%	213		0.2	%
Net loss	$	(14,245)	(12.8)	%	$	(8,479)	(6.9)	%

Revenue

Our gross revenue consists primarily of sales of devices, prepaid and paid subscription service revenue and NRE service ~~revenue from Verisure.~~revenue. We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs. Our first generation camera products come with a prepaid service that provides users with rolling seven-day cloud video storage, the ability to connect up to five cameras and 90 days of customer support. Our second generation camera, doorbell and floodlight products under our new business model come with a prepaid service that includes a one-year free trial period of Arlo Secure bundled with our Arlo Ultra products launched in early 2019, and a three-month free trial period of Arlo Secure bundled with our products launched after September 2019. Upon device shipment, we attribute a portion of the sales price ~~to the~~as prepaid service, deferring this revenue at the outset and subsequently recognizing it ratably over the estimated useful economic life of the device or free trial period, as applicable. Our paid subscription services relate to sales of subscription plans to our registered accounts. Our services also include certain development services provided to ~~Verisure and other customers~~strategic partners under NRE arrangements. In the third quarter of 2021, we introduced Arlo Secure, our new service plan with coverage for unlimited cameras and an enhanced Emergency Response solution. Arlo Secure replaced Arlo Smart, our previous service plan. Existing Arlo Smart customers are entitled to either retain their existing plans or upgrade to the new Arlo Secure plan of their choosing.

Our revenue consists of gross revenue, less end-user customer rebates and other channel sales incentives, ~~deemed to be a reduction of revenue per the authoritative guidance for revenue recognition,~~ allowances for estimated sales returns, price protection, and net changes in deferred revenue. A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition.

Under the Supply Agreement that we entered into with Verisure in 2019 (the "Supply Agreement"), Verisure became the exclusive distributor of our products in Europe for all channels, and will non-exclusively distribute our products through its direct channels globally for an initial term of five years. During the five-year period commencing January 1, 2020, Verisure has an aggregate product purchase commitment of $500.0 million. As of April 3, 2022, $205.5 million of the purchase commitment has been fulfilled. The Supply Agreement also provides for certain NRE services to Verisure, including developing certain custom products specified by Verisure in exchange for an aggregate of $13.5 million, payable in installments upon meeting certain development milestones. As of April 3, 2022, Verisure has paid the full cash consideration of $13.5 million for these NRE services. For the three months ended April 3, 2022 and March 28, 2021, the Company recognized service revenue of $0.1 million and $1.5 million, respectively, for these NRE services.

We conduct business across three geographic ~~regions: Americas, EMEA,~~regions—(i) the Americas; (ii) EMEA; and ~~APAC. We~~(iii) APAC—and generally base revenue by geography on the ship-to location of the customer for device sales and device location for service sales.

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Americas $ 68,466 37.9 % $ 49,636
Percentage of revenue 54.9 % 60.1 %
EMEA 49,975 103.2 % 24,591
Percentage of revenue 40.1 % 29.8 %
APAC 6,310 (24.2) % 8,329
Percentage of revenue 5.0 % 10.1 %
Total revenue $ 124,751 51.1 % $ 82,556

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~~Revenue~~


	Three Months Ended
	April 2, 2023			% Change		April 3, 2022
	(In thousands, except percentage data)
Americas	$	56,632		(17.3)	%	$	68,466
Percentage of revenue	51.0		%			54.9		%
EMEA	48,472			(3.0)	%	49,975
Percentage of revenue	43.7		%			40.1		%
APAC	5,900			(6.5)	%	6,310
Percentage of revenue	5.3		%			5.0		%
Total revenue	$	111,004		(11.0)	%	$	124,751

Product revenue decreased in all regions by $27.8 million, or 29.3% for the three months ended April ~~3, 2022~~2, 2023 compared to the prior year period, primarily driven by the decrease in product shipments in all regions due to a reduction in the average selling prices (“ASPs”) of our products as we increased ~~51.1%,~~promotional activities to stimulate household acquisition and increased subscriber growth coupled with the softening consumer demand as a result of current macro-economic factors.

Service revenue increased in all regions by $14.0 million, or 46.8% for the three months ended April 2, 2023 compared to the prior year period, primarily due to higher product sales and service revenue. Product revenue increased by $35.1 million, or 58.7% for the three months ended April 3, 2022 compared to the prior year period, primarily driven by an increase in product shipments in Americas and EMEA due to stronger customer demand, partially offset by higher provisions for sales returns and marketing expenditures that are deemed to be a reduction of revenue. Service revenue increased by $7.1 million, or 31.3% for the three months ended April 3, 2022 compared to the prior year period, primarily due to an increaseincreases in paid accounts ~~partially offset by a decrease in Verisure NRE revenue recognition.~~and rates for our subscription plans.

Cost of Revenue

Cost of revenue consists of both product costs and ~~costs of service.~~service costs. Product costs primarily consist ~~of:~~of the cost of finished products from our third-party ~~manufacturers;~~manufacturers and overhead costs, including personnel expense for operation staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory and excess components, and royalties to third ~~parties; and amortization expense of certain acquired intangibles. Cost of service consists~~parties. Service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and computing, IT and facilities overhead as well as NRE service costs incurred under ~~the Verisure and other~~ NRE arrangements.

Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without ~~limitation:~~limitation product mix, sales channel mix, registered ~~accounts'~~accounts’ acceptance of paid subscription service offerings, ~~fluctuation in foreign exchange rates~~ and changes in our cost of goods sold due to fluctuations in prices paid for components, net of

vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty ~~product conversion~~ costs, and charges for excess or obsolete ~~inventory, and amortization of acquired intangibles.~~inventory. We outsource our manufacturing, warehousing, and distribution logistics. We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure. We believe this outsourcing strategy allows us to better manage our product and service costs and gross ~~margin.~~margin and allows us to adapt to changing market dynamics and supply chain constraints.

The following table presents cost of revenue and gross margin for the periods indicated:

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Cost of revenue:
Products $ 80,777 71.3 % $ 47,157
Services 10,399 8.4 % 9,592
Total cost of revenue $ 91,176 60.7 % $ 56,749


	Three Months Ended
	April 2, 2023		% Change		April 3, 2022
	(In thousands, except percentage data)
Cost of revenue:
Products	$	64,041	(20.7)	%	$	80,777
Services	11,746		13.0	%	10,399
Total cost of revenue	$	75,787	(16.9)	%	$	91,176

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~~Cost~~Product cost of ~~product~~ revenue ~~increased~~decreased 20.7% for the three months ended April ~~3, 2022~~2, 2023 compared to the prior year period, primarily due to ~~increases~~a decrease in product ~~revenue and~~shipments coupled with a decrease in freight-in ~~expense as a result~~costs due to normalization of ~~COVID-19 related~~the supply chain ~~disruption~~ and ~~price inflation. Cost~~utilization of ~~service~~ocean freight.

Service cost of revenue increased 13.0% for the three months ended April ~~3, 2022~~2, 2023 compared to the prior year period, as a result of service revenue growth, offset by cost optimizations.

Gross Profit

The following table presents gross profit for the periods indicated:

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Gross profit:
Products $ 14,048 11.5 % $ 12,604
Services 19,527 47.9 % 13,203
Total gross profit $ 33,575 30.1 % $ 25,807
Gross margin percentage:
Products 14.8 % 21.1 %
Services 65.3 % 57.9 %
Total gross margin percentage 26.9 % 31.3 %


	Three Months Ended
	April 2, 2023			% Change		April 3, 2022
	(In thousands, except percentage data)
Gross profit:
Products	$	3,019		(78.5)	%	$	14,048
Services	32,198			64.9	%	19,527
Total gross profit	$	35,217		4.9	%	$	33,575
Gross margin percentage:
Products	4.5		%			14.8		%
Services	73.3		%			65.3		%
Total gross margin	31.7		%			26.9		%

Product gross profit decreased for the three months ended April 2, 2023 compared to the prior year period, primarily due to the decrease in product shipments in all regions due to a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and increased subscriber growth coupled with the softening consumer demand as a result of current macro-economic factors. The product gross profit decrease was partially offset by the decrease in freight-in costs due to normalization of the supply chain and utilization of ocean freight.

~~Gross~~

Service gross profit increased for the three months ended April ~~3, 2022,~~2, 2023 compared to the prior year period, due to a combination of both product and service revenue increases. The product gross profit increase is primarily due to an increase in product revenue, partially offset by higher freight-in costs as a result of COVID-19 related supply chain disruption. The service gross profit increase is primarily due to growth in paid service revenue ~~and cost optimizations implemented.Product gross margin reduced for the three months ended April 3, 2022, compared to the prior year period, due to higher warranty expense and higher freight-in costs~~in all regions as a result of ~~COVID-19 related supply chain disruption. Service gross margin increased~~increases in paid accounts and rates for ~~the three months ended April 3, 2022, compared to the prior year period, due to~~our subscription plans as well as cost ~~optimizations and a higher mix of recurring paid service revenue.~~optimizations.

Operating Expenses

Research and Development

Research and development expense consists primarily of personnel-related expense, safety, security, regulatory services and testing, other research and development consulting fees, and corporate IT and facilities overhead. We

Generally, we recognize research and development expenses as they are incurred. Research and development expense ~~as it~~directly attributable to delivering the Verisure NRE is ~~incurred.~~recognized in cost of service. We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services. We expect research and development expense to increase in absolute dollars as we develop new product and service offerings and compete for engineering talent. We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities. We expect research and development expense to increase in absolute dollars as we develop new product and service offerings and compete for engineering talent. Research and development expense directly attributable to delivering the Verisure NRE is recognized in cost of service.

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The following table presents research and development expense for the periods indicated:

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Research and development expense $ 16,379 10.7 % $ 14,791


	Three Months Ended
	April 2, 2023		% Change		April 3, 2022
	(In thousands, except percentage data)
Research and development expense	$	17,750	8.4	%	$	16,379

Research and development expense increased ~~$1.6~~by $1.4 million for the three months ended April ~~3, 2022,~~2, 2023 compared to the prior year period, primarily due to ~~increases~~an increase of ~~$0.9 million in outside professional services and $0.2~~$2.0 million in personnel-related expenses mainly from stock-based compensation and merit increase in base salary, partially offset by a decrease of $0.7 million in ~~certain research~~corporate IT and ~~development expenses amounting to $0.4 million, which were attributed to the Verisure NRE projects, and are classified as cost of service revenue.~~facilities overhead.

Sales and Marketing

Sales and marketing expense consists primarily of personnel expense for sales and marketing ~~staff;~~staff, technical support ~~expense; advertising;~~expense, advertising, trade ~~shows;~~shows, media and placement, corporate communications and other marketing ~~expense;~~expense, product marketing ~~expense;~~expense, IT and facilities ~~overhead;~~overhead, outbound freight ~~costs;~~costs, and credit card processing fees. We expect our sales and marketing expense to ~~significantly~~ increase in the future as we invest in marketing to drive awareness of our brand and ~~drive~~ demand for our products and services.

The following table presents sales and marketing expense for the periods indicated:

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Sales and marketing expense $ 13,168 17.5 % $ 11,207


	Three Months Ended
	April 2, 2023		% Change		April 3, 2022
	(In thousands, except percentage data)
Sales and marketing expense	$	15,353	16.6	%	$	13,168

Sales and marketing expense increased ~~$2.0~~$2.2 million for the three months ended April ~~3, 2022,~~2, 2023 compared to the prior year period, primarily due to increases of ~~$0.9~~$1.0 million in marketing expenditures, ~~$0.8 million in personnel-related expenses, $0.5~~$0.6 million in credit card processing fees and ~~$0.3~~$0.4 million in freight-out ~~expenses, partially offset by a decrease of $0.6 million in outside professional services.~~expenses.

General and Administrative

General and administrative expense consists primarily of personnel-related expense for certain executives, finance and accounting, investor relations, human resources, legal, information technology, professional fees, corporate IT and facilities overhead, strategic initiative expense, and other general corporate expense. We expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense.

The following table presents general and administrative expense for the periods indicated:

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
General and administrative expense $ 12,621 12.4 % $ 11,227


	Three Months Ended
	April 2, 2023		% Change		April 3, 2022
	(In thousands, except percentage data)
General and administrative expense	$	15,622	23.8	%	$	12,621

General and administrative expense increased ~~$1.4~~$3.0 million for the three months ended April ~~3, 2022,~~2, 2023 compared to the prior year period, primarily due to an increase of ~~$1.8~~$3.9 million in personnel-related expenses mainly from stock-based compensation and merit increase in base salary, partially offset by ~~a decrease~~decreases of ~~$0.3~~$0.8 million in corporate IT and ~~facility overhead.~~facilities overhead and other.

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~~Separation Expense~~Others

~~Separation~~Others include separation expense, which consists primarily of costs of legal and professional services for IPO-related litigation associated with our separation from ~~NETGEAR.~~

~~The following table presents separation~~NETGEAR, and restructuring charges, which consist of severance costs and office exit expense ~~for~~associated with the ~~periods indicated:~~

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Separation expense $ 79 46.3 % $ 54
abandonment of certain lease contracts.

Interest Income (Expense) and Other Income (Expense), Net

The following table presents interest income (expense) and other income (expense), net for the periods indicated:

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Interest income (expense), net $ (5) ** $ 24
Other income (expense), net $ 411 ** $ 909


	Three Months Ended
	April 2, 2023		% Change	April 3, 2022
	(In thousands, except percentage data)
Interest income (expense), net	$	726	**	$	(5)
Other income (expense), net	$	(39)	**	$	411

**Percentage change not meaningful.

~~Our interest~~Interest income ~~was~~(expense), net increased for the three months ended April 2, 2023 compared to the prior year period, primarily ~~earned from~~due to the increase in our short-term investments ~~and cash and cash equivalents. We expect our~~as well as a result of higher interest ~~income in absolute dollars to stay relatively flat as we deploy our short-term investments and cash and cash equivalents to fund our operations, while interest rates are expected to increase.~~

Other income (expense), net primarily represents gains and losses on transactions denominated in foreign currencies, foreign currency contract gain (loss), net, and other miscellaneous income and expense. We have also included reimbursements for the Verisure Transition Service Agreement ("TSA") and the Employee Retention Credit ("ERC") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") for qualified wages in Other income.rates.

Other income (expense), net decreased for the three months ended April ~~3, 2022~~2, 2023 compared to the prior year period, primarily due to ~~a decrease of $0.8 million in Verisure TSA related income, partially offset by an increase of $0.3 million in~~the foreign currency ~~gains.~~exchange losses for the three months ended April 2, 2023 compared to the foreign currency exchange gains in the prior year period.

Provision for Income Taxes

Three Months Ended
April 3,
2022 % Change March 28,
2021
(In thousands, except percentage data)
Provision for income taxes $ 213 18.3 % $ 180
Effective tax rate (2.6) % (1.7) %

The ~~Company’s provision for income taxes was primarily attributable to income taxes on foreign earnings. The increase in~~following table presents provision for income taxes for the periods indicated:


	Three Months Ended
	April 2, 2023			% Change		April 3, 2022
	(In thousands, except percentage data)
Provision for income taxes	$	792		271.8	%	$	213
Effective tax rate	(5.9)		%			(2.6)		%

Provision for income taxes increased for the three months ended April ~~3, 2022,~~2, 2023, compared to the prior year period, ~~was~~ primarily due to higher ~~foreign~~U.S. earnings ~~in fiscal 2022.~~and also the application of Section 174 of the Internal Revenue Code requiring capitalization of research and experimental expenses. Consistent with the prior year, ~~the Company~~we maintained a valuation allowance against ~~its~~our U.S. federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since it is more likely than not that these deferred tax assets will not be realized.

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Liquidity and Capital Resources

As of April 2, 2023, our cash and cash equivalent and short-term investments totaled $118.7 million and we had unused borrowing capacity of $8.4 million based on the terms and conditions of our revolving credit facility. We have a history of losses and may continue to incur operating and net losses for the foreseeable future. As of April ~~3, 2022,~~2, 2023, our accumulated deficit was ~~$297.3~~$359.7 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.

Our principal sources of liquidity are cash, cash equivalents and short-term investments. Short-term investments are marketable government securities with an original maturity or a remaining maturity at the time of purchase of greater than three months and no more than 12 months. The marketable securities are held in our company’s name with a high quality financial institution, which acts as our custodian and investment manager. As of April 3, 2022, we had cash, cash equivalents and short-term investments totaling $145.5 million. 11.3% of our cash and cash equivalents were held outside of the U.S. Starting in 2018, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) impact on the repatriation of foreign earnings is generally immaterial. The cash and cash equivalents balance outside of the U.S. is subject to fluctuation based on the settlement of intercompany balances. On October 27, 2021, the Company entered into a Loan and Security Agreement with Bank of America, N.A. for a $40.0 million three-year revolving credit facility. Refer to Note 8. ~~Debt~~ ~~for further information about the terms and structure of the credit facility.~~Material Cash Requirements

~~Based on our current plans, business financing agreement with Bank of America, N.A, and market conditions, we~~We believe that ~~such~~our existing sources of liquidity will be sufficient to ~~satisfy~~meet our anticipated cash requirements for at least the next 12 months. However, in the future ~~including sooner than may be anticipated,~~ we may require or desire additional funds to support our operating expenses and capital ~~requirements or for other purposes, such as acquisitions,~~requirements. To the extent that current and anticipated future sources of liquidity are insufficient, we may seek to raise ~~such~~ additional funds through public or private equity or debt financings or collaborative agreements or from other sources. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity to support our operating expenses and capital requirements or for other purposes, such as acquisitions.

equity. We have no commitments to obtain such additional financing and cannot ~~assure you~~provide assurance that additional financing will be available at all or, if available, that such financing would be obtainable on terms favorable to us and would not be dilutive.

Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our service revenue, ~~as well as~~ the ability to increase our gross margin dollars, as well as cost optimization initiatives and ~~continue to maintain~~ controls over our operating expenditures. As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we have increased our subscription rates effective February 3, 2023.

~~Cash Flow~~

~~The following table presents our cash flows for the periods presented:~~

Three Months Ended
April 3,
2022 March 28,
2021
(In thousands)
Net cash used in operating activities $ (24,557) $ (30,168)
Net cash provided by (used in) investing activities (44,938) 14,197
Net cash provided by (used in) financing activities (5,272) 1,956
Net cash decrease $ (74,767) $ (14,015)

~~Operating activities~~

Net cash used in operating activities decreased by $5.6 million for the three months ended April 3, 2022 compared to the prior year period. This decrease comprised a $3.8 million reduction in adjusted net loss reconciled to net cash used in operating activitiesLeases and a decrease in working capital used in operations of $1.8 million, mainly driven by lower payments to suppliers primarily as a result of lower inventory purchases and an increase in accrued and other liabilities, partially offset by lower collections from customer primarily as a result of a change in customer's payment terms.Contractual Commitments

Our ~~days sales outstanding (“DSO”) increased to 58 days as of April 3, 2022 compared to 50 days as of December 31, 2021,~~operating lease obligations mostly include offices, equipment, data centers, and distribution centers. Our contractual commitments are primarily as a result of changes in customer mix and payment terms. Inventory decreased marginally to $37.0 million as of April 3, 2022 from $38.4 million as of December 31, 2021, as we continue to face COVID-19 related supply chain disruptions. Despite a lower inventory level, our ending inventory turns were 8.7x in the three months ended April 3, 2022 down from 10.5x turns in the three months ended December 31, 2021, primarily as a result of the normal seasonality in our business. Our accounts payable decreased to $68.3 million as of April 3, 2022 from $84.1 million as of December 31, 2021, in lineinventory-related purchase obligations with ~~lower product purchases.~~suppliers.

~~Investing activities~~Contingencies

~~Net cash used~~We are involved in ~~investing activities increased by $59.1 million~~disputes, litigation, and other legal actions. We evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. Significant judgment is required to determine both the probability and the estimated amount of loss. In such cases, we accrue for the ~~three months ended April 3, 2022 compared to~~amount or, if a range, we accrue the ~~prior year period, primarily due to purchases~~low end of ~~short-term investments.~~

~~Financing activities~~

~~Net cash used in financing activities was $5.3 million for~~ the ~~three months ended April 3, 2022, representing tax withholdings from restricted stock unit releases~~range, only if there is not a better estimate than any other amount within the range, as a component of $6.7 million, offset by proceeds from exercises of stock options of $1.4 million. Net cash provided by financing activities was $2.0 million for the three months ended March 28, 2021, representing proceeds from ESPP contributions and exercises of stock options of $6.1 million, offset by tax withholdings from restricted stock unit releases of $4.2 million.

~~Contractual Obligations~~legal expense within litigation reserves, net.

Our principal commitments consist of obligations under operating leases for office space, equipment, data center facilities and distribution center facilities, as well as non-cancellable purchase commitments. Refer to Note 9.8. Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q for further information about our operating leases, purchase obligations, and legal contingencies.

Table of Contents

Cash Flow

The following table presents our cash flows for the periods presented:


	Three Months Ended
	April 2, 2023		April 3, 2022
	(In thousands)
Net cash provided by (used in) operating activities	$	10,329	$	(24,557)
Net cash used in investing activities	(22,672)		(44,938)
Net cash used in financing activities	(4,691)		(5,272)
Net cash decrease	$	(17,034)	$	(74,767)

Operating activities

Net cash provided by operating activities increased by $34.9 million for the three months ended April 2, 2023 compared to the prior year period, primarily due to changes in working capital as a ~~complete discussion~~result of an increase in our ~~contractual obligations.~~service revenue driven by growth in paid accounts and increased subscription rates, higher collection from customers on products sales due to enhanced collection efforts, and lower payments to suppliers primarily as a result of lower inventory purchases.

Investing activities

Net cash used in investing activities decreased by $22.3 million for the three months ended April 2, 2023 compared to the prior year period, primarily due to lower net purchases of short-term investments.

Financing activities

Net cash used in financing activities decreased by $0.6 million for the three months ended April 2, 2023 compared to the prior year period, primarily due to the decrease in withholding tax from restricted stock unit releases, partially offset by lower proceeds related to employee benefit plans.

Critical Accounting Policies and Estimates

For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no material changes to our critical accounting policies and estimates during the three months ended April ~~3, 2022,~~2, 2023, other than as discussed in Note 2. Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly ~~Report on Form 10-Q,~~Report.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

During the three months ended April ~~3, 2022,~~2, 2023, there were no material changes to our market risk disclosures as set forth in Part II Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, ~~have~~has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this ~~quarterly report.~~Quarterly Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this ~~quarterly report,~~Quarterly Report, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected.

Changes in Internal Control over Financial Reporting

There ~~were~~have been no changes in our internal control over financial reporting that occurred during the ~~three months ended April 3, 2022~~period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~We have~~It should be noted that any system of controls, however well designed and operated, can provide only reasonable assurance, and not ~~experienced any significant impact to our internal controls over financial reporting despite~~absolute assurance, that the ~~fact that most~~objectives of ~~our employees~~the system are ~~working remotely due to~~met. In addition, the ~~COVID-19 pandemic. The~~ design of ~~our processes~~any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and ~~controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the COVID-19 situation to minimize the impact, if~~other inherent limitations of control systems, there can be no assurance that any ~~on the~~ design ~~and operating effectiveness on our internal controls.~~will succeed in achieving its stated goals in all future circumstances.

Table of Contents

PART II: OTHER INFORMATION

Item 1.Legal Proceedings

The information set forth under the heading “Litigation and Other Legal Matters” in Note 9,8, Commitments and Contingencies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report, ~~on Form 10-Q,~~ is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly ~~Report on Form 10-Q.~~Report.

Item 1A.Risk Factors

Our business, reputation, results of operations and financial condition, as well as the price of our stock, can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 under the heading “Risk Factors.” ~~When any one or more of these risks materialize from time to time, our business, reputation, results of operations and financial condition, as well as~~During the ~~price of our stock, can be materially and adversely affected. Below are~~three months ended April 2, 2023, there have been no significant changes to ~~our~~the risk factors ~~included~~under the heading “Risk Factors” described in Part I, Item 1A of our Annual Report ~~From~~on Form 10-K for the year ended December 31, ~~2021.~~

Instability in geographies where we have operations and personnel or where we derive amounts of revenue could have a material adverse effect on our business, customers, operations and financial results.

Economic, civil, military and political uncertainty exists and may increase in regions where we operate and derive our revenue. Various countries in which we operate are experiencing and may continue to experience military action and civil and political unrest. We have operations in the emerging market economies of Eastern Europe, previously including operations in Belarus, utilizing employees and contractors who perform services relating to new product releases. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region is likely. The impact to Belarus, Russia and Ukraine, as well as actions taken by other countries, including new and stricter export controls and sanctions by Canada, the United Kingdom, the European Union, the U.S. and other countries and organizations against officials, individuals, regions, and industries in Russia, Belarus and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, could have a material adverse effect on our product development timelines and increase our research and development expenditure. Material adverse effects from the conflict and enhanced sanctions activity has caused us to transition our operations out of Belarus to other countries. We are actively monitoring the security of our remaining employees and contractors in Eastern Europe and the stability of our infrastructure, including communications and internet availability. To date we have not experienced any material interruptions in our operations there, but if we are unable to effectively replicate the capabilities previously provided by our Belarusian operations in other countries, our ability to timely introduce new products and financial results may be harmed.2022.

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Item 6.Exhibits

Exhibit Index

Incorporated by Reference
Exhibit Number Exhibit Description Form Date Number Filed Herewith
3.1
Amended and Restated Certificate of Incorporation of Arlo Technologies, Inc.
8-K 8/7/2018 3.1
3.2
Amended and Restated Bylaws of Arlo Technologies, Inc.
8-K 8/7/2018 3.2
4.1
Common Stock Certificate of Arlo Technologies, Inc.
S-1/A 7/23/2018 4.1
10.1*
Form of Service and Cash Balance Performance-Based Restricted Stock Unit Agreement for Executive Officers
X
10.2*
Form of Service and Stock Market Performance-Based Restricted Stock Unit Agreement for Executive Officers
X
10.3*
Performance Stock Unit Award under 2018 Equity Incentive Plan
X
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
X
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
X
32.1#
Section 1350 Certification of Principal Executive Officer
X
32.2#
Section 1350 Certification of Principal Financial Officer
X
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X
# This certification is deemed to accompany this Quarterly Report on Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
* Indicates management contract or compensatory plan or arrangement.

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

Date

Number

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of Arlo Technologies, Inc.

8-K

8/7/2018

3.1

3.2

Amended and Restated Bylaws of Arlo Technologies, Inc.

8-K

8/7/2018

3.2

4.1

Common Stock Certificate of Arlo Technologies, Inc.

S-1/A

7/23/2018

4.1

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1#

Section 1350 Certification of Principal Executive Officer

32.2#

Section 1350 Certification of Principal Financial Officer

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

This certification is deemed to accompany this Quarterly Report on Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

4633

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ARLO TECHNOLOGIES, INC.
Registrant



/s/ MATTHEW MCRAE
Matthew McRae
Chief Executive Officer
(Principal Executive Officer)



/s/ ~~GORDON MATTINGLY~~KURTIS BINDER
~~Gordon Mattingly~~Kurtis Binder
Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: May 11, ~~2022~~2023

4734


PART I: FINANCIAL INFORMATION
		Page ~~No.~~
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of ~~Operations~~ Comprehensive Loss	4
	~~Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)~~	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	65
	Unaudited Condensed Consolidated Statements of Cash Flows	76
	Notes to Unaudited Condensed Consolidated Financial Statements	87
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3322
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4431
Item 4.	Controls and Procedures	4431

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	4532
Item 1A.	Risk Factors	4532
Item 6.	Exhibits	4633
Signatures		4734


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	(In thousands)
Balance as of December 31, 2021	84,453	$	84	$	401,367	$	—	$	(288,799)	$	112,652
Net loss	—	—		—		—		(8,479)		(8,479)
Stock-based compensation expense	—	—		8,183		—		—		8,183
Settlement of liability classified RSUs	—	—		4,966		—		—		4,966
Issuance of common stock under stock-based compensation plans	2,127	3		1,385		—		—		1,388

Restricted stock unit withholdings	(745)	(1)		(6,659)		—		—		(6,660)
Change in unrealized gains and losses on available-for-sale securities, net of tax	—	—		—		(46)		—		(46)

Balance as of April 3, 2022	85,835	$	86	$	409,242	$	(46)	$	(297,278)	$	112,004

	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	(In thousands)
Balance as of December 31, 2020	79,336	$	79	$	366,455	$	3	$	(232,770)	$	133,767
Net loss	—	—		—		—		(10,719)		(10,719)
Stock-based compensation expense	—	—		4,871		—		—		4,871
Settlement of liability classified RSUs	—	—		6,458		—		—		6,458
Issuance of common stock under stock-based compensation plans	2,133	3		4,433		—		—		4,436
Issuance of common stock under Employee Stock Purchase Plan	353	—		1,697						1,697
Restricted stock unit withholdings	(572)	(1)		(4,176)		—		—		(4,177)
Change in unrealized gains and losses on available-for-sale securities, net of tax	—	—		—		(1)		—		(1)
Change in unrealized gains and losses on derivatives, net of tax	—	—		—		(2)		—		(2)
Balance as of March 28, 2021	81,250	$	81	$	379,738	$	—	$	(243,489)	$	136,330



	As of
	March 28, 2021		December 31, 2020
	(In thousands)
Cash and cash equivalents	$	172,113	$	186,127
Restricted cash	4,163		4,164
Total as presented on the unaudited condensed consolidated statements of cash flows	$	176,276	$	190,291


	As of April 3, 2022								As of December 31, 2021
	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. treasuries	$	44,612	$	—	$	(46)	$	44,566	$	—	$	—	$	—	$	—


Derivative Assets	Balance Sheet Location	April 3, 2022		December 31, 2021		Balance Sheet Location	April 3, 2022		December 31, 2021
		(In thousands)					(In thousands)
Derivative assets not designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	65	Accrued liabilities	$	37	$	47


December 31, 2021							Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Unaudited Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		Net Amount
	(In thousands)


Wells Fargo Bank	$	65	$	—	$	65	$	(47)	$	—	$	18


As of April 3, 2022							Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Unaudited Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		Net Amount
	(In thousands)


Wells Fargo Bank	$	37	$	—	$	37	$	—	$	—	$	37


	Three Months Ended March 28, 2021
	Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
	Revenue		Cost of revenue		Research and development		Sales and marketing		General and administrative
	(In thousands)
Statements of operations	$	82,556	$	56,749	$	14,791	$	11,207	$	11,227
Gains (losses) on cash flow hedge	—		—		—		2		—


	Unrealized gains (losses) on available-for-sale securities		Unrealized gains (losses) on derivatives		Estimated tax benefit (provision)		Total
	(In thousands)
Balance as of December 31, 2021	$	—	$	—	$	—	$	—
Other comprehensive income (loss) before reclassifications	(46)		—		—		(46)
Less: Amount reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Net current period other comprehensive income (loss)	(46)		—		—		(46)
Balance as of April 3, 2022	$	(46)	$	—	$	—	$	(46)


	TSR MPSU				CEO MPSU
	Three Months Ended				Three Months Ended
	April 3, 2022		March 28, 2021		April 3, 2022		March 28, 2021
Expected life	4.0		4.0		4.0		NA
Risk-free interest rate	1.49	%	0.33	%	1.54	%	NA
Expected volatility	76.4	%	69.9	%	76.3	%	NA
Dividend yield	—		—		—		NA
Stock Beta	0.42		0.45		NA		NA