What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-28 · 650 added, 627 removed, 1038 unchanged (55% of the section changed)

29 unchanged sentences

As of December 31,

(In thousands)

(In thousands, except share and per share data)

Current assets:

Cash and cash equivalents $ 186,127 $ 236,680

Short-term investments

Accounts receivable, net

Short-term investments (amortized cost of $ 19,996 and $ 19,967 )

19,997 19,990

Accounts receivable, net (net of allowance for credit losses of $ 519 and $ 609 )

77,643 127,317

Inventories 64,705 68,624

Prepaid expenses and other current assets 8,076 16,958

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Intangibles, net — 1,306

Goodwill 11,038 11,038

Restricted cash 4,164 4,139

Other non-current assets 2,399 4,008

Total assets $ 413,968 $ 542,712

LIABILITIES AND STOCKHOLDERS ’ EQUITY

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Non-current operating lease liabilities 25,029 29,001

Non-current financing lease obligation

Non-current income taxes payable 104 92

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Year Ended December 31,

2020 2019 2018

(In thousands, except per share data)

Products $ 284,868 $ 323,242 $ 427,113

Services 72,286 46,765 37,805

Total revenue 357,154 370,007 464,918

Cost of revenue:

Products 263,905 307,348 354,023

Services 37,860 26,855 18,820

Total cost of revenue 301,765 334,203 372,843

Gross profit 55,389 35,804 92,075

Operating expenses:

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Total operating expenses 160,253 121,025 166,848

Income (loss) from operations

Loss from operations ( 104,864 ) ( 85,221 ) ( 74,773 )

Interest income 802 2,737 1,239

Other income (expense), net 3,436 913 ( 1,177 )

Income (loss) before income taxes

Loss before income taxes ( 100,626 ) ( 81,571 ) ( 74,711 )

Provision for income taxes 625 4,380 772

Net income (loss)

Net income (loss) per share:

Weighted average shares used to compute net income (loss) per share:

Net loss $ ( 101,251 ) $ ( 85,951 ) $ ( 75,483 )

Net loss per share:

Basic $ ( 1.30 ) $ ( 1.14 ) $ ( 1.12 )

Diluted $ ( 1.30 ) $ ( 1.14 ) $ ( 1.12 )

Weighted average shares used to compute net loss per share:

Basic 78,084 75,074 67,231

Diluted 78,084 75,074 67,231

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

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Year Ended December 31,

2020 2019 2018

(In thousands)

Net income (loss)

Net loss $ ( 101,251 ) $ ( 85,951 ) $ ( 75,483 )

Other comprehensive income (loss), before and after tax:

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Total other comprehensive income (loss), before tax 5 ( 2 ) —

Tax provision related to derivative instruments

Tax benefit related to available-for-sale securities

Tax benefit (provision) related to derivative instruments — — —

Tax benefit (provision) related to available-for-sale securities — — —

Total other comprehensive income (loss), net of tax 5 ( 2 ) —

Comprehensive income (loss)

Comprehensive loss $ ( 101,246 ) $ ( 85,953 ) $ ( 75,483 )

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

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Additional Paid-In Capital

Net Parent Investment

Accumulated Other Comprehensive Income (Loss)

Accumulated Deficit

Shares Amount Additional Paid-In Capital Net Parent Investment Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total

(In thousands)

Balance as of December 31, 2017 — $ — $ — $ 125,419 $ — $ — $ 125,419

Net transfer from Parent

Stock-based compensation expense funded by Parent

Balance as of December 31, 2017

Cumulative impact from adoption of ASC 606, net of tax — — — ( 3,061 ) — — ( 3,061 )

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Cumulative-effect adjustment from adoption of ASC 842, net of tax — — — — — 281 281

Net loss — — — — — ( 85,951 ) ( 85,951 )

Stock-based compensation expense — — 19,582 — — — 19,582

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Balance as of December 31, 2019 75,786 76 334,821 — ( 2 ) ( 131,519 ) 203,376

Net loss — — — — — ( 101,251 ) ( 101,251 )

Stock-based compensation expense — — 27,418 — — — 27,418

Settlement of liability classified RSUs — — 4,242 — — — 4,242

Issuance of common stock under stock-based compensation plans 3,720 3 1,727 — — — 1,730

Issuance of common stock under Employee Stock Purchase Plan 1,110 1 3,024 — — — 3,025

Restricted stock unit withholdings ( 1,280 ) ( 1 ) ( 4,777 ) — — — ( 4,778 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — — ( 22 ) — ( 22 )

Change in unrealized gains and losses on derivatives, net of tax — — — — 27 — 27

Balance as of December 31, 2020 79,336 $ 79 $ 366,455 $ — $ 3 $ ( 232,770 ) $ 133,767

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

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Year Ended December 31,

2020 2019 2018

(In thousands)

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Net loss $ ( 101,251 ) $ ( 85,951 ) $ ( 75,483 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 10,206 10,681 5,307

Stock-based compensation expense 35,247 22,894 8,831

Provision for (release of) bad debts and inventory

Allowance for (release of) credit losses and inventory reserves 964 ( 2,921 ) 6,739

Gain on sale of business ( 292 ) ( 54,881 ) —

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Accounts receivable, net 49,765 38,247 ( 118,778 )

Inventories 2,862 53,604 ( 48,934 )

Prepaid expenses and other assets 10,441 11,525 ( 16,592 )

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Proceeds from maturities of short-term investments 50,000 60,000 5,000

Payments made in connection with business acquisition, net of cash acquired

Net cash provided by (used in) investing activities ( 3,975 ) 76,262 ( 71,285 )

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("Arlo" or "the Company") 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 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 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 primarily generates revenue by selling devices through retail channels, wholesale distribution and wireless carrier channels and paid subscription services through in-app purchases.

The Company conducts business across three geographic regions - Americas;

Europe, Middle-East and Africa (“EMEA”);

and Asia Pacific (“APAC”), and primarily generates revenue by selling devices through retail channels, wholesale distribution, wireless carrier channels, security solution providers, and Arlo's direct to consumer store and paid subscription services.

The Company has dual corporate headquarters located in San Jose, California and Carlsbad, California and also maintains offices to provide sales and customer support at various global locations.

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Securities and Exchange Commission (“SEC”).

Reclassification

Certain reclassifications have been made to the prior year's consolidated balance sheets, statement of operations and statements of cash flows to conform to the current year's presentation.

The reclassifications has had no effect on prior years' net income (loss), total assets, total liabilities, total stockholders' equity or cash flows.

Allocated Expenses from NETGEAR

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The amount of these allocations from NETGEAR reflected within operating expenses in the consolidated statements of operations was $ 30.6 million for the six months ended July 1, 2018, which included $ 9.4 million for research and development, $ 10.0 million for sales and marketing, and $ 11.2 million for general and administrative expense.

For the year ended December 31, 2017, allocations amounted to $ 40.0 million , which included $ 11.8 million for research and development, $ 13.1 million for sales and marketing, and $ 15.1 million for general and administrative expense.

Following July 1, 2018, the Company assumed responsibility for the costs of these functions.

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Actual results could differ materially from those estimates and operating results for the year ended December 31, 2020 are not necessarily indicative of the results that may be expected for any future period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Summary of Significant Accounting Policies

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Restricted cash

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The Company maintains certain cash balances restricted as to withdrawal or use.

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As of December 31,

2020 2019 2018

(In thousands)

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dollar as the functional currency.

Changes 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

Changes 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, British pounds, euros, 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.

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.

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Foreign currency denominated accounts receivable and payable are hedged with non-designated hedges when the related anticipated foreign revenue and expenses are recognized in the Company’s financial statements.

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Trade accounts receivable

The Company is exposed to credit losses primarily through sales of products and services.

The Company's allowance for current estimated credit losses for trade accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables.

Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers.

Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.

The Company’s monitoring activities include timely and regular account reconciliations, dispute resolution, payment confirmation, review of customers' financial condition and macroeconomic conditions.

Balances are written off when determined to be uncollectible.

The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables.

Concentration of credit risk

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The Company is exposed to credit loss in the event of nonperformance by counterparties to the foreign currency forward contracts used to mitigate the effect of foreign currency exchange rate changes.

The Company enters into derivative

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

contracts with high-quality financial institutions and limits the amount of credit exposure to any counterparty.

The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any counterparty.

The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features.

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The Company’s customers are primarily retailers and wholesale distributors who sell or distribute the products to a large group of end-users.

The Company regularly performs credit evaluations of the Company’s customers’ financial condition and considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic or country-specific risks and current economic conditions that may affect customers’ ability to pay.

The Company regularly performs credit evaluations of the Company’s customers’ financial condition and performance and considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic or country-specific risks and current economic conditions that may affect customers’ ability to pay.

The Company does not require collateral from its customers.

Historically, a substantial portion of the Company’s revenue has been derived from a limited number of retailers and wholesale distribution partners.

As of December 31, 2020, three customers accounted for 32.7 %, 18.5 % and 15.3 % of the Company’s total accounts receivable, net.

As of December 31, 2019, one customer accounted for 51.3 % of the Company’s total accounts receivable, net.

As of December 31, 2018 , two customers accounted for 36.4 % and 18.0 % of the Company’s total accounts receivable, net, respectively.

No other customer accounted for 10% or greater of the Company’s total accounts receivable, net.

Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.

The allowance for doubtful accounts is reviewed periodically and adjusted if necessary based on the Company’s assessments of its customers’ ability to pay.

If the financial condition of the Company’s customers should deteriorate or if actual defaults are higher than the Company’s historical experience, additional allowances may be required, which could have an adverse impact on operating expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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Range of Useful Lives

Computer equipment

Furniture and fixtures

Machinery and equipment

Leasehold improvements

Shorter of remaining lease term or 7 years

Computer equipment 2 years

Furniture and fixtures 5 years

Software 2 - 5 years

Machinery and equipment 2 - 3 years

Leasehold improvements Shorter of remaining lease term or 7 years

Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset.

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The carrying value of the asset is reviewed on a regular basis for the existence of facts, both internal and external, that may suggest impairment.

There was no impairment loss of property and equipment for the years ended December 31, 2019 and 2018 , and charges related to the impairment of property and equipment were insignificant in 2017 .

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Goodwill pertained to the acquisitions of Avaak, Inc.

There was no impairment loss of property and equipment for the years ended December 31, 2020, 2019 and 2018.

Goodwill pertains to the acquisitions of Avaak, Inc.

(“Avaak”) and Placemeter, Inc.

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The Company performs an annual impairment assessment of goodwill at the reporting unit level on the first day of the fourth fiscal quarter.

The Company identified that it has one reporting unit for the purpose of goodwill impairment testing and the reporting unit is at the same level as its operating segment and reportable segment.

The analysis may include both qualitative and quantitative factors to assess the likelihood of an impairment.

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If the fair value is greater than the carrying amount of its reporting unit, no impairment is recorded.

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Goodwill is also tested for impairment by performing a quantitative assessment, which is used to identify both the existence of impairment and the amount of impairment loss.

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The impairment charge, if any would be recorded to earnings in the consolidated statements of operations.

A quantitative assessment of goodwill was performed on the first day of the fourth quarter of fiscal 2019 .

The Company identified that it has one reporting unit for the purpose of goodwill impairment testing and the reporting unit is at the same level as its operating segment and reportable segment.

The Company utilized its market capitalization as a proxy for fair value of the business and compared it to the carrying amount as of October 1, 2019 .

Based on the results of the quantitative assessment, the respective fair value was substantially in excess of the carrying amount by $ 68.0 million , or 38 % .

The Company updated its quantitative test as of December 31, 2019 at which time the fair value of the business was substantially in excess of the carrying amount by $ 115.7 million , or 57 % .

No goodwill impairment was recognized for the years ended December 31, 2019 , 2018 and 2017 .

The Company does not believe it is likely that there will be a material change in the estimates or assumptions the Company uses to test for impairment loss on goodwill.

However, if the actual result is not consistent with the Company’s estimates or assumptions, the Company may be exposed to an impairment charge that could be material.

Refer to Note 4 Disposal of business , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for goodwill derecognized in the Verisure transaction.

There was no impairment loss of goodwill for the years ended December 31, 2020, 2019 and 2018.

Intangibles, net

Intangibles, net pertained to the acquisitions of Avaak and Placemeter.

Intangibles, net pertain to the acquisitions of Avaak and Placemeter.

Purchased intangibles with finite lives are amortized using the straight-line method over the estimated economic useful life, which range from three to five years .

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The carrying amount of the asset is reviewed on a regular basis for the existence of facts, both internal and external, that may suggest impairment.

During the years ended December 31, 2019 and 2018 , there were no events or changes in circumstances that indicated the carrying amount of the Company’s finite-lived assets may not be recoverable from their undiscounted cash flows.

Consequently, the Company did not perform an impairment test and did not record any impairments to intangibles for the years ended December 31, 2019 , 2018 and 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2020, all finite-lived intangibles were fully amortized.

No impairment charges were recorded for all periods presented.

Revenue recognition

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) and applied this guidance to those contracts which were not completed at the date of adoption using the modified retrospective method.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods (“ASC 605”).

The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to Net parent investment effective January 1, 2018.

Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The majority of revenue comes from sales of hardware products to customers (retailers, distributors, and service providers).

The majority of revenue comes from sales of hardware products to customers (retailers, distributors, security solution providers, service providers, and Arlo's direct to consumer store).

Revenue is recognized at a point in time when control of the goods is transferred to the customer, generally occurring upon shipment or delivery, dependent upon the terms of the underlying contract.

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Revenue from all sales types is recognized at transaction price, which is the amount the Company expects to be entitled to in exchange for transferring goods or providing services.

Transaction price is calculated as selling price net of variable consideration which may include estimates for future returns, sales incentives, and price protection related to current period product revenue.

Transaction price is calculated as selling price net of variable consideration which may include estimates for future returns, sales incentives, and price protection related to current

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period product revenue.

The Company’s standard obligation to its direct customers generally provides for a full refund in the event that such product is not merchantable or is found to be damaged or defective.

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Revenue attributable to hardware is recognized at the time control of the product transfers to the customer.

The transaction

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price allocated to the service is recognized over the specified service period or over the estimated useful life of the hardware, beginning when the customer is expected to activate their account.

The transaction price allocated to the service is recognized over the specified service period or over the estimated useful life of the hardware, beginning when the customer is expected to activate their account.

Useful life of the hardware is determined by industry norms, technical and financial relevance, frequency of new model releases, and user history.

Long-term Supply Arrangement - Verisure

The Company has entered into a Supply Agreement as part of the disposal of the Company's commercial operations in Europe as discussed in Note 4 , where Verisure prepays future product purchases with a minimum product purchase commitment also required.

The Company has entered into a Supply Agreement as part of the disposal of the Company's commercial operations in Europe as discussed in Note 4, Disposal of Business, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, where Verisure prepays future product purchases with a minimum product purchase commitment also required.

The Supply Agreement includes product purchases, paid subscription services, basic services, and an option for Verisure to acquire development services by submitting a statement of work (“SOW”).

Products sold come with a standard twelve month warranty.

Verisure assumes responsibilities for all warranty claims, returns on products and certain technical support to the end users.

The Company provides technical support for paid subscription services where Verisure can not resolve the issue.

Products sold come with a standard twelve months warranty.

Verisure assumes responsibilities for all warranty claims, returns of products and certain technical support provided to the end users.

The Company provides technical support for paid subscription services where Verisure cannot resolve the issue.

Verisure is responsible for any marketing and promotion of the Company's products and services sold in Europe.

Products are priced at a cost plus markup based on markups specified in the Supply Agreement and that price varies based on the cost of the product.

The paid subscription services and basic services pricing is based on the number of users monthly and is priced at a cost plus markup specified in the Supply Agreement that varies based on the user and service type.

T he transaction price for products and paid subscription services is entirely variable because the consideration is dependent on the actual costs.

The paid subscription services and basic services pricing is based on the number of users monthly and is priced at a cost plus markup specified in the Supply Agreement, which varies based on the user and service type.

T he transaction price for products and paid subscription services is entirely variable because the consideration is

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dependent on the actual costs.

The Company allocates variable consideration specified for products entirely to products, and variable consideration specified for the paid subscription services entirely to the paid subscription services.

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Each product with a valid PO is considered a single performance obligation.

The Company recognizes variable consideration for products upon delivery and for services when the monthly service is rendered for paid subscription services and basic services.

The non-refundable prepayment does not relate to future goods or services, as such no further assessment of material rights is required.

The Company recognizes variable consideration for products upon delivery and for services when the monthly service is rendered for paid subscription service and basic service.

The non-refundable product prepayments do not relate to future goods or services, as such no further assessment of material rights is required.

Further, as the transfer of products is at the discretion of the customer (i.e.

when Verisure issues a PO), a significant financing component does not exist as it relates to the prepayment.

The Company also expects that prepayments will be fully utilized by Verisure with one year, hence, no additional accounting consideration is necessary for breakage.

when Verisure issues a PO), a significant financing component does not exist as it relates to product prepayments.

The Company also expects that the product prepayments will be fully utilized by Verisure within 12 to 18 months, hence, no additional accounting consideration is necessary for breakage.

The Company also concluded that it is acting as the principal in the Supply Agreement and determined that revenue should be presented gross.

Non-recurring Engineering ("NRE") Arrangement - Verisure

NRE Arrangement - Verisure

The Supply Agreement also provides for certain development services under an SOW to Verisure ("NRE arrangement") as part of the disposal of the Company's commercial operations in Europe as discussed in Note 4, Disposal of Business, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

In the NRE arrangement, Verisure pays non-refundable installments upon the commencement of agreed-upon milestones.

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If total NRE costs calculated upon completion in the current period are more than the estimated total costs at completion used to calculate revenue in a prior period, then the profits in the current period will be lower than if the estimated costs used in the prior period calculation were equal to the actual total costs upon completion.

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Sales of hardware products regularly include warranties to end customers that cover bug fixes, minor updates such that the product continues to function according to published specifications in a dynamic environment, and phone support.

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Instead, the expected cost of warranties is accrued as an expense in accordance with authoritative guidance.

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Sales incentives

The Company accrues for sales incentives as a marketing expense if it receives an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received;

The Company accrues for sales incentives offered to customers as a marketing expense if it receives an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received;

otherwise, it is recorded as a reduction to revenues.

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For certain products or services and customer types, payment is required before the products or services are delivered to the customer.

Refer to Note 3 , Deferred Revenue , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for detailed disclosures regarding changes in contract balances for the years ended December 31, 2019 and 2018 .

Refer to Note 3, Deferred Revenue, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for detailed disclosures regarding changes in contract balances for the years ended December 31, 2020 and 2019.

Research and development

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Total advertising and promotional expenses were $ 12.7 million, $ 12.3 million and $ 13.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock-based compensation

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Stock-based compensation

The Company’s employees have historically participated in NETGEAR’s stock-based compensation plans.

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Estimated compensation cost relating to restricted stock units ("RSUs") is based on the closing fair market value of NETGEAR’s common stock on the date of grant.

Equity awards granted by the Company under its own stock-based compensation plans on or after the completion of the IPO are comprised of performance-based stock options (the “PSOs”), stock options, and RSUs.

The Company uses the fair value method of accounting for its equity awards granted to employees and measures the cost of employee services received in exchange for the stock-based awards.

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The fair value of stock options and PSOs is estimated on the grant or offering date using the Black-Scholes option pricing model and the forfeitures are recorded as they occur.

The fair value of RSUs is measured on the grant date based on the closing fair market value of the Company’s common stock.

The fair value of RSUs and PSUs is measured on the grant date based on the closing fair market value of the Company’s common stock.

The Company utilizes a Monte Carlo pricing model customized to the specific provisions of the 2018 Plan to value the MPSUs awards on the grant date.

The fair value determined using the Monte Carlo simulation model varies based on the assumptions used for the expected stock price volatility, the correlation coefficient between the Company and Russell 2000 Index, risk-free interest rates, and dividend yield.

The stock-based compensation cost is recognized ratably over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period, which is generally four years for stock options and three to four years for RSUs.

For PSOs, stock-based compensation expense of individual performance milestone is recognized over the expected performance achievement period when the achievement becomes probable.

For PSOs and PSUs, stock-based compensation expense associated with individual performance milestones is recognized over the expected performance achievement period when the achievement becomes probable.

For MPSUs, stock-based compensation expense is recognized ratably over the performance period subject to achievement of market conditions.

The Company's 2018 Employee Stock Purchase Plan (“ESPP”) is intended to provide employees with the opportunity to purchase the Company's common stock through accumulated payroll deductions at the end of specified purchase period.

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The Company recognizes compensation costs for the ESPP on a straight-line basis over the requisite service period of the award.

The Company issued equity awards consisting of 50 % of time-based vesting RSUs, 25 % of performance-based RSUs (“PSUs”) and 25 % of market-based performance RSUs (“MPSUs”) to its named executive officers (“NEOs”) during the fiscal quarter ended September 29, 2019:

The time-based vesting RSUs will vest in three equal annual installments during the period that begins on the RSU grant date.

The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ending December 31, 2019 is achieved.

The MPSUs will vest on the three-year anniversary of the MPSU grant date based on the performance of the Company's common stock relative to the Russell 2000 Index (“the Benchmark”) during the three-year period from grant date.

A positive 3.3 x or negative 2.5 x 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 relative 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 vest.

In no event will the number of shares vested in each tranche exceed 200 % of the target for that tranche.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The estimated compensation cost relating to the PSUs, is based on the closing fair market value of the Company's stock on the date of grant.

The maximum number of shares that NEOs can earn is 150 % of the target number of the PSUs.

The minimum number of shares that NEOs can earn is 50 % of the target number of the PSUs.

To estimate the compensation cost relating to the MPSUs, the Company utilized a Monte Carlo simulation model on the date of grant.

On the Distribution Date, outstanding equity awards granted to Arlo employees under NETGEAR’s stock-based compensation plans were adjusted into NETGEAR awards and Arlo awards based on the conversion ratio as set forth in the employee matters agreement between Arlo and NETGEAR.

The Company did not recognize any incremental expense in connection with the conversion of NETGEAR’s Stock based awards into Arlo awards.

Refer to Note 13 , Employee Benefit Plans , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a further discussion on stock-based compensation.

Refer to Note 13, Employee Benefit Plans , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a further discussion on stock-based compensation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Effective January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No.

2016-02, Leases (Topic 842) utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first fiscal quarter of 2019.

For additional information on the changes resulting from the new standard and the impact to our financial results on adoption, refer to the section Recently Adopted Accounting Pronouncements below.

The Company determines if an arrangement is a lease at inception.

40 unchanged sentences

As we expand internationally, we will face increased complexity in determining the appropriate tax jurisdictions for revenue and expense items.

Our policy is to adjust these reserves when facts and circumstances change, such as the closing of a tax audit or refinement of an estimate.

Our policy is to adjust these unrecognized tax benefits in the period when facts and circumstances change, such as the closing of a tax audit, the expiration of statute of limitation for a relevant taxing authority to examine a tax position, or when additional information becomes available.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results.

The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.

The Tax Act introduced the global intangible low-taxed income (“GILTI”) provisions effective in 2018, which generally impose a tax on the net income earned by foreign subsidiaries of U.S company in excess of a deemed return on their tangible assets.

The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related interest and penalties.

The Tax Act introduced the GILTI provisions effective in 2018, which generally impose a tax on the net income earned by foreign subsidiaries of U.S company in excess of a deemed return on their tangible assets.

We recognize the tax on GILTI as a period cost when the tax is incurred.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Certain risks and uncertainties

5 unchanged sentences

Any interruption or delay in manufacturing could materially adversely affect the Company’s business, results of operations and financial condition.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Recent accounting pronouncements

3 unchanged sentences

Accounting Pronouncements Recently Adopted

ASU 2016-02 - Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases” (Topic 842), which requires lessees to recognize on the balance sheets a ROU asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than 12 months.

The liability is equal to the net present value of minimum lease payments while the ROU asset is based on the liability, subject to adjustment, such as for initial direct costs.

On January 1, 2019 (“adoption date”), the Company adopted the new standard utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first fiscal quarter of 2019.

The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether an expired or existing contract as of adoption date contains a lease, (2) lease classification for any expired or existing lease as of the adoption date and (3) initial direct costs for any existing lease as of the adoption date.

The Company also elected to account for each separate lease component of a contract and its associated non-lease components as a single lease component.

The adoption of ASU 2016-02 resulted in the recognition of ROU assets and lease liabilities for operating leases of $ 14.4 million as of January 1, 2019 on its consolidated balance sheets, with no material impact on its consolidated statements of operations and cash flows.

In addition, the Company was deemed to be the accounting owner of its build-to-suit lease arrangement for its San Jose corporate headquarters and the construction was in progress at adoption date.

As such, the Company reevaluated its build-to-suit lease arrangement under ASU 2016-02 to ascertain whether it meets the criteria as the accounting owner of the build-to-suit lease arrangement through control of the underlying leased asset.

The Company concluded that it did not have control over the underlying leased asset.

As a result, the Company de-recognized the build-to-suit asset and liability as of adoption date of $ 21.6 million of property and equipment and $ 21.9 million of financing lease obligations.

The difference of $ 0.3 million between the de-recognized assets and the associated financing lease obligations was recorded as an adjustment to accumulated deficit as of adoption date as mentioned above.

The Company accounted for its San Jose Corporate lease arrangement as operating lease under ASU 2016-02.

Consequently, as of March 31, 2019, the construction of its leasehold improvements for its San Jose corporate headquarters was partially completed and partially occupied by the Company resulting in lease commencement for the portion that was completed and occupied by the Company.

Therefore, the Company proportionally recorded ROU assets and lease liabilities of $ 14.3 million , representing two thirds of the total value of the ROU assets and lease liabilities.

As of June 30, 2019, upon the completion of the leasehold improvements and full occupation of the entire building, the Company recognized the remaining value of ROU assets and lease liabilities of $ 7.2 million .

Refer to Note 11 .

Commitments and Contingencies , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details of the impacts on the adoption.

Accounting Pronouncements Not Yet Effective

ASU 2016-13 - Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables.

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables.

Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses, limited to the amount by which fair value is below amortized cost.

ASU 2016-13 is effective for the Company beginning in the first fiscal quarter of 2023 (or the first fiscal quarter of 2020 should the Company cease to be classified as an EGC), with early adoption permitted.

The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its financial statements.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company adopted Topic 326 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated.

There was no cumulative-effect adjustment recorded on January 1, 2020.

ASU 2019-12 - Income Taxes (Topic 740):

3 unchanged sentences

Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for the Company beginning January 1, 2022 (or January 1, 2021 should the Company cease to be classified as an EGC), with early adoption permitted.

The Company is currently evaluating the impact of the adoption of ASU 2019-12 on its financial statements.

The Company early adopted ASU 2019-12 on January 1, 2020.

There was no material impact from the adoption of ASU 2019-12 on the Company's financial statements.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting".

The accounting standards update is intended to provide temporary optional expedients and exceptions to the U.S.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 may be applied prospectively through December 31, 2022.

The Company is currently evaluating the impact this guidance may have on its financial statements and related disclosures.

With the exception of the new standards 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.

1 unchanged sentence

Deferred revenue consists of advance payments and deferred revenue, where the Company has unsatisfied performance obligations.

Deferred revenue primarily consists of prepaid services and customer billings in advance of revenues being recognized from the Company's subscription contracts.

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 NRE services under the Supply Agreement with Verisure.

Refer to Note 4, Disposal of Business, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a complete discussion of the Verisure transaction.

Transaction Price Allocated to the Remaining Performance Obligations

3 unchanged sentences

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 December 31, 2020:

Greater than 2 years

1 year 2 years Greater than 2 years Total

(In thousands)

Performance obligations $ 63,111 $ 15,788 $ 871 $ 79,770

The majority of the performance obligation over one year pertains to revenue deferral from prepaid services.

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

Contract Balances

The following table reflects the changes in contract balances for the year ended December 31, 2020 and 2019:

Balance Sheet Location

December 31, 2019

December 31, 2018

January 1, 2018

Balance Sheet Location December 31, 2020 December 31, 2019

(In thousands)

Accounts receivable, net

Contract liabilities - current

Deferred revenue

Contract liabilities - non-current

Non-current deferred revenue

For the year ended December 31, 2019 , deferred revenue increased primarily as a result of the $ 20.0 million prepayment for product purchases for fiscal 2020 and $ 2.5 million installment payments, less $ 279 thousand service revenue recognized under the NRE arrangement with Verisure.

The non-current deferred revenue decreased is substantially due to the derecognition of the deferred revenue associated with disposal of the Company's commercial operations in Europe.

Accounts receivable, net Accounts receivable, net $ 77,643 $ 127,317 $ ( 49,674 ) ( 39.0 ) %

Contract liabilities - current Deferred revenue $ 53,142 $ 50,362 $ 2,780 5.5 %

Contract liabilities - non-current Non-current deferred revenue $ 16,563 $ 15,736 $ 827 5.3 %

For the year ended December 31, 2020, compared to the previous year, Accounts receivable, net decreased, primarily driven by customer mix, lower product shipments, the sale of our commercial operations in Europe to Verisure, and growth in sales from Arlo's direct to consumer store;

current portion of deferred revenue increased, primarily due to $ 29.4 million Verisure prepayment for product purchases, which is expected to be utilized in fiscal 2021, $ 5.0 million Verisure NRE installment payments, and $ 7.9 million deferred service revenue, offset by $ 7.9 million service revenue recognized

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the years ended December 31, 2019 and 2018 , $ 71.6 million and $ 50.9 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 47.4 million and $ 38.8 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

under the NRE arrangement with Verisure, application of $ 20.0 million 2019 Verisure prepayment for product purchases in fiscal 2020 against Accounts receivable, and $ 11.6 million service revenue recognition;

and Non-current deferred revenue increased due to $ 9.8 million deferred service revenue and $ 10.6 million Verisure prepayment for product purchases, which is expected to be utilized in fiscal 2022.

For the years ended December 31, 2020 and 2019, $ 90.9 million and $ 71.6 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue and Verisure prepayments for product purchases, and $ 67.3 million and $ 47.4 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 26.2 million and $ 26.4 million of this recognized revenue was included in the contract liability balance at the beginning of the period.

4 unchanged sentences

Sales and usage-based taxes are excluded from revenue.

Refer to Note 15 , Segment and Geographic Information , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for revenue by geography.

Refer to Note 15, Segment and Geographic Information , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for revenue by geography.

Disposal of Business

2 unchanged sentences

The strategic partnership will combine the Company’s innovative connected cameras and cloud services platform with Verisure’s professionally monitored security solutions to provide a new level of smart security for European customers.

The Purchase Agreement provided that, upon the terms and subject to the conditions set forth in the Purchase Agreement, the Company transferred, sold and assigned to Verisure certain assets (the "Assets") related to the Company’s commercial operations in Europe (the "Business") to Verisure for $ 50.0 million in cash plus additional cash for certain inventory.

The Purchase Agreement contains customary representations and warranties regarding Verisure, the Business and the Assets, indemnification provisions, termination rights and other customary provisions.

The Company has agreed not to engage in any business that competes with the Business for a period of three years .

Under the Purchase Agreement, the Company sold and transferred certain assets and liabilities related to the Company's commercial operations in Europe.

The transaction closed on December 30, 2019 for $ 52.7 million following working capital adjustments, which was reported as Investing Activities on the statement of cash flows.

The transaction resulted in a pretax gain of $ 54.9 million that was recorded in Gain on sale of business in the Company's consolidated statements of operations.

The transaction closed on December 30, 2019 pursuant to which the Company received $ 52.7 million including working capital adjustments, which resulted in a pretax gain of $ 54.9 million in the fourth fiscal quarter of 2019.

In the first fiscal quarter of 2020, the Company recorded an additional gain of $ 292 thousand that was recorded in Gain on sale of business in the Company's unaudited condensed consolidated statements of operations as a result of the final working capital adjustment.

As part of the transaction, certain employees were transferred to Verisure.

These employees hold Company RSU awards, the terms of the RSU awards were modified such that the RSU awards will continue to vest and settle after closing of the transaction in accordance with the original terms and conditions of RSU awards.

Refer to Note.

13 Employee Benefit Plans , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further detail relating to this modification.

These employees hold Company RSU awards, and the terms of the RSU awards were modified such that the RSU awards will continue to vest and settle after closing of the transaction in accordance with the original terms and conditions of RSU awards.

Refer to Note.13 Employee Benefit Plans , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further detail relating to this modification.

The assets and liabilities sold and assigned to Verisure were determined to have met the criteria to be classified as held for sale as of November 4, 2019, the execution date of the Purchase Agreement.

3 unchanged sentences

As the carrying amount of the assets and liabilities was lower than fair value less cost to sell, no adjustment was necessary.

As of the closing date of December 30, 2019, the Company concluded that no impairment exists for the assets and no adjustment was necessary for the liabilities.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

closing date of December 30, 2019, the Company concluded that no impairment exists for the assets and no adjustment was necessary for the liabilities.

Further, the Company reassessed the fair value and cost to sell, and noted that they did not change since the initial classification of the assets and liabilities as held for sale.

1 unchanged sentence

The Supply Agreement provides that Verisure will become the exclusive distributor of Company products in Europe for all channels, and will non-exclusively distribute the Company's products through its direct channels globally for an initial terms of five years .

During the five-year period commencing January 1, 2020, Verisure has an aggregate minimum purchase commitment of $ 500.0 million , which includes annual minimum commitments.

On December 30, 2019, Verisure prepaid the

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company $ 20.0 million for product purchases in fiscal 2020 and will prepay $ 40.0 million on the first anniversary of the closing of the Purchase Agreement for product purchases in fiscal 2021.

During the five-year period commencing January 1, 2020, Verisure has an aggregate purchase commitment of $ 500.0 million.

As of December 31, 2020, $ 47.3 million of the purchase commitment has been fulfilled.

In 2019 and 2020, Verisure prepaid the Company $ 20.0 million for product purchases in fiscal 2020 and $ 40.0 million for product purchases in fiscal 2021 and fiscal 2022, respectively.

The Supply Agreement also provides certain NRE service to Verisure, including developing certain custom products specified by Verisure in exchange for an aggregate of $ 10.0 million, payable in installments upon meeting certain development milestones.

As of December 31, 2019, Versure has paid $ 2.5 million for this NRE service.

For the year ended December 31, 2019, the Company has recognized service revenue of $ 279 thousand for this NRE service.

In the second fiscal quarter of 2020, an additional $ 3.5 million was added to the contract price as a result of a modification to Verisure's specification for the Outdoor Custom Camera.

As of December 31, 2020, Verisure has paid $ 7.5 million for this NRE service.

For the year ended December 31, 2020, the Company has recognized service revenue of $ 7.9 million for this NRE service.

As part of the Purchase Agreement, the Company also entered into a Transition Services Agreement with Verisure (“Verisure TSA”) to assist Verisure with the transition of the Company’s European commercial operations.

These transition services primarily include IT support for 12 months , and other services for 3 to 6 months , including sales and marketing, operations and supply chain, finance, legal, and human resources.

These transition services primarily include IT support and other services, including sales and marketing, operations and supply chain, finance, legal, and human resources.

As compensation for these transition services, the Company will be reimbursed by Verisure based on actual direct costs plus allocation of overhead.

For the year ended December 31, 2019, the Company charged Verisure $ 798 thousand for Verisure TSA services which was recorded as Other income, given such services are not related to the primary business in which the Company operates.

For the year ended December 31, 2020, the Company charged Verisure $ 4.0 million for Verisure TSA services which was recorded as Other income, given such services are not related to the primary business in which the Company operates.

The related Verisure TSA expenses in the same amount were recognized as incurred and reported under their natural expense classification.

As of December 31, 2019, the Company received a prepayment of $ 22.5 million related to the Supply Agreement, which was recorded in Deferred revenue on the Company's consolidated balance sheets .

Balance Sheet Components

Available-for-sale short-term investments

As of December 31, 2019

As of December 31, 2018

Unrealized Gains

Unrealized Losses

Estimated Fair Value

Unrealized Gains

Unrealized Losses

Estimated Fair Value

As of December 31, 2020 As of December 31, 2019

Cost Unrealized Gains Unrealized Losses Estimated Fair Value Cost Unrealized Gains Unrealized Losses Estimated Fair Value

(In thousands)

treasuries $ 19,996 $ 1 $ — $ 19,997 $ 19,967 $ 23 $ — $ 19,990

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 other-than-temporary impairment losses related to available-for-sale short-term investment for the years ended December 31, 2019 and 2018.

During the year ended December 31, 2020, with the adoption of ASU 2016-13, the Company did not recognize any allowance for credit losses related to available-for-sale short-term investment for the year ended .

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accounts receivable, net

2 unchanged sentences

Gross accounts receivable $ 78,162 $ 127,926

Allowance for doubtful accounts

Allowance for credit losses ( 519 ) ( 609 )

Total accounts receivable, net $ 77,643 $ 127,317

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Allowance for doubtful accounts

Year Ended December 31,

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.

Years Ended December 31,

2020 2019 2018

(In thousands)

Balance at the beginning of the period $ 609 $ 127 $ 207

Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings — — —

Provision for expected credit losses 186 482 —

Amount recovered due to collection ( 276 ) — ( 80 )

Balance at the end of the period $ 519 $ 609 $ 127

3 unchanged sentences

Machinery and equipment $ 14,397 $ 13,402

Software 13,192 11,945

Computer equipment 4,083 4,047

1 unchanged sentence

Furniture and fixtures 4,048 4,075

Construction in progress (1)

Total property and equipment, gross 43,743 41,556

1 unchanged sentence

Total property and equipment, net $ 15,821 $ 21,352

_________________________

The Company had a build-to-suit lease arrangement under its corporate headquarters lease in San Jose, California.

Upon the adoption of ASU 2016-02, the Company concluded that it did not have control over the underlying leased asset and de-recognized $ 21.6 million of construction in progress.

Refer to Note 11 , Commitments and Contingencies , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details.

Depreciation expense pertaining to property and equipment was $ 8.8 million, $ 9.2 million and $ 3.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Allocated depreciation expense from NETGEAR was $ 1.2 million and $ 2.0 million for the years ended December 31, 2018 and 2017 , respectively.

Allocated depreciation expense from NETGEAR was $ 1.2 million for the year ended December 31, 2018.

For the periods prior to the completion of the IPO, the consolidated statements of operations include both the depreciation expense directly identifiable as Arlo’s and allocated depreciation expense from NETGEAR.

Refer to Allocated Expenses from NETGEAR as discussed in Note 1 , The Company and Basis of Presentation , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for detailed disclosures regarding the methodology used for allocated expenses from NETGEAR.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Refer to Allocated Expenses from NETGEAR as discussed in Note 1, The Company and Basis of Presentation , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for detailed disclosures regarding the methodology used for allocated expenses from NETGEAR.

Intangibles, net

As of December 31, 2019

As of December 31, 2018

Accumulated Amortization

As of December 31, 2020 As of December 31, 2019

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

(In thousands)

Technology $ 9,800 $ ( 9,800 ) $ — 9,800 $ ( 8,540 ) $ 1,260

Other 500 ( 500 ) — 500 ( 454 ) 46

Total intangibles, net $ 10,300 $ ( 10,300 ) $ — $ 10,300 $ ( 8,994 ) $ 1,306

As of December 31, 2019 , the remaining weighted-average estimated useful life of intangibles was 0.9 years.

Amortization of intangibles was $ 1.5 million , $ 1.5 million and $ 1.9 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2020, all finite-lived intangibles were fully amortized.

Amortization expense of finite-lived intangibles was $ 1.3 million, $ 1.5 million and $ 1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

No impairment charges were recorded for all periods presented.

As of December 31, 2019 , estimated amortization expense related to finite-lived intangibles for the remaining year was $ 1.3 million .

As of December 31,

(In thousands)

There was no change in the carrying amount of goodwill during the year ended December 31, 2020, and the goodwill as of December 31, 2020 and December 31, 2019 was $ 11.0 million.

On December 30, 2019, the Company derecognized $ 4.6 million goodwill associated with the Company's commercial operations in Europe, which was incorporated in the calculation of the gain on the sale of business to Verisure.

1 unchanged sentence

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’s common stock declined after the Company announced its fourth quarter of fiscal year 2018 earnings release on February 5, 2019.

The average closing price per share for the common stock for the eight trading days after such earnings release was $ 3.71 , a 223.3 % decrease compared to the average closing price for the fourth quarter of fiscal year 2018.

A sustained decline in common stock and the resulting impact to the Company’s market capitalization as well as a downward revision to the Company’s business outlook for fiscal year ending December 31, 2019 are qualitative factors to consider when evaluating whether events or changes in circumstances indicate it is a more likely than not a potential goodwill impairment exists.

Management performed a quantitative assessment of impairment on October 1, 2019 in accordance with its policy and with consideration of qualitative factors, and performed a further quantitative assessment of impairment on December 31, 2019.

The Company operates as one operating and reportable segment.

The Company utilized its market capitalization as a proxy for fair value of the business and compared it to the carrying amount as of October 1, 2019 .

In the first fiscal quarter of 2020, the uncertainty brought about by the COVID-19 pandemic adversely impacted the Company's stock price.

The resulting impact to the Company’s market capitalization is a qualitative factor to consider when evaluating whether events or changes in circumstances indicate that it is more likely than not that a potential goodwill impairment exists.

The Company concluded that the decline in the price of its common stock as a result of the COVID-19 impact was an indicator that the Company’s goodwill might be impaired.

As a result, in the first fiscal quarter of 2020, the Company performed a quantitative assessment using the discounted cash flow model ("DCF model") as of March 29, 2020.

The Company estimated the fair value of the business using the DCF model, as management believes forecasted operating cash flows are the best indicator of current fair value.

The assumptions used in the DCF model include weighted-average cost of capital, projected revenue based on projected revenue growth rate, projected operating expenses, income taxes as well as capital expenditures and change in working capital.

Estimating the fair value of the business was a subjective process involving the use of estimates and judgments, particularly related to future cash flows, which are inherently uncertain.

Based on the results of the quantitative assessment using the DCF model, as of March 29, 2020, the respective fair value was substantially in excess of the carrying amount by $ 94.1 million, or 53 %.

On the first day of the fourth quarter of 2020, the Company performed a qualitative assessment in consideration of macroeconomic conditions, industry and market conditions, cost factors, overall company financial performance, and changes in the Company's stock price.

The Company did not believe it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

The Company also performed a quantitative assessment by utilizing its market capitalization as a proxy for fair value of the business and comparing it to the carrying amount as of October 1, 2020.

Based on the results of the quantitative assessment, the respective fair value was substantially in excess of the carrying amount by $ 276.2 million, or 195 %.

The Company updated its quantitative test as of December 31, 2019 at which time the fair value of the business was substantially in excess of the carrying amount by $ 115.7 million , or 57 % .

As fair value was greater than carrying amount, goodwill was not impaired as of December 31, 2020.

If there is a further decline in the Company’s stock price based on market conditions and deterioration of the Company’s business, the Company may have to record a charge to its earnings for the goodwill impairment of up to $ 11.0 million .

If there are events occurred or circumstances changed (i.e.

a decline in the Company’s stock price based on market conditions and deterioration of the Company’s business) that would more likely than not reduce the fair value of the Company below its carrying amount, the Company may have to record a charge to its earnings for the associated goodwill impairment of up to $ 11.0 million .

ARLO TECHNOLOGIES, INC.

4 unchanged sentences

Non-current deferred income taxes $ 1,269 $ 1,318

Deposits 122 764

Other 1,008 1,926

Total other non-current assets $ 2,399 $ 4,008

4 unchanged sentences

Sales returns

Warranty obligation

37,689 28,817

Accrued employee compensation 15,089 11,795

Operating lease liabilities 4,400 3,912

Current financing lease obligation

Freight 3,558 2,690

Warranty obligation 2,451 3,169

Other 20,002 23,043

Total accrued liabilities $ 121,766 $ 127,400

2 unchanged sentences

As of December 31, 2020

Quoted market

Total Quoted market

prices in active

(Level 1) Significant

(In thousands)

1 unchanged sentence

money-market funds (<90 days)

$ 1,934 $ 1,934 $ —

Available-for-sale securities:

treasuries (1)

19,997 19,997 —

Foreign currency forward contracts (2)

1 unchanged sentence

Foreign currency forward contracts (3)

$ 199 $ — $ 199

Total liabilities measured at fair value $ 199 $ — $ 199

2 unchanged sentences

December 31, 2019

Quoted market

Total Quoted market

prices in active

(Level 1) Significant

(In thousands)

1 unchanged sentence

treasuries (<90 days)

$ 31,472 $ 31,472 $ —

Available-for-sale securities:

treasuries (1)

19,990 19,990 —

Foreign currency forward contracts (2)

1 unchanged sentence

Foreign currency forward contracts (3)

$ 375 $ — $ 375

Total liabilities measured at fair value $ 375 $ — $ 375

11 unchanged sentences

As of December 31, 2020, the Company has no Level 3 fair value assets or liabilities.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Derivative Financial Instruments

1 unchanged sentence

The fair values of the Company’s derivative instruments and the line items on the consolidated balance sheets to which they were recorded as of December 31, 2020 and 2019 are summarized as follows:

Derivative Assets

Balance Sheet

(In thousands)

Derivative assets not designated as hedging instruments

Prepaid expenses and other current assets

Other accrued liabilities

Derivative assets designated as hedging instruments

Prepaid expenses and other current assets

Other accrued liabilities

Refer to Note 6 , Fair Value Measurements , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for detailed disclosures regarding fair value measurements in accordance with the authoritative guidance for fair value measurements and disclosures.

December 31, December 31,

Derivative Assets Balance Sheet

Location 2020 2019 Balance Sheet

Location 2020 2019

(In thousands) (In thousands)

Derivative assets not designated as hedging instruments Prepaid expenses and other current assets $ 22 $ 27 Other accrued liabilities $ 199 $ 347

Derivative assets designated as hedging instruments Prepaid expenses and other current assets 2 — Other accrued liabilities — 28

Total $ 24 $ 27 $ 199 $ 375

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Refer to Note 6, Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K 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

2 unchanged sentences

The following tables set forth the offsetting of derivative assets and liabilities as of December 31, 2020 and 2019:

As of December 31, 2019

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Assets

Gross Amounts Offset in the Consolidated Balance Sheets

Net Amounts Of Assets Presented in the Consolidated Balance Sheets

Financial Instruments

Cash Collateral Pledged

As of December 31, 2020 Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Of Assets Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Net Amount

(In thousands)

Wells Fargo Bank $ 24 $ — $ 24 $ ( 24 ) $ — $ —

As of December 31, 2019

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Liabilities

Gross Amounts Offset in the Consolidated Balance Sheets

Net Amounts Of Liabilities Presented in the Consolidated Balance Sheets

Financial Instruments

Cash Collateral Pledged

As of December 31, 2020 Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Of Liabilities Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Net Amount

(In thousands)

Wells Fargo Bank $ 199 $ — $ 199 $ ( 24 ) $ — $ 175

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2018

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Assets

Gross Amounts Offset in the Consolidated Balance Sheets

Net Amounts Of Assets Presented in the Consolidated Balance Sheets

Financial Instruments

Cash Collateral Pledged

As of December 31, 2019 Gross Amounts Not Offset in the Consolidated Balance Sheets

(In thousands)

HSBC $ 6 $ — $ 6 $ ( 6 ) $ — $ —

Wells Fargo Bank 21 — 21 ( 21 ) — —

As of December 31, 2018

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Liabilities

Gross Amounts Offset in the Consolidated Balance Sheets

Net Amounts Of Assets Presented in the Consolidated Balance Sheets

Financial Instruments

Cash Collateral Pledged

Total $ 27 $ — $ 27 $ ( 27 ) $ — $ —

As of December 31, 2019 Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts Of Assets Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Net Amount

(In thousands)

HSBC $ 83 $ — $ 83 $ ( 6 ) $ — $ 77

Wells Fargo Bank 292 — 292 ( 21 ) — 271

Total $ 375 $ — $ 375 $ ( 27 ) $ — $ 348

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Cash flow hedges

The Company typically hedges portions of its anticipated foreign currency exposure which generally are less than six months .

The Company enters into about eight forward contracts per quarter with an average size of $ 2.0 million USD equivalent related to its cash flow hedging program.

The Company entered into six forward contracts related to its cash flow hedging program for the year ended December 31, 2020 with an average size of $ 1.4 million equivalent related to its cash flow hedging program.

The effects of the Company’s cash flow hedges on the consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018 are summarized as follows:

Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges

Year Ended December 31, 2019

Cost of revenue

Research and development

Sales and marketing

General and administrative

Year Ended December 31, 2020 Revenue Cost of revenue Research and development Sales and marketing General and administrative

(In thousands)

2 unchanged sentences

Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges

Year Ended December 31, 2018

Cost of revenue

Research and development

Sales and marketing

General and administrative

Year Ended December 31, 2019 Revenue Cost of revenue Research and development Sales and marketing General and administrative

(In thousands)

1 unchanged sentence

Gains (losses) on cash flow hedge $ 390 $ ( 3 ) $ ( 28 ) $ ( 44 ) $ ( 13 )

Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges

Year Ended December 31, 2018 Revenue Cost of revenue Research and development Sales and marketing General and administrative

(In thousands)

Statements of operations $ 464,918 $ 372,843 $ 58,794 $ 52,593 $ 28,209

Gains (losses) on cash flow hedge $ 315 $ — $ ( 2 ) $ ( 28 ) $ ( 11 )

The Company expects to reclassify to earnings all of the amounts recorded in AOCI associated with its cash flow hedges over the next twelve months.

For information on the unrealized gains or losses on derivatives reclassified out of

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

AOCI into the consolidated statements of operations, refer to Note 8 , Accumulative Other Comprehensive Income (Loss) , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

For information on the unrealized gains or losses on derivatives reclassified out of AOCI into the consolidated statements of operations, refer to Note 8, Accumulative Other Comprehensive Income (Loss), in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

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.

1 unchanged sentence

Non-designated hedges

The Company adjusts its non-designated hedges monthly and enters into about 10 non-designated derivative per quarter with an average size of $ 1.7 million USD equivalent.

The Company adjusts its non-designated hedges monthly and enters into about eight non-designated derivative per quarter with an average size of $ 2.4 million USD equivalent.

The hedges range typically from 1 to 3 months in duration.

1 unchanged sentence

Derivatives Not Designated as

Hedging Instruments

Location of Gains (Losses)

Hedging Instruments Location of Gains (Losses)

Recognized in Income on Derivative 2020 2019 2018

(In thousands)

Foreign currency forward contracts

Other income (expense), net

Foreign currency forward contracts Other income (expense), net $ ( 95 ) $ ( 24 ) $ 589

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accumulated Other Comprehensive Income (Loss)

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the years ended December 31, 2019 and 2018 :

Unrealized gains (losses) on available-for-sale securities

Unrealized gains (losses) on derivatives

Estimated tax benefit (provision)

The following table sets forth the changes in AOCI by component for the years ended December 31, 2020, 2019 and 2018:

Unrealized gains (losses) on available-for-sale securities Unrealized gains (losses) on derivatives Estimated tax benefit (provision) Total

(In thousands)

8 unchanged sentences

Balance as of December 31, 2019 23 ( 25 ) — ( 2 )

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other comprehensive income (loss) before reclassifications ( 22 ) 4 — ( 18 )

Amount reclassified from accumulated other comprehensive income (loss) — ( 23 ) — ( 23 )

Net current period other comprehensive income (loss) ( 22 ) 27 — 5

Balance as of December 31, 2020 $ 1 $ 2 $ — $ 3

The following tables provide details about significant amounts reclassified out of each component of AOCI for the years ended December 31, 2020, 2019 and 2018:

Year Ended December 31, 2019

Year Ended December 31, 2018

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

Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018

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 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

Cost of revenue

Foreign currency contracts

Research and development

Foreign currency contracts

Sales and marketing

Foreign currency contracts

General and administrative

Foreign currency contracts $ 4 $ ( 32 ) $ 275 $ 390 $ 276 $ 315 Revenue

Foreign currency contracts — $ — — ( 3 ) — — Cost of revenue

Foreign currency contracts — $ 5 — ( 28 ) — ( 2 ) Research and development

Foreign currency contracts — $ 4 — ( 44 ) — ( 28 ) Sales and marketing

Foreign currency contracts — $ — — ( 13 ) — ( 11 ) General and administrative

$ 4 $ ( 23 ) $ 275 $ 302 $ 276 $ 274 Total *

_________________________

1 unchanged sentence

Income (loss) before provision for income taxes consisted of the following:

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year Ended December 31,

2020 2019 2018

(In thousands)

1 unchanged sentence

International 3,925 22,265 4,870

Total $ ( 100,626 ) $ ( 81,571 ) $ ( 74,711 )

Provision for income taxes consisted of the following:

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year Ended December 31,

2020 2019 2018

(In thousands)

Federal $ — $ — $ —

State 84 58 16

Foreign 438 4,524 1,425

522 4,582 1,441

Federal — — —

Foreign 103 ( 202 ) ( 669 )

103 ( 202 ) ( 669 )

Total $ 625 $ 4,380 $ 772

Net deferred tax assets consisted of the following:

9 unchanged sentences

Depreciation and amortization 2,810 1,030

Deferred rent

Capitalized research and development expenses 17,376 6,847

Total deferred tax assets 77,569 52,685

Deferred Tax Liabilities:

Depreciation and amortization

Lease assets ( 5,804 ) ( 7,450 )

Total deferred tax liabilities ( 5,804 ) ( 7,450 )

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In thousands)

Balance at the beginning of the period $ 43,917 $ 24,477 $ 15,611

Additions 31,890 38,336 13,760

Deductions ( 5,311 ) ( 18,896 ) ( 4,894 )

Balance at the end of the period $ 70,496 $ 43,917 $ 24,477

3 unchanged sentences

As of December 31, 2020 and 2019, the valuation allowance was $ 70.5 million and $ 43.9 million, respectively.

Accordingly, the valuation allowance increased by $ 19.4 million during 2019 mainly caused by the increase in attribute carryforwards and capitalized expenditures, partially offset with the decrease in accruals and allowances.

The deferred tax asset related to tax credit carryforwards was decreased to zero in 2018 as a result of transferring the attributes to NETGEAR per the tax matters agreement.

The valuation allowance increased by $ 26.6 million during 2020 mainly due to the increases in tax attribute carryforwards, capitalized expenditures for income tax purposes, and accruals and allowances.

The utilization of our net operating loss and credit carryforwards may be subject to annual limitation due to the ownership changes provided by the Internal Revenue Code and similar state provisions.

Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization.

Such an annual limitation could result in the expiration of portions of the net operating loss and tax credit carryforwards before utilization.

As of December 31, 2020, net operating loss carryforwards consisted of the following:

Beginning Year of Expiration

Amount Beginning Year of Expiration

(in thousands)

$ 14,028 2031

Federal 79,073 Indefinite

California (tax effected, net of federal benefit) 981 2040

Other State (tax effected, net of federal benefit) 1,646 2024

2 unchanged sentences

As of December 31, 2020, tax credit carryforwards consisted of the following:

Beginning Year of Expiration

Amount Beginning Year of Expiration

(in thousands)

Federal $ 3,688 2040

California 2,565 Indefinite

Foreign 1,309 2031

ARLO TECHNOLOGIES, INC.

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

Tax at federal statutory rate 21.0 % 21.0 % 21.0 %

3 unchanged sentences

Stock-based compensation ( 4.2 ) % ( 2.6 ) % ( 0.1 ) %

Tax credits 1.6 % 1.6 % 1.5 %

Change in valuation allowance ( 26.4 ) % ( 23.8 ) % ( 25.2 ) %

Impact of the Tax Act

Non-deductible transaction costs ( 0.1 ) % ( 0.7 ) % ( 2.6 ) %

Goodwill derecognition — % ( 1.2 ) % — %

Others ( 0.2 ) % ( 0.5 ) % ( 0.1 ) %

Provision for income taxes ( 0.6 ) % ( 5.4 ) % ( 1.0 ) %

_________________________

(1) The Tax Act of 2017 reduced the U.S federal statutory tax rate from 35% to 21% beginning in 2018.

The increase in provision for income taxes for the year ended December 31, 2019 compared to 2018 was primarily due to higher foreign earnings in 2019 and the gain on sale of certain assets related to the Company's commercial operations in Europe during the fourth quarter of 2019.

The decrease in provision for income taxes for the year ended December 31, 2020 compared to the prior year was primarily due to lower foreign earnings in 2020, resulting from the sale of our commercial operations in Europe during the fourth quarter of 2019.

Furthermore, 2019 included the gain on sale of certain assets related to the Company's commercial operations in Europe during the fourth quarter of 2019.

Losses incurred predominantly in the U.S.

continue to be subject to a full valuation allowance.

The decrease provision for income taxes for the year ended December 31, 2018 compared to 2017 was primarily caused by the deemed repatriation of foreign earnings in 2017 following the 2017 U.S.

The negative 1.0 % effective tax rate was a result of losses in the U.S.

for which the Company didn't recognize tax benefit due to its full U.S.

federal and state valuation allowance.

As of December 31, 2019 , withholding taxes and state income taxes expected to be incurred on foreign subsidiaries’ earnings that are not considered indefinitely reinvested are not material.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The decrease in provision for income taxes for the year ended December 31, 2019 compared to the prior year was primarily due to higher foreign earnings in 2019 and the gain on sale of certain assets related to the Company's commercial operations in Europe during the fourth quarter of 2019.

Losses incurred predominantly in the U.S.

continue to be subject to a full valuation allowance.

As of December 31, 2020, withholding taxes and state income taxes expected to be incurred on the foreign subsidiaries’ earnings that are not indefinitely reinvested are immaterial.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as follows:

3 unchanged sentences

Additions based on tax positions related to the current year 338

Additions for tax positions of prior years

Reductions for tax positions of prior years

Adjustments to Net parent investments ( 1,338 )

Balance as of December 31, 2018 22

Additions based on tax positions related to the current year 674

Adjustments to Net parent investments

Additions for tax positions of prior years 8

Balance as of December 31, 2019 704

3 unchanged sentences

The total amount of unrecognized tax benefits, including interest and penalties, was $ 1.4 million and $ 0.7 million as of December 31, 2020 and 2019 respectively.

if recognized, there would be immaterial impact to the Company's effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of the provision for income taxes.

The Company files income tax returns in the U.S., various state and foreign jurisdictions.

The income taxes are subject to review by taxing jurisdictions globally.

As a result of the spin-off of Arlo from NETGEAR in 2018, Arlo received certain net operating losses generated before 2017.

Therefore, tax years ended on or after December 31, 2016 are subject to examination in the U.S.

In addition, tax years ending on or after December 31, 2018 are subject to examination in Ireland and State of California in the U.S.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company files income tax returns in the U.S.

and numerous foreign jurisdictions.

The Company is subject to income tax examinations by taxing authorities globally for years ending or after December 31, 2018.

As a result of the spin-off of Arlo from NETGEAR in 2018, Arlo filed the consolidated U.S federal and various combined state income tax returns with NETGEAR for the calendar year ended December 31, 2018.

The IRS is currently examining NETGEAR’s U.S federal income tax return for the calendar year of 2018.

During calendar year 2020, the California Franchise Tax Board began an examination of NETGEAR’s 2018 tax year.

The Company's estimate of the potential outcome of any uncertain tax positions is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time.

9 unchanged sentences

The Credit Agreement also includes sublimits for the issuance by the Lender of letters of credit, credit card indebtedness and foreign exchange forward contract.

Repayment of the borrowings under the Credit Facility are due upon collection of the eligible

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Repayment of the borrowings under the Credit Facility are due upon collection of the eligible receivables.

The proceeds of the borrowings under the Credit Facility may be used for working capital and general corporate purposes.

The obligations of the Company under the Credit Agreement are secured by substantially all of the Company’s domestic personal property, excluding intellectual property assets and more than 65 % of the shares of voting capital stock of any of the Company’s foreign subsidiaries.

Borrowings under the Credit Agreement generally bear interest at floating rates based upon the prime rate plus two and one-quarter percentage points ( 2.25 % ), plus an additional five percentage points ( 5.0 % ) during any period that an event of default has occurred and is continuing.

Borrowings under the Credit Agreement generally bear interest at floating rates based upon the prime rate subject to a floor rate of five percent ( 5 %) plus two and one-quarter percentage points ( 2.25 %), plus an additional five percentage points ( 5.0 %) during any period that an event of default has occurred and is continuing.

Among other fees, the Company is required to pay an annual facility fee equal to 0.25 % of the limit under the Credit Facility due upon entry into the Credit Agreement and on each anniversary thereof.

1 unchanged sentence

The Company incurred debt issuance costs for the Credit Agreement, which are recorded in prepaid expenses and other current assets in the Company's Consolidated Balance Sheets and are being amortized as interest expense over the contractual term of the Credit Agreement.

The Credit Agreement contains customary events of default and other restrictions, including a financial covenant that requires the Company to maintain certain amount of domestic cash and certain restrictions on the Company’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on the Company’s capital stock, redeem, retire or purchase shares of the Company’s capital stock, make investments or pledge or transfer assets, in each case subject to limited exceptions.

The Credit Agreement contains customary events of default and other restrictions, including a financial covenant that requires the Company to maintain $ 20.0 million of domestic cash and certain restrictions on the Company’s ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on the Company’s capital stock, redeem, retire or purchase shares of the Company’s capital stock, make investments or pledge or transfer assets, in each case subject to limited exceptions.

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 a bankruptcy petition, a bankruptcy petition is filed against the Company and is not dismissed or stayed within forty-five days, or the Company makes 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.

In addition, if the Company files a bankruptcy petition, a bankruptcy petition is filed against the Company and is not dismissed or stayed within forty-five days, or the Company makes a general

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

As of December 31, 2020, the Company is in compliance with all the covenants of the Credit Agreement.

6 unchanged sentences

The Company recognizes lease expense on a straight-line basis over the lease term.

For six months ended July 1, 2018 and the year ended December 31, 2017 , lease expense reflected allocations from NETGEAR and may not be indicative of the Company’s results.

Lease expense was $ 1.4 million after the Separation through December 31, 2018 and $ 7.0 million for the year ended December 31, 2019 .

The lease expense was recorded within Cost of revenue, Research and development, Sales and marketing, and General and administrative on the Company's consolidated statements of operations.

For the six months ended July 1, 2018, lease expense reflected allocations from NETGEAR and may not be indicative of the Company’s results.

Lease expense was $ 7.0 million, $ 7.0 million and $ 1.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The lease expense was recorded within Cost of revenue, Research and development, and General and administrative on the Company's consolidated statements of operations.

Short-term and variable lease costs were included in the lease expense and they were immaterial.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effect of accounting standards adoption of ASU 2016-02 on the consolidated statement of balance sheets and supplemental balance sheet information related to operating leases were as follows:

Balance Sheet Location

December 31, 2019

January 1, 2019

December 31, 2018

(In thousands)

Build-to-suit lease (1)

Property and equipment, net

Build-to-suit lease (1)

Accrued liabilities

Build-to-suit lease (1)

Accrued liabilities

Build-to-suit lease (1)

Non-current financing lease obligation

Build-to-suit lease (1)

Retained earnings (Accumulated deficit)

Operating leases (2)

Operating lease right-of-use assets, net

Operating leases (2)

Accrued liabilities

Operating leases (2)

Accrued liabilities

Operating leases (2)

Non-current deferred rent

Operating leases (2)

Non-current operating lease liabilities

________________________

The Company was deemed to be the accounting owner of its build-to-suit lease arrangement for its San Jose corporate headquarters and the construction was in progress at adoption date.

The Company concluded that it did not have control over the underlying leased asset.

As a result, the Company de-recognized the build to suit asset and liability as of adoption date of $ 21.6 million of Property and equipment and $ 21.9 million of financing lease obligations.

The difference of $ 0.3 million between the de-recognized assets and the associated financing lease obligations was recorded as an adjustment to Accumulated deficit as of the adoption date.

The Company adopted ASU 2016-02 on January 1, 2019 which resulted in the recognition of ROU assets and lease liabilities for operating leases of $ 14.4 million on its consolidated balance sheets.

The ROU assets were reduced by $ 0.1 million current deferred rent and $ 1.1 million non-current deferred rent which were de-recognized along with the adoption.

As of March 31, 2019, the construction of the Company’s leasehold improvements for its San Jose corporate headquarters was partially completed and partially occupied by the Company, resulting in lease commencement inception for the portion that was completed and occupied by the Company.

Therefore, the Company proportionally recorded ROU assets and lease liabilities of $ 14.3 million , representing two thirds of the total value of the ROU assets and lease liabilities.

As of September 29, 2019, the Company received $ 3.1 million reimbursement for leasehold improvements that the Company de-recognized during the quarter.

Supplemental cash flow information related to operating leases for the year ended December 31, 2019 was as follows:

In connection with the leases for the Company's offices in San Jose, California and Richmond, Canada, the Company received tenant improvement allowances ("TIA") of $ 3.5 million and $ 450 thousand, respectively, in the second fiscal quarter of 2020 from lessors for certain improvements the Company made to the leased properties.

The improvement made to the leased property in San Jose, California is considered as lessee-owned, and the Company recorded the improvement as a leasehold improvement within property and equipment, net and the TIA as a reduction to the ROU asset with the impact of the decrease recognized prospectively over the remaining lease term.

The improvement made to the leased property in Richmond, Canada is considered as lessor-owned, and the Company recorded the improvement as a prepaid rent within prepaid expenses and other current assets and the TIA as a reduction to prepaid rent.

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

Year Ended December 31,

5 unchanged sentences

Other non-cash increases in operating right of use assets $ — $ 788

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Weighted average remaining lease term and weighted average discount rate related to operating leases as of December 31, 2019 were as follows:

Weighted average remaining lease term

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

As of December 31,

Weighted average remaining lease term 6.9 years 7.7 years

Weighted average discount rate 5.69 % 5.67 %

The maturity of lease liabilities related to operating leases for each of the next five years and thereafter as of December 31, 2020 was as follows (in thousands):

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Thereafter 11,498

Total lease payments 35,821

Total $ 29,429

Accrued liabilities $ 4,400

Non-current operating lease liabilities 25,029

Total $ 29,429

________________________

Calculated using the Company’s incremental borrowing rate on a collateralized basis plus LIBOR rate that closely matches contractual term of most leases on adoption date.

(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 after November 5, 2019 were calculated using the Company's borrowing rate defined in the Credit Agreement with Western Alliance Bank.

As of December 31, 2019, maturity of lease liabilities related to operating leases for each of the next five years and thereafter were as follows (in thousands):

Thereafter 14,669

Total lease payments 41,011

Total $ 32,913

Accrued liabilities $ 3,912

Non-current operating lease liabilities 29,001

Total $ 32,913

________________________

Amounts are based on ASC 840, Leases that was superseded upon the adoption of ASC 842, Leases on January 1, 2019.

(1) Calculated using the Company’s incremental borrowing rate on a collateralized basis plus LIBOR rate that closely matches contractual term of most leases.

Letters of Credit

In connection with the build-to-suit lease agreement for the headquarters located in San Jose, California, the Company executed a letter of credit with the landlord as the beneficiary.

As of December 31, 2019 , the Company had

As of December 31, 2020, the Company 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.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

10 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In thousands)

1 unchanged sentence

Reclassified to sales returns upon adoption of ASC 606 (1)

— — ( 28,713 )

Provision for warranty obligation made during the period — 260 1,477

5 unchanged sentences

Litigation and Other Legal Matters

Securities Class Action Lawsuits and Derivative Suit

The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below.

2 unchanged sentences

The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued.

In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position within the next twelve months, or the outcome of these matters is currently not determinable.

In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its 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 may cause the Company to incur costly litigation and/or substantial settlement charges.

2 unchanged sentences

The actual liability in any such matters may be materially different from the Company's estimates, which could result in the need to adjust the liability and record additional expenses.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Beginning on December 11, 2018, purported stockholders of Arlo Technologies, Inc.

filed six putative securities class action complaints in the Superior Court of California, County of Santa Clara, and one complaint in the U.S.

District Court for the Northern District of California against the Company and certain of its executives and directors.

Some of these actions also name as defendants the underwriters in the Company’s IPO and NETGEAR, Inc.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Court for the Northern District of California against the Company and certain of its executives and directors.

Some of these actions also name as defendants the underwriters in the Company’s initial public offering ("IPO") and NETGEAR, Inc.

The actions pending in state court are Aversa v.

18 unchanged sentences

The plaintiffs in the State Action filed a consolidated complaint on May 1, 2019.

The consolidated complaint generally alleges that the Company failed to adequately disclose quality control problems and adverse sales trends ahead of its IPO, violating the Securities Act of 1933, as amended.

The complaint seeks unspecified monetary damages and other relief on behalf of investors who purchased Arlo common stock issued pursuant and/or traceable to the IPO offering documents.

The plaintiffs allege that the Company failed to adequately disclose quality control problems and adverse sales trends ahead of its IPO, violating the Securities Act of 1933, as amended.

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.

The court has set a case management conference for June 19, 2020, so the parties can provide an update regarding the status of the Federal Action.

In the Federal Action, four investors filed motions to be appointed lead plaintiff.

On May 6, 2019, the court appointed a shareholder named Matis Nayman to serve as lead plaintiff and the law firm of Keller Lenkner LLC as lead counsel.

On June 7, 2019, plaintiff filed an amended complaint, which alleges that defendants violated the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, by failing to adequately disclose quality control problems and adverse sales trends surrounding the Company’s IPO.

The amended complaint also named as defendants the underwriters in the IPO and NETGEAR, Inc.

Defendants filed a motion to dismiss the amended complaint on August 6, 2019.

Plaintiff opposed the motion to dismiss on September 6, 2019, and defendants filed a reply on October 4, 2019.

On December 19, 2019, the court granted defendants’ motion to dismiss with leave to amend.

On February 13, 2020, plaintiff filed a second amended complaint.

On the same day, the parties asked the court to stay the case to allow for plaintiff to file a motion for preliminary approval of a class-wide settlement.

On February 14, 2020, the court agreed to stay the case until March 30, 2020.

In addition, a shareholder named Leonard Pinto filed a tagalong derivative action on June 13, 2019 (the “Derivative Action”) in the Northern District of California.

The court has set a case management conference for May 5, 2021, so the parties can provide an update regarding the Federal Action.

In the Federal Action, the court appointed a shareholder named Matis Nayman as lead plaintiff.

On June 7, 2019, plaintiff filed an amended complaint.

Plaintiff alleges violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, based on alleged materially false and misleading statements about the Company’s sales trends and products.

In the amended complaint, plaintiff sought to represent a class of persons who purchased or otherwise acquired the Company’s common stock (i) during the period between August 3, 2018 through December 3, 2018 and/or (ii) pursuant to or traceable to the IPO.

Plaintiff seeks 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 court granted that motion, and plaintiff filed a second amended complaint.

On June 12, 2020, 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 had accrued for loss contingency.

The settlement remains subject to further court approval.

On September 24, 2020, the court entered an order preliminarily approving the settlement.

On February 5, 2021, plaintiff filed a motion for final approval of the settlement.

The final approval hearing is scheduled for March 11, 2021.

In October 2020, the Company made a $ 1.25 million payment an escrow account administered by the court and plaintiff’s counsel (the “Settlement Fund”).

The Settlement Fund shall be deemed to be in the custody of the court and shall remain subject to the jurisdiction of the court until such time as the Settlement Fund is distributed pursuant to the settlement agreement and/or further order of the court.

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 (the “Derivative Action”) in the U.S.

District Court for the Northern District of California.

The action is brought on behalf of the Company against the majority of the Company’s current directors.

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On August 20, 2019, the court stayed the Derivative Action in deference to the Federal Action.

Regardless of the merits or ultimate results of the above-described litigation matters, they could result in substantial costs, which would hurt the Company’s financial condition and results of operations and divert management’s attention and resources from our business.

As of December 31, 2019, the Company had accrued a loss contingency of $ 1.25 million for the Federal Action.

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

Arlo Technologies, Inc.

On April 15, 2020, a purported stockholder named David W.

Foster filed a lawsuit under 8 Del.

§ 220 in the Delaware Court of Chancery.

Plaintiff seeks inspection of corporate books and records to investigate the allegations underlying the State Actions and Federal Action.

Plaintiff also seeks an order directing the Company to pay his costs and

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On June 30, 2020, the parties filed a stipulation to stay the case so that they could attempt to reach a negotiated resolution.

On July 1, 2020, the court approved the stipulation.

The parties have reached an agreement in principle to resolve the action and are working to resolve the remaining issues.

The impact on the Company's financial statements is expected to be immaterial.

Skybell Technologies, Inc.

Arlo Technologies, Inc.

On December 18, 2020, Skybell Technologies, Inc., SB IP Holdings, LLC, and Eyetalk365, LLC (collectively, “Complainants” or “Skybell”) filed a Section 337 complaint against the Company, Vivint Smart Home, Inc.

(“Vivint”), and SimpliSafe, Inc.

(“SimpliSafe”) at the U.S.

International Trade Commission (“ITC”).

The action alleges 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”).

The Asserted Patents are all from the same family and generally directed 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.

At December 31, 2020, it is too early to reasonably estimate any financial impact to the Company from this matter.

Indemnification of Directors and Officers

The term of the indemnification period is for the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited;

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Also, under the tax matters agreement entered into between the Company and NETGEAR, each party is liable for, and indemnifies the other party and its subsidiaries from and against any liability for, taxes that 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 Distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S.

In addition, the Company has agreed in the

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 Distribution, 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 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.

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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.

Refer to Note 1 , The Company and Basis of Presentation , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for details relating to the Company’s IPO and related transactions.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Refer to Note 1, The Company and Basis of Presentation , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for details relating to the Company’s IPO and related transactions.

Change in Control and Severance Agreements

The Company has entered into change in control and severance agreements with certain of its key executives (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 and Chief Financial Officer) or (b) the individual’s base salary for six months (for other key executives), (2) (a) 12 months of health benefits continuation (for the Chief Executive Officer and Chief Financial Officer) or (b) six months of health benefits continuation (for other key executives) and (3) accelerated vesting of any unvested 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) (a) cash severance equal to a multiple (2 times for the Chief Executive Officer and 1.5 times for the Chief Financial Officer) of the sum of the individual’s annual base salary and target annual bonus (for the Chief Executive Officer and Chief Financial Officer) or (b) a cash severance equal to the individual’s annual base salary (for other key executives), (2) a number of months of health benefits continuation (24 months for the Chief Executive Officer, 18 months for the Chief Financial Officer, and 12 months for other key executives) and (3) vesting of all outstanding, unvested equity awards.

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 vesting 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) (a) 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 of claims.

The Company had no liabilities recorded for these agreements as of September 29, 2019.

The Company had no liabilities recorded for these agreements as of December 31, 2020.

On June 15, 2020 (the “Retirement Date”), Christine Gorjanc retired as the Chief Financial Officer, principal financial officer and principal accounting officer of the Company.

In connection with her retirement, the Company, NETGEAR and Ms.

Gorjanc entered into a Separation Agreement and Release (the “Separation Agreement”) pursuant to which Ms.

Gorjanc received a $ 15,000 cash payment and accelerated vesting of (i) 8,749 shares subject to Company stock options, (ii) 43,216 shares subject to Company restricted stock units, (iii) 2,897 shares subject to NETGEAR stock options and (iv) 15,000 shares subject to NETGEAR restricted stock units.

The Board of Directors of the Company appointed Gordon Mattingly as the Company's Chief Financial Officer, principal financial officer and principal accounting officer, effective as of the Retirement Date.

In connection with his appointment as the Company’s Chief Financial Officer, the Company entered into a confirmatory employment letter (the “Employment Agreement”) with Mr.

Pursuant to the Employment Agreement, Mr.

Mattingly receives an annual base salary of $ 383,000 and is eligible to receive an annual target bonus of 70 % of his annual base salary.

Mattingly will also continue to be eligible to participate in the Company’s equity compensation plans and employee benefit plans available to other employees of the Company.

The Company also entered

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

into an updated change in control and severance agreement consistent with Mr.

Mattingly’s new role of Chief Financial Officer.

On May 2, 2019, the Company and Patrick J.

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Pursuant to the Separation Agreement, Mr.

Collins received cash severance equal to the his annual base salary, 12 months of health benefits continuation and accelerated vesting of any of his unvested equity awards that would have vested during the 12 months following the termination date.

Employment Agreements

NETGEAR has signed various employment agreements with the Company’s key executives pursuant to which, if their employment is terminated without cause, such employees are entitled to receive their base salary (and commission or bonus, as applicable) for up to one year.

Such employees will also continue to have equity awards vest for up to a one -year period following such termination without cause.

If a termination without cause or resignation for good reason occurs within one year of a change in control, certain key employees are entitled to up to two years acceleration of any unvested portion of his or her equity awards.

The Company had no liabilities recorded for these agreements as of December 31, 2019 and 2018 .

In connection with the completion of the IPO, the Company entered into executive confirmatory employment offer letters and change in control and severance agreements with each of the Company’s key executives, which superseded and replaced any employment arrangements that such executives had previously entered into with NETGEAR.

Collins received cash severance equal to his annual base salary, 12 months of health benefits continuation and accelerated vesting of any of his unvested equity awards that would have vested during the 12 months following the termination date.

Environmental Regulation

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The Company believes that its current manufacturing and other operations comply in all material respects with applicable environmental laws and regulations;

however, it is possible that future environmental legislation may be enacted or current

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

environmental legislation may be interpreted to create an environmental liability with respect to its facilities, operations, or products.

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.

Restructuring Related Charges

On November 7, 2019, the Company announced a restructuring plan that includes, but is not limited to, reducing outside services, headcount, marketing and capital expenditures to manage the Company's operating expenses.

As a result, the Company recorded restructuring charges of $ 631 thousand during 2019, which were primarily associated with headcount-related charges under the restructuring plan.

As a result, the Company recorded restructuring charges of $ 44 thousand and $ 631 thousand for the years ended December 31, 2020 and 2019, respectively, which were primarily associated with headcount-related charges under the restructuring plan.

The restructuring was completed in the first quarter of 2020.

The following table represents the severance expense recorded in the Company's Consolidated Statements of Operations:

5 unchanged sentences

General and administrative 21 102

Total $ 44 $ 631

Accrued restructuring and other charges are classified within Accrued liabilities on the Company's Consolidated Balance Sheets.

The following table provides a summary of accrued restructuring and other charges activity:

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year Ended December 31,

1 unchanged sentence

Balance at the beginning of the period $ 120 $ —

Additions 44 631

Cash payments ( 164 ) ( 511 )

1 unchanged sentence

Employee Benefit Plans

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 December 31, 2019 .

The Company’s 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.

On December 31, 2018, in connection with the Distribution, all outstanding NETGEAR equity awards (whether held by Arlo employees and non-employee directors or NETGEAR employees and non-employee directors) were equitably adjusted to reflect the impact of the Distribution.

The adjustments to each type of award outstanding pursuant to the NETGEAR stock-based plans as of immediately prior to the Distribution was determined in accordance with the terms of the employee matters agreement between NETGEAR and Arlo, dated as of August 2, 2018 (the “employee matters agreement”).

In connection with this adjustment, certain NETGEAR equity awards were adjusted into Arlo equity awards, as follows:

NETGEAR stock options granted prior to August 3, 2018 (the “cutoff date”) were converted into both an adjusted NETGEAR stock option and an Arlo stock option.

The formulas applicable to the adjustment are set forth in the employee matters agreement and, in each case, the exercise price and number of shares subject to each option was adjusted to preserve the aggregate intrinsic value of the original NETGEAR stock option as measured immediately prior to and immediately following the Distribution, subject to rounding.

Following the Distribution, the NETGEAR

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

stock options and Arlo stock options are subject to substantially the same terms and vesting conditions that applied to the original NETGEAR stock option immediately prior to the Distribution.

NETGEAR restricted stock units granted prior to the cutoff date were converted into both an adjusted NETGEAR restricted stock unit covering the same number of shares of NETGEAR common stock subject to the award prior to the distribution and an Arlo restricted stock unit covering a number of shares of Arlo common stock equal to the number of shares of NETGEAR common stock subject to the award prior to the distribution multiplied by 1.980295 , subject to rounding, which is the number of shares of Arlo common stock that was distributed in respect of each share of NETGEAR common stock in the Distribution.

The formulas applicable to the foregoing NETGEAR restricted stock unit adjustment are set forth in the employee matters agreement.

Following the Distribution, the NETGEAR restricted stock units and Arlo restricted stock units are subject to substantially the same terms and vesting conditions that applied to the original NETGEAR restricted stock units immediately prior to the Distribution.

NETGEAR stock options and NETGEAR restricted stock units held by non-U.S.

NETGEAR, in its sole discretion, determined to treat certain NETGEAR stock options and NETGEAR restricted stock unit awards that were outstanding as of the effective time of the Distribution and held by current and former service providers of Arlo and NETGEAR in jurisdictions other than the United States in a manner inconsistent with the immediately preceding two paragraphs, which, in certain jurisdiction, resulted in the issuance of additional Arlo stock options and/or Arlo restricted stock units.

The Company did not recognize any incremental expense in connection with the conversion of NETGEAR’ equity awards into Arlo awards since the impact is immaterial.

2018 Equity Incentive Plan

The Company grants options and RSUs under the 2018 Equity Incentive Plan (the "2018 Plan"), under which awards may be granted to all employees.

2 unchanged sentences

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 .

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company’s 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.

The following table sets forth the available shares for future grants under the 2018 Plan as of December 31, 2020 and December 31, 2019:

1 unchanged sentence

(In thousands)

Shares reserved as of August 2, 2018

Granted at IPO (1)

Granted during the period

Additional authorized shares in the Distribution

Converted in the Distribution (2)

Shares reserved as of December 31, 2018 3,969

Additional authorized shares 2,970

Forfeited/ cancelled (2)

Shares traded for taxes 380

Shares available for grants as of December 31, 2019 2,630

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_________________________

Includes Arlo IPO Options of 2.8 million shares granted to the Company’s NEOs with performance-based vesting criteria (in addition to service-based vesting criteria for any of such IPO Options that are deemed to have been earned).

Each of the IPO Options will have a ten-year contractual term and an exercise price equal to the fair value of a share of Arlo common stock on the date of grant and will vest as follows:

The Tranche 1 Service Option will vest in equal monthly installments during the 24 -month period that begins on the two-year anniversary of the option grant date;

The Tranche 2 Performance Option will vest on the later of (i) the date (prior to the four -year anniversary of the grant date) of satisfaction of a cumulative registered accounts milestone and (ii) if the milestone has been satisfied prior to the applicable date, then (a) with respect to 25 % of the Tranche 2 Performance Option, on the first anniversary of the option grant date, (b) with respect to 25 % of the Tranche 2 Performance Option, on the second anniversary of the option grant date, and (c) with respect to the remaining 50 % of the Tranche 2 Performance Option, in equal monthly installments during the 24-month period on the first day of each month beginning on September 1, 2020;

The Tranche 3 Performance Option will vest on the later of (i) the date (prior to the four -year anniversary of the grant date) of satisfaction of a paid recurring revenue milestone and (ii) if the milestone has been satisfied prior to the applicable date, then (a) with respect to 25 % of the Tranche 3 Performance Option, on the first anniversary of the option grant date, (b) with respect to 25 % of the Tranche 3 Performance Option, on the second anniversary of the option grant date, and (c) with respect to the remaining 50 % of the Tranche 3 Performance Option, in equal monthly installments during the 24-month period on the first day of each month beginning on September 1, 2020;

The Tranche 4 Performance Option will vest on the one-year anniversary of the grant date based on the extent to which the revenue and non-GAAP gross profit milestones for the second half of fiscal 2018 are achieved;

The Tranche 5 Performance Option will vest on the two-year anniversary of the grant date based on the extent to which the revenue and non-GAAP gross profit milestones for the fiscal 2019 are achieved.

As of December 31, 2019, Tranches 2 and 3 are on track in achieving the performance milestones.

However, Tranches 4 and 5 performance measurement period were completed and none of the performance milestones were achieved, hence, none of the shares vested.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On December 31, 2018, in connection with the Distribution, certain NETGEAR equity awards held by Arlo non-employee directors and employees and NETGEAR non-employee directors and employees were adjusted into equity awards with respect to Arlo common stock and NETGEAR common stock as described in more detail in the employee matters agreement.

Includes 0.3 million shares subject to awards that were cancelled in connection with Mr.

Collins’ separation from the Company, 0.5 million shares subject to the IPO Options that were voluntarily forfeited by the Chief Executive Officer as the performance metrics for Tranches 4 and 5 of the IPO Options were not achieved, 59 thousand shares subject to the IPO Options issued to the Chief Financial Officer were cancelled as the performance metrics for Tranches 4 were not achieved, and 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.

Includes $ 0.8 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant) and MPSUs ( 25 % of the grant) granted to the Company's NEOs during the fiscal quarter ended September 29, 2019.

The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date.

The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ended December 31, 2019 is achieved.

As of December 31, 2019, the revenue milestone was not achieved, hence the PSUs were pending cancellation.

The MPSUs will vest at the end of the three-year period that begins on the MPSU grant date based on performance of the Company's common stock relative to the Russell 2000 Index (“the Benchmark”) during the three-year period from the grant date.

(1) Includes 0.8 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant) and MPSUs ( 25 % of the grant) granted to the Company's Named Executive Officers ("NEOs") during the fiscal quarter ended September 29, 2019.

The shares subject to the MPSUs that were granted to Ms.

Gorjanc were cancelled in connection with her separation from the Company during the fiscal quarter ended June 28, 2020.

This also includes 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.

The following table sets forth the weighted average assumptions used to estimate the fair value of Arlo’s stock options granted using Black-Scholes option pricing model during the years ended December 31, 2019 and 2018 and purchase rights granted under Arlo's ESPP during the year ended December 31, 2019:

Stock Options

Expected life (in years)

Risk-free interest rate

Expected volatility

Dividend yield

Because the Company’s common stock did not have sufficient history of being publicly traded at grant date, the estimated term of Arlo’s stock options granted was determined by a combination of using a simplified method, which is an average of the contractual term and vesting period of the stock options and using management best estimate of the expected term.

The risk-free interest rate of stock options granted was based on the implied yield currently available on U.S.

Treasury securities, with a remaining term commensurate with the estimated expected term.

The estimated volatility assumption was calculated based on a compensation peer group analysis of stock price volatility on the grant date.

(2) Includes 0.3 million shares subject to awards that were cancelled in connection with Mr.

Collins’ separation from the Company, 0.5 million shares subject to the options granted to the CEO in connection with the IPO ("IPO Options") that were cancelled as the performance metrics for Tranches 4 and 5 of the IPO Options were not achieved, 59 thousand shares subject to the IPO Options issued to Mrs.

Gorjanc that were cancelled as the performance metrics for such options were not achieved, and 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Arlo’s stock option activity during the year ended of December 31, 2019 was as follows:

Number of Shares

Weighted Average Exercise Price Per Share

(In thousands)

(3) Includes 2.0 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant), and MPSUs ( 25 % of the grant) granted to the Company's NEOs during the fiscal quarter ended June 28, 2020.

Also includes 1.1 million immediately vested shares granted to employees for annual bonus in RSU form.

(4) Includes (a) 1.4 million IPO options that were voluntarily cancelled by the Company's CEO in January 2020 with no replacement award, (b) 0.1 million IPO Options granted to Ms.

Gorjanc that were cancelled for not achieving performance milestones, (c) 0.2 million shares subject to the PSUs granted to the Company's NEOs that were cancelled as the performance milestone was not achieved, and (d) awards that were cancelled in connection with Ms.

Gorjanc's separation from the Company ( 0.3 million IPO Options and 54 thousand shares subject to the MPSUs).

On March 3, 2020, the Company registered an aggregate of up to 3,788,756 shares of the Company’s common stock on Registration Statement on Form S-8, including 3,031,005 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, 2020 pursuant to an “evergreen” provision contained in the 2018 Plan and 757,751 shares issuable pursuant to the Company’s 2018 ESPP that were automatically added to the shares authorized for issuance under the 2018 ESPP on January 1, 2020 pursuant to an “evergreen” provision contained in the 2018 ESPP.

Employee Stock Purchase Plan

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 Arlo’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 , with the first offering period having commenced on February 15, 2019 and ended on August 14, 2019.

As of December 31, 2020, approximately 1.1 million shares were available for issuance under the ESPP.

The Company’s employees have historically participated in NETGEAR’s ESPP.

For the year ended December 31, 2018, the Company recognized ESPP compensation expense of $ 0.2 million.

For the year ended December 31, 2018, employees specifically identifiable to Arlo purchased approximately 37,000 shares of NETGEAR’s common stock at an average exercise price of $ 45.06 .

Option Activity

The Company’s stock option activity during the year ended of December 31, 2020 was as follows:

Number of Shares Weighted Average Exercise Price Per Share Weighted

(In thousands) (In dollars) (In years) (In thousands)

Outstanding as of December 31, 2019 (2)

6,040 $ 11.56

Exercised ( 247 ) 6.98

Forfeited/ Cancelled (3)

( 2,359 ) 14.72

Outstanding as of December 31, 2020 3,434 $ 9.72 4.80 $ 1,595

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This amount changes based on the fair market value of the Company’s stock.

Includes 0.3 million shares subject to awards that were cancelled in connection with Mr.

Collins’ separation from the Company.

In addition, also includes 0.5 million shares subject to the IPO Options that were voluntarily forfeited by the Chief Executive Officer as the performance metrics for Tranches 4 and 5 of the IPO Options were not expected to be achieved.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) Includes IPO Options of 2.8 million shares.

Tranches 1 to 5 granted to Mr.

Collins were cancelled in connection with his separation from the Company in May 2019.

Tranches 4 and 5 granted to the CEO were cancelled in 2019 as the performance milestones for those tranches were not achieved, Tranches 1, 2 and 3 granted to the CEO were voluntarily forfeited in January 2020 with no replacement award.

The performance milestones for Tranches 4 and 5 that were granted to Ms.

Gorjanc were not met, hence, Tranche 4 was cancelled in 2019 and Tranche 5 was cancelled in June 2020.

Tranches 1 to 3 granted to Ms.

Gorjanc were cancelled in connection with her separation from the Company in June 2020.

(3) Includes 1.4 million shares subject to the IPO Options that were voluntarily cancelled by the CEO in January 2020 with no replacement award, 0.1 million IPO Options granted to Ms.

Gorjanc that were cancelled as the performance milestone was not achieved, and 0.3 million IPO Options that were cancelled in connection with Ms.

Gorjanc's separation from the Company.

Year Ended December 31,

2020 2019 2018

(In millions, except per share data)

Total intrinsic value of options exercised

$ 0.20 $ — $ —

Total fair value of options vested $ 1.00 $ 3.10 $ —

Weighted-average grant date fair value per share of options granted

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes significant ranges of outstanding Arlo’s stock options as of December 31, 2019 .

Weighted-average grant date fair value per share of options granted NA $ 2.59 $ 7.02

The following table summarizes significant ranges of outstanding the Company’s stock options as of December 31, 2020.

Options Outstanding

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Range of Exercise Prices

(In thousands)

(In thousands) (In years) (In dollars) (In thousands) (In dollars)

778 3.26 $ 6.47 772 $ 6.49

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892 5.85 8.46 830 8.43

NETGEAR Options

The following table sets forth the weighted average assumptions used to estimate the fair value of NETGEAR’s stock options granted and purchase rights granted under the NETGEAR’s ESPP to employees specifically identifiable to Arlo during the years ended December 31, 2018 and 2017 :

Stock Options

Expected life (in years)

Risk-free interest rate

Expected volatility

Dividend yield

10.09 - 14.39

Arlo employees have completed their participation into NETGEAR’s ESPP by the end of the second quarter of fiscal 2018.

As of December 31, 2018, no shares had been purchased under the 2018 ESPP by Arlo employees, as the program was suspended until the completion of the Distribution.

The estimated expected term of NETGEAR’s options granted to employees specifically identifiable to Arlo under NETGEAR’s plans is derived from historical data on employee exercise and post-vesting employment termination behavior.

The risk-free interest rate of options granted and the purchase rights granted under NETGEAR’s ESPP is based on the implied yield currently available on U.S.

596 7.10 13.98 428 13.98

16.00 - 16.00

480 7.59 16.00 280 16.00

3,434 4.80 9.72 2,998 9.10

The following table sets forth the weighted average assumptions used to estimate the fair value of the Company’s stock options granted using Black-Scholes option pricing model during the years ended December 31, 2020, 2019 and 2018 and purchase rights granted under the Company's ESPP during the years ended December 31, 2020 and 2019:

Stock Options ESPP

2020 2019 2018 2020 2019

Expected life (in years) NA 6.3 6.3 0.5 0.5

Risk-free interest rate NA 2.28 % 2.86 % 0.84 % 2.49 %

Expected volatility NA 73.0 % 40.0 % 102.0 % 97.6 %

Dividend yield NA — — — —

The Company’s common stock did not have sufficient history of being publicly traded at grant date, hence, the estimated term of the Company’s stock options granted was determined by a combination of using a simplified method, which is an average of the contractual term and vesting period of the stock options and using management best estimate of the expected term.

The risk-free interest rate of stock options granted was based on the implied yield currently available on U.S.

Treasury securities, with a remaining term commensurate with the estimated expected term.

Expected volatility of NETGEAR’s options granted and the purchase rights granted under NETGEAR’s ESPP is based on historical volatility over the most recent period commensurate with the estimated expected term.

The estimated volatility assumption was calculated based on a compensation peer group analysis of stock price volatility on the grant date.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NETGEAR’s stock option activity for employees specifically identifiable to Arlo during the year ended December 31, 2019 was as follows:

Number of Shares

Weighted Average Exercise Price Per Share

(In thousands)

The risk-free interest rate of the purchase rights granted under the Company's ESPP is based on the implied yield currently available on U.S.

Treasury securities, with a remaining term commensurate with the estimated expected term.

Expected volatility of the purchase rights granted under the Company’s ESPP is based on historical volatility over the most recent period commensurate with the estimated expected term.

NETGEAR’s stock option activity for Company employees during the year ended December 31, 2020 was as follows:

Number of Shares Weighted Average Exercise Price Per Share Weighted

Term Aggregate

(In thousands) (In dollars) (In years) (In thousands)

Outstanding as of December 31, 2019 205 $ 25.94

Exercised ( 142 ) $ 22.74

Forfeited/cancelled ( 47 ) $ 36.73

Expired — $ —

Outstanding as of December 31, 2020 16 $ 22.49 3.00 $ 288

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In millions, except per share data)

Total intrinsic value of options exercised

$ 0.6 $ 0.6 $ 0.6

Total fair value of options vested $ — $ 0.8 $ 1.1

Weighted-average grant date fair value per share of NETGEAR’s stock options granted to employees specifically identifiable to Arlo

For the year ended December 31, 2018, cash received from NETGEAR stock option exercises and ESPP purchases by employees specifically identifiable to Arlo was $ 0.4 million through the completion of the IPO.

Cash received from NETGEAR stock option exercises and ESPP purchases by employees specifically identifiable to Arlo was $ 1.6 million for the years ended December 31, 2017.

Arlo’s RSU activity during the year ended of December 31, 2019 was as follows:

Weighted-average grant date fair value per share of NETGEAR’s stock options granted to employees specifically identifiable to Arlo NA $ — $ 20.63

The following table summarizes significant ranges of outstanding NETGEAR’s stock options as of December 31, 2020.

Options Outstanding

Options Exercisable

Range of Exercise Prices

Number of Shares

Weighted Average Grant Date Fair Value Per Share

(In thousands)

(In thousands) (In years) (In dollars) (In thousands) (In dollars)

19.19 - 19.19

7 1.56 $ 19.19 7 $ 19.19

20.10 - 20.10

2 1.30 20.10 2 20.10

21.86 - 21.86

3 2.10 21.86 3 21.86

29.23 - 29.23

4 6.80 29.23 — —

19.19 - 29.23

16 3.00 22.49 12 20.11

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the weighted average assumptions used to estimate the fair value of NETGEAR’s stock options granted and purchase rights granted under the NETGEAR’s ESPP for Company employees during the year ended December 31, 2018:

Stock Options ESPP (1)

Expected life (in years) 4.4 0.5

Risk-free interest rate 2.32 % 1.81 %

Expected volatility 30.9 % 37.1 %

Dividend yield — —

_________________________

(1) Company employees have completed their participation into NETGEAR’s ESPP by the end of the second quarter of fiscal 2018.

As of December 31, 2018, no shares had been purchased under the 2018 ESPP by Company employees, as the program was suspended until the completion of the Distribution.

The estimated expected term of NETGEAR’s options granted to Company employees under NETGEAR’s plans is derived from historical data on employee exercise and post-vesting employment termination behavior.

The risk-free interest rate of options granted and the purchase rights granted under NETGEAR’s ESPP is based on the implied yield currently available on U.S.

Treasury securities, with a remaining term commensurate with the estimated expected term.

Arlo’s RSU activity during the year ended of December 31, 2020 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share Weighted

(In thousands) (In dollars) (In years) (In thousands)

Outstanding as of December 31, 2019 (1)

Cancelled (2)

( 3,474 ) 6.38

Forfeited (4)

( 1,210 ) 4.63

Outstanding as of December 31, 2020 10,563 $ 4.33 1.43 $ 82,287

2 unchanged sentences

_________________________

Includes 0.8 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant) and MPSUs ( 25 % of the grant) granted to a group of NEOs during the fiscal quarter ended September 29, 2019.

(1) Includes 0.8 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant) and MPSUs ( 25 % of the grant) granted to the Company's NEOs during the fiscal quarter ended September 29, 2019.

The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date.

As of December 31, 2019, the revenue milestone was not achieved, hence the PSUs were pending cancellation.

The shares subject to PSUs that were granted to the Company's NEOs were cancelled as the revenue milestone was not achieved for the year ended December 31, 2019.

The MPSUs will vest at the end of the three-year period that begins on the MPSU grant date based on performance of the Company's common stock relative to the Benchmark during the three-year period from the grant date.

2 unchanged sentences

In no event will the number of shares vested exceed 200 % of the target for that tranche.

In addition, includes 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.

Includes 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.

As of December 31, 2020 , 200 % of the outstanding MPSUs are expected to vest.

(2) Includes 2.0 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant), and MPSUs ( 25 % of the grant) granted to the Company's NEOs during the fiscal quarter ended June 28, 2020.

The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date.

The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a cash balance milestone as of December 31, 2020 is achieved.

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.

As of December 31, 2020, 120 % of the outstanding PSUs are expected to vest.

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.

As of December 31, 2020, 200 % of the outstanding MPSUs are expected to vest.

Also includes 1.1 million immediately vested shares granted to employees for annual bonus in RSU form.

(3) Includes 43 thousand shares subject to the RSUs that were accelerated in connection with Ms.

Gorjanc's separation from the Company.

Also includes 1.1 million immediately vested shares granted to employees for annual bonus in RSU form.

(4) Includes 0.2 million shares subject to the PSUs granted to the Company's NEOs that were cancelled as the performance milestone was not achieved and 54 thousand shares subject to the MPSUs granted to Ms.

Gorjanc that were cancelled in connection with her separation from the Company.

Year Ended December 31,

2020 2019 2018

(In millions, except per share data)

Total intrinsic value of RSUs vested (the release date fair value)

$ 13.02 $ 5.51 $ 0.04

Total fair value of RSUs vested (the grant date fair value) $ 22.15 $ 12.90 $ 0.04

Weighted-average fair value of RSUs granted

RSU granted weighted-average fair value per share

$ 3.03 $ 4.77 $ 14.46

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company determined the fair value of the PSUs using the closing price of the Company's common stock as of the grant date.

1 unchanged sentence

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 fair value of the MPSUs granted during the three months ended September 29, 2019 was $ 4.14 per share.

The fair value of the MPSUs granted during the three months ended June 28, 2020 and September 29, 2019 was $ 4.11 and $ 4.14 per share, respectively.

The assumptions used in this model to estimate fair value at the grant date are as follows:

Year Ended December 31,

Expected life 3.0 3.0

2 unchanged sentences

Dividend yield — —

As part of the Verisure transaction, certain employees who held Company RSU awards granted under the 2018 Plan, were transferred to Verisure.

Such RSU awards will continue to vest and settle after the closing of the transaction in accordance with the terms and conditions under the original award’s plan.

Management determined that the modification of the RSUs awards is a Type III modification (improbable-to-probable) under ASC 718, under which any compensation expense previously recognized was reversed and the total fair value of the modified awards was recognized as a liability in the Company’s consolidated balance sheets on the closing date.

Accordingly, the modification of the awards resulted in a liability of $ 859 thousand and total compensation expense of $ 623 thousand on the closing date.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NETGEAR’s RSU activity for employees specifically identifiable to Arlo during the year ended December 31, 2019 was as follows:

Number of Shares

Weighted Average Grant Date Fair Value Per Share

(In thousands)

Stock Beta 0.48 0.30

NETGEAR’s RSU activity for Company employees during the year ended December 31, 2020 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share Weighted

(In thousands) (In dollars) (In years) (In thousands)

Outstanding as of December 31, 2019 278 $ 36.14

Transferred (1)

( 129 ) 34.53

Forfeited ( 22 ) 36.08

Outstanding as of December 31, 2020 127 37.81 0.66 $ 5,147

_________________________

Transferred RSUs are attributable to employees that transferred from NETGEAR’s in the fourth quarter of 2019.

(1) Includes 15 thousand shares subject to the RSUs that were accelerated in connection with Ms.

Gorjanc's separation from the Company.

Year Ended December 31,

2020 2019 2018

(In millions, except per share data)

Total intrinsic value of RSUs vested (the release date fair value)

$ 3.2 $ 5.8 $ 6.9

Total fair value of RSUs vested (the grant date fair value) $ 4.5 $ 5.6 $ 5.0

weighted-average fair value of RSUs granted

For the year ended December 31, 2018, cash paid to administer the RSU withholdings relating to employees specifically identifiable to Arlo was $ 0.8 million through the completion of the IPO.

Cash paid to administer the RSU withholdings relating to employees specifically identifiable to Arlo for the year ended December 31, 2017 was $ 1.1 million .

Employee Stock Purchase Plan

Under the 2018 ESPP, eligible employees may contribute up to 15 % of compensation, subject to certain income limits, to purchase shares of Arlo’s common stock.

The duration of each offering period is generally six months, with the first offering period having commenced on February 15, 2019 and ended on August 14, 2019.

As of December 31, 2019 , approximately $ 1.5 million shares were available for issuance under the ESPP.

The Company’s employees have historically participated in NETGEAR’s ESPP.

For the years ended December 31, 2018 and 2017 , the Company recognized ESPP compensation expense of $ 0.2 million for each period.

For the years ended December 31, 2018 and 2017 , employees specifically identifiable to Arlo purchased approximately 37,000 and 19,000 shares of NETGEAR’s common stock at an average exercise price of $ 45.06 and $ 43.09 , respectively.

RSU granted weighted-average fair value per share

NA NA $ 67.24

ARLO TECHNOLOGIES, INC.

1 unchanged sentence

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 Arlo employees participated.

The Company's consolidated statements of income reflect compensation expense for these stock-based plans associated with the portion of NETGEAR's plans in which Arlo employees participated.

The following tables set forth stock-based compensation expense for Arlo employees and allocated charges deemed attributable to Arlo operations resulting from NETGEAR’s and Arlo’s RSUs, PSUs, MPSUs and stock options, and the purchase rights under the NETGEAR’s ESPP included in the Company’s consolidated statements of operations during the periods indicated:

The Company's consolidated statements of income 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, allocated charges deemed attributable to Company operations resulting from NETGEAR’s in 2018, and the purchase rights under the NETGEAR’s ESPP in 2018.

The following table sets forth the stock-based compensation expense included in the Company’s consolidated statements of operations during the periods indicated:

Year Ended December 31,

2020 2019 2018

Total Total Direct (1)

Indirect Total

(In thousands)

Cost of revenue $ 2,961 $ 2,013 $ 608 $ 583 $ 1,191

4 unchanged sentences

$ 35,247 $ 22,894 $ 8,831 $ 4,048 $ 12,879

_________________________

(1) Reflecting expenses for those legacy NETGEAR stock-based plans that have converted to equivalent Arlo stock-based plans upon the spin-off transaction.

1 unchanged sentence

The Company recognizes these compensation expenses generally on a straight-line basis over the requisite service period of the award.

As of December 31, 2019 , $ 12.5 million of unrecognized compensation cost related to Arlo’s stock options and IPO options was expected to be recognized over a weighted-average period of 2.6 years.

At December 31, 2019, $ 27.8 million of unrecognized compensation cost related to unvested Arlo’s RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.7 years.

As of December 31, 2019 , $ 0.4 million of unrecognized compensation cost related to NETGEAR’s stock options for Arlo employees was expected to be recognized over a weighted-average period of 1.7 years.

At December 31, 2019, $ 7.2 million of unrecognized compensation cost related to unvested NETGEAR’s RSUs for Arlo employees was expected to be recognized over a weighted-average period of 1.9 years.

The Company’s employees historically participated in NETGEAR’s 401(k) Plan, which was adopted in April 2000.

Under NETGEAR’s 401(k) Plan, employees were able to contribute up to 100 % of salary subject to the legal maximum while NETGEAR matched 50 % of contributions for employees that remain active with NETGEAR or its subsidiaries through the end of the fiscal year, up to a maximum of $ 6,000 in employee contributions per fiscal year.

During the years ended December 31, 2018 and 2017, the Company recognized $ 0.5 million and $ 0.2 million , respectively, in expenses for employees specifically identifiable to Arlo related to NETGEAR 401(k) Plan match.

As part of the Verisure transaction in 2019, certain employees who held Company RSU awards granted under the 2018 Plan, were transferred to Verisure.

Such RSU awards continued to vest and settle after the closing of the transaction in accordance with the terms and conditions under the original award’s plan.

Management determined that the modification of the RSUs awards was a Type III modification (improbable-to-probable) under ASC 718, under which any compensation expense previously recognized was reversed and the total fair value of the modified awards was recognized as a liability in the Company’s consolidated balance sheets on the closing date.

Accordingly, the modification of the awards resulted in a liability of $ 859 thousand and total compensation expense of $ 623 thousand on the closing date in 2019.

In January 2020, the IPO Options granted to the CEO were voluntarily forfeited with no replacement award.

The cancellation was treated as a settlement for no consideration and all remaining unrecognized compensation cost of $ 7.4 million was accelerated and recognized as stock-based compensation expense for the three months ended March 29, 2020.

In the second fiscal quarter of 2020, $ 1.2 million of previously recognized compensation expense was reversed as a result of cancellation of unvested shares upon Ms.

Gorjanc's separation from the Company.

In addition, $ 0.4 million of compensation expense was recognized for Ms.

Gorjanc's accelerated vested shares upon her separation from the Company.

As of December 31, 2020, $ 1.4 million of unrecognized compensation cost related to Arlo’s stock options was expected to be recognized over a weighted-average period of 1.2 years.

$ 27.4 million of unrecognized compensation cost related to unvested Arlo’s RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.3 years.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In January 2019, the Company adopted Arlo 401(k) Plan to which employees may contribute up to 100 % of salary subject to the legal maximum.

In the fourth quarter of fiscal year 2018, the Company began matching 50 % of contributions for employees that remain active with the Company through the end of the fiscal year, up to a maximum of $ 8,000 in employee contributions per fiscal year.

During the year ended December 31, 2019 , the Company recognized $ 1.5 million in expenses for Arlo employees related to Arlo 401(k) Plan match.

As of December 31, 2020, $ 31 thousand of unrecognized compensation cost related to NETGEAR’s stock options for Arlo employees was expected to be recognized over a weighted-average period of 0.8 years.

$ 2.8 million of unrecognized compensation cost related to unvested NETGEAR’s RSUs for Arlo employees was expected to be recognized over a weighted-average period of 1.1 years.

In January 2019, the Company adopted the Arlo 401(k) Plan to which employees may contribute up to 100 % of salary subject to the legal maximum.

During the years ended December 31, 2020 and 2019, the Company recognized $ 0.9 million and $ 1.5 million in expenses for Arlo employees related to Arlo 401(k) Plan match, respectively.

The Company’s employees historically participated in NETGEAR’s 401(k) Plan, which was adopted in April 2000.

During the year ended December 31, 2018, the Company recognized $ 0.5 million in expenses for employees specifically identifiable to Arlo related to NETGEAR 401(k) Plan match.

Net Income (Loss) Per Share

4 unchanged sentences

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 income (loss) per share for the years ended December 31, 2019 , 2018 and 2017 were as follows:

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net loss per share for the years ended December 31, 2020, 2019 and 2018 were as follows:

Year Ended December 31,

2020 2019 2018

(In thousands, except for per share data)

Net income (loss)

Net loss $ ( 101,251 ) $ ( 85,951 ) $ ( 75,483 )

Weighted average common shares - basic 78,084 75,074 67,231

2 unchanged sentences

Weighted average common shares - dilutive 78,084 75,074 67,231

Basic net income (loss) per share

Diluted net income (loss) per share

Basic net loss per share $ ( 1.30 ) $ ( 1.14 ) $ ( 1.12 )

Diluted net loss per share $ ( 1.30 ) $ ( 1.14 ) $ ( 1.12 )

Anti-dilutive employee stock-based awards, excluded 5,623 9,692 1,109

_________________________

On December 31, 2018, 6.8 million of stock options and RSUs were added to the Company’s equity awards as issued and outstanding resulting from the adjustment of NETGEAR’s equity awards that were granted to both NETGEAR and Arlo employees and non-employee directors, a portion of which were converted as Arlo awards.

(1) On December 31, 2018, 6.8 million shares subject to stock options and RSUs were added to the Company’s equity awards as issued and outstanding resulting from the adjustment of NETGEAR’s equity awards that were granted to both NETGEAR and Arlo employees and non-employee directors, a portion of which were converted as Arlo awards.

The dilutive effect of these converted stock options and RSUs is reflected above per share by application of the treasury stock method and none are potentially dilutive.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Segment and Geographic Information

10 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In thousands)

1 unchanged sentence

Americas (excluding U.S.) 13,796 17,658 16,869

EMEA 61,832 57,232 65,462

APAC 25,927 23,615 22,651

Total revenue $ 357,154 $ 370,007 $ 464,918

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company’s Property and equipment, net are located in the following geographic locations:

3 unchanged sentences

Americas (excluding U.S.) 629 904

China 1,821 2,089

APAC (excluding China) 493 943

1 unchanged sentence

Significant Customers

Four customers accounted for 20.6 %, 17.3 %, 14.6 % and 12.2 % of revenue for the year ended December 31, 2020.

Two customers accounted for 32.3 % and 10.1 % of revenue for the year ended December 31, 2019.

Three customers accounted for 24.4 %, 17.5 %, and 16.6 % of revenue for the year ended December 31, 2018.

Three customers accounted for 28.3 % , 16.4 % , and 13.1 % of revenue for the year ended December 31, 2017 .

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Related Party Transactions

Prior to the completion of the Distribution on December 31, 2018, NETGEAR owned 62,500,000 shares of Arlo common stock and was considered a related party.

The related party transactions between Arlo and NETGEAR were settled in cash.

The related party receivables are reflected in Prepaid expenses and other current assets, and the related party payables are reflected in Accrued liabilities in the consolidated balance sheets.

On August 2, 2018, in connection with the IPO, the Company entered into a master separation agreement, a transition services agreement, an intellectual property rights cross-license agreement, a tax matters agreement, an employee matters agreement, and a registration rights agreement, in each case with NETGEAR, which effect the Separation, provide a framework for the Company’s relationship with NETGEAR after the Separation and provide for the allocation between NETGEAR and the Company of NETGEAR’s assets, employees, liabilities and obligations (including its investments, property and employee benefits assets and liabilities) attributable to periods prior to, at and after the Separation.

See below for detailed descriptions of those agreements.

Pursuant to these agreements, NETGEAR transferred substantially all of the assets and liabilities and operations of Arlo business to the Company.

As a result, net receivables from NETGEAR was $ 129 thousand and $ 12.2 million as of December 31, 2019 and 2018 , mainly relating to transition services, billing and collection services which were provided by NETGEAR.

Additionally, the Company received a contribution of cash of approximately $ 70.9 million from NETGEAR in 2018.

In the Distribution, all shares of Arlo common stock held by NETGEAR were distributed to its stockholders and NETGEAR is no longer considered a related party.

Allocation of Corporate Expenses

Prior to the completion of the IPO, NETGEAR provided certain corporate services to the Company, such as executive management, information technology, legal, finance and accounting, human resources, tax, treasury, research and development, sales and marketing, shared facilities and other shared services, as well as stock-based compensation expense attributable to Arlo’s employees and an allocation of stock-based compensation expense attributable to NETGEAR’s employees.

These costs were allocated based on revenue, headcount, or other measures the Company has determined as reasonable through July 1, 2018.

Following July 1, 2018, the Company assumed responsibility for the costs of these functions.

The amount of these allocations from NETGEAR reflected within operating expenses in the consolidated statements of operations was $ 30.6 million from January 1, 2018 to the date of the completion of the Company’s IPO, which included $ 9.4 million for research and development, $ 10.0 million for sales and marketing, and $ 11.2 million for general and administrative expense.

Related Party Arrangements

Prior to the completion of the IPO, the Company entered into agreements with NETGEAR that govern Arlo’s separation from NETGEAR and various interim arrangements.

These agreements have been in effect since the completion of the IPO and the Separation, and provide for, among other things, the transfer from NETGEAR to Arlo of assets and the assumption by Arlo of liabilities comprising the business through a master separation agreement between the Company and NETGEAR (the “master separation agreement”).

The Company also entered into certain other agreements that provide a framework for the relationship with NETGEAR after the Separation, including:

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

a transition services agreement with NETGEAR, governing NETGEAR’s provision of various services to the Company, and the Company’s provision of various services to NETGEAR, on a transitional basis (the “transition services agreement”).

During the year ended December 31, 2018 , $ 6.3 million NETGEAR TSA related costs were incurred, which included $ 0.4 million for research and development, $ 1.6 million for sales and marketing, and $ 4.3 million for general and administrative expense.

During the year ended December 31, 2019 , $ 0.7 million NETGEAR TSA related costs were incurred, which included $ 0.1 million for cost of revenue, $ 0.3 million for research and development, $ 0.1 million for sales and marketing, and $ 0.2 million for general and administrative expense;

a tax matters agreement with NETGEAR that governs the respective rights, responsibilities and obligations of NETGEAR and Arlo after the completion of the IPO with respect to tax matters (including responsibility for taxes attributable to the Company and its subsidiaries, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other matters) (the “tax matters agreement”);

an employee matters agreement with NETGEAR that addresses employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities relating to employees and compensation and benefit plans and programs in which the Company’s employees participate prior to the distribution, as well as other human resources, employment and employee benefit matters (the “employee matters agreement”);

an intellectual property rights cross-license agreement with NETGEAR, which governs the Company’s and NETGEAR’s rights, responsibilities and obligations to use NETGEAR and Arlo intellectual property, respectively (the “intellectual property rights cross-license agreement”);

a registration rights agreement with NETGEAR, pursuant to which the Company granted NETGEAR and its affiliates certain registration rights with respect to Arlo’s common stock owned by them (the “registration rights agreement”).

Subsequent Event

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China.

The World Health Organization has declared COVID-19 to constitute a "Public Health Emergency of International Concern." On January 30, 2020, the U.S.

Department of State issued a Level 4 "do not travel" advisory for China.

government has also implemented enhanced screenings, quarantine requirements and travel restrictions in connection with the COVID-19 outbreak.

Certain critical components of the Company's products are sourced from suppliers in China and a small portion of the Company's worldwide sales are comprised of goods assembled and manufactured in mainland China.

The extent of the impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

QUARTERLY UNAUDITED FINANCIAL DATA

The following table presents unaudited quarterly financial information for the years ended December 31, 2020 and 2019.

The fourth quarter of 2018 was the first full quarter post separation and represents the Company’s actual results as an independent public company.

Results for the first two quarters of 2018 include allocations from NETGEAR and may not be indicative of the Company’s results had it been a standalone entity during the period.

December 31, 2019 (3)

2020 September 27,

2020 June 28,

2020 March 29,

(In thousands, except per share amounts)

Revenue $ 114,836 $ 110,236 $ 66,632 $ 65,450

Gross profit $ 24,538 $ 21,409 $ 5,489 $ 3,953

Provision for (benefit from) income taxes $ 182 $ 115 $ 183 $ 145

1 unchanged sentence

Net income (loss) per share—basic (1)

$ ( 0.19 ) $ ( 0.22 ) $ ( 0.38 ) $ ( 0.51 )

Net income (loss) per share—diluted

$ ( 0.19 ) $ ( 0.22 ) $ ( 0.38 ) $ ( 0.51 )

December 31, 2019 (2)

September 29,

2019 June 30,

2019 March 31,

(In thousands, except per share amounts)

Revenue $ 122,413 $ 106,116 $ 83,598 $ 57,880

Gross profit $ 13,706 $ 10,503 $ 9,650 $ 1,945

Provision for income taxes $ 3,525 $ 286 $ 349 $ 220

Net loss $ 19,615 $ ( 30,590 ) $ ( 33,692 ) $ ( 41,284 )

Net loss per share—basic (1)

$ 0.26 $ ( 0.41 ) $ ( 0.45 ) $ ( 0.55 )

Net loss per share—diluted $ 0.26 $ ( 0.41 ) $ ( 0.45 ) $ ( 0.55 )

_________________________

Net loss per share basic and diluted are computed independently for each quarters presented based on the weighted-average basic and fully diluted shares outstanding for each quarters.

(1) Net loss per share basic and diluted are computed independently for each quarter presented based on the weighted-average basic and fully diluted shares outstanding for each quarter.

As a result, the sum of quarterly Net loss per share basic and diluted information may not equal annual Net loss per share basic and diluted.

The dilutive effect of these converted stock options and RSUs is reflected above per share by application of the treasury stock method and none are potentially dilutive.

(2) The Company disposed its commercial operations in Europe in the fourth quarter of 2019.

Refer to Note 4 , Disposal of business , in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a complete discussion of the disposal.

Refer to Note 4, Disposal of Business , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a complete discussion of the disposal.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data