What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 238 added, 485 removed, 610 unchanged (54% of the section changed)

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

September 27,

2021 December 31,

3 unchanged sentences

Short-term investments (amortized cost of $ 5,000 and $ 19,996 )

19,992 19,990

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

5 unchanged sentences

Operating lease right-of-use assets, net 22,950 23,998

Intangibles, net 238 1,306

Goodwill 11,038 11,038

24 unchanged sentences

shares issued and outstanding:

79,026,508 at September 27, 2020 and 75,785,952 at December 31, 2019

81,250,176 at March 28, 2021 and 79,336,242 at December 31, 2020

Additional paid-in capital 379,738 366,455

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

(In thousands, except per share data)

16 unchanged sentences

Interest income 24 535

Other income, net 543 154 2,837 138

Other income (expense), net 909 1,183

Loss before income taxes ( 10,539 ) ( 39,181 )

10 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

(In thousands)

4 unchanged sentences

Total other comprehensive income (loss), before tax ( 3 ) 119

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

Total other comprehensive income (loss), net of tax ( 3 ) 119

5 unchanged sentences

(In thousands)

Balance as of June 28, 2020 78,089 $ 78 $ 351,913 $ 14 $ ( 200,101 ) $ 151,904

Net loss — — — — ( 17,459 ) ( 17,459 )

Stock-based compensation expense — — 6,083 — — 6,083

Settlement of liability classified RSUs — — 1,589 — — 1,589

Issuance of common stock under stock-based compensation plans 859 1 24 — — 25

Issuance of common stock under Employee Stock Purchase Plan 378 — 1,171 — — 1,171

Restricted stock unit withholdings ( 299 ) — ( 1,483 ) — — ( 1,483 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — ( 14 ) — ( 14 )

Change in unrealized gains and losses on derivatives, net of tax — — — ( 9 ) — ( 9 )

Balance as of September 27, 2020 79,027 $ 79 $ 359,297 $ ( 9 ) $ ( 217,560 ) $ 141,807

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

(In thousands)

Balance as of June 30, 2019 74,869 $ 75 $ 323,648 $ 51 $ ( 120,544 ) $ 203,230

Net loss — — — — ( 30,590 ) ( 30,590 )

Stock-based compensation expense — — 5,219 — — 5,219

Issuance of common stock under stock-based compensation plans 88 — — — — —

Issuance of common stock under Employee Stock Purchase Plan 767 1 1,824 — — 1,825

Restricted stock unit withholdings ( 18 ) — ( 73 ) — — ( 73 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — ( 27 ) — ( 27 )

Change in unrealized gains and losses on derivatives, net of tax — — — 22 — 22

Balance as of September 29, 2019 75,706 $ 76 $ 330,618 $ 46 $ ( 151,134 ) $ 179,606

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

(In thousands)

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

7 unchanged sentences

Change in unrealized gains and losses on derivatives, net of tax — — — ( 2 ) — ( 2 )

Balance as of September 27, 2020 79,027 $ 79 $ 359,297 $ ( 9 ) $ ( 217,560 ) $ 141,807

Balance as of March 28, 2021 81,250 $ 81 $ 379,738 $ — $ ( 243,489 ) $ 136,330

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

1 unchanged sentence

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

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

Net loss — — — — ( 39,326 ) ( 39,326 )

Stock-based compensation expense — — 11,985 — — 11,985

Settlement of liability classified RSUs — — 2,573 — — 2,573

Issuance of common stock under stock-based compensation plans 1,375 1 — — — 1

3 unchanged sentences

Change in unrealized gains and losses on derivatives, net of tax — — — 53 — 53

Balance as of September 29, 2019 75,706 $ 76 $ 330,618 $ 46 $ ( 151,134 ) $ 179,606

Balance as of March 29, 2020 77,361 $ 77 $ 349,212 $ 117 $ ( 170,845 ) $ 178,561

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 27,

2020 September 29,

Three Months Ended

2021 March 29,

(In thousands)

3 unchanged sentences

Depreciation and amortization 1,547 2,773

Loss on disposal of fixed assets 19 —

Premium amortization (discount accretion) on investments, net ( 3 ) ( 5 )

Stock-based compensation expense 8,340 12,773

Allowance for (release of) credit losses and inventory reserves 1,322 ( 3,232 )

Allowance for credit losses and inventory reserves ( 562 ) 1,709

Gain on sale of business — ( 292 )

25 unchanged sentences

Purchases of property and equipment included in accounts payable and accrued liabilities $ 82 $ 323

De-recognition of build-to-suit assets and liabilities $ — $ ( 21,610 )

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

2 unchanged sentences

The Company and Basis of Presentation

Arlo Technologies, Inc ("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.

Arlo Technologies, Inc.

("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.

1 unchanged sentence

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 channels, Arlo online store and paid subscription services.

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.

8 unchanged sentences

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for fair statement of the unaudited condensed consolidated financial statements for interim periods.

Reclassification

Certain reclassifications have been made to the prior year’s condensed consolidated statements of cash flows to conform to the current year’s presentation.

The reclassifications had no effect on the net cash used (provided by) in operating activities, investing activities or financing activities on the prior year’s statement of cash flows.

Fiscal periods

6 unchanged sentences

Management bases its estimates on various assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Actual results could differ materially from those estimates and operating results for the nine months ended September 27,

Actual results could differ materially from those estimates and operating results for the three months ended March 28, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future period.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any future period.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Significant Accounting Policies and Recent Accounting Pronouncements

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no significant changes during the nine months ended September 27, 2020, other than the accounting policies discussed below and the recent accounting pronouncements adopted and discussed below under Accounting Pronouncements Recently Adopted.

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 novel coronavirus ("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.

There have been no significant changes during the three months ended March 28, 2021.

Recent accounting pronouncements

Emerging Growth Company Status

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless the Company otherwise irrevocably elects not to avail itself of this exemption.

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless the Company otherwise irrevocably elects not to avail itself of this exemption.

The Company did not make such an irrevocable election and has not delayed the adoption of any applicable accounting standards.

Accounting Pronouncements Recently Adopted

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

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.

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.

The cumulative-effect adjustment recorded on January 1, 2020 is immaterial.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

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 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 early adopted ASU 2019-12 in the first quarter of 2020.

The impact of the adoption of ASU 2019-12 on the Company's financial statements is immaterial.

There were no accounting pronouncements adopted during the three months ended March 28, 2021.

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.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The ASU is intended to provide temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

This guidance may be applied prospectively through December 31, 2022.

This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022.

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

6 unchanged sentences

(“Verisure”).

Refer to Note 4, Disposal of Business, for a complete discussion of Verisure transaction.

Transaction Price Allocated to the Remaining Performance Obligations

2 unchanged sentences

Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted and that are scheduled or in the process of being scheduled for shipment.

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 September 27, 2020:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 28, 2021:

1 year 2 years Greater than 2 years Total

1 unchanged sentence

Performance obligations $ 62,442 $ 6,066 $ 673 $ 69,181

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 27, 2020 and September 29, 2019, $ 33.5 million and $ 32.6 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 46.9 million and $ 34.6 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 21.2 million and $ 22.1 million of this recognized revenue was included in the contract liability balance at the beginning of the periods.

The performance obligation classified as greater than one year pertains to revenue deferral from prepaid services and Verisure prepayments for products.

For the three months ended March 28, 2021 and March 29, 2020, $ 17.7 million and $ 8.6 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 21.9 million and $ 14.9 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 10.5 million and $ 8.7 million of this recognized revenue was included in the contract liability balance at the beginning of the period.

There were no significant changes in estimates during the period that would affect the contract balances.

4 unchanged sentences

Refer to Note 13, Segment and Geographic Information , for revenue by geography.

Disposal of Business

On November 4, 2019, the Company and Verisure concurrently entered into an Asset Purchase Agreement (the “Purchase Agreement”) and Supply Agreement (the “Supply Agreement” and together with the Purchase Agreement, the “Verisure Agreements”).

The Verisure Agreements created a strategic partnership that leverages both the Company and Verisure’s capabilities to create incremental scale to address the ever-growing demand for residential and commercial security.

The strategic partnership combines 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 contained customary representations and warranties regarding Verisure, the Business and the Assets, indemnification provisions, termination rights and other customary provisions.

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

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.

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.

The transaction contemplated by the Purchase Agreement did not meet the criteria for discontinued operations as the Company is expected to have continued involvement in Europe through manufacturing and shipping of products to the region through sales to Verisure as part of the Supply Agreement and therefore no significant change in revenue from the region is expected;

it was determined the transaction did not represent a strategic shift.

The Company also assessed whether a loss needed to be recorded upon initial classification of the assets and liabilities as held for sale to adjust its carrying amount to the fair value less cost to sell.

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 existed 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 had not changed since the initial classification of the assets and liabilities as held for sale.

Given such, no loss adjustment was necessary.

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

During the five-year period commencing January 1, 2020, Verisure has an aggregate minimum

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

purchase commitment of $ 500.0 million, which includes annual minimum commitments.

On December 30, 2019, Verisure prepaid the 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.

The Supply Agreement also includes certain NRE services to be delivered 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.

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 September 27, 2020, Verisure has paid $ 5.0 million for this NRE service.

For the three and nine months ended September 27, 2020, the Company recognized service revenue of $ 2.3 million and $ 5.5 million, respectively, 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 three to six months , including sales and marketing, operations and supply chain, finance, legal, and human resources which may be extended as mutually agreed upon by the parties.

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

For the three and nine months ended September 27, 2020, the Company charged Verisure $ 0.9 million and $ 3.0 million, respectively, for Verisure TSA services which were 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.

Balance Sheet Components

1 unchanged sentence

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

The restricted cash is comprised primarily of cash used as a collateral for a letter of credit associated with the Company’s lease agreement for its headquarters in San Jose, California.

The restricted cash is comprised primarily of cash used as collateral for a letter of credit associated with the Company’s lease agreement for its headquarters in San Jose, California.

The Company deposits restricted cash with high credit quality financial institutions.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown on the statements of cash flows:

September 27,

2021 December 31,

3 unchanged sentences

Total as presented on the unaudited condensed consolidated statements of cash flows $ 176,276 $ 190,291

September 29,

2020 December 31,

4 unchanged sentences

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Available-for-sale short-term investments

As of September 27, 2020 As of December 31, 2019

As of March 28, 2021 As of December 31, 2020

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

1 unchanged sentence

treasuries $ 5,000 $ — $ — $ 5,000 $ 19,996 $ 1 $ — $ 19,997

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 12 months.

Accordingly, none of the available-for-sale securities have unrealized losses greater than 12 months.

The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three and nine months ended September 27, 2020.

Accordingly, none of the available-for-sale securities have unrealized losses greater than twelve months.

The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three months ended March 28, 2021.

Accounts receivable, net

September 27,

2021 December 31,

4 unchanged sentences

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

Three Months Ended Nine Months Ended

September 27, 2020 September 27, 2020

Three Months Ended

2021 March 29,

(In thousands)

Balance at the beginning of the period $ 519 $ 609

Provision for (recovery of) expected credit losses ( 301 ) ( 100 )

Amounts written off charged against the allowance — —

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

Provision for expected credit losses — 254

Amounts recovered due to collection — —

Balance at the end of the period $ 519 $ 863

Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of September 27, 2020.

Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of March 28, 2021.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and equipment, net

The components of property and equipment are as follows:

September 27,

2021 December 31,

8 unchanged sentences

Total property and equipment, net $ 14,596 $ 15,821

Depreciation and amortization expense pertaining to property and equipment was $ 2.2 million and $ 7.0 million for the three and nine months ended September 27, 2020, respectively, and $ 2.4 million and $ 6.6 million for the three and nine months ended September 29, 2019, respectively.

Intangibles, net

As of September 27, 2020 As of December 31, 2019

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

(In thousands)

Technology $ 9,800 $ ( 9,571 ) $ 229 $ 9,800 $ ( 8,540 ) $ 1,260

Other 500 ( 491 ) 9 500 ( 454 ) 46

Total intangibles, net $ 10,300 $ ( 10,062 ) $ 238 $ 10,300 $ ( 8,994 ) $ 1,306

As of September 27, 2020, the remaining weighted-average estimated useful life of intangibles was 0.2 years.

Amortization of intangibles was $ 0.4 million and $ 1.1 million for the three and nine months ended September 27, 2020, respectively, and $ 0.4 million and $ 1.2 million for the three and nine months ended September 29, 2019, respectively.

There was no impairment recorded for the three and nine months ended September 27, 2020 and September 29, 2019.

As of September 27, 2020, estimated amortization expense related to finite-lived intangibles for the remaining year was $ 0.2 million.

There was no change in the carrying amount of goodwill during the nine months ended September 27, 2020 and the goodwill as of December 31, 2019 and September 27, 2020 was $ 11.0 million.

Depreciation and amortization expense pertaining to property and equipment was $ 1.5 million and $ 2.4 million for the three months ended March 28, 2021 and March 29, 2020, respectively.

There was no change in the carrying amount of goodwill during the three months ended March 28, 2021.

The goodwill as of December 31, 2020 and March 28, 2021 was $ 11.0 million.

Goodwill Impairment

1 unchanged sentence

The Company operates as one operating and reportable segment.

In the first fiscal quarter 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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 %.

The Company determined that no events occurred or circumstances changed during the three months ended September 27, 2020 that would more likely than not reduce the fair value of the Company below its carrying amount.

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 associated goodwill impairment of up to $ 11.0 million.

The Company determined that no events occurred or circumstances changed during the three months ended March 28, 2021 that would more likely than not reduce the fair value of the Company below its carrying amount.

If there is a significant 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.

Other non-current assets

September 27,

2021 December 31,

4 unchanged sentences

Total other non-current assets $ 2,536 $ 2,399

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accrued liabilities

September 27,

2021 December 31,

5 unchanged sentences

Current operating lease liabilities 4,391 4,400

Warranty obligation 2,568 3,169

Freight 2,602 3,558

Warranty obligation 1,937 2,451

Other 20,824 20,002

Total accrued liabilities $ 97,154 $ 121,766

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of September 27, 2020 and December 31, 2019:

As of September 27, 2020 As of December 31, 2019

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of March 28, 2021 and December 31, 2020:

As of March 28, 2021 As of December 31, 2020

Total Quoted market

7 unchanged sentences

money-market funds (<90 days)

$ 16,931 $ 16,931 $ — $ 1,934 $ 1,934 $ —

Available-for-sale securities:

15 unchanged sentences

The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models.

Additionally, the Company includes an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments.

As of September 27, 2020 and December 31, 2019, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts.

Additionally, the Company includes an adjustment for non-performance risk in the recognized

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

measure of fair value of derivative instruments.

As of March 28, 2021 and December 31, 2020, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts.

The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities.

As of September 27, 2020 and December 31, 2019, the Company has no Level 3 fair value assets or liabilities.

As of March 28, 2021 and December 31, 2020, the Company has no Level 3 fair value assets or liabilities.

Derivative Financial Instruments

4 unchanged sentences

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, 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.

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

The Company enters into foreign currency forward contracts in Australian dollars and Canadian dollars to manage its exposure to foreign exchange risk related to expected future cash flows on certain forecasted revenue, costs of revenue, operating expenses and existing assets and liabilities.

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

The Company is exposed to credit losses in the event of nonperformance by the counter-parties of its forward contracts.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

7 unchanged sentences

Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in Other income (expense), net in the unaudited condensed consolidated statements of operations.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair value of derivative instruments

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of September 27, 2020 and December 31, 2019 are summarized as follows:

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of March 28, 2021 and December 31, 2020 are summarized as follows:

Derivative Assets Balance Sheet

Location September 27, 2020 December 31, 2019 Balance Sheet

Location September 27, 2020 December 31, 2019

Location March 28, 2021 December 31, 2020 Balance Sheet

Location March 28, 2021 December 31, 2020

(In thousands) (In thousands)

6 unchanged sentences

Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the unaudited condensed consolidated balance sheets.

The following tables set forth the offsetting of derivative assets as of September 27, 2020 and December 31, 2019:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 27, 2020 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

The following tables set forth the offsetting of derivative assets as of March 28, 2021 and December 31, 2020:

As of March 28, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

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

(In thousands)

HSBC $ 29 $ — $ 29 $ ( 5 ) $ — $ 24

Wells Fargo Bank $ 61 $ — $ 61 $ — $ — $ 61

Total $ 110 $ — $ 110 $ ( 5 ) $ — $ 105

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

December 31, 2020 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

(In thousands)

HSBC $ 6 $ — $ 6 $ ( 6 ) $ — $ —

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

Total $ 27 $ — $ 27 $ ( 27 ) $ — $ —

The following tables set forth the offsetting of derivative liabilities as of September 27, 2020 and December 31, 2019:

As of September 27, 2020 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

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

(In thousands)

HSBC $ 5 $ — $ 5 $ ( 5 ) $ — $ —

Wells Fargo Bank — — — — — —

Total $ 5 $ — $ 5 $ ( 5 ) $ — $ —

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

The following table sets forth the offsetting of derivative liabilities as of December 31, 2020:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2020 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

(In thousands)

HSBC $ 83 $ — $ 83 $ ( 6 ) $ — $ 77

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cash flow hedges

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

The Company entered into four forward contracts related to its cash flow hedging program for the three months ended September 27, 2020.

The effects of the Company's cash flow hedges from the contracts placed in the third quarter of 2020 on the unaudited condensed consolidated statements of operations for the three and nine months ended September 27, 2020 are summarized as follows:

Three Months Ended September 27, 2020

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

Revenue Cost of revenue Research and development Sales and marketing General and administrative

(In thousands)

Statements of operations $ 110,236 $ 88,827 $ 15,436 $ 12,720 $ 11,137

Gains (losses) on cash flow hedge $ ( 37 ) $ — $ 5 $ 2 $ —

Nine Months Ended September 27, 2020

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

Revenue Cost of revenue Research and development Sales and marketing General and administrative

(In thousands)

Statements of operations $ 242,318 $ 211,467 $ 44,871 $ 35,471 $ 39,758

Gains (losses) on cash flow hedge $ ( 14 ) $ — $ 5 $ 3 $ —

The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three and nine months ended September 29, 2019 are summarized as follows:

Three Months Ended September 29, 2019

The Company did not enter into any forward contracts related to its cash flow hedging program for the three months ended March 28, 2021.

The effects of the Company's cash flow hedges from the contracts placed in the previous quarter on the unaudited condensed consolidated statements of operations for the three months ended March 28, 2021 are summarized as follows:

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

3 unchanged sentences

Gains (losses) on cash flow hedge $ — $ — $ — $ 2 $ —

Nine Months Ended September 29, 2019

The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three months ended March 29, 2020 are summarized as follows:

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

3 unchanged sentences

Gains (losses) on cash flow hedge $ ( 4 ) $ — $ — $ — $ —

The Company expects to reclassify to earnings all of the amounts recorded in AOCI (as defined below) associated with its cash flow hedges over the next 12 months.

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

For information on the unrealized gains or losses on derivatives reclassified out of AOCI into the unaudited condensed consolidated statements of operations, refer to Note 7, Accumulated Other Comprehensive Income (Loss).

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur within the designated hedge period or if not recognized within 60 days following the end of the hedge period.

The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the nine months ended September 27, 2020 and September 29, 2019.

The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the three months ended March 28, 2021 and March 29, 2020.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Non-designated hedges

The Company adjusts its non-designated hedges monthly and enters into about nine non-designated derivatives per quarter with an average size of $ 2.1 million.

The Company adjusts its non-designated hedges monthly and enters into about seven non-designated derivatives per quarter with an average size of $ 2.6 million.

The hedges range typically from one to three months in duration.

The effects of the Company’s non-designated hedge included in Other income (expense), net on the unaudited condensed consolidated statements of operations for the three and nine months ended September 27, 2020 and September 29, 2019 were as follows:

The effects of the Company’s non-designated hedge included in Other income (expense), net on the unaudited condensed consolidated statements of operations for the three months ended March 28, 2021 and March 29, 2020 were as follows:

Derivatives Not Designated as Hedging Instruments Location of Gains (Losses)

Recognized in Income on Derivative Three Months Ended Nine Months Ended

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Recognized in Income on Derivative Three Months Ended

March 28, 2021 March 29, 2020

(In thousands)

Foreign currency forward contracts Other income (expense), net $ ( 5 ) $ 1,079

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED 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 three and nine months ended September 27, 2020 and September 29, 2019:

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

(In thousands)

Balance as of June 28, 2020 $ 14 $ — $ — $ 14

Other comprehensive income (loss) before reclassifications ( 14 ) ( 39 ) — ( 53 )

Amount reclassified from accumulated other comprehensive income (loss) — ( 30 ) — ( 30 )

Net current period other comprehensive income (loss) ( 14 ) ( 9 ) — ( 23 )

Balance as of September 27, 2020 $ — $ ( 9 ) $ — $ ( 9 )

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three months ended March 28, 2021 and March 29, 2020.

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

4 unchanged sentences

Net current period other comprehensive income (loss) ( 1 ) ( 2 ) — ( 3 )

Balance as of September 27, 2020 $ — $ ( 9 ) $ — $ ( 9 )

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(In thousands)

Balance as of June 30, 2019 $ 72 $ ( 22 ) $ 1 $ 51

Other comprehensive income (loss) before reclassifications ( 27 ) 100 — 73

Amount reclassified from accumulated other comprehensive income (loss) — 78 — 78

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

Balance as of September 29, 2019 $ 45 $ — $ 1 $ 46

Balance as of March 28, 2021 $ — $ — $ — $ —

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

4 unchanged sentences

Net current period other comprehensive income (loss) 66 53 — 119

Balance as of September 29, 2019 $ 45 $ — $ 1 $ 46

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and nine months ended September 27, 2020 and September 29, 2019:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

September 27, 2020 September 29, 2019

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 $ ( 39 ) $ ( 37 ) $ 100 $ 86 Revenue

Foreign currency contracts — — — — Cost of revenue

Foreign currency contracts — 5 — ( 3 ) Research and development

Foreign currency contracts — 2 — ( 3 ) Sales and marketing

Foreign currency contracts — — — ( 2 ) General and administrative

$ ( 39 ) $ ( 30 ) $ 100 $ 78 Total *

Nine Months Ended

September 27, 2020 September 29, 2019

Balance as of March 29, 2020 $ 89 $ 28 $ — $ 117

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three months ended March 28, 2021 and March 29, 2020:

Three Months Ended March 28, 2021 Three Months Ended March 29, 2020

9 unchanged sentences

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revolving Credit Facility

7 unchanged sentences

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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 %) 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 plus two and one-quarter percentage points ( 2.25 %), plus an additional five percentage points ( 5 %) 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 unaudited condensed 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.

As of September 27, 2020, the Company is in compliance with all the covenants of the Credit Agreement.

No amounts had been drawn under the Credit Facility as of September 27, 2020.

As of March 28, 2021, the Company is in compliance with all the covenants of the Credit Agreement.

No amounts had been drawn under the Credit Facility as of March 28, 2021.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Commitments and Contingencies

7 unchanged sentences

Fixed lease expense for lease payments are recognized in the unaudited condensed consolidated statements of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

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 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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The operating lease expense for the three and nine months ended September 27, 2020 and September 29, 2019 was as follows:

Three Months Ended Nine Months Ended

Statements of Operations Location

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

(In thousands)

Operating lease cost (1)

General and administrative $ 1,728 $ 1,726 $ 5,319 $ 5,068

________________________

(1) Includes short-term leases and variable lease costs which were immaterial.

Supplemental cash flow information related to operating leases for the three and nine months ended September 27, 2020 and September 29, 2019 was as follows:

Three Months Ended Nine Months Ended

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Lease expense was $ 1.6 million and $ 1.8 million for the three months ended March 28, 2021 and March 29, 2020, respectively.

The lease expense was recorded within Cost of revenue and General and administrative in the Company's unaudited condensed consolidated statements of operations.

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

Supplemental cash flow information related to operating leases for the three months ended March 28, 2021 and March 29, 2020 was as follows:

March 28, 2021 March 29, 2020

(in thousands)

3 unchanged sentences

Operating leases $ — $ —

Weighted average remaining lease term and weighted average discount rate related to operating leases as of September 27, 2020 were as follows:

Weighted average remaining lease term and weighted average discount rate related to operating leases as of March 28, 2021 were as follows:

Weighted average remaining lease term 6.8 years

Weighted average discount rate 5.69 %

The maturity of lease liabilities related to operating leases for each of the next five years and thereafter as of September 27, 2020 was as follows (in thousands):

2020 (Remaining three months) $ 1,505

The maturity of lease liabilities related to operating leases for each of the next five years and thereafter as of March 28, 2021 was as follows (in thousands):

2021 (Remaining nine months) $ 4,395

Thereafter 11,494

6 unchanged sentences

(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.

Leases that commenced after

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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):

6 unchanged sentences

________________________

(1) 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.

Letters of Credit

In connection with the 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 September 27, 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.

As of March 28, 2021, 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.

Purchase Obligations

The Company has entered into various inventory-related purchase agreements with suppliers.

Generally, under these agreements, 50 % of orders are cancellable by giving notice 46 to 60 days prior to the expected shipment date and 25 % of orders are cancellable by giving notice 31 to 45 days prior to the expected shipment date.

Generally, under these agreements, 50 % of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25 % of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date.

Orders are non-cancelable within 30 days prior to the expected shipment date.

As of September 27, 2020, the Company had approximately $ 38.1 million in non-cancelable purchase commitments with suppliers.

As of March 28, 2021, the Company had approximately $ 22.6 million in non-cancelable purchase commitments with suppliers.

The Company establishes a loss liability for all products it does not expect to sell for which it has committed purchases from suppliers.

As of September 27, 2020, the loss liability from committed purchases was $ 3.0 million.

As of March 28, 2021, the loss liability from committed purchases was $ 0.9 million.

From time to time the Company’s suppliers procure unique complex components on the Company’s behalf.

1 unchanged sentence

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Warranty Obligations

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

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

(In thousands)

Balance at the beginning of the period $ 2,451 $ 3,169

Provision for warranty obligation made during the period — 364 — 292

Provision (release) for warranty obligation made during the period ( 369 ) 207

Settlements made during the period ( 145 ) ( 188 )

1 unchanged sentence

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.

27 unchanged sentences

18CV339231 (the “State Action").

The action pending in federal court is Wong v.

The action in federal court is Wong v.

Arlo Technologies, Inc.

1 unchanged sentence

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

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 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 "Securities Act").

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 December 16, 2020, 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.

Lead 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, lead 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.

Lead 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.

The settlement remains subject to further court approval.

The court granted that motion, and lead plaintiff filed a second amended complaint.

On June 12, 2020, lead plaintiff filed an unopposed motion for preliminary approval of a class action settlement for $ 1.25 million, which was also the amount that the Company had accrued for loss contingency.

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

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

As of September 27, 2020, the Company had accrued a loss contingency of $ 1.25 million for the Federal Action, reflecting the amounts owed under the settlement agreement.

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

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

In advance of the final approval hearing, three of the named plaintiffs in the State Action requested exclusion from the settlement.

The court held a final approval hearing on March 11, 2021, and, on March 25, 2021, entered an order and final judgment approving the settlement and, among other things, dismissing with prejudice all claims of lead plaintiff and the Settlement Class (as defined in the settlement agreement).

On April 19, 2021, the Court issued an amended order and corrected judgment to include defendant NETGEAR, who had been inadvertently omitted from the prior order and final judgment.

The Federal Action is now closed.

In 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.

Arlo Technologies, Inc., et al.

In addition, to the State Action and the Federal Action, a purported stockholder named Leonard Pinto filed a tagalong derivative action on June 13, 2019 in the U.S.

District Court for the Northern District of California, captioned Pinto v.

Arlo Technologies, Inc.

19-CV-03354 (the “Derivative Action”).

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

The complaint is based on the same alleged misconduct as the securities class actions but asserts claims for breach of fiduciary duty, waste of corporate assets, and violation of the Securities Exchange Act of 1934, as amended.

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

On April 8, 2021, because it had granted final approval of the settlement in the Federal Action, the court lifted the stay in the Derivative Action and asked the parties to file a joint status report by April 22, 2021.

Arlo Technologies, Inc.

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

5 unchanged sentences

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.

Thereafter, the parties reached an agreement to resolve the matter and, on March 12, 2021, plaintiff voluntarily dismissed the action.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 March 28, 2021, it is too early to reasonably estimate any financial impact to the Company from this matter.

Indemnification of Directors and Officers

4 unchanged sentences

As a result of its insurance policy coverage, the Company believes the fair value of each indemnification agreement will be minimal.

The Company had no liabilities recorded for these agreements as of September 27, 2020 and December 31, 2019.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company had no liabilities recorded for these agreements as of March 28, 2021 and December 31, 2020.

Indemnifications

4 unchanged sentences

From time to time, the Company receives requests for indemnity and may choose to assume the defense of such litigation asserted against the Indemnified Parties.

The Company had no liabilities recorded for these agreements as of September 27, 2020 and December 31, 2019.

In connection with the separation of the Company’s business from NETGEAR (the “Separation”), and after July 1, 2018, certain sales agreements were transferred to the Company, and the Company has replaced certain shared contracts, which include similar indemnification terms.

The Company had no liabilities recorded for these agreements as of March 28, 2021 and December 31, 2020.

In connection with the separation of Arlo from NETGEAR (the "Separation"), and after July 1, 2018, certain sales agreements were transferred to the Company, and the Company has replaced certain shared contracts, which include similar indemnification terms.

In addition, pursuant to the master separation agreement and certain other agreements entered into with NETGEAR in connection with the Separation and the IPO, NETGEAR has agreed to indemnify the Company for certain liabilities.

2 unchanged sentences

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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

dividend (the “Distribution”) by NETGEAR to NETGEAR stockholders of the 62,500,000 shares of Arlo common stock owned by NETGEAR that was made on December 31, 2018, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S.

federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the 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.

4 unchanged sentences

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 27, 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 will receive 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 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.

Collins III, the Company’s Senior Vice President of Products, entered into a Separation and Release Agreement (the “Separation Agreement”) regarding Mr.

Collins’ separation from the Company, effective May 1, 2019.

Pursuant to the Separation Agreement, Mr.

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.

The Company had no liabilities recorded for these agreements as of March 28, 2021.

Environmental Regulation

4 unchanged sentences

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Employee Benefit Plans

3 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 .

The following table sets forth the available shares for grant under the 2018 Plan as of September 27, 2020 and December 31, 2019:

The following table sets forth the available shares for grant under the 2018 Plan as of March 28, 2021 and December 31, 2020:

Number of Shares

4 unchanged sentences

Shares traded for taxes 572

Shares available for grant as of September 27, 2020 2,927

Shares available for grant as of March 28, 2021

_________________________

(1) Includes 2.0 million shares consisting of RSUs ( 50 % of the grant), performance RSUs ("PSUs") ( 25 % of the grant), and market-based performance RSUs ("MPSUs") ( 25 % of the grant) granted to the Company's named executive officers ("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.

(2) Includes (a) 1.4 million options granted in connection with the IPO ("IPO Options") that were voluntarily cancelled by the Company's Chief Executive Officer ("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).

(1) Includes 0.8 million shares consisting of time-based RSUs ( 50 % of the grant), performance RSUs ("PSUs") ( 25 % of the grant) and market-based performance RSUs ("MPSUs") ( 25 % of the grant) granted to the Company's named executive officers ("NEOs") during the three months ended March 28, 2021.

Additionally, the Company sponsors an Employee Stock Purchase Plan (“ESPP”), pursuant to which eligible employees may contribute up to 15 % of compensation, subject to certain income limits, to purchase shares of the Company’s common stock.

The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85 % of the lesser of the fair market value at the beginning of the offering period or the purchase date.

The duration of each offering period is generally six months , with the first offering period having commenced on February 16, 2019 and ended on August 15, 2019.

As of September 27, 2020, approximately 1.1 million shares were available for issuance under the ESPP.

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.

The duration of each offering period is generally six months .

As of March 28, 2021, 1,564,425 shares were available for issuance under the ESPP.

On March 3, 2021, the Company registered an aggregate of up to 3,966,472 shares of the Company’s common stock on Registration Statement on Form S-8, including 3,173,178 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, 2021 pursuant to an “evergreen” provision contained in the 2018 Plan and 793,294 shares issuable pursuant to the ESPP that were automatically added to the shares authorized for issuance under the ESPP on January 1, 2021 pursuant to an “evergreen” provision contained in the ESPP.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Option Activity

The Company’s stock option activity during the nine months ended September 27, 2020 was as follows:

Arlo’s stock option activity during the three months ended March 28, 2021 was as follows:

Number of shares Weighted Average Exercise Price Per Share

1 unchanged sentence

Outstanding as of December 31, 2020

6,040 $ 11.56

Granted — $ —

1 unchanged sentence

Forfeited / cancelled — $ —

( 2,234 ) $ 14.95

Outstanding as of September 27, 2020 3,802 $ 9.58

Vested and expected to vest as of September 27, 2020 3,802 $ 9.58

Exercisable Options as of September 27, 2020 (3)

_________________________

(1) 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 voluntarily forfeited 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.

(2) 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.

(3) Includes 6 thousand options that were accelerated in connection with Ms.

Gorjanc's separation from the Company.

NETGEAR stock option activity for Company employees during the nine months ended September 27, 2020 was as follows:

Outstanding as of March 28, 2021 2,779 $ 10.42

Vested and expected to vest as of March 28, 2021 2,779 $ 10.42

Exercisable Options as of March 28, 2021 2,441 $ 9.88

NETGEAR’s stock option activity for Arlo employees during the three months ended March 28, 2021 was as follows:

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Expired — $ —

Outstanding as of September 27, 2020 19 $ 22.95

Vested and expected to vest as of September 27, 2020 19 $ 22.95

Exercisable Options as of September 27, 2020 (1)

_________________________

(1) Includes 3 thousand options that were accelerated in connection with Ms.

Gorjanc's separation from the Company.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s RSU activity during the nine months ended September 27, 2020 was as follows:

Outstanding as of March 28, 2021 14 $ 22.03

Vested and expected to vest as of March 28, 2021 14 $ 22.03

Exercisable Options as of March 28, 2021 11 $ 20.11

Arlo’s RSU activity during the three months ended March 28, 2021 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

2 unchanged sentences

10,563 $ 4.33

Vested ( 1,477 ) $ 8.16

Forfeited ( 172 ) $ 4.28

( 1,111 ) $ 4.66

Outstanding as of September 27, 2020 10,691 $ 4.37

_________________________

(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 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 September 27, 2020, the shares subject to PSUs that were granted to the Company's NEOs were cancelled as the performance milestone was not achieved.

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.

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 TSR relative to the Benchmark.

In the event the Company's common stock performance is below negative 30 % relative to the Benchmark, no shares will be vested.

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

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.

As of September 27, 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 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.

As of September 27, 2020, 100 % of the outstanding PSUs are expected to vest.

Outstanding as of March 28, 2021 12,974 $ 5.10

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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 NEOs during the three months ended March 28, 2021.

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

The PSUs will vest in four 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, 2021 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 March 28, 2021, 100 % of the outstanding PSUs are expected to vest.

The MPSUs will vest at the end of the four-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.

1 unchanged sentence

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

As of September 27, 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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NETGEAR RSU activity for Company employees during the nine months ended September 27, 2020 was as follows:

As of March 28, 2021, 62.72 % of the outstanding MPSUs are expected to vest.

Also includes 0.7 million immediately vested shares granted to non-executive employees for semi-annual bonus and executives for annual bonus in RSU form.

NETGEAR’s RSU activity for Arlo employees during the three months ended March 28, 2021 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

1 unchanged sentence

Outstanding as of December 31, 2020

( 116 ) $ 34.86

Vested ( 31 ) $ 40.55

Forfeited ( 1 ) $ 36.09

Outstanding as of September 27, 2020 141 $ 37.18

_________________________

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

Gorjanc's separation from the Company.

The Company determined the fair value of stock options and the shares offered under the ESPP using the Black-Scholes option pricing model as of the grant date.

The following table sets forth the weighted average assumptions used to estimate the fair value of options granted and purchase rights granted under the ESPP for the three and nine months ended September 27, 2020 and September 29, 2019.

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

2019 September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Stock Options ESPP Stock Options ESPP

Expected life (in years) NA NA 0.5 0.5 NA 6.3 0.5 0.5

Risk-free interest rate NA NA 0.86 % 2.49 % NA 2.28 % 1.47 % 2.49 %

Expected volatility NA NA 99.6 % 97.6 % NA 73.0 % 85.7 % 97.6 %

Outstanding as of March 28, 2021

The Company determined the fair value of the shares offered under the ESPP using the Black-Scholes option pricing model as of the grant date.

The following table sets forth the weighted average assumptions used to estimate the fair value of purchase rights granted under Arlo’s ESPP for the three months ended March 28, 2021 and March 29, 2020.

Three Months Ended

2021 March 29,

Expected life (in years) 0.5 0.5

Risk-free interest rate 0.06 % 1.55 %

Expected volatility 87.0 % 73.0 %

Dividend yield — —

1 unchanged sentence

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

The fair value of the MPSUs granted in the three months ended March 28, 2021 was $ 11.77 per share.

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

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Expected life N/A 3.0 3.0 3.0

Risk-free interest rate N/A 1.52 % 0.24 % 1.52 %

Expected volatility N/A 65.1 % 69.3 % 65.1 %

Dividend yield N/A — — —

Stock Beta N/A 0.30 0.48 0.30

Three Months Ended

Expected life 4.0

Risk-free interest rate 0.33 %

Expected volatility 69.9 %

Dividend yield —

Stock Beta 0.45

Stock-Based Compensation Expense

The Company's employees have historically participated in NETGEAR's various stock-based plans, which are described below and represent the portion of NETGEAR's stock-based plans in which Company employees participated.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

based compensation expense for Company employees consist of the Company’s RSUs, PSUs, MPSUs and stock options, NETGEAR RSUs and stock options granted to Company employees, and employees' annual bonus in RSU form.

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

The stock-based compensation expense for Company employees consist of Company RSUs, PSUs, MPSUs and stock options and NETGEAR RSUs and stock options granted to Company employees, employees' annual bonus in RSU form and the purchase rights under Company ESPP.

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

Three Months Ended Nine Months Ended

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Three Months Ended

March 28, 2021 March 29, 2020

(In thousands)

5 unchanged sentences

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

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 September 27, 2020, $ 1.6 million of unrecognized compensation cost related to the Company’s stock options was expected to be recognized over a weighted-average period of 1.4 years.

$ 31.1 million of unrecognized compensation cost related to unvested Company RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.6 years.

As of September 27, 2020, $ 42 thousand of unrecognized compensation cost related to NETGEAR stock options for Company employees was expected to be recognized over a weighted-average period of 1.0 years.

$ 3.5 million of unrecognized compensation cost related to unvested NETGEAR RSUs for Company employees was expected to be recognized over a weighted-average period of 1.3 years.

The provision for income taxes for the three and nine months ended September 27, 2020 was $ 0.1 million, or an effective tax rate of ( 0.7 )%, and $ 0.4 million, or an effective tax rate of ( 0.5 )%, respectively.

The income tax provision for the three and nine months ended September 29, 2019 was $ 0.3 million, or an effective tax rate of ( 0.9 )%, and $ 0.9 million, or an effective tax rate of ( 0.8 )%, respectively.

During the three and nine months ended September 27, 2020, the Company sustained lower domestic book losses than the same periods in the prior year.

Consistent with the prior year, the Company maintained a full valuation allowance on its domestic federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets because of uncertainty about its future realizability of deferred tax assets.

As of March 28, 2021, $ 1.6 million of unrecognized compensation cost related to Arlo’s stock options was expected to be recognized over a weighted-average period of 1.0 year.

$ 52.9 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 2.6 years.

As of March 28, 2021, $ 21 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 0.5 year.

$ 2.1 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 0.8 year.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The provision for income taxes for the three months ended March 28, 2021 and March 29, 2020, was $ 0.2 million, or an effective tax rate of ( 1.7 )%, and $ 0.1 million, or an effective tax rate of ( 0.4 )%, respectively.

During the three months ended March 28, 2021, the Company sustained lower book losses than the same periods in the prior year.

Consistent with the prior year, the Company has a full valuation allowance on its U.S.

federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since we do not anticipate to realize the benefits of deferred tax assets.

The Company's provision for income taxes was primarily attributable to income taxes on foreign earnings.

The decrease in provision for income taxes for the three and nine months ended September 27, 2020, compared to the prior year periods was primarily due to lower foreign earnings in fiscal 2020.

The increase in provision for income taxes for the three months ended March 28, 2021, compared to the prior year period was primarily due to higher foreign earnings in 2021 compared to 2020.

Net Income (Loss) Per Share

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period.

1 unchanged sentence

For certain periods presented, due to the net losses reported, these potentially dilutive securities were excluded from the computation of diluted net loss per share, since their effect would be anti-dilutive.

Net loss per share for the three and nine months ended September 27, 2020 and September 29, 2019 were as follows:

Three Months Ended Nine Months Ended

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Net loss per share for the three months ended March 28, 2021 and March 29, 2020 was as follows:

Three Months Ended

March 28, 2021 March 29, 2020

(In thousands, except per share data)

9 unchanged sentences

The Company operates as one operating and reportable segment.

The Company has identified its CEO as the Chief Operating Decision Maker (“CODM”).

The Company has identified its Chief Executive Officer ("CEO") as the Chief Operating Decision Maker (“CODM”).

The CODM reviews financial information presented on a combined basis for purposes of allocating resources and evaluating financial performance.

Geographic Information

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company conducts business across three geographic regions:

2 unchanged sentences

For reporting purposes, revenue by geography is generally based upon the ship-to location of the customer for device sales and device location for service sales.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended Nine Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Three Months Ended

2021 March 29,

(In thousands)

5 unchanged sentences

The Company’s Property and equipment, net are located in the following geographic locations:

September 27,

2021 December 31,

6 unchanged sentences

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-Q

Item 1. Financial Statements