What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 306 added, 174 removed, 674 unchanged (42% of the section changed)

40 unchanged sentences

shares issued and outstanding:

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

82,916,535 at June 27, 2021 and 79,336,242 at December 31, 2020

Additional paid-in capital 381,511 366,455

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

2021 March 29,

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

(In thousands, except per share data)

11 unchanged sentences

General and administrative 13,559 9,837 24,786 28,621

Impairment charges 9,116 — 9,116 —

Separation expense 605 82 659 161

16 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

2021 March 29,

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

(In thousands)

11 unchanged sentences

(In thousands)

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

Net loss — — — — ( 23,320 ) ( 23,320 )

Stock-based compensation expense — — 6,575 — — 6,575

Settlement of liability classified RSUs — — 104 — — 104

Issuance of common stock under stock-based compensation plans 2,465 3 — — — 3

Restricted stock unit withholdings ( 798 ) ( 1 ) ( 4,906 ) — — ( 4,907 )

Balance as of June 27, 2021 82,917 $ 83 $ 381,511 $ — $ ( 266,809 ) $ 114,785

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

(In thousands)

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

Net loss — — — — ( 29,256 ) ( 29,256 )

Stock-based compensation expense — — 3,772 — — 3,772

Settlement of liability classified RSUs — — 57 — — 57

Issuance of common stock under stock-based compensation plans 1,150 1 — — — 1

Restricted stock unit withholdings ( 422 ) — ( 1,128 ) — — ( 1,128 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — ( 75 ) — ( 75 )

Change in unrealized gains and losses on derivatives, net of tax — — — ( 28 ) — ( 28 )

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

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

Balance as of June 27, 2021 82,917 $ 83 $ 381,511 $ — $ ( 266,809 ) $ 114,785

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

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

9 unchanged sentences

Change in unrealized gains and losses on derivatives, net of tax — — — 25 — 25

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

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

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

2021 March 29,

Six Months Ended

2021 June 28,

(In thousands)

2 unchanged sentences

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

Depreciation and amortization 1,547 2,773

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

Stock-based compensation expense 19,949 17,337

Impairment charges 9,116 —

Depreciation and amortization 3,169 5,476

Allowance for credit losses and inventory reserves ( 1,085 ) 1,182

Gain on sale of business — ( 292 )

Deferred income taxes ( 115 ) 27

Premium amortization (discount accretion) on investments, net ( 3 ) 44

Gain on sale of business — ( 292 )

Changes in assets and liabilities:

14 unchanged sentences

Restricted stock unit withholdings ( 9,084 ) ( 3,149 )

Net cash provided by (used in) financing activities 1,956 ( 166 )

Net cash used in financing activities ( 2,948 ) ( 1,293 )

Net decrease in cash and cash equivalents and restricted cash

17 unchanged sentences

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.

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

Basis of Presentation

15 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 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.

Actual results could differ materially from those estimates and operating results for the six months ended June 27, 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.

2 unchanged sentences

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 three months ended March 28, 2021.

There have been no significant changes during the six months ended June 27, 2021.

Recent accounting pronouncements

3 unchanged sentences

Accounting Pronouncements Recently Adopted

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

There were no accounting pronouncements adopted during the six months ended June 27, 2021.

Accounting Pronouncements Not Yet Effective

4 unchanged sentences

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

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

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

Deferred Revenue

10 unchanged sentences

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:

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 June 27, 2021:

1 year 2 years Greater than 2 years Total

1 unchanged sentence

Performance obligations $ 56,419 $ 2,875 $ 502 $ 59,796

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.

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

For the six months ended June 27, 2021 and June 28, 2020, $ 39.6 million and $ 21.4 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 45.3 million and $ 29.0 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 16.1 million and $ 15.4 million of this recognized revenue was included in the contract liability balance at the beginning of the period.

8 unchanged sentences

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

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

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

13 unchanged sentences

Available-for-sale short-term investments

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

As of June 27, 2021 As of December 31, 2020

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

3 unchanged sentences

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.

The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three and six months ended June 27, 2021.

Accounts receivable, net

5 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

2021 March 29,

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

(In thousands)

1 unchanged sentence

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

Provision for expected credit losses — 254

Provision for (release of) expected credit losses 17 ( 53 ) 17 201

Amounts recovered due to collection — — — —

Balance at the end of the period $ 536 $ 810 $ 536 $ 810

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.

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 June 27, 2021.

ARLO TECHNOLOGIES, INC.

12 unchanged sentences

Total property and equipment, net $ 11,368 $ 15,821

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.

Depreciation and amortization expense pertaining to property and equipment was $ 1.6 million and $ 3.1 million for the three and six months ended June 27, 2021, respectively, and $ 2.3 million and $ 4.8 million for the three and six months ended June 28, 2020, respectively.

Long-lived Assets and Right-of-use Assets Impairment

During the second quarter of 2021, the Company evaluated its real estate lease portfolio in light of the COVID-19 pandemic and the changing nature of office space use by its workforce.

This evaluation included the decision to sublease its office space in San Jose, California.

This change in the circumstances for the San Jose office space use led management to test the recoverability of the carrying amount of the asset group related to the sublease.

At May 25, 2021, the carrying amount of the asset group exceeds the Company's anticipated undiscounted value of the sublease income over the sublease term.

Accordingly, the Company reviewed certain of its right-of-use assets and other lease related assets including leasehold improvements, furniture, fixtures and equipment under the sublease asset group for impairment in accordance with Accounting Standards Codification ("ASC") 360 "Property, Plant, and Equipment".

As a result of the evaluation, the Company recorded an impairment charge of $ 9.1 million, which includes $ 6.8 million associated with the right-of-use assets and $ 2.3 million associated with other lease related property and equipment assets, for the three and six months ended June 27, 2021.The assets indicated as impaired were written down to fair value as calculated using a discounted cash flow method (income approach).

The fair value of the asset group was determined by utilizing projected cash flows from the sublease, discounted by a risk-adjusted discount rate that reflects the level of risk associated with receiving future cash flows.

The inputs utilized in the analyses were classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement".

Refer to Note 5, Fair Value Measurements for additional information about the fair value measured on a non-recurring basis and Note 9, Commitments and Contingencies , for further information about the sublease.

There was no change in the carrying amount of goodwill during the six months ended June 27, 2021.

The goodwill as of December 31, 2020 and June 27, 2021 was $ 11.0 million.

Goodwill Impairment

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The Company operates as one operating and reportable segment.

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.

The Company determined that no events occurred or circumstances changed during the three months ended June 27, 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.

3 unchanged sentences

Non-current deferred income taxes $ 1,384 $ 1,269

Sublease initial direct cost 1,049 —

Deposits 122 122

1 unchanged sentence

Total other non-current assets $ 3,519 $ 2,399

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accrued liabilities

10 unchanged sentences

Total accrued liabilities $ 97,707 $ 121,766

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair Value Measurements

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

Fair Value Measurements - Recurring Basis

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of June 27, 2021 and December 31, 2020:

As of June 27, 2021 As of December 31, 2020

Total Quoted market

25 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

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

As of June 27, 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 June 27, 2021 and December 31, 2020, the Company has no Level 3 fair value assets or liabilities measured on a recurring basis.

Fair Value Measurements - Nonrecurring Basis

The Company measures the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount the asset may not be recoverable.

In the second quarter of 2021, in connection with the long-lived assets impairment analysis, certain lease related property and equipment assets and right-of-use asset were measured and written down to fair value on a nonrecurring basis as a result of impairment.

The fair value measurements were determined using a discounted cash flow method with unobservable inputs and were classified

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.

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

within Level 3 of the fair value hierarchy.

The fair value of the asset group was calculated by utilizing projected cash flows from the sublease, discounted by a market derived discount rate at 8.0 %.

As of May 25, 2021, the date of measurement, the fair value of the right-of-use asset and other lease related property and equipment assets were $ 8.1 million and $ 2.8 million, respectively.

The Company recorded an impairment charge of $ 9.1 million on the assets measured at fair value on a non-recurring basis, which includes $ 6.8 million associated with the right-of-use assets and $ 2.3 million associated with other lease related property and equipment assets, for the three and six months ended June 27, 2021.

Refer to Note 4, Balance Sheet Components , for further information about the impairment of the right-of-use asset and long-lived assets.

Derivative Financial Instruments

19 unchanged sentences

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 March 28, 2021 and December 31, 2020 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 June 27, 2021 and December 31, 2020 are summarized as follows:

Derivative Assets Balance Sheet

Location March 28, 2021 December 31, 2020 Balance Sheet

Location March 28, 2021 December 31, 2020

Location June 27, 2021 December 31, 2020 Balance Sheet

Location June 27, 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 March 28, 2021 and December 31, 2020:

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

The following tables set forth the offsetting of derivative assets as of June 27, 2021 and December 31, 2020:

As of June 27, 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

5 unchanged sentences

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

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

The following table sets forth the offsetting of derivative liabilities as of June 27, 2021 and December 31, 2020:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of June 27, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

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

(In thousands)

Wells Fargo Bank $ 20 $ — $ 20 $ — $ — $ 20

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

4 unchanged sentences

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

The Company did not enter into any forward contracts related to its cash flow hedging program 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:

The Company did not enter into any forward contracts related to its cash flow hedging program for the three and six months ended June 27, 2021.

The effects of the Company's cash flow hedges on the unaudited condensed consolidated statements of operations for the three and six months ended June 27, 2021 are summarized as follows:

Three Months Ended June 27, 2021

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

3 unchanged sentences

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

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:

Six Months Ended June 27, 2021

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

3 unchanged sentences

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three and six months ended June 28, 2020 are summarized as follows:

Three Months Ended June 28, 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 $ 66,632 $ 61,143 $ 14,192 $ 11,713 $ 9,837

Gains (losses) on cash flow hedge $ 28 $ — $ — $ — $ —

Six Months Ended June 28, 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 $ 132,082 $ 122,640 $ 29,435 $ 22,751 $ 28,621

Gains (losses) on cash flow hedge $ 23 $ — $ — $ — $ —

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.

1 unchanged sentence

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 six months ended June 27, 2021 and June 28, 2020.

Non-designated hedges

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 Company adjusts its non-designated hedges monthly and enters into about six non-designated derivatives per quarter with an average size of $ 2.5 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 months ended March 28, 2021 and March 29, 2020 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 and six months ended June 27, 2021 and June 28, 2020 were as follows:

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

Recognized in Income on Derivative Three Months Ended

March 28, 2021 March 29, 2020

Recognized in Income on Derivative Three Months Ended Six Months Ended

June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

(In thousands)

3 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

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

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three and six months ended June 27, 2021 and June 28, 2020.

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

(In thousands)

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

Other comprehensive income (loss) before reclassifications — — — —

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

Net current period other comprehensive income (loss) — — — —

Balance as of June 27, 2021 $ — $ — $ — $ —

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

(In thousands)

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

2 unchanged sentences

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

Balance as of June 27, 2021 $ — $ — $ — $ —

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

(In thousands)

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

Other comprehensive income (loss) before reclassifications ( 75 ) — — ( 75 )

Amount reclassified from accumulated other comprehensive income (loss) — 28 — 28

Net current period other comprehensive income (loss) ( 75 ) ( 28 ) — ( 103 )

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

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) ( 9 ) 25 — 16

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and six months ended June 27, 2021 and June 28, 2020:

Three Months Ended

June 27, 2021 June 28, 2020

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

7 unchanged sentences

$ — $ — $ — $ 28 Total *

Six Months Ended

June 27, 2021 June 28, 2020

(In thousands)

Gains (losses) on cash flow hedge:

Foreign currency contracts $ — $ — $ 48 $ 23 Revenue

Foreign currency contracts — — — — Cost of revenue

Foreign currency contracts — — — — Research and development

Foreign currency contracts — 2 — — Sales and marketing

Foreign currency contracts — — — — General and administrative

$ — $ 2 $ 48 $ 23 Total *

_________________________

* 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

5 unchanged sentences

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

7 unchanged sentences

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 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)

As of June 27, 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 June 27, 2021.

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.

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

Lease expense was $ 1.4 million and $ 1.8 million for the three months ended June 27, 2021 and June 28, 2020, respectively, and $ 3.1 million and $ 3.6 million for the six months ended June 27, 2021 and June 28, 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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Supplemental cash flow information related to operating leases for the six months ended June 27, 2021 and June 28, 2020 was as follows:

June 27, 2021 June 28, 2020

(in thousands)

3 unchanged sentences

Operating leases $ — $ 461

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 and weighted average discount rate related to operating leases as of June 27, 2021 were as follows:

Weighted average remaining lease term 6.6 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 March 28, 2021 was as follows (in thousands):

2021 (Remaining nine months) $ 4,395

The Company's future minimum undiscounted lease payments under operating leases for each of the next five years and thereafter as of June 27, 2021 were as follows:

Operating Lease Payments

(In thousands)

2021 (Remaining six months) $ 2,893

Thereafter 11,492

Total lease payments 34,271

Total $ 28,288

Total future lease payments 32,767

Present value of future minimum lease payments $ 27,175

Accrued liabilities $ 4,395

Non-current operating lease liabilities 22,780

Total $ 28,288

Total lease liabilities $ 27,175

________________________

(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

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

During the second quarter of 2021, the Company reviewed certain of its right-of-use assets and other lease related assets in conjunction with the evaluation of its real estate lease portfolio and recorded an impairment charge of $ 9.1 million, which includes $ 6.8 million associated with the right-of-use asset and $ 2.3 million associated with other lease related property and equipment assets, for the three and six months ended June 27, 2021.

Subsequent to the impairment, lease expense for the lease payments related to the impaired right-of-use asset is no longer recognized on a straight-line basis.

The associated lease liability is amortized using the same effective interest method as before the impairment charge.

The impaired right-of-use asset, however, is subsequently amortized on a straight-line basis.

Refer to Note 4, Balance Sheet Components , for further information about the impairment of the right-of-use asset and long-lived assets.

ARLO TECHNOLOGIES, INC.

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):

Thereafter 11,498

Total lease payments $ 35,821

Total $ 29,429

Accrued liabilities $ 4,400

Non-current operating lease liabilities 25,029

Total $ 29,429

________________________

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

On June 29, 2021, the sublease agreement dated May 25, 2021 (the "Sublease"), by and between the Company and Vocera Communications, Inc.

(“Subtenant”) became effective whereby the Company agreed to sublease to Subtenant all of the approximately 78,000 rentable square feet of office space located at 3030 Orchard Parkway in San Jose, California.

The Company’s decision to enter into the Sublease is a continuance of its evaluation of its real estate lease portfolio in light of the COVID-19 pandemic and its impact on the changing nature of office space use by its workforce.

The initial term of the Sublease will commence on February 1, 2022, and will expire on June 30, 2029, unless earlier terminated in accordance with the Sublease.

The Subtenant will pay to the Company an escalating base rent over the life of the Sublease of approximately $ 167,000 to $ 206,000 per month.

In addition, the Subtenant will pay its pro rata portion of property expenses and operating expenses for the Subleased Premises.

The Company classifies the Sublease as an operating lease.

The accounting of the Sublease is expected to commence on October 1, 2021.

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 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.

In connection with the lease agreement for the office space located in San Jose, California, the Company executed a letter of credit with the landlord as the beneficiary.

As of June 27, 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

2 unchanged sentences

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

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

As of June 27, 2021, the Company had approximately $ 19.0 million in non-cancelable purchase commitments with suppliers.

As a result of the COVID-19 pandemic, the Company has experienced an elongation of the time from order placement to production primarily due to component shortages and supply chain disruptions.

In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, the Company has worked with its suppliers to place longer lead-time purchase orders to ensure availability of components and materials from its supply chain.

Under this circumstance, the Company may be obligated to purchase long lead-time component inventory procured in accordance with its forecasts.

The Company may become liable for non-cancellable material components, such as chipsets purchased by the supplier to meet its purchase order, even if it is subsequently cancelled.

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

As of June 27, 2021, the loss liability from committed purchases was $ 0.7 million.

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

If these components do not meet specified technical criteria or are defective, the Company should not be obligated to purchase the materials.

ARLO TECHNOLOGIES, INC.

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

2021 March 29,

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

(In thousands)

Balance at the beginning of the period $ 1,937 $ 3,188 $ 2,451 $ 3,169

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

Provision for (release of) warranty obligation made during the period ( 17 ) 24 ( 386 ) 231

Settlements made during the period ( 115 ) ( 189 ) ( 260 ) ( 377 )

Balance at the end of the period $ 1,805 $ 3,023 $ 1,805 $ 3,023

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Litigation and Other Legal Matters

35 unchanged sentences

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 (CONTINUED)

On June 21, 2019, the court stayed the State Action pending resolution of the Federal Action, given the substantial overlap between the claims.

5 unchanged sentences

On August 6, 2019, defendants filed a motion to dismiss.

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

On June 12, 2020, lead plaintiff filed an unopposed motion for preliminary

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 federal court entered an order preliminarily approving the settlement.

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

In October 2020, the Company 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.

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.

2 unchanged sentences

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”).

In the State Action, on May 5, 2021, the court held a status conference.

At that conference, the state court instructed plaintiffs Perros, Patel, and Pham (“Plaintiffs”), who were the only Arlo stockholders to opt out of the federal settlement, to file an amended complaint by June 4, 2021.

Plaintiffs filed their second amended complaint on June 4, 2021, asserting their individual Securities Act claims, but also purporting to represent a new class of Arlo stockholders who purchased Arlo shares between December 3, 2018 and February 22, 2019 and fell outside the Settlement Class (as defined in the federal settlement).

On June 21, 2021, the Arlo defendants filed a motion to dismiss the State Action (for forum non conveniens) based on the federal forum provision in Arlo’s certificate of incorporation.

Plaintiffs’ opposition is due on July 28, 2021, and the Arlo defendants’ reply is due on August 13, 2021.

A hearing on this motion to dismiss is scheduled for September 1, 2021.

On July 6, 2021, defendants filed multiple demurrers to the second amended complaint.

Plaintiffs oppositions are due on August 12, 2021, and defendants’ replies are due on August 27, 2021.

A hearing on the demurrers is scheduled for September 15, 2021.

Arlo Technologies, Inc., et al.

7 unchanged sentences

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.

Foster filed a lawsuit under 8 Del.

§ 220 in the Delaware Court of Chancery.

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

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

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

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

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)

In their status report, the parties stipulated to a schedule for plaintiff to file an amended complaint and for the parties to brief a motion to dismiss.

Plaintiff filed his amended complaint on May 24, 2021.

Defendants moved to dismiss the amended complaint on July 9, 2021.

Plaintiff’s opposition is due August 23, 2021, and defendants’ reply is due on September 22, 2021.

Skybell Technologies, Inc.

7 unchanged sentences

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.

The case was instituted on January 25, 2021 as Investigation

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At June 27, 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 March 28, 2021 and December 31, 2020.

The Company had no liabilities recorded for these agreements as of June 27, 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 March 28, 2021 and December 31, 2020.

The Company had no liabilities recorded for these agreements as of June 27, 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.

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

federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement.

The transition services agreement generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services

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.

Pursuant to the registration rights agreement, the Company has agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise.

5 unchanged sentences

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 March 28, 2021.

The Company had no liabilities recorded for these agreements as of June 27, 2021.

Environmental Regulation

10 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 March 28, 2021 and December 31, 2020:

The following table sets forth the available shares for grant under the 2018 Plan as of June 27, 2021 and December 31, 2020:

Number of Shares

4 unchanged sentences

Shares traded for taxes 1,371

Shares available for grant as of March 28, 2021

Shares available for grant as of June 27, 2021

_________________________

(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.

1 unchanged sentence

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.

As of June 27, 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.

2 unchanged sentences

Option Activity

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

Arlo’s stock option activity during the six months ended June 27, 2021 was as follows:

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Forfeited / cancelled ( 24 ) $ 7.11

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:

Outstanding as of June 27, 2021 2,755 $ 10.45

Vested and expected to vest as of June 27, 2021 2,755 $ 10.45

Exercisable Options as of June 27, 2021 2,518 $ 10.01

NETGEAR’s stock option activity for Arlo employees during the six months ended June 27, 2021 was as follows:

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Expired — $ —

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:

Outstanding as of June 27, 2021 13 $ 21.32

Vested and expected to vest as of June 27, 2021 13 $ 21.32

Exercisable Options as of June 27, 2021 11 $ 20.11

Arlo’s RSU activity during the six months ended June 27, 2021 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 444 ) $ 5.10

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

Outstanding as of June 27, 2021 11,107 $ 5.50

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.

(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 in the first quarter of 2021.

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

2 unchanged sentences

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.

As of June 27, 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.

2 unchanged sentences

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

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

As of June 27, 2021, 35.04 % 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:

NETGEAR’s RSU activity for Arlo employees during the six months ended June 27, 2021 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

3 unchanged sentences

Forfeited ( 3 ) $ 38.30

Outstanding as of March 28, 2021

Outstanding as of June 27, 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 — —

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 and six months ended June 27, 2021 and June 28, 2020.

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Expected life (in years) NA NA 0.5 0.5

Risk-free interest rate NA NA 0.06 % 1.55 %

Expected volatility NA NA 87.0 % 73.0 %

Dividend yield NA NA — —

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

3 unchanged sentences

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 three months ended March 28, 2021 was $ 11.77 per share.

The fair value of the MPSUs granted in the first quarter of 2021 and second quarter of 2020 were $ 11.77 and $ 4.11 per share, respectively.

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

Three Months Ended

Expected life 4.0

Risk-free interest rate 0.33 %

Expected volatility 69.9 %

Dividend yield —

Stock Beta 0.45

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Expected life NA 3.0 4.0 3.0

Risk-free interest rate NA 0.24 % 0.33 % 0.24 %

Expected volatility NA 69.3 % 69.9 % 69.3 %

Dividend yield NA — — —

Stock Beta NA 0.48 0.45 0.48

Stock-Based Compensation Expense

3 unchanged sentences

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

March 28, 2021 March 29, 2020

Three Months Ended Six Months Ended

June 27, 2021 June 28, 2020 June 27, 2021 June 28, 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.

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.

As of June 27, 2021, $ 1.3 million of unrecognized compensation cost related to Arlo’s stock options was expected to be recognized over a weighted-average period of 0.9 year.

$ 50.2 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 2.5 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.

As of June 27, 2021, $ 11 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 0.3 year.

$ 1.4 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 0.7 year.

1 unchanged sentence

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.

The provision for income taxes for the three and six months ended June 27, 2021 was $ 0.2 million, or an effective tax rate of ( 0.7 )%, and $ 0.3 million, or an effective tax rate of ( 1.0 )%, respectively.

The provision for income taxes for the three and six months ended June 28, 2020 was $ 0.2 million, or an effective tax rate of ( 0.6 )%, and $ 0.3 million, or an effective tax rate of ( 0.5 )%, respectively.

During the three and six months ended June 27, 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.

1 unchanged sentence

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

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.

The provision for income taxes for the three months ended June 27, 2021 was slightly lower than the same period in the prior year primarily due to a decrease in foreign earnings in the second quarter of 2021.

The provision for income taxes for the six months ended June 27, 2021, was slightly higher than the same period in the prior year primarily due to an increase in foreign earnings in the first half of 2021.

Net Income (Loss) Per Share

2 unchanged sentences

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

Net 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

Net loss per share for the three and six months ended June 27, 2021 and June 28, 2020 were as follows:

Three Months Ended Six Months Ended

June 27, 2021 June 28, 2020 June 27, 2021 June 28, 2020

(In thousands, except per share data)

6 unchanged sentences

Anti-dilutive employee stock-based awards, excluded 5,989 11,698 4,650 10,529

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Segment and Geographic Information

4 unchanged sentences

Geographic Information

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company conducts business across three geographic regions:

3 unchanged sentences

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

Three Months Ended

2021 March 29,

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

(In thousands)

12 unchanged sentences

Total property and equipment, net $ 11,368 $ 15,821

Subsequent Event

Amendment to 2018 Equity Incentive Plan

On July 28, 2021, the Compensation Committee of the Board of Directors (the “Committee”) of the “Company unanimously approved an amendment to the Company’s 2018 EIP to, among other things, reserve an additional 1,500,000 shares of the Company’s common stock to be used exclusively for grants of awards to individuals who were not previously employees or non-employee directors of the Company (or following a bona fide period of non-

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

employment with the Company), as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 303A.08 of the New York Stock Exchange (the “NYSE”) Listed Company Manual (“Rule 303A.08”).

The 2018 EIP was amended by the Committee without stockholder approval pursuant to Rule 303A.08.

On July 28, 2021, the Board approved the grant of a Performance Stock Unit (“PSU”) award to Matthew McRae, the Company’s Chief Executive Officer, covering 757,600 shares of the Company's Common Stock, with vesting subject to satisfaction of both a service condition and a stock price performance condition.

The service condition will be satisfied over four years in substantially equal quarterly installments.

The stock price performance condition will be satisfied in five equal tranches based on the Company's achievement of certain average daily closing prices per share of the Company's common stock, as reported on the NYSE, for any 30 consecutive trading days on or prior to July 28, 2025 (the "Performance Period End Date"), with the first tranche achieved at $ 7.57 per share, with the second tranche achieved at $ 8.69 per share, with the third tranche achieved at $ 9.97 per share, with the fourth tranche achieved at $ 11.44 per share and with the fifth tranche achieved at $ 13.20 per share.

To the extent that the stock price performance-based vesting conditions are not satisfied prior to the Performance Period End Date, the PSUs expire.

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