What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 130 added, 86 removed, 221 unchanged (49% of the section changed)

15 unchanged sentences

Our cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection.

Since the launch of our first product in December 2014, we have shipped over 19.8 million smart connected devices, and as of March 28, 2021, our smart platform had approximately 5.3 million cumulative registered accounts across more than 100 countries around the world.

Since the launch of our first product in December 2014, we have shipped over 20.6 million smart connected devices, and as of June 27, 2021, our smart platform had approximately 5.5 million cumulative registered accounts across more than 100 countries around the world.

We conduct business across three geographic regions-the Americas;

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

International revenue was 40.0% and 26.2% of our revenue for the three months ended March 28, 2021 and March 29, 2020, respectively.

For the three months ended March 28, 2021 and March 29, 2020, we generated revenue of $82.6 million and $65.5 million, respectively, representing a year-over-year increase of 26.1%.

Loss from operations was $11.5 million and $40.9 million for the three months ended March 28, 2021 and March 29, 2020, respectively.

International revenue was 32.5% and 25.2% of our revenue for the three months ended June 27, 2021 and June 28, 2020, respectively, and 35.9% and 25.7% of our revenue for the six months ended June 27, 2021 and June 28, 2020, respectively.

For the three months ended June 27, 2021 and June 28, 2020, we generated revenue of $98.6 million and $66.6 million, respectively, representing a year-over-year increase of 47.9%.

For the six months ended June 27, 2021 and June 28, 2020, we generated revenue of $181.1 million and $132.1 million, respectively, representing a year-over-year increase of 37.1%.

Loss from operations were $25.8 million and $30.3 million for the three months ended June 27, 2021 and June 28, 2020, respectively.

Loss from operations were $37.3 million and $71.2 million for the six months ended June 27, 2021 and June 28, 2020, respectively.

Our goal is to continue to develop innovative, world-class connected lifestyle solutions to expand and further monetize our current and future user and paid account bases.

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We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.

Three Months Ended

March 28, 2021 % Change March 29, 2020

June 27, 2021 % Change June 28, 2020

(In thousands, except percentage data)

18 unchanged sentences

• temporary closure or decrease in foot traffic to our major customers' retail stores and shift of focus to essential goods distribution;

• disruption to our supply chain caused by delayed delivery of components from our third-party manufacturers and other suppliers located in regions affected by COVID-19;

• disruption to our supply chain caused by component shortages, extended transit times, labor shortages, factory uptime, freight capacity, inflated freight pricing and increased component and finished goods costs;

• deferment of customer spending due to economic uncertainty;

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• a slow-down in the global economy or a credit crisis.

For example, as of March 28, 2021, international freight capacity has dropped, causing air and ocean freight rates to materially increase.

Furthermore, transit times have also increased.

For the three months ended March 28, 2021, we saw a 88% increase in freight-in expense compared to the prior year, as a result of the higher sea and air freight rates.

We continue to closely monitor developments and are taking steps to mitigate the potential risks related to the COVID-19 pandemic to us, our employees and our customers.

While the impacts are expected to be temporary, the current circumstances are dynamic and the future impacts of COVID-19 on our business operations, including their duration and impact on overall customer demand, cannot be reasonably estimated at this time.

Our priorities and actions during the COVID-19 pandemic continue to be focused on protecting the health and safety of all those we serve, our employees, our customers, our suppliers and our communities, including implementing continuous updates to our health and safety policies and processes.

We continue to be focused on providing our team with the resources that they need to meet the needs of our customers and deliver new innovations to the markets we serve, despite challenges introduced by the COVID-19 pandemic.

We continue to work with our suppliers to address any supply chain disruptions, which might include larger component backlogs, travel restrictions and logistics changes that can impact our operations.

The extent of the impact of the COVID-19 pandemic on our business operations will depend on future developments, including the duration of the pandemic, the broader implications of the macro-economic recovery and the impact on overall customer demand, all of which are uncertain and cannot be predicted.

We continue to instruct all but a limited number of our global workforce to work remotely as a precautionary measure intended to minimize the risk of the virus to them and the communities in which we operate, while we continue to focus on providing our team with the resources that they need to meet the needs of our customers and deliver new innovations to the markets we serve, despite challenges presented by the COVID-19 pandemic.

We also continue to work with our suppliers to address any supply chain disruptions, which might include larger component backlogs, component cost increases, travel restrictions and logistics changes that can impact our operations.

For example, increased demand for electronics as a result of the COVID-19 pandemic, effects of the U.S.

trade war with China, increased demand for chips in the automotive industry and certain other factors have led to a global shortage of semiconductors.

Due to such shortage, starting in the fourth quarter of 2020 and in the first quarter of 2021, we experienced component shortages, including longer lead times for components, and supply constraints, which we expect to continue in 2021.

Such shortages and constraints affected our ability to meet scheduled product deliveries and worldwide demand for our products in the first quarter of 2021 and may affect our ability for the remainder of 2021 and potentially beyond.

As a result, we could experience material charges from potential adjustments of the carrying value of our inventories and trade receivables, impairment charges on our long-lived assets, intangible assets and goodwill, and changes in the effectiveness of the Company’s hedging instruments, among others.

We also anticipate that COVID-19 could continue to reduce our revenues and increase product and service costs and operating expenses for the remainder of fiscal year 2021.

We continue to be focused on navigating these recent challenges presented by COVID-19 through preserving our liquidity and managing our cash flow through taking preemptive action to enhance our ability to meet our short-term liquidity needs.

These actions include, but are not limited to, proactively managing working capital by closely monitoring customers' credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating non-essential spending, and deferment of hiring.

As a result, we have experienced component shortages, including longer lead times for components and supply constraints, that have affected both our ability to meet scheduled product deliveries and worldwide demand for our products.

Also, as a result of the COVID-19 pandemic, our supply chain partners are limited by production capacity, constrained by material availability, labor shortages, factory uptime and freight capacity, each of which constrains our ability to capitalize fully on end market demand.

As of June 27, 2021, international freight capacity has dropped, causing air and ocean freight rates to materially increase.

Furthermore, transit times have also increased, causing us to rely more on air freight in order to meet our customers' demands.

For the three and six months ended June 27, 2021, we saw an 89% increase in freight-in expense compared to the prior year periods, respectively, as a result of the higher sea and air freight rates and component shortages which necessitated use of air freight to meet customer requested delivery dates.

We expect supply chain constraints to exist through 2021 and potentially beyond.

While we have been successful in navigating COVID-19 related challenges to date, any further disruptions brought about by the COVID-19 pandemic to our supply chain and operations could have a significant negative impact on our net revenue, gross and operating margin performance.

In addition, as a result of the COVID-19 pandemic, we could experience material charges from potential adjustments of the carrying value of our inventories and trade receivables, impairment charges on our long-lived assets, intangible assets and goodwill, and changes in the effectiveness of our hedging instruments, among others.

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

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

As a result, we 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.

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

We continue to be focused on navigating these recent challenges presented by the COVID-19 pandemic through preserving our liquidity and managing our cash flow through taking preemptive action to enhance our ability to meet our short-term liquidity needs.

We continue to monitor this rapidly developing situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the COVID-19 pandemic.

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The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of operations data, which we derived from the accompanying unaudited condensed consolidated financial statements:

Three Months Ended

2021 March 29,

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

(In thousands, except percentage data)

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General and administrative 13,559 13.8 % 9,837 14.8 % 24,786 13.7 % 28,621 21.7 %

Impairment charges 9,116 9.2 % — — % 9,116 5.0 % — — %

Separation expense 605 0.6 % 82 0.1 % 659 0.4 % 161 0.1 %

14 unchanged sentences

Our services also include certain development services provided to Verisure under an NRE arrangement as part of the disposal of our commercial operations in Europe in the fourth quarter of 2019.

Our revenue consists of gross revenue, less end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance for revenue recognition, allowances for estimated sales returns,

price protection, and net changes in deferred revenue.

A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition.

1 unchanged sentence

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

As of March 28, 2021, $68.5 million of the purchase commitment has been fulfilled.

The Supply Agreement also provides certain NRE service to Verisure, including developing certain custom products specified by Verisure in exchange for an aggregate of $13.5 million, payable in installments upon meeting certain development milestones.

As of March 28, 2021, Verisure has paid $10.5 million for this NRE service, and $9.6 million of the NRE service has been fulfilled.

For the three months ended March 28, 2021, the Company recognized service revenue of $1.5 million for this NRE service.

As of June 27, 2021, $89.7 million of the purchase commitment has been fulfilled.

The Supply Agreement also provides for certain NRE services to Verisure, including developing certain custom products specified by Verisure in exchange for an aggregate of $13.5 million, payable in installments upon meeting certain development milestones.

As of June 27, 2021, Verisure has paid $11.8 million for these NRE services.

For the three and six months ended June 27, 2021, the Company recognized service revenue of $2.0 million and $3.5 million, respectively, for these NRE services.

For the three and six months ended June 28, 2020, the Company recognized service revenue of $2.3 million and $3.2 million, respectively, for these NRE services.

We conduct business across three geographic regions:

1 unchanged sentence

We generally base revenue by geography on the ship-to location of the customer for device sales and device location for service sales.

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

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Total revenue $ 98,571 47.9 % $ 66,632 $ 181,127 37.1 % $ 132,082

Revenue for the three months ended March 28, 2021 increased 26.1%, compared to the prior year period.

The increase was primarily driven by higher service revenue, an increase in product shipments in EMEA and less provisions for sales returns and marketing expenditures that are deemed to be a reduction of revenue, partially offset by a decrease in product shipments in Americas.

Service revenue increased by $8.1 million, or 54.8%, for the three months ended March 28, 2021 compared to the prior year period, primarily due to increased paid accounts.

Revenue for the three and six months ended June 27, 2021 increased 47.9% and 37.1%, compared to the prior year periods, respectively.

The increase was primarily driven by an increase in product shipments, higher service revenue, and less provisions for sales returns, price protection and marketing expenditures that are deemed to be a reduction of revenue.

Service revenue increased by $8.2 million, or 48.3%, and $16.3 million, or 51.3%, for the three and six months ended June 27, 2021 compared to the prior year periods, respectively, primarily due to increased paid accounts.

Cost of Revenue

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Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation:

product mix, sales channel mix, registered accounts' acceptance of paid subscription service offerings, fluctuation in foreign exchange rates and changes in our cost of goods sold due to fluctuations in prices paid for components, net of vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty product conversion costs, charges for excess or obsolete inventory, and amortization of acquired intangibles.

vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty product conversion costs, charges for excess or obsolete inventory, and amortization of acquired intangibles.

We outsource our manufacturing, warehousing, and distribution logistics.

We also outsource certain components of the required infrastructure to support our

cloud-based back-end IT infrastructure.

We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure.

We believe this outsourcing strategy allows us to better manage our product and services costs and gross margin.

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

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

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Total cost of revenue $ 72,402 18.4 % $ 61,143 $ 129,151 5.3 % $ 122,640

Cost of products revenue decreased for the three months ended March 28, 2021, primarily due to a decrease in warranty costs and excess and obsolete inventory provision, compared to the prior year period.

Cost of products revenue increased for the three and six months ended June 27, 2021, primarily due to the increase in product revenue, partially offset by a decrease in warranty costs and excess and obsolete inventory provision, compared to the prior year periods.

The decrease in warranty cost is a result of a lower scrap rate driven by increased refurbished product sales, lower returns and fewer product transitions.

The decrease in excess and obsolete inventory provisions is due to fewer product transitions and more effective inventory management.

Cost of services revenue stayed relatively flat for the three months ended March 28, 2021 compared to the prior year period despite service revenue increasing due to cost optimizations implemented on our platform.

Cost of services revenue stayed relatively flat for the three and six months ended June 27, 2021 compared to the prior year periods despite service revenue increasing, due to cost optimizations implemented on our platform and growth in paid service revenue which has a higher gross margin than the other components of service revenue.

The following table presents gross margin for the periods indicated:

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

7 unchanged sentences

Total gross profit percentage 26.6 % 8.2 % 28.7 % 7.1 %

Gross margin increased for the three months ended March 28, 2021 compared to the prior year period, due to a combination of both product and service margin increases.

The product margin increase is primarily due to decreased provisions for sales returns and marketing expenditures that are deemed to be reductions of revenue, decreased warranty costs and a lower excess and obsolete inventory provision.

Gross margin increased for the three and six months ended June 27, 2021 compared to the prior year periods, due to a combination of both product and service margin increases.

The product margin increase is primarily due to decreased provisions for price protection, sales returns and marketing expenditures that are deemed to be reductions of revenue, decreased warranty costs and a lower excess and obsolete inventory provision.

The service margin increase is primarily due to an increase in paid service revenue coupled with various cost optimizations implemented.

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We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services.

We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of

research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.

We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.

We expect research and development expense to stay relatively flat in absolute dollars as we manage our expenses while continuing to develop new product and service offerings.

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

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

Research and development expense $ 16,251 14.5 % $ 14,192 $ 31,042 5.5 % $ 29,435

Research and development expense decreased for the three months ended March 28, 2021, compared to the prior year period, due to an increase in certain research and development expenses amounting to $0.4 million, which were attributed to the Verisure NRE projects, and are classified as cost of service revenue.

Research and development expense increased for the three months ended June 27, 2021, compared to the prior year period, primarily due to an increase of $2.2 million in personnel-related expenses.

Research and development expense increased for the six months ended June 27, 2021, compared to the prior year period, primarily due to an increase of $3.0 million in personnel-related expenses, partially offset by a decrease of $1.6 million in corporate IT and facility overhead.

Also, certain research and development expenses amounting to $1.0 million and $2.1 million, respectively, for the three and six months ended June 27, 2021, and $1.2 million and $1.8 million, respectively, for the three and six months ended June 28, 2020 were attributed to the Verisure NRE arrangement, and are classified as cost of service revenue.

Sales and Marketing

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

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

Sales and marketing expense $ 12,459 6.4 % $ 11,713 $ 23,666 4.0 % $ 22,751

Sales and marketing expense stayed relatively flat for the three months ended March 28, 2021, compared to the prior year period, primarily due to marginal increases in personnel-related expenses, outside professional services and credit card processing fees, partially offset by lower marketing expenditures and IT and facility overhead.

Sales and marketing expense increased for the three months ended June 27, 2021, compared to the prior year period, primarily due to an increase of $0.5 million in personnel-related expenses and an increase of $0.3 million in credit card processing fees.

Sales and marketing expense increased for the six months ended June 27, 2021, compared to the prior year period, primarily due to an increase of $1.2 million in personnel-related expenses and an increase of $0.6 million in credit card processing fees, partially offset by a decrease of $0.8 million in marketing expenditures.

General and Administrative

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

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

General and administrative expense $ 13,559 37.8 % $ 9,837 $ 24,786 (13.4) % $ 28,621

General and administrative expense decreased for the three months ended March 28, 2021, compared to the prior year period, primarily due to a decrease of $6.1 million in personnel-related expenditures brought about by the one-time charge for stock-based compensation expense recognized for the three months ended March 29, 2020 upon the voluntary forfeiture of our CEO's stock options in January 2020, and a $0.5 million of Verisure transaction costs recognized in the first quarter of 2020.

General and administrative expense increased for the three months ended June 27, 2021, compared to the prior year period, primarily due to an increase of $4.1 million in personnel-related expenditures, partially offset by a decrease of $0.3 million in corporate IT and facility overhead.

General and administrative expense decreased for the six months ended June 27, 2021, compared to the prior year period, primarily due to a decrease of $2.1 million in personnel-related expenditures partially brought about by the one-time charge for stock-based compensation expense recognized in the first quarter of 2020 upon the voluntary forfeiture of our CEO's stock options in January 2020, $0.8 million of Verisure transaction costs recognized in the first half of 2020, and a decrease of $0.5 million in corporate IT and facility overhead.

Impairment Charges

The following table presents impairment charges for the periods indicated:

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

Impairment charges $ 9,116 ** $ — $ 9,116 ** $ —

During the second quarter of 2021, we reviewed certain of our right-of-use assets and other lease-related assets for impairment in conjunction with our decision to sublease our office space in San Jose, California.

As a result, we 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 the leasehold improvements and furniture, fixtures and equipment included in the San Jose office asset group.

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

Separation Expense

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The following table presents separation expense for the periods indicated:

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

2 unchanged sentences

The following table presents gain on sale of business for the periods indicated:

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

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

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

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Our interest income was primarily earned from our short-term investments and cash and cash equivalents.

We expect our interest income in absolute dollars to decrease as we use up our short-term investments and cash and cash equivalents to fund our operations while interest rates have also declined.

During the three months ended March 28, 2021 and March 29, 2020, we earned interest income of $24 thousand and $535 thousand, respectively, from our short-term investments and cash and cash equivalents.

The reduction, compared to the prior year period, is primarily due to the decrease in our short-term investments and cash and cash equivalents as we funded our operations and the decline in interest rates

We expect our interest income in absolute dollars to decrease as we deploy our short-term investments and cash and cash equivalents to fund our operations, while interest rates have also declined.

Interest income decreased for the three and six months ended June 27, 2021, compared to the prior year periods, primarily due to the decrease in our short-term investments and cash and cash equivalents as we funded our operations, and a decline in interest rates.

Other income (expense), net primarily represents gains and losses on transactions denominated in foreign currencies, foreign currency contract gain (loss), net, and other miscellaneous income and expense.

We have also included reimbursements for the Verisure Transition Service Agreement ("TSA") in Other income.

Other income (expense), net, decreased for the three months ended March 28, 2021, compared to the prior year period primarily due to a decrease of $283 thousand in Verisure TSA related income.

Other income (expense), net, increased for the three and six months ended June 27, 2021, compared to the prior year periods, primarily due to the Employee Retention Credit ("ERC") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") for qualified wages amounting to $1.8 million, which was recognized as Other income in the second quarter of 2021, partially offset by decreases in Verisure TSA related income.

The CARES Act was signed into law on March 27, 2020 in response to the COVID-19 pandemic.

The ERC, as one of the provisions that provide economic relief for individuals and businesses under the CARES Act, is a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic.

Provision for Income Taxes

Three Months Ended

2021 % Change March 29,

Three Months Ended Six Months Ended

2021 % Change June 28,

2020 June 27,

2021 % Change June 28,

(In thousands, except percentage data)

2 unchanged sentences

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.

Losses incurred predominantly in the U.S.

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We have a history of losses and may continue to incur operating and net losses for the foreseeable future.

As of March 28, 2021, our accumulated deficit was $243.5 million.

As of June 27, 2021, our accumulated deficit was $266.8 million.

Our principal sources of liquidity are cash, cash equivalents and short-term investments.

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The marketable securities are held in our company’s name with a high quality financial institution, which acts as our custodian and investment manager.

As of March 28, 2021, we had cash, cash equivalents and short-term investments totaling $177.1 million.

As of June 27, 2021, we had cash, cash equivalents and short-term investments totaling $178.7 million.

7.8% of our cash and cash equivalents were held outside of the U.S.

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is subject to fluctuation based on the settlement of intercompany balances.

In November 2019, we entered into a business financing agreement with Western Alliance Bank providing for a credit facility to up to $40.0 million and as of March 28, 2021, we have not borrowed against this credit facility.

In November 2019, we entered into a business financing agreement with Western Alliance Bank providing for a credit facility to up to $40.0 million and as of June 27, 2021, we have not borrowed against this credit facility.

Refer to Note 8.

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

Three Months Ended

2021 March 29,

Six Months Ended

2021 June 28,

(In thousands)

1 unchanged sentence

Net cash provided by (used in) investing activities 18,934 (1,278)

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

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

Net cash decrease $ (7,480) $ (51,254)

Operating activities

Net cash used in operating activities decreased by $18.7 million for the three months ended March 28, 2021 compared to the prior year period.

This decrease comprised a $20.7 million reduction in adjusted net loss for cash flows, offset by an increase in working capital used in operations of $2.0 million, mainly driven by lower collections from customers, partially offset by lower payments to suppliers.

Our days sales outstanding (“DSO”) decreased to 54 days as of March 28, 2021 compared to 64 days as of December 31, 2020, primarily as a result of in-quarter collections from our customers that were on seasonal dating terms and unpaid in the fourth quarter of 2020, as well as a change in customer mix and an increase in service revenue.

Net cash used in operating activities decreased by $25.2 million for the six months ended June 27, 2021 compared to the prior year period.

This decrease comprised a $41.8 million reduction in adjusted net loss reconciled to net cash used in operating activities, offset by an increase in working capital used in operations of $16.6 million, mainly driven by a reduction in prepaid expenses and other assets.

Our days sales outstanding (“DSO”) decreased to 48 days as of June 27, 2021 compared to 64 days as of December 31, 2020, primarily as a result of in-quarter collections from our customers that were on seasonal dating terms and unpaid in the fourth quarter of 2020, as well as a change in customer mix and an increase in service revenue.

Typically, our DSO in the fourth quarter is higher due to seasonal payment terms provided to our larger customers.

Inventory decreased to $56.0 million as of March 28, 2021 from $64.7 million as of December 31, 2020, as we reduced our product purchases in line with the normal seasonality of our business and continued to focus on effective inventory management.

Despite a lower inventory level, our ending inventory turns were 3.4x in the three months ended March 28, 2021 down from 5.0x turns in the three months ended December 31, 2020, primarily as a result of the normal seasonality in our business.

Our accounts payable decreased to $27.1 million as of March 28, 2021 from $62.2 million as of December 31, 2020, in line with lower product purchases in the first quarter of 2021.

Inventory decreased to $43.2 million as of June 27, 2021 from $64.7 million as of December 31, 2020, as we reduced our product purchases in line with the normal seasonality of our business and continued to focus on effective inventory management.

Our ending inventory turns were 5.7x in the three months ended June 27, 2021 up from 5.0x turns in the three months ended December 31, 2020, primarily as a result of effective inventory management.

Our accounts payable decreased to $42.9 million as of June 27, 2021 from $62.2 million as of December 31, 2020, primarily as a result of lower inventory purchases and payments to suppliers for the purchases made in the fourth quarter of 2020.

Investing activities

Net cash provided by investing activities increased by $25.4 million for the three months ended March 28, 2021 compared to the prior year period, primarily due to more maturities of short-term investments of $5.0 million and less purchases of short-term investments of $20.1 million.

Net cash provided by investing activities increased by $20.2 million for the six months ended June 27, 2021 compared to the prior year period, primarily due to maturity of our of short-term investments.

Financing activities

Net cash provided by financing activities of $2.0 million in the three months ended March 28, 2021 represented proceeds from ESPP contributions and exercises of stock options of $6.1 million, offset by tax withholdings from restricted stock unit releases of $4.2 million.

Net cash used in financing activities was $0.2 million for the three months ended March 29, 2020, representing tax withholdings from restricted stock unit releases of $2.0 million, offset by proceeds from ESPP contributions of $1.9 million.

Net cash used in financing activities was $2.9 million for the six months ended June 27, 2021, representing tax withholdings from restricted stock unit releases of $9.1 million, offset by proceeds from ESPP contributions and exercises of stock options of $6.1 million.

Net cash used in financing activities was $1.3 million for the six months ended June 28, 2020, representing tax withholdings from restricted stock unit releases of $3.1 million, offset by proceeds from ESPP contributions of $1.9 million.

Contractual Obligations

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For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 28, 2021, other than as discussed in Note 2.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 27, 2021, other than as discussed in Note 2.

Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q,

2 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

During the three months ended March 28, 2021, there were no material changes to our market risk disclosures as set forth in Part II Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2020.

During the six months ended June 27, 2021, there were no material changes to our market risk disclosures as set forth in Part II Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 2. Management’s Discussion and Analysis