What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-05 · 229 added, 182 removed, 798 unchanged (34% of the section changed)

40 unchanged sentences

shares issued and outstanding:

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

84,266,833 at October 3, 2021 and 79,336,242 at December 31, 2020

Additional paid-in capital 394,136 366,455

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

(In thousands, except per share data)

16 unchanged sentences

Loss from operations ( 15,615 ) ( 17,961 ) ( 52,908 ) ( 89,195 )

Interest income 3 151 27 686

Interest income (expense), net ( 1 ) 74 26 760

Other income (expense), net 599 543 4,170 2,837

11 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

(In thousands)

4 unchanged sentences

Total other comprehensive income (loss), before tax 12 ( 23 ) 9 ( 7 )

Tax benefit (provision) related to derivative instruments ( 1 ) — ( 1 ) —

Total other comprehensive income (loss), net of tax 11 ( 23 ) 8 ( 7 )

5 unchanged sentences

(In thousands)

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

Net loss — — — — ( 15,198 ) ( 15,198 )

2 unchanged sentences

Issuance of common stock under stock-based compensation plans 1,723 2 — — — 2

Issuance of common stock under Employee Stock Purchase Plan 249 — 1,265 1,265

Restricted stock unit withholdings ( 622 ) ( 1 ) ( 3,853 ) — — ( 3,854 )

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

Change in unrealized gains and losses on derivatives, net of tax — — — 11 — 11

Balance as of October 3, 2021 84,267 $ 84 $ 394,136 $ 11 $ ( 282,007 ) $ 112,224

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

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

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

2 unchanged sentences

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

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

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

1 unchanged sentence

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

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

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

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 — — — 9 — 9

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)

Balance as of October 3, 2021 84,267 $ 84 $ 394,136 $ 11 $ ( 282,007 ) $ 112,224

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 — — — 16 — 16

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

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

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

2021 June 28,

Nine Months Ended

2021 September 27,

(In thousands)

7 unchanged sentences

Deferred income taxes ( 284 ) 63

Loss on disposal of property and equipment 57 19

Premium amortization (discount accretion) on investments, net ( 3 ) 60

54 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 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.

Actual results could differ materially from those estimates and operating results for the nine months ended October 3, 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 six months ended June 27, 2021.

There have been no significant changes during the nine months ended October 3, 2021.

Recent accounting pronouncements

3 unchanged sentences

Accounting Pronouncements Recently Adopted

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

There were no accounting pronouncements adopted during the nine months ended October 3, 2021.

Accounting Pronouncements Not Yet Effective

17 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 June 27, 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 October 3, 2021:

1 year 2 years Greater than 2 years Total

2 unchanged sentences

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.

For the nine months ended October 3, 2021 and September 27, 2020, $ 64.2 million and $ 33.5 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 70.3 million and $ 46.9 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 19.9 million and $ 21.2 million of this recognized revenue was included in the contract liability balance at the beginning of the period.

16 unchanged sentences

Total as presented on the unaudited condensed consolidated statements of cash flows $ 170,162 $ 190,291

September 27,

2020 December 31,

6 unchanged sentences

Available-for-sale short-term investments

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

As of October 3, 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 and six months ended June 27, 2021.

The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three and nine months ended October 3, 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 Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

(In thousands)

4 unchanged sentences

Balance at the end of the period $ 326 $ 509 $ 326 $ 509

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.

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 October 3, 2021.

ARLO TECHNOLOGIES, INC.

12 unchanged sentences

Total property and equipment, net (1)

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.

$ 10,681 $ 15,821

_________________________

(1) $ 2.5 million property and equipment, net was included in the sublease arrangement for the San Jose office building as of October 3, 2021.

No property and equipment, net was included in the sublease arrangement for the San Jose office building as of December 31, 2020 as the sublease agreement became effective in the third quarter of 2021.

Depreciation and amortization expense pertaining to property and equipment was $ 1.4 million and $ 4.5 million for the three and nine months ended October 3, 2021, respectively, and $ 2.2 million and $ 7.0 million for the three and nine months ended September 27, 2020, respectively.

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

1 unchanged sentence

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.

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

On May 25, 2021, the carrying amount of the asset group exceeded 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).

As a result of the evaluation, the Company recorded an impairment charge of $ 9.1 million, which included $ 6.8 million associated with the right-of-use assets and $ 2.3 million associated with other lease related property and equipment assets, in the second quarter of 2021.

The assets found to be impaired were written down to their fair value 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.

1 unchanged sentence

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

There was no change in the carrying amount of goodwill during the nine months ended October 3, 2021.

The goodwill as of December 31, 2020 and October 3, 2021 was $ 11.0 million.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Goodwill Impairment

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

The Company operates as one operating and reportable segment.

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.

The Company determined that no events occurred or circumstances changed during the three months ended October 3, 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.

23 unchanged sentences

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

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of October 3, 2021 and December 31, 2020:

As of October 3, 2021 As of December 31, 2020

Total Quoted market

26 unchanged sentences

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.

As of October 3, 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.

As of October 3, 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

5 unchanged sentences

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 %.

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

20 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 June 27, 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 October 3, 2021 and December 31, 2020 are summarized as follows:

Derivative Assets Balance Sheet

Location June 27, 2021 December 31, 2020 Balance Sheet

Location June 27, 2021 December 31, 2020

Location October 3, 2021 December 31, 2020 Balance Sheet

Location October 3, 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 June 27, 2021 and December 31, 2020:

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

The following tables set forth the offsetting of derivative assets as of October 3, 2021 and December 31, 2020:

As of October 3, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

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

(In thousands)

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

HSBC $ 90 $ — $ 90 $ ( 8 ) $ — $ 82

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

2 unchanged sentences

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

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

The following table sets forth the offsetting of derivative liabilities as of October 3, 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

As of October 3, 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

HSBC $ 8 $ — $ 8 $ ( 8 ) $ — $ —

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 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

The Company entered into two forward contracts related to its cash flow hedging program in the third quarter of 2021 with an average size of $ 1.8 million related to its cash flow hedging program.

The effects of the Company's cash flow hedges on the unaudited condensed consolidated statements of operations for the three and nine months ended October 3, 2021 are summarized as follows:

Three Months Ended October 3, 2021

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

3 unchanged sentences

Gains (losses) on cash flow hedge $ 122 $ ( 1 ) $ — $ ( 10 ) $ ( 1 )

Six Months Ended June 27, 2021

Nine Months Ended October 3, 2021

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

5 unchanged sentences

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

The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three and nine months ended September 27, 2020 are summarized as follows:

Three Months Ended September 27, 2020

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

3 unchanged sentences

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

Six Months Ended June 28, 2020

Nine Months Ended September 27, 2020

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

6 unchanged sentences

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

The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the nine months ended October 3, 2021 and September 27, 2020.

Non-designated hedges

1 unchanged sentence

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

The effects of the Company’s non-designated hedge included in Other income (expense), net on the unaudited condensed consolidated statements of operations for the three and six months ended June 27, 2021 and June 28, 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 nine months ended October 3, 2021 and September 27, 2020 were as follows:

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

Recognized in Income on Derivative Three Months Ended Six Months Ended

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

Recognized in Income on Derivative Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 October 3, 2021 September 27, 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 and six months ended June 27, 2021 and June 28, 2020.

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three and nine months ended October 3, 2021 and September 27, 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 $ — $ — $ — $ —

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

Other comprehensive income (loss) before reclassifications — 122 ( 1 ) 121

1 unchanged sentence

Net current period other comprehensive income (loss) — 12 ( 1 ) 11

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

Balance as of October 3, 2021 $ — $ 12 $ ( 1 ) $ 11

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

4 unchanged sentences

Net current period other comprehensive income (loss) ( 1 ) 10 ( 1 ) 8

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

Balance as of October 3, 2021 $ — $ 12 $ ( 1 ) $ 11

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

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

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

1 unchanged sentence

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

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

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

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) ( 23 ) 16 — ( 7 )

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

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

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:

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and nine months ended October 3, 2021 and September 27, 2020:

Three Months Ended

June 27, 2021 June 28, 2020

October 3, 2021 September 27, 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

$ 122 $ 110 $ ( 39 ) $ ( 30 ) Total *

Six Months Ended

June 27, 2021 June 28, 2020

Nine Months Ended

October 3, 2021 September 27, 2020

28 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 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.

As of October 3, 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 October 3, 2021.

The Credit Agreement was terminated on October 27, 2021.

On the same day, the Company entered into a Loan and Security Agreement with Bank of America, N.A.

for a $ 40 million three-year revolving credit facility.

Refer to Note 14.

Subsequent Event for further information about the terms and structure of the credit facility.

Commitments and Contingencies

6 unchanged sentences

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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 $ 1.4 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 lease costs were included in the lease expense and they were immaterial.

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

Lease expense was $ 1.7 million and $ 1.7 million for the three months ended October 3, 2021 and September 27, 2020, respectively, and $ 5.3 million and $ 5.3 million for the nine months ended October 3, 2021 and September 27, 2020, respectively.

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

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

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

Supplemental cash flow information related to operating leases for the nine months ended October 3, 2021 and September 27, 2020 was as follows:

October 3, 2021 September 27, 2020

(in thousands)

3 unchanged sentences

Operating leases $ 1,429 $ 461

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 and weighted average discount rate related to operating leases as of October 3, 2021 were as follows:

Weighted average remaining lease term 6.5 years

Weighted average discount rate 6.3 %

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

The Company's future minimum undiscounted lease payments under operating leases and future non-cancelable rent payments from its subtenants for each of the next five years and thereafter as of October 3, 2021 were as follows:

Operating Lease Payments Sublease Payments Net

(In thousands)

2021 (Remaining six months) $ 2,893

2021 (Remaining three months) $ 1,088 $ — $ 1,088

2022 6,270 ( 1,673 ) 4,597

2023 5,491 ( 1,891 ) 3,600

2024 4,881 ( 1,947 ) 2,934

2025 3,179 ( 2,006 ) 1,173

Thereafter 11,489 ( 8,008 ) 3,481

7 unchanged sentences

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.

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 included $ 6.8 million associated with the right-of-use asset and $ 2.3 million associated with other lease related property and equipment assets, in the second quarter of 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.

11 unchanged sentences

The Company classifies the Sublease as an operating lease.

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

The accounting of the Sublease commenced on October 1, 2021.

Sublease income is recognized over the term of the sublease on a straight-line basis and is recorded as a reduction of rental expense.

Letters of Credit

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.

As of October 3, 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 June 27, 2021, the Company had approximately $ 19.0 million in non-cancelable purchase commitments with suppliers.

As of October 3, 2021, the Company had approximately $ 40.3 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.

3 unchanged sentences

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

As of October 3, 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.

2 unchanged sentences

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 Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

(In thousands)

67 unchanged sentences

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.

Plaintiffs opposed on July 28, 2021, and the Arlo defendants replied on August 13, 2021.

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

Plaintiffs 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.

On September 9, 2021, the court issued an order granting the Arlo defendants’ forum non conveniens motion.

On September 17, 2021, the court issued a final judgment dismissing the State Action in its entirety.

Arlo Technologies, Inc., et al.

10 unchanged sentences

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.

On August 23, 2021, plaintiff filed a second amended complaint.

Defendants’ motion to dismiss the second amended complaint is due on December 17, 2021.

Plaintiff’s opposition is due January 31, 2022, and defendants’ reply is due on March 2, 2022.

Skybell Technologies, Inc.

2 unchanged sentences

(“Vivint”), and SimpliSafe, Inc.

(“SimpliSafe”) at the U.S.

(“SimpliSafe”) (collectively “Respondents”) at the U.S.

International Trade Commission (“ITC”).

The action alleges that the Company’s cameras and video doorbell cameras infringe seven patents:

10,097,796 (“the ’796 patent”), 10,200,660 (“the ’660 patent”), 10,523,906 (“the ’906 patent”), 10,097,797 (“the ’797 patent”), 9,485,478 (“the ’478 patent”), 10,674,120 (“the ’120 patent”), and 9,432,638 (“the ’638 patent”) (collectively, “the Asserted Patents”).

The Asserted Patents are all from the same family and generally directed to detecting a person at a camera and communicating video and audio from the camera to a cell phone along with various other features.

The case was instituted on January 25, 2021 as Investigation

The Asserted Patents are all from the same family and generally

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.

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.

On September 15, 2021, the Administrative Law Judge (“ALJ”) hearing the case at the ITC issued an Initial Determination (“ID”) ruling that all the Asserted Patents are invalid.

The ALJ agreed with Respondents’ contention that there was an impermissible break in priority chains of the applications of the Asserted Patents during their prosecution – meaning that certain of Skybell’s prior issued patents fully anticipated or invalidated all the Asserted Patents.

Therefore, the ALJ ruled that there can be no patent infringement or violation of Section 337 of the Tariff Act of 1930 by the Respondents.

Skybell appealed the ID by submitting its Petition for Review to the ITC on September 27, 2021, and the Respondents submitted their Response to the Petition to Review on October 4, 2021.

The ITC will decide to grant review of the ID in whole, in part, or not at all, and if any review of the ID is granted then a briefing and oral argument schedule will be designated by the ITC.

As of October 3, 2021, the Company is unable to predict the outcome of this matter, and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceeding discussed herein.

Indemnification of Directors and Officers

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 June 27, 2021 and December 31, 2020.

The Company had no liabilities recorded for these agreements as of October 3, 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 June 27, 2021 and December 31, 2020.

The Company had no liabilities recorded for these agreements as of October 3, 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.

2 unchanged sentences

Under the intellectual property rights cross-license agreement entered into between the Company and NETGEAR, each party, in its capacity as a licensee, indemnifies the other party, in its capacity as a licensor, and its directors, officers, agents, successors and subsidiaries against any losses suffered by such indemnified party as a result of the indemnifying party’s practice of the intellectual property licensed to such indemnifying party under the intellectual property rights cross-license agreement.

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

Also, under the tax matters agreement entered into between the Company and NETGEAR, each party is liable for, and indemnifies the other party

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and its subsidiaries from and against any liability for, taxes that are allocated to the indemnifying party under the tax matters agreement.

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

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 June 27, 2021.

The Company had no liabilities recorded for these agreements as of October 3, 2021.

Environmental Regulation

2 unchanged sentences

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

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

however, it is possible that future environmental legislation

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Employee Benefit Plans

3 unchanged sentences

Options granted under the 2018 Plan generally vest over four years , the first tranche at the end of 12 months and the remaining shares underlying the option vesting monthly over the remaining three years .

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

On July 28, 2021, the Compensation Committee of the Board of Directors (the “Committee”) of the unanimously approved an amendment to the 2018 Plan to, among other things, reserve an additional 1,500,000 shares of the Company’s common stock to be used exclusively for grants of awards to individuals who were not previously employees or non-employee directors of the Company (or following a bona fide period of non-employment with the Company), as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 303A.08 of the New York Stock Exchange (the “NYSE”) Listed Company Manual (“Rule 303A.08”).

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

The following table sets forth the available shares for grant under the 2018 Plan as of October 3, 2021 and December 31, 2020:

Number of Shares

4 unchanged sentences

Shares traded for taxes 1,993

Shares available for grant as of June 27, 2021

Shares available for grant as of October 3, 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") in the first quarter of 2021 .

Also includes 0.8 million shares granted to the Company's CEO in the third quarter of 2021, with the award designed to reward both continued service and the creation of shareholder value.

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 June 27, 2021, 1,564,425 shares were available for issuance under the ESPP.

As of October 3, 2021, 1,315,080 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 six months ended June 27, 2021 was as follows:

Arlo’s stock option activity during the nine months ended October 3, 2021 was as follows:

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Forfeited / cancelled ( 29 ) $ 7.13

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:

Outstanding as of October 3, 2021 2,750 $ 10.45

Vested and expected to vest as of October 3, 2021 2,750 $ 10.45

Exercisable Options as of October 3, 2021 2,593 $ 10.17

NETGEAR’s stock option activity for Arlo employees during the nine months ended October 3, 2021 was as follows:

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Expired — $ —

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:

Outstanding as of October 3, 2021 12 $ 20.76

Vested and expected to vest as of October 3, 2021 12 $ 20.76

Exercisable Options as of October 3, 2021 12 $ 20.76

Arlo’s RSU activity during the nine months ended October 3, 2021 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 702 ) $ 5.12

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

Outstanding as of October 3, 2021 11,293 $ 5.50

ARLO TECHNOLOGIES, INC.

5 unchanged sentences

The minimum number of shares that NEOs can earn is 75 % of the target number of the PSUs.

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.

As of October 3, 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 four-year period from the grant date.

A positive 3.3 x or negative 2.5 x multiplier will be applied to the total shareholder returns (“TSR”), such that the number of shares vested will increase by 3.3 % or decrease by 2.5 % of the target numbers, for each 1 % of positive or negative TSR relative to the Benchmark.

1 unchanged sentence

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

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 six months ended June 27, 2021 was as follows:

As of October 3, 2021, 26.84 % of the outstanding MPSUs are expected to vest.

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

Also includes 0.8 million shares granted to the Company's CEO in the third quarter of 2021, with vesting subject to satisfaction of both a service condition and a market condition.

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

The market 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 market condition is not satisfied prior to the Performance Period End Date, the award expires or cancels.

NETGEAR’s RSU activity for Arlo employees during the nine months ended October 3, 2021 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

3 unchanged sentences

Forfeited ( 4 ) $ 38.60

Outstanding as of June 27, 2021

Outstanding as of October 3, 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 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 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 nine months ended October 3, 2021 and September 27, 2020.

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Expected life (in years) NA 0.5 0.5 0.5

Risk-free interest rate NA 0.86 % 0.06 % 1.47 %

Expected volatility NA 99.6 % 87.0 % 85.7 %

Dividend yield 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 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 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

The fair value of the MPSUs granted in the third quarter of 2021 (the 0.8 million shares granted to the Company's CEO), in the first quarter of 2021 and in the second quarter of 2020 were $ 5.21 , $ 11.77 and $ 4.11 per share, respectively.

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

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Expected life 4.0 N/A 4.0 3.0

Risk-free interest rate 0.55 % N/A 0.38 % 0.24 %

Expected volatility 67.9 % N/A 69.5 % 69.3 %

Dividend yield — N/A — —

Stock Beta NA N/A 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 Six Months Ended

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

Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020

(In thousands)

4 unchanged sentences

Total stock-based compensation $ 7,599 $ 9,001 $ 27,548 $ 26,338

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

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.

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

As of October 3, 2021, $ 0.8 million of unrecognized compensation cost related to Arlo’s stock options was expected to be recognized over a weighted-average period of 0.8 years.

$ 46.8 million of unrecognized compensation cost related to unvested Arlo’s RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.2 years.

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.

As of October 3, 2021, there was no unrecognized compensation cost related to NETGEAR’s stock options for Arlo employees.

$ 0.8 million of unrecognized compensation cost related to unvested NETGEAR’s RSUs for Arlo employees was expected to be recognized over a weighted-average period of 0.4 years.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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

The provision for income taxes for the three and nine months ended October 3, 2021 was $ 0.2 million, or an effective tax rate of ( 1.2 )%, and $ 0.5 million, or an effective tax rate of ( 1.1 )%, respectively.

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

During the three and nine months ended October 3, 2021, the Company sustained lower U.S.

book losses than the same periods in the prior year.

Consistent with the prior year, the Company maintained a valuation allowance against its U.S.

federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since it is more likely than not that these deferred tax assets will not be realized.

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

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.

The increase in provision for income taxes for the three and nine months ended October 3, 2021, compared to the prior year periods, was primarily due to higher foreign earnings in fiscal 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 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

Net loss per share for the three and nine months ended October 3, 2021 and September 27, 2020 were as follows:

Three Months Ended Nine Months Ended

October 3, 2021 September 27, 2020 October 3, 2021 September 27, 2020

(In thousands, except per share data)

19 unchanged sentences

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

Three Months Ended Six Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

(In thousands)

13 unchanged sentences

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-

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

The Credit Agreement provides for a three-year revolving credit facility (the “Credit Facility”) that matures on October 27, 2024.

Borrowings under the Credit Facility are limited to the lesser of (x) $ 40.0 million, and (y) an amount equal to the borrowing base.

The borrowing base will be the sum of (i) 90 % of investment grade eligible receivables and

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.

(ii) 85 % of non-investment grade eligible accounts, less applicable reserves established by the Lender.

The Credit Agreement also includes a $ 5.0 million sublimit for the issuance by the Lender of letters of credit.

In addition, the Credit Agreement includes an uncommitted accordion feature that allows the Company to from time to time request that the Lender increase the aggregate revolving loan commitments by up to an additional $ 25.0 million in the aggregate, subject to the satisfaction of certain conditions, including obtaining the Lender’s agreement to participate in each increase.

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

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

At the Company’s option, borrowings under the Credit Agreement will bear interest at a floating rate equal to:

(i) the Bloomberg Short-Term Bank Yield Index rate plus the applicable rate of 2.0 % to 2.5 % determined based on the Company’s average daily availability for the prior fiscal quarter, or (ii) the base rate plus the applicable rate of 1.0 % to 1.5 % based on the Company’s average daily availability for the prior fiscal quarter.

Among other fees, the Company is required to pay a monthly unused fee of 0.2 % per annum on the amount by which the Lender’s aggregate commitment under the Credit Facility exceeds the average daily revolver usage during such month.

The Credit Agreement contains events of default, representations and warranties, and affirmative and negative covenants customary for credit facilities of this type.

The Credit Agreement also contains financial covenants that require the Company to (a) until the Company achieves a fixed charge coverage ratio of at least 1.00 to 1.00 for two consecutive quarters, maintain minimum liquidity of not less than $ 20.0 million at all times and (b) thereafter, maintain a fixed charge coverage ratio, tested quarterly on a trailing twelve month basis, of at least 1.00 to 1.00 at any time a Financial Covenant Trigger Period (as defined in the Credit Agreement) is in effect.

If an event of default under the Credit Agreement occurs, then the Lender may cease making advances under the Credit Agreement and declare any outstanding obligations under the Credit Agreement to be immediately due and payable.

In addition, if the Company files a bankruptcy petition, a bankruptcy petition is filed against the Company and is not dismissed or stayed within thirty 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.

No amounts had been drawn under the Credit Facility as of November 10, 2021.

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