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Item 8. Financial Statements and Supplementary Data

2022-03-02 compared with 2021-02-26 · 437 added, 555 removed, 1133 unchanged (47% of the section changed)

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We have audited the accompanying consolidated balance sheets of Arlo Technologies, Inc.

and its subsidiaries (the “Company”) as of December 31, 2020 and December 31, 2019, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

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We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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San Jose, California

February 26, 2021

March 2, 2022

We have served as the Company's auditor since 2018.

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

19,997 19,990

Accounts receivable, net (net of allowance for credit losses of $ 337 and $ 519 )

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Operating lease right-of-use assets, net 14,814 23,998

Intangibles, net — 1,306

Goodwill 11,038 11,038

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Additional paid-in capital 401,367 366,455

Accumulated other comprehensive income (loss) 3 ( 2 )

Accumulated other comprehensive income — 3

Accumulated deficit ( 288,799 ) ( 232,770 )

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General and administrative 49,489 51,096 47,624

Impairment charges 9,116 — —

Separation expense 1,596 248 1,913

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Interest income 11 802 2,737

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

Other income, net 4,775 3,436 913

Loss before income taxes ( 55,352 ) ( 100,626 ) ( 81,571 )

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Total other comprehensive income (loss), before tax ( 3 ) 5 ( 2 )

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

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

Total other comprehensive income (loss), net of tax ( 3 ) 5 ( 2 )

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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

(In thousands)

Balance as of December 31, 2018 74,247 $ 74 $ 315,277 $ — $ ( 45,849 ) $ 269,502

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

Net loss, prior to the completion of the Contribution — — — ( 29,634 ) — — ( 29,634 )

Net loss, after the completion of the Contribution — — — — — ( 45,849 ) ( 45,849 )

Issuance of common stock from initial public offering 11,747 12 174,725 — — — 174,737

Initial public offering costs paid by the Company — — ( 1,404 ) — — — ( 1,404 )

Initial public offering costs paid by Parent — — ( 3,148 ) — — — ( 3,148 )

Net transfer from Parent — — — 43,549 — — 43,549

Conversion of Net parent investment into common stock 62,500 62 139,030 ( 139,030 ) — — 62

Stock-based compensation expense funded by Parent — — — 2,757 — — 2,757

Stock-based compensation expense post-initial public offering — — 6,074 — — — 6,074

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — — ( 2 ) — ( 2 )

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

Balance as of December 31, 2018 74,247 74 315,277 — — ( 45,849 ) 269,502

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

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Restricted stock unit withholdings ( 380 ) — ( 1,875 ) — — ( 1,875 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — — 25 — 25

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

Change in unrealized gains on available-for-sale securities, net of tax — — — 25 — 25

Change in unrealized losses on derivatives, net of tax — — — ( 27 ) — ( 27 )

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

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

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

Settlement of liability classified restricted stock unit — — 4,242 — — 4,242

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

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

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

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

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

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

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

Net loss — — — — ( 56,029 ) ( 56,029 )

Stock-based compensation expense — — 24,792 — — 24,792

Settlement of liability classified restricted stock unit — — 15,095 — — 15,095

Issuance of common stock under stock-based compensation plans 6,538 8 5,261 — — 5,269

Issuance of common stock under Employee Stock Purchase Plan 602 — 2,962 — — 2,962

Restricted stock unit withholdings ( 2,023 ) ( 3 ) ( 13,198 ) — — ( 13,201 )

Change in unrealized losses on available-for-sale securities, net of tax — — — ( 1 ) — ( 1 )

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

Balance as of December 31, 2021 84,453 $ 84 $ 401,367 $ — $ ( 288,799 ) $ 112,652

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

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Stock-based compensation expense 38,030 35,247 22,894

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

Impairment charges 9,116 — —

Allowance for credit losses and inventory reserves ( 3,125 ) 964 ( 2,921 )

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

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Cash flows from financing activities:

Proceeds from initial public offering, net of offering costs — — 173,395

Restricted stock unit withholdings ( 13,201 ) ( 4,778 ) ( 1,875 )

Proceeds related to employee benefit plans 8,231 4,755 1,837

Net investment from NETGEAR — — 70,892

Net cash provided by (used in) financing activities ( 23 ) ( 38 ) 244,287

Net cash used in financing activities ( 4,970 ) ( 23 ) ( 38 )

Net increase (decrease) in cash and cash equivalents and restricted cash ( 10,435 ) ( 50,528 ) 85,395

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De-recognized fair value of build-to-suit lease $ — $ — $ ( 21,610 )

Estimated fair value of a facility under build-to-suit lease including tenant improvements $ — $ — $ 28,357

Supplemental cash flow information:

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

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

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

On February 6, 2018, NETGEAR Inc.

(“NETGEAR”) announced that its board of directors had unanimously approved the pursuit of a separation of its Arlo business from NETGEAR (the “Separation”) to be effected through an initial public offering (the “IPO”) of newly issued shares of the common stock of Arlo, then a wholly owned subsidiary of NETGEAR.

On July 6, 2018, the Company filed a registration statement (as amended, the "IPO Registration Statement") relating to the IPO of common stock of Arlo with the U.S.

Securities and Exchange Commission (the "SEC").

Following a series of restructuring steps prior to the completion of the IPO of Arlo common stock, the Arlo business was transferred from NETGEAR to Arlo (collectively, the “Contribution”).

On August 2, 2018, NETGEAR and Arlo announced the pricing of the IPO of 10,215,000 shares of Arlo’s common stock at a price to the public of $ 16.00 per share.

On August 3, 2018, Arlo’s shares began trading on the New York Stock Exchange under the ticker symbol “ARLO.” On August 7, 2018, the Company completed its IPO of 11,747,250 shares of common stock (including 1,532,250 shares of common stock pursuant to the underwriters’ option to purchase additional shares, which was exercised in full on August 3, 2018), at $ 16.00 per share, before underwriting discounts and commissions and estimated offering costs.

Cash proceeds from the IPO were $ 173.4 million, net of the portion of the offering cost paid by Arlo, which portion was $ 1.4 million.

The total offering cost was $ 4.6 million, of which $ 3.2 million was paid by NETGEAR.

Prior to the completion of the IPO, the Company was a wholly owned subsidiary of NETGEAR and upon the closing of the IPO (including the issuance of additional shares of common stock pursuant to the underwriters’ option to purchase additional shares, which was exercised in full) on August 7, 2018, NETGEAR owned approximately 84.2 % of the shares of Arlo’s outstanding common stock.

On November 29, 2018, NETGEAR announced that its board of directors had approved a special stock dividend (the “Distribution”) to NETGEAR stockholders of the 62,500,000 shares of Arlo common stock owned by NETGEAR.

The Distribution was made on December 31, 2018 (the “Distribution Date”) to all NETGEAR stockholders of record as of the close of business on December 17, 2018 (the “Record Date”).

In the Distribution, each NETGEAR stockholder of record on the Record Date received 1.980295 shares of Arlo common stock for every share of NETGEAR common stock held on the Record Date, subject to cash in lieu of fractional shares.

The Distribution was intended to qualify as generally tax free to NETGEAR stockholders for U.S.

federal income tax purposes.

In connection with the Distribution, 62,500,000 shares of Arlo common stock held by NETGEAR were distributed to its stockholders and NETGEAR is no longer considered a related party to the Company.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

Basis of Presentation

The combined financial statements of Arlo that cover dates prior to the completion of the IPO have been derived and carved out from the consolidated financial statements and accounting records of NETGEAR as if Arlo had operated on a stand-alone basis within the periods presented.

In connection with the Separation and IPO, certain assets and liabilities presented have been transferred to Arlo at carry-over (historical cost) basis.

Balances contributed by NETGEAR on or before the completion of the IPO were based on the master separation agreement between the Company and NETGEAR and related documents governing the Contribution.

Following the completion of the IPO, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All periods presented have been accounted for in conformity with U.S.

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Securities and Exchange Commission (“SEC”).

Allocated Expenses from NETGEAR

Prior to the completion of the IPO, NETGEAR provided certain corporate services to the Company, which were allocated based on revenue, headcount, or other measures the Company has determined as reasonable through July 1, 2018.

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

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

Fiscal periods

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The Company deposits cash and cash equivalents with high credit quality financial institutions.

Restricted cash

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restricted cash

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

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

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

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

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dollar as the functional currency.

Changes in exchange rates between the Company’s functional currency and other currencies in which the Company transacts business will cause fluctuations in cash flow expectations and cash flow realized or settled.

Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk.

The Company enters into foreign currency forward contracts in Australian dollars and Canadian

Changes in exchange rates between the Company’s functional currency and other currencies in which the Company transacts business will cause fluctuations in cash flow

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

dollars to manage its exposure to foreign exchange risk related to expected future cash flows on certain forecasted revenue, costs of revenue, operating expenses and existing assets and liabilities.

expectations and cash flow realized or settled.

Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk.

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

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

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Cash flow hedges

To help manage the exposure of operating margins to fluctuations in foreign currency exchange rates, the Company hedges a portion of its anticipated foreign currency revenue, costs of revenue and certain operating expenses.

These hedges are designated at the inception of the hedge relationship as cash flow hedges.

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The Company believes the counterparties for its outstanding contracts are large, financially sound institutions and thus, the Company does not anticipate nonperformance by these counterparties.

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

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

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

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As of December 31, 2021, three customers accounted for 35.3 %, 20.1 % and 10.1 % of the Company's total accounts receivable, net.

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

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

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

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

ARLO TECHNOLOGIES, INC.

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

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

Goodwill pertains to the acquisitions of Avaak, Inc.

(“Avaak”) and Placemeter, Inc.

(“Placemeter”).

and Placemeter, Inc.

Goodwill represents the amount by which the purchase price exceeds estimated fair value of net assets of businesses acquired in a business combination.

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

If the fair value is less than the carrying amount, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The quantitative assessment compares the fair value of a reporting unit with its carrying amount, including goodwill.

If the fair value is less than the carrying amount, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

that reporting unit.

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

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

Intangibles, net

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

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

Finite-lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Examples of such events or circumstances include:

a significant decrease in the market price of the asset, a significant decline in the Company’s expected future cash flows, significant changes or planned changes in its use of the assets, and a significant adverse change in the business climate.

Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.

If the carrying amount of the asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

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

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

No impairment charges were recorded for all periods presented.

Revenue recognition

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

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

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

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

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

period product revenue.

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

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

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Services that are included with certain hardware products are considered distinct and therefore the hardware and service are treated as separate performance obligations.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

After identifying the separate performance obligations, the transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis.

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Long-term Supply Arrangement - Verisure

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

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

dependent on the actual costs.

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

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

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NRE Arrangement - Verisure

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

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

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control for NRE development services therefore transfers over time.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company determined that the most appropriate measure of progress for revenue recognition is the input method based on cost because the Company can reasonably estimate the total costs for the NRE, and the costs incurred reasonably reflects the Company’s efforts to satisfy the performance obligation.

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Sales incentives

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

otherwise, it is recorded as a reduction to revenues.

otherwise, it is recorded as a reduction to revenue.

As a consequence, the Company records a substantial portion of its channel marketing costs as a reduction of revenue.

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There were no deferred commissions as of December 31, 2021 and 2020.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Contract balances

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

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

Refer to Note 3, Deferred Revenue for detailed disclosures regarding changes in contract balances for the years ended December 31, 2021 and 2020.

Research and development

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Stock-based compensation

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Stock-based compensation expense has been allocated to the Company based on the awards and terms previously granted to the Company’s employees as well as an allocation of NETGEAR’s corporate and shared functional employee expenses.

The Company measures stock-based compensation at the grant date based on the fair value of the award.

The fair value of stock options and the shares offered under the employee stock purchase plan is estimated using the Black-Scholes option pricing model.

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

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

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

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

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

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

Equity awards granted by the Company under its own stock-based compensation plans are comprised of stock options, restricted stock units ("RSUs"), performance RSUs ("PSUs"), and market-based performance RSUs ("MPSUs").

The Company measures stock-based compensation costs at the grant date based on the fair value of the award.

The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model.

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

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

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

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

The Company recognizes this compensation expense generally on a straight-line basis over the requisite service period, usually the vesting period, which is generally four years for stock options and three to four years for RSUs.

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

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

The Company records forfeitures as they occur.

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

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The duration of each purchasing period is generally six months .

The Company determines the fair value using the Black-Scholes Model using various inputs, including our estimate of expected volatility, term, dividend yield and risk-free interest rate.

The Company determines the fair value using the Black-Scholes Model using various inputs, including its estimate of expected volatility, term, dividend yield and risk-free interest rate.

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

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

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

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

ARLO TECHNOLOGIES, INC.

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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 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 for fixed lease payments are recognized in the 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.

ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of the leases do not provide an implicit rate, the incremental borrowing rate based on the information available was used at commencement date in determining the present value of lease payments.

As most of the leases do not provide an implicit rate, the incremental borrowing rate based on the information available is used at commencement date in determining the present value of lease payments.

The Company uses the implicit rate when readily determinable.

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The lease agreements with lease and non-lease components are generally accounted as a single component.

Net income (loss) per share

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

Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

Potentially dilutive common shares include common shares issuable upon exercise of stock options and vesting of restricted stock awards, which are reflected in diluted net income (loss) per share by application of the treasury stock method.

Potentially dilutive common shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive.

In addition, certain operating lease agreements contain tenant improvement allowances ("TIA") from the landlords.

The Company records lessee-owned improvements as leasehold improvements within Property and equipment, net on its consolidated balance sheets and the TIA as a reduction to the ROU asset with the impact of the decrease recognized prospectively over the remaining lease term.

The Company records lessor-owned improvements as a prepaid rent within Prepaid expenses and other current assets on its consolidated balance sheets and the TIA as a reduction to prepaid rent.

Sublease revenue from the Company's sublet office space in San Jose, California is recognized on a straight-line basis over the term of the sublease and is recorded as a reduction of rental expense.

Net loss per share

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

Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of restricted stock awards and performance shares, and issuances of shares under the ESPP, which are reflected in diluted net loss per share by application of the treasury stock method.

Potentially dilutive common shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive.

Segment Information

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Gains and losses arising from foreign currency transactions are included in Other income (expense), net on the consolidated statements of operations.

We record our provision for income taxes in our consolidated financial statements using the asset and liability method.

Under this method, we recognize income tax liabilities or receivable for the current year.

We also recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards.

The Company records its provision for income taxes in its consolidated financial statements using the asset and liability method.

Under this method, the Company recognizes income tax liabilities or receivable for the current year.

The Company also recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled.

We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.

Our assessment considers the recognition of deferred tax assets on a jurisdictional basis.

Accordingly, in assessing our future taxable income on a jurisdictional basis, we consider the effect of its transfer pricing policies on that income.

We have placed a valuation allowance against U.S.

federal and state deferred tax assets and certain foreign tax attribute carryforwards since we do not anticipate to realize the benefits of deferred tax assets.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

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

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

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

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

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

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

The Company records a valuation allowance to reduce its deferred tax assets to the net amount that it believes is more likely than not to be realized.

The Company's assessment considers the recognition of deferred tax assets on a jurisdictional basis.

Accordingly, in assessing the Company's future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income.

The Company has placed a valuation allowance against U.S.

federal and state deferred tax assets and certain foreign tax attribute carryforwards since it does not anticipate to realize the benefits of deferred tax assets.

The Company recognizes tax benefits from uncertain tax positions only if it believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

As the Company expands internationally, it will face increased complexity in determining the appropriate tax jurisdictions for revenue and expense items.

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

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

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

The Company recognizes the tax on GILTI as a period cost when the tax is incurred.

ARLO TECHNOLOGIES, INC.

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Accounting Pronouncements Recently Adopted

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

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

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

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

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

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

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No.

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

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

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

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

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

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

There were no accounting pronouncements adopted during the year ended December 31, 2021.

Accounting Pronouncements Not Yet Effective

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

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

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

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

Deferred Revenue

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Advance payments include prepayments for products and NRE services under the Supply Agreement with Verisure.

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Transaction Price Allocated to the Remaining Performance Obligations

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Contract liabilities - non-current Non-current deferred revenue $ 1,344 $ 16,563 $ ( 15,219 ) ( 91.9 ) %

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

For the year ended December 31, 2021, compared to the previous year, Accounts receivable, net increased, primarily driven by an increase in revenue in the fourth quarter of 2021, current portion of deferred revenue decreased, primarily due to utilization of Verisure prepayment for product purchases and Verisure NRE installment payments and recognition of prepaid service revenue;

and Non-current deferred revenue decreased due to recognition of prepaid service revenue and utilization of Verisure prepayment for product purchases.

For the years ended December 31, 2021 and 2020, $ 88.7 million and $ 90.9 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue and Verisure prepayments for product purchases, and $ 96.5 million and $ 67.3 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

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Sales and usage-based taxes are excluded from revenue.

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

Refer to Note 14, Segment and Geographic Information for revenue by geography.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Disposal of Business

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

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

Refer to Note12, Employee Benefit Plans for further detail relating to this modification.

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

Given such, no loss adjustment was necessary.

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

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

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

Pursuant to the terms and subject to the conditions set forth in the Supply Agreement, Verisure is the exclusive distributor of Company products in Europe for all channels, and will non-exclusively distribute the Company's products through its direct channels globally for an initial terms of five years .

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

As of December 31, 2021, $ 160.1 million of the product purchase commitment has been fulfilled.

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

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

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

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

As of December 31, 2021, Verisure has paid $ 13.5 million for this NRE service.

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

For the years ended December 31, 2021 and 2020, the Company has recognized service revenue of $ 5.9 million and $ 7.9 million, respectively, for this NRE service.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

For the years ended December 31, 2021 and 2020, the Company charged Verisure $ 2.8 million and $ 4.0 million, respectively, for Verisure TSA services which was recorded as Other income, given such services are not related to the primary business in which the Company operates.

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

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

The Company did not recognize any other-than-temporary impairment losses related to available-for-sale short-term investment for the years ended December 31, 2019 and 2018.

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company did not recognize any other-than-temporary impairment losses related to available-for-sale short-term investments for the year ended December 31, 2019.

During the years ended December 31, 2021 and 2020, the Company did not recognize any allowance for credit losses related to available-for-sale short-term investments.

Accounts receivable, net

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

Provision for expected credit losses 186 482 —

Provision for (release of) expected credit losses ( 182 ) 186 482

Amount recovered due to collection — ( 276 ) —

Balance at the end of the period $ 337 $ 519 $ 609

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and equipment, net

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Total property and equipment, net (1)

$ 9,595 $ 15,821

_________________________

(1) $ 2.4 million property and equipment, net was included in the sublease arrangement for the San Jose office building as of December 31, 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 expense pertaining to property and equipment was $ 5.9 million, $ 8.8 million and $ 9.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

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

Intangibles, net

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

Gross Accumulated Amortization Net Gross Accumulated Amortization Net

(In thousands)

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

Other 500 ( 500 ) — 500 ( 454 ) 46

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

No impairment charges were recorded for all periods presented.

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

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

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

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

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

Refer to Note 6, Fair Value Measurements, for additional information about the fair value measured on a non-recurring basis and Note 11, Commitments and Contingencies , for further information about the sublease.

There was no change in the carrying amount of goodwill during the year ended December 31, 2021, and the goodwill as of December 31, 2021 and December 31, 2020 was $ 11.0 million .

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

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.

On the first day of the fourth quarter of 2021, the Company performed an annual assessment of goodwill at the reporting unit level.

The Company operates as one operating and reportable segment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A qualitative assessment was performed

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

in consideration of macroeconomic conditions, industry and market conditions, cost factors, overall company financial performance, and changes in the Company's stock price.

The Company did not believe it is more likely than not that the fair value of the reporting unit is less than its carrying amount and therefore performing the next step of impairment test was unnecessary.

No goodwill impairment was recognized in the years ended December 31, 2021, 2020 and 2019.

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

Other non-current assets

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(In thousands)

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

Net deferred taxes assets $ 1,565 $ 1,269

Sublease initial direct cost 1,471 —

Deposits 122 122

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Total accrued liabilities $ 97,377 $ 121,766

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair Value Measurements

Fair Value Measurements - Recurring Basis

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020:

9 unchanged sentences

Treasuries (1)

19,997 19,997 —

Foreign currency forward contracts (2)

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Total liabilities measured at fair value $ 47 $ — $ 47

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2020

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

As of 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 December 31, 2021 and 2020 the adjustment for non-performance risk did not have a

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

Fair Value Measurements - Nonrecurring Basis

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

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

The fair value measurements were determined using a discounted cash flow method with unobservable inputs and were classified 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 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 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, in the second quarter of 2021.

Refer to Note 5, Balance Sheet Components , for further information about the impairment of the right-of-use assets and long-lived assets.

Derivative Financial Instruments

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Total $ 65 $ 24 $ 47 $ 199

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Refer to Note 6, Fair Value Measurements for detailed disclosures regarding fair value measurements in accordance with the authoritative guidance for fair value measurements and disclosures.

Gross amounts offsetting of derivative instruments

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2021 Gross Amounts Not Offset in the Consolidated Balance Sheets

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(In thousands)

HSBC $ 6 $ — $ 6 $ ( 6 ) $ — $ —

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

Total $ 27 $ — $ 27 $ ( 27 ) $ — $ —

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

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(In thousands)

HSBC $ 83 $ — $ 83 $ ( 6 ) $ — $ 77

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

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

ARLO TECHNOLOGIES, INC.

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

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

The Company entered into two forward contracts related to its cash flow hedging program for the year ended December 31, 2021 with an average size of $ 2.2 million equivalent related to its cash flow hedging program.

The effects of the Company’s cash flow hedges on the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 are summarized as follows:

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

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

For information on the unrealized gains or losses on derivatives reclassified out of AOCI into the consolidated statements of operations, refer to Note 8, Accumulated Other Comprehensive Income (Loss).

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

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Non-designated hedges

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

The Company adjusts its non-designated hedges monthly and enters into about six non-designated derivative per quarter with an average size of $ 2.3 million USD equivalent.

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

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Balance as of December 31, 2018 $ ( 2 ) $ 2 $ — $ —

Other comprehensive income (loss) before reclassifications ( 2 ) 276 — 274

Amount reclassified from accumulated other comprehensive income (loss) — 274 — 274

Other comprehensive income before reclassifications 25 275 — 300

Amount reclassified from accumulated other comprehensive income — 302 — 302

Net current period other comprehensive income (loss) 25 ( 27 ) — ( 2 )

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

Amount reclassified from accumulated other comprehensive income (loss) — 302 — 302

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

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

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

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

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

Amount reclassified from accumulated other comprehensive income — 124 — 124

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

Balance as of December 31, 2021 $ — $ — $ — $ —

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* There is no tax impact on all hedging gains and losses from derivative contracts due to the Company’s full valuation allowance of its deferred tax assets.

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Year Ended December 31,

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Total $ 677 $ 625 $ 4,380

Net deferred tax assets consisted of the following:

The effective tax rate differed from the U.S.

federal income tax rate as follows:

Year Ended December 31,

2021 2020 2019

Tax benefit at U.S.

federal income tax rate 21.0 % 21.0 % 21.0 %

State tax benefit, net of federal benefit 2.9 % 4.4 % 3.0 %

Impact of international operations 1.3 % 0.8 % 1.4 %

taxes on foreign entities ( 3.9 ) % 2.5 % ( 3.6 ) %

Stock-based compensation ( 3.0 ) % ( 4.2 ) % ( 2.6 ) %

federal tax credits 1.6 % 1.6 % 1.6 %

Change in valuation allowance ( 20.3 ) % ( 26.4 ) % ( 23.8 ) %

Non-deductible transaction costs ( 0.6 ) % ( 0.1 ) % ( 0.7 ) %

Goodwill derecognition — % — % ( 1.2 ) %

Other ( 0.2 ) % ( 0.2 ) % ( 0.5 ) %

Benefit (provision) for income taxes ( 1.2 ) % ( 0.6 ) % ( 5.4 ) %

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The significant components of net deferred tax assets consisted of the following:

As of December 31,

11 unchanged sentences

Deferred Tax Liabilities:

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

Right-of-use assets ( 3,462 ) ( 5,804 )

Total deferred tax liabilities ( 3,462 ) ( 5,804 )

1 unchanged sentence

Net deferred tax assets $ 1,565 $ 1,269

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Changes in allowance for deferred tax assets were as follows:

Changes in valuation allowance for deferred tax assets were as follows:

Year Ended December 31,

3 unchanged sentences

Additions (1)

11,246 26,579 19,440

Deductions (2)

Balance at the end of the period $ 81,742 $ 70,496 $ 43,917

Realization of the Company’s deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

________________________

(1) The increases in valuation allowance were primarily due to the increases in tax attribute carryforwards and capitalized expenditures for income tax purposes.

(2) There were no deductions presented because there has not been a reduction in the valuation allowance .

The fiscal 2020 and 2019 additions and deductions to the deferred tax assets roll-forward have been recast to conform with the fiscal 2021 classification, which is based on each tax jurisdiction.

Prior to the recast, the additions and deductions in the deferred tax assets roll-forward were based on the positive and negative movements within the individual components of deferred tax assets.

Realization of the Company’s deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

The Company does not anticipate to realize the net U.S.

1 unchanged sentence

As of December 31, 2021 and 2020, the valuation allowance was $ 81.7 million and $ 70.5 million, respectively.

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2021, net operating loss carryforwards consisted of the following:

2 unchanged sentences

$ 14,028 2031

Federal 79,073 Indefinite

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

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

federal (1)(2)

95,243 Indefinite

California 18,655 2040

Other states 43,804 2024

_________________________

(1) All of the losses are subject to annual usage limitations under Internal Revenue Code Section 382.

(2) All of the losses are subject to usage limitation of 80% of taxable income in a year when the losses will be utilized.

As of December 31, 2021, tax credit carryforwards consisted of the following:

4 unchanged sentences

Foreign 1,839 2042

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effective tax rate differs from the applicable U.S.

statutory federal rate as follows:

As of December 31, 2021, withholding taxes and state income taxes expected to be incurred on the foreign subsidiaries’ earnings that are not indefinitely reinvested are immaterial.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows:

Year Ended December 31,

2021 2020 2019

Tax at federal statutory rate 21.0 % 21.0 % 21.0 %

State, net of federal benefit 4.4 % 3.0 % 5.9 %

Impact of international operations 0.8 % 1.4 % 0.4 %

Taxes on Foreign Entities 2.5 % ( 3.6 ) % ( 1.8 ) %

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

Tax credits 1.6 % 1.6 % 1.5 %

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

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

Goodwill derecognition — % ( 1.2 ) % — %

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

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

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

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

Losses incurred predominantly in the U.S.

continue to be subject to a full valuation allowance.

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

Losses incurred predominantly in the U.S.

continue to be subject to a full valuation allowance.

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

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

Federal, State, and Foreign Tax

(In thousands)

Balance as of December 31, 2017 $ 1,022

Additions based on tax positions related to the current year 338

Adjustments to Net parent investments ( 1,338 )

Balance as of December 31, 2018 22

Additions based on tax positions related to the current year 674

Additions for tax positions of prior years 8

Balance as of December 31, 2019 704

Additions based on tax positions related to the current year 503

Additions for tax positions of prior years 148

Balance as of December 31, 2020 $ 1,355

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

Balance at the beginning of the period $ 1,355 $ 704 $ 22

Additions for tax positions taken during the current year 444 503 674

Additions (reductions) for tax positions taken during a prior year ( 58 ) 148 8

Reductions as a result of a lapse of the applicable statute of limitations ( 5 ) — —

Balance at the end of the period $ 1,736 $ 1,355 $ 704

The total amount of unrecognized tax benefits, including immaterial interest and penalties, was $ 1.7 million and $ 1.4 million as of December 31, 2021 and 2020, respectively.

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

1 unchanged sentence

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

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

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

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

As a result of the spin-off of Arlo from NETGEAR in 2018, Arlo filed the consolidated U.S.

federal and various combined state income tax returns with NETGEAR for the calendar year ended December 31, 2018.

The IRS is currently examining NETGEAR’s U.S.

federal income tax return for the calendar year of 2018.

In addition, the California Franchise Tax Board began an examination of NETGEAR’s 2018 tax year.

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

The Company believes that the estimate has adequately reflected these matters.

However, the Company's future results may include adjustments to estimates in the period the audits will be resolved, which may impact the Company's effective tax rate.

However, the Company's future results may include adjustments to estimates

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

in the period the audits will be resolved, which may impact the Company's effective tax rate.

The Company does not expect a significant change in unrecognized tax benefits within the next twelve months.

Revolving Credit Facility

On November 5, 2019, the Company entered into a Business Financing Agreement (the “Credit Agreement”) with Western Alliance Bank, an Arizona corporation, as lender (the “Lender”).

The Credit Agreement provides for a two-year revolving credit facility (the “Credit Facility”) that matures on November 5, 2021 and that may, by its terms, be extended by mutual written agreement between the Company and the Lender.

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 60 % of the Company’s eligible receivables and eligible accounts receivable, less such reserves as the Lender may deem proper and necessary from time to time.

The Lender is not required to make any advance under the Credit Facility during the period beginning on January 1st and continuing through June 30th, except for advances made against eligible receivables first invoiced between July 1 and December 31, 2019.

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

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

The borrowing base will be the sum of (i) 90 % of investment grade eligible receivables and (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 personal property, excluding intellectual property assets and more than 65 % of the shares of voting capital stock of any of the Company’s foreign subsidiaries.

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

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

The annual facility fee is capitalized and being amortized as interest expense over a 12-month period.

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

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

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.

As of December 31, 2021, the Company is in compliance with all the covenants of the Credit Agreement.

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

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

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 December 31, 2021.

On October 27, 2021, concurrent with completing the Credit Agreement with Bank of America, N.A., the credit agreement with Western Alliance Bank, an Arizona corporation, entered into on November 5, 2019, was terminated.

There was no amount drawn under this credit agreement at termination.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assignment for the benefit of creditors, then any outstanding obligations under the Credit Agreement will automatically and without notice or demand become immediately due and payable.

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

No amounts had been drawn under the Credit Facility as of December 31, 2020.

Commitments and Contingencies

4 unchanged sentences

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

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

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

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

Gross lease expense was $ 7.0 million for each of the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

4 unchanged sentences

Year Ended December 31,

2021 2020 2019

(in thousands)

8 unchanged sentences

Weighted average discount rate 5.77 % 5.69 %

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

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 December 31, 2021 were as follows:

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Thereafter 11,498

Total lease payments 35,821

Total $ 29,429

Accrued liabilities $ 4,400

Non-current operating lease liabilities 25,029

Total $ 29,429

Operating Lease Payments Sublease Payments Net

(In thousands)

2022 $ 5,977 $ ( 1,673 ) $ 4,304

(1) Leases that commenced before November 5, 2019 were calculated using the Company’s incremental borrowing rate on a collateralized basis plus LIBOR rate that closely matches contractual term of most leases.

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

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

2023 5,552 ( 1,891 ) 3,661

2024 4,887 ( 1,947 ) 2,940

2025 3,178 ( 2,006 ) 1,172

2026 3,270 ( 2,066 ) 1,204

Thereafter 8,217 ( 5,942 ) 2,275

Total lease payments 41,011

Total $ 32,913

Total future lease payments $ 31,081 $ ( 15,525 ) $ 15,556

Present value of future minimum lease payments $ 26,079

Accrued liabilities $ 4,609

Non-current operating lease liabilities 21,470

Total $ 32,913

Total lease liabilities $ 26,079

________________________

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

Leases that commenced between November 5, 2019 and October 27, 2021 were calculated using the Company's borrowing rate defined in the credit agreement with Western Alliance Bank.

Leases that commenced after October 27, 2021 were calculated using the Company's borrowing rate defined in the Credit Agreement with Bank of America, N.A.

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 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.

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

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

Refer to Note 5, Balance Sheet Components for further information about the impairment of the right-of-use asset and long-lived assets.

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

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

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

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

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

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

The Company classifies the Sublease as an operating lease.

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

Sublease income is recognized over the term of the sublease on a straight-line basis.

The Company recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million for the year ended December 31, 2021.

Letters of Credit

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

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

As of December 31, 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.

5 unchanged sentences

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

As of December 31, 2020, the Company had approximately $ 19.5 million in non-cancelable purchase commitments with suppliers, respectively.

As of December 31, 2021, the Company had approximately $ 32.9 million in non-cancelable purchase commitments with suppliers.

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

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

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

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

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

8 unchanged sentences

Balance at the beginning of the period $ 2,451 $ 3,169 $ 3,712

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

— — ( 28,713 )

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

Provision for (release of) warranty obligation made during the period ( 655 ) — 260

Settlements made during the period ( 466 ) ( 718 ) ( 803 )

Balance at the end of the period $ 1,330 $ 2,451 $ 3,169

________________________

(1) Upon adoption of ASC 606 on January 1, 2018, warranty reserve balances totaling $ 28.7 million were reclassified to sales returns as these liabilities are payable to the Company’s customers and settled in cash or by credit on account.

Under ASC 606, these amounts are to be accounted for as sales with right of return.

Litigation and Other Legal Matters

9 unchanged sentences

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

15 unchanged sentences

18CV339231 (the “State Action").

The action pending in federal court is Wong v.

The action in federal court is Wong v.

Arlo Technologies, Inc.

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

Plaintiff seeks class certification, an award of unspecified damages, an award of costs and expenses, including attorneys’ fees, and other further relief as the court may deem just and proper.

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

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

Lead plaintiff seeks class certification, an award of unspecified damages, an award of costs and expenses, including attorneys’ fees, and other further relief as the court may deem just and proper.

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

4 unchanged sentences

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

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

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

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

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

District Court for the Northern District of California.

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

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

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

Arlo Technologies, Inc.

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

Foster filed a lawsuit under 8 Del.

§ 220 in the Delaware Court of Chancery.

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

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

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

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

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

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

The Federal Action is now closed.

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

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

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

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

Plaintiffs opposed on July 28, 2021, and the Arlo defendants

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

replied on August 13, 2021.

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

Plaintiffs filed their oppositions on August 12, 2021, and defendants filed their replies on August 27, 2021.

On September 9, 2021, the court issued an order granting the Arlo defendants’ forum non conveniens motion, and on September 17, 2021, the court issued a final judgment dismissing the State Action in its entirety.

On November 16, 2021, Plaintiffs filed a Notice of Appeal.

The appeal is pending before the California Court of Appeal, Sixth Appellate District.

The court has not yet set a date for oral argument.

Arlo Technologies, Inc., et al.

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

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

Arlo Technologies, Inc.

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

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

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

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

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

Plaintiff filed his amended complaint on May 24, 2021.

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

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.

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(“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 No.

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

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.

On November 10, 2021, The ITC affirmed the ALJ’s ruling and did not grant any review of the ID, meaning that there is no trial on the ITC docket since there are no valid patents remaining, and the case is concluded at the ITC level.

On January 9, 2022, Skybell filed its Notice of Appeal to the Federal Circuit to appeal the ITC’s rulings invalidating the Asserted Patents.

As of December 31, 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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company, as permitted under Delaware law and in accordance with its bylaws, has agreed to indemnify its officers and directors for certain events or occurrences, subject to certain conditions, while the officer or director is or was serving at the Company’s request in such capacity.

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Also, under the tax matters agreement entered into between the Company and NETGEAR, each party is liable for, and indemnifies the other party and its subsidiaries from and against any liability for, taxes that are allocated to the indemnifying party under the tax matters agreement.

In addition, the Company has agreed in the

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

tax matters agreement that each party will generally be responsible for any taxes and related amounts imposed on it or NETGEAR as a result of the failure of the Distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S.

In addition, the Company has agreed in the tax matters agreement that each party will generally be responsible for any taxes and related amounts imposed on it or NETGEAR as a result of the failure of the Distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S.

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

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NETGEAR and its subsidiaries that hold registrable securities similarly indemnify the Company but such indemnification will be limited to an amount equal to the net proceeds received by such holder under the sale of registrable securities giving rise to the indemnification obligation.

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Change in Control and Severance Agreements

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

The Company also entered

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The Company also entered into an updated change in control and severance agreement consistent with Mr.

Mattingly’s new role of Chief Financial Officer.

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

Restructuring Related Charges

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

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

The restructuring was completed in the first quarter of 2020.

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

Year Ended December 31,

(In thousands)

Cost of revenue $ 23 $ 69

Research and development — 262

Sales and marketing — 198

General and administrative 21 102

Total $ 44 $ 631

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year Ended December 31,

(In thousands)

Balance at the beginning of the period $ 120 $ —

Additions 44 631

Cash payments ( 164 ) ( 511 )

Balance at the end of the period $ — $ 120

Employee Benefit Plans

2018 Equity Incentive Plan

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

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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 .

On July 28, 2021, the Compensation Committee of the Board of Directors (the “Committee”) 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 ("inducement pool") 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.

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.

The Company’s employees have historically participated in NETGEAR’s various stock-based plans, which are described below and represent the portion of NETGEAR’s stock-based plans in which Arlo employees participated as of December 31, 2021.

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

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

The following table sets forth the available shares for future grants under the 2018 Plan as of December 31, 2021:

Number of Shares

(In thousands)

Shares reserved as of December 31, 2018 3,969

Additional authorized shares 2,970

Forfeited/ cancelled (2)

Shares traded for taxes 380

Shares available for grants as of December 31, 2020

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

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

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

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

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

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

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

(1) Includes approximately 3.2 million shares authorized for issuance pursuant to the "evergreen" provision and 1.5 million shares authorized for issuance under the inducement pool.

(2) Includes approximately 1.0 million shares granted under the inducement pool.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

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

Employee Stock Purchase Plan

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

The Company sponsors the ESPP, pursuant to which eligible employees may contribute up to 15 % of compensation, subject to certain income limits, to purchase shares of Arlo’s common stock.

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

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As of December 31, 2021, approximately 1.3 million shares were available for issuance under the ESPP.

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

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

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

Option Activity

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Outstanding as of December 31, 2020

6,040 $ 11.56

Exercised ( 782 ) 6.73

Forfeited/ Cancelled ( 46 ) 16.00

( 2,359 ) 14.72

Expired ( 32 ) 7.18

Outstanding as of December 31, 2021 2,574 $ 10.55 4.29 $ 4,333

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) Includes IPO Options of 2.8 million shares.

Tranches 1 to 5 granted to Mr.

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

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

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

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

Tranches 1 to 3 granted to Ms.

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

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

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

Gorjanc's separation from the Company.

Year Ended December 31,

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Total fair value of options vested $ 2.60 $ 1.00 $ 3.10

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

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

The following table summarizes significant ranges of outstanding the Company’s stock options as of December 31, 2021.

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434 3.98 16.00 390 16.00

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

2,574 4.29 10.55 2,507 10.44

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the weighted average assumptions used to estimate the fair value of the Company’s stock options granted using Black-Scholes option pricing model during the years ended December 31, 2021, 2020 and 2019 and purchase rights granted under the ESPP during the years ended December 31, 2021 and 2020:

Stock Options ESPP

2021 2020 2019 2021 2020 2019

Expected life (in years) NA 6.3 6.3 0.5 0.5

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

Expected volatility NA 73.0 % 40.0 % 102.0 % 97.6 %

Dividend yield NA — — — —

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

Risk-free interest rate NA NA 2.28 % 0.07 % 0.84 % 2.49 %

Expected volatility NA NA 73.0 % 63.8 % 102.0 % 97.6 %

Dividend yield NA NA — — — —

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

NETGEAR’s stock option activity for Company employees during the year ended December 31, 2021 was as follows:

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Forfeited/cancelled — —

Expired — $ —

Outstanding as of December 31, 2021 11 $ 20.11 0.69 $ 98

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2021 2020 2019

(In millions, except per share data)

(In thousands, except per share data)

Total intrinsic value of options exercised

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Total fair value of options vested $ 35 $ 42 $ 810

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes significant ranges of outstanding NETGEAR’s stock options as of December 31, 2021.

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11 0.69 20.11 11 20.11

Arlo’s RSU activity, excluding PSU activity and MPSU activity, during the year ended of December 31, 2021 was as follows:

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

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

Outstanding as of December 31, 2020

Granted 7,151 7.32

Vested ( 5,539 ) 5.64

Forfeited ( 959 ) 5.21

Outstanding as of December 31, 2021 10,080 $ 5.73 1.38 $ 105,739

Year Ended December 31,

2021 2020 2019

(In millions, except per share data)

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

$ 36.38 $ 13.02 $ 5.51

Total fair value of RSUs vested (the grant date fair value) $ 31.25 $ 22.15 $ 12.90

RSU granted weighted-average fair value per share

$ 7.32 $ 3.03 $ 4.77

The Company grants restricted stock units to its NEOs periodically that vested based on the Company's attainment of cash balance goals as of December 31, 2020 and December 31, 2021 and the NEO's continued employment through the vesting dates ("PSUs").

The vesting periods for the PSUs are three or four years.

The maximum number of shares that NEOs can earn is 120 % of the target number of the PSUs.

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Stock Options ESPP (1)

Expected life (in years) 4.4 0.5

Risk-free interest rate 2.32 % 1.81 %

Expected volatility 30.9 % 37.1 %

Dividend yield — —

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

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

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

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

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

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

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

The Company's PSU activity during the year ended of December 31, 2021 was as follows:

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

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Outstanding as of December 31, 2020

( 3,474 ) 6.38

Granted 231 7.44

Vested ( 198 ) 2.74

Forfeited — —

( 1,210 ) 4.63

Outstanding as of December 31, 2021 (1)

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

527 $ 4.80 1.12 $ 5,528

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

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

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

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

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

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

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

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

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

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

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

The maximum number of shares that NEOs can earn is 120 % of the target number of the PSUs.

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

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

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(1) Includes 329,178 shares of PSUs for the 2020 performance period, achieved at 120 % of target, or 395,014 shares and vest over three years , and 197,823 shares of PSUs for the 2021 performance period, achieved at 120 % of target, or 237,388 shares and vest over four years .

Year Ended December 31,

(In millions, except per share data)

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

Total fair value of RSUs vested (the grant date fair value) $ 0.54 NA

RSU granted weighted-average fair value per share

$ 7.44 $ 2.74

MPSU Activity

The Company grants restricted stock units to its NEOs that vest based on the Company's stock price performance relative to a broad-market index over a performance period of three to four years and the NEO's continued employment through the vesting date ("TSR MPSUs").

The TSR MPSUs will vest at the end of the three or four -year periods that begin on the TSR MPSUs' grant date based on performance of the Company's common stock relative to the Benchmark during the three or four -year periods from the grant dates.

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

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

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

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

Gorjanc's separation from the Company.

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

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

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

The Company's TSR MPSU activity during the year ended of December 31, 2021 was as follows:

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

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

Outstanding as of December 31, 2020

Granted 198 11.77

Forfeited — —

Outstanding as of December 31, 2021

841 $ 5.92 1.62 $ 8,817

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year Ended December 31,

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

Total fair value of RSUs vested (the grant date fair value) NA NA NA

RSU granted weighted-average fair value per share

$ 11.77 $ 4.11 $ 4.14

The Company also grants restricted stock units to its CEO that vest based on the Company's achievement of its stock price performance targets and the CEO's continued employment through the vesting dates ("CEO MPSUs").

The CEO MPSUs will vest over four years in substantially equal quarterly installments that begin on the CEO MPSUs' grant date 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 target at $ 7.57 per share, with the second tranche target at $ 8.69 per share, with the third tranche target at $ 9.97 per share, with the fourth tranche target $ 11.44 per share and with the fifth tranche target at $ 13.20 per share.

To the extent that the stock price of the tranche does not achieve its corresponding price target prior to the Performance Period End Date, the CEO MPSUs expire or cancel.

On December 1 and 29, 2021, the stock price performance targets for the first and second tranches were achieved, respectively.

The Company's CEO MPSU activity during the year ended of December 31, 2021 was as follows:

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

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

Outstanding as of December 31, 2020

Granted 758 5.21

Vested ( 19 ) 5.64

Forfeited — —

Outstanding as of December 31, 2021

739 $ 5.20 1.82 $ 7,749

Year Ended December 31,

(In millions, except per share data)

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

Total fair value of RSUs vested (the grant date fair value) $ 0.11

RSU granted weighted-average fair value per share

$ 3.03 $ 4.77 $ 14.46

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

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

Year Ended December 31,

2021 2020 2019

Expected life 4.0 3.0 3.0

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Outstanding as of December 31, 2020 127 $ 37.81

( 129 ) 34.53

Vested ( 76 ) 36.60

Forfeited ( 4 ) 38.83

Outstanding as of December 31, 2021 47 $ 39.67 0.20 $ 1,363

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

Gorjanc's separation from the Company.

Year Ended December 31,

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RSU granted weighted-average fair value per share

NA NA $ 67.24

ARLO TECHNOLOGIES, INC.

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

The stock-based compensation expense for Company employees consist of Company RSUs, PSUs, MPSUs and stock options and NETGEAR RSUs and stock options granted to Company employees, employees' annual bonus in RSU form, allocated charges deemed attributable to Company operations resulting from NETGEAR’s in 2018, and the purchase rights under the NETGEAR’s ESPP in 2018.

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

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2021 2020 2019

Total Total Direct (1)

Indirect Total

(In thousands)

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_________________________

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

(1) There was no tax benefit as a result of the Company's net operating loss position.

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

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

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

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$ 48.4 million of unrecognized compensation cost related to unvested Arlo’s RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.3 years.

As of December 31, 2021, there was no unrecognized compensation cost related to NETGEAR’s stock options for Arlo employees.

$ 0.4 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 0.2 years.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

In the fourth quarter of fiscal year 2018, the Company began matching 50 % of contributions for employees that remain active with the Company through the end of the fiscal year, up to a maximum of $ 8,000 before fiscal 2020 and $ 4,000 starting fiscal 2020 in employee contributions per fiscal year.

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

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

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

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

Net Income (Loss) Per Share

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

The weighted average number of shares outstanding for the basic and diluted net income (loss) per share for the periods prior to the completion of the IPO is based on the number of shares of Arlo common stock outstanding on August 2, 2018, the effective date of the registration statement relating to the IPO (the “IPO Registration Statement”).

On that date, the Company issued 62,499,000 shares of common stock to the Company’s sole stockholder of record, NETGEAR (after which NETGEAR held 62,500,000 shares of common stock, which represented all of the then issued and outstanding common stock).

Potentially dilutive common shares, such as common shares issuable upon exercise of stock options and vesting of restricted stock awards are typically reflected in the computation of diluted net income (loss) per share by application of the treasury stock method.

The Company matched 50 % of contributions for employees up to a maximum of $ 4,000 before fiscal 2020 and $ 2,000 starting fiscal 2020 in employee contributions per fiscal year.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 1.1 million, $ 0.9 million and $ 1.5 million in expenses for Arlo employees related to Arlo 401(k) Plan match, respectively.

Net Loss Per Share

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

Potentially dilutive common shares, such as common shares issuable upon exercise of stock options, vesting of restricted stock awards and performance shares, and issuance of shares under the ESPP, are typically reflected in the computation of diluted net loss per share by application of the treasury stock method.

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.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net loss per share for the years ended December 31, 2021, 2020 and 2019 were as follows:

5 unchanged sentences

Potentially dilutive common shares — — —

Stock option and RSU conversion (1)

Weighted average common shares - dilutive 82,688 78,084 75,074

2 unchanged sentences

Anti-dilutive employee stock-based awards, excluded 5,041 5,623 9,692

_________________________

(1) On December 31, 2018, 6.8 million shares subject to stock options and RSUs were added to the Company’s equity awards as issued and outstanding resulting from the adjustment of NETGEAR’s equity awards that were granted to both NETGEAR and Arlo employees and non-employee directors, a portion of which were converted as Arlo awards.

The dilutive effect of these converted stock options and RSUs is reflected above per share by application of the treasury stock method and none are potentially dilutive.

Segment and Geographic Information

1 unchanged sentence

The Company operates as one operating and reportable segment.

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

The Company has identified its CEO as the CODM.

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

3 unchanged sentences

Revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance for revenue recognition, net changes in deferred revenue, and gains or losses from hedging.

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

For reporting purposes, revenue by geography is generally based upon the ship-to location of the customer for device sales and prepaid services, while based upon a paid account's location for paid service revenue.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

7 unchanged sentences

Total revenue $ 435,137 $ 357,154 $ 370,007

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fiscal 2020 and 2019 balances have been recast to conform with the fiscal 2021 classification of paid service revenue following the paid account's location.

Prior to the recast, the paid service revenue was allocated and was reported based the ship-to location of the customer for device sales and prepaid services.

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

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Significant Customers

Two customers accounted for 30.8 %, and 13.0 % of revenue for the year ended December 31, 2021.

Four customers accounted for 20.6 %, 17.3 %, 14.6 % and 12.2 % of revenue for the year ended December 31, 2020.

Two customers accounted for 32.3 % and 10.1 % of revenue for the year ended December 31, 2019.

Three customers accounted for 24.4 %, 17.5 %, and 16.6 % of revenue for the year ended December 31, 2018.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

QUARTERLY UNAUDITED FINANCIAL DATA

The following table presents unaudited quarterly financial information for the years ended December 31, 2020 and 2019.

2020 September 27,

2020 June 28,

2020 March 29,

(In thousands, except per share amounts)

Revenue $ 114,836 $ 110,236 $ 66,632 $ 65,450

Gross profit $ 24,538 $ 21,409 $ 5,489 $ 3,953

Provision for (benefit from) income taxes $ 182 $ 115 $ 183 $ 145

Net income (loss) $ ( 15,210 ) $ ( 17,459 ) $ ( 29,256 ) $ ( 39,326 )

Net income (loss) per share—basic (1)

$ ( 0.19 ) $ ( 0.22 ) $ ( 0.38 ) $ ( 0.51 )

Net income (loss) per share—diluted

$ ( 0.19 ) $ ( 0.22 ) $ ( 0.38 ) $ ( 0.51 )

December 31, 2019 (2)

September 29,

2019 June 30,

2019 March 31,

(In thousands, except per share amounts)

Revenue $ 122,413 $ 106,116 $ 83,598 $ 57,880

Gross profit $ 13,706 $ 10,503 $ 9,650 $ 1,945

Provision for income taxes $ 3,525 $ 286 $ 349 $ 220

Net loss $ 19,615 $ ( 30,590 ) $ ( 33,692 ) $ ( 41,284 )

Net loss per share—basic (1)

$ 0.26 $ ( 0.41 ) $ ( 0.45 ) $ ( 0.55 )

Net loss per share—diluted $ 0.26 $ ( 0.41 ) $ ( 0.45 ) $ ( 0.55 )

_________________________

(1) Net loss per share basic and diluted are computed independently for each quarter presented based on the weighted-average basic and fully diluted shares outstanding for each quarter.

As a result, the sum of quarterly Net loss per share basic and diluted information may not equal annual Net loss per share basic and diluted.

(2) The Company disposed its commercial operations in Europe in the fourth quarter of 2019.

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

No other customers accounted for 10% or greater of the Company's revenue.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data