What changed in this filing

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Item 1. Financial Statements

2022-05-11 compared with 2021-11-10 · 221 added, 341 removed, 686 unchanged (45% of the section changed)

40 unchanged sentences

shares issued and outstanding:

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

85,834,841 at April 3, 2022 and 84,453,212 at December 31, 2021

Additional paid-in capital 409,242 401,367

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Three Months Ended

2022 March 28,

(In thousands, except per share data)

11 unchanged sentences

General and administrative 12,621 11,227

Impairment charges — — 9,116 —

Separation expense 79 54

Gain on sale of business — — — ( 292 )

Total operating expenses 42,247 37,279

14 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Three Months Ended

2022 March 28,

(In thousands)

4 unchanged sentences

Total other comprehensive income (loss), before tax ( 46 ) ( 3 )

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

Total other comprehensive income (loss), net of tax ( 46 ) ( 3 )

5 unchanged sentences

(In thousands)

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

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

Stock-based compensation expense — — 6,688 — — 6,688

Settlement of liability classified RSUs — — 8,525 — — 8,525

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

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

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

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

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

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

(In thousands)

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

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

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

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

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

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

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

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

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

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

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

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

(In thousands)

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

3 unchanged sentences

Issuance of common stock under stock-based compensation plans 2,127 3 1,385 — — 1,388

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

Restricted stock unit withholdings ( 745 ) ( 1 ) ( 6,659 ) — — ( 6,660 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — ( 46 ) — ( 46 )

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

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

Balance as of April 3, 2022 85,835 $ 86 $ 409,242 $ ( 46 ) $ ( 297,278 ) $ 112,004

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

9 unchanged sentences

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

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

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

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

2021 September 27,

Three Months Ended

2022 March 28,

(In thousands)

3 unchanged sentences

Stock-based compensation expense 9,589 8,340

Impairment charges 9,116 —

Depreciation and amortization 1,302 1,547

1 unchanged sentence

Deferred income taxes ( 9 ) ( 130 )

Loss on disposal of property and equipment 57 19

Premium amortization (discount accretion) on investments, net 28 ( 3 )

Gain on sale of business — ( 292 )

Changes in assets and liabilities:

14 unchanged sentences

Restricted stock unit withholdings ( 6,660 ) ( 4,177 )

Net cash used in financing activities ( 5,535 ) ( 1,581 )

Net cash provided by (used in) financing activities ( 5,272 ) 1,956

Net decrease in cash and cash equivalents and restricted cash

17 unchanged sentences

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

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

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

Basis of Presentation

15 unchanged sentences

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

Actual results could differ materially from those estimates and operating results for the nine months ended October 3, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future period.

Actual results could differ materially from those estimates and operating results for the three months ended April 3, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period.

ARLO TECHNOLOGIES, INC.

2 unchanged sentences

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

There have been no significant changes during the three months ended April 3, 2022.

Recent accounting pronouncements

3 unchanged sentences

Accounting Pronouncements Recently Adopted

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

There were no accounting pronouncements adopted during the three months ended April 3, 2022.

Accounting Pronouncements Not Yet Effective

17 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of October 3, 2021:

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of April 3, 2022:

1 year 2 years Greater than 2 years Total

2 unchanged sentences

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

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

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

For the three months ended April 3, 2022 and March 28, 2021, $ 25.8 million and $ 17.7 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 27.5 million and $ 21.9 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 9.0 million and $ 10.5 million of this recognized revenue was included in the contract liability balance at the beginning of the periods.

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

7 unchanged sentences

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

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

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

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

5 unchanged sentences

Total as presented on the unaudited condensed consolidated statements of cash flows $ 105,089 $ 179,856

September 27,

2021 December 31,

6 unchanged sentences

Available-for-sale short-term investments

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

As of April 3, 2022 As of December 31, 2021

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

3 unchanged sentences

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

The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three and nine months ended October 3, 2021.

The Company did not recognize any allowance for credit losses related to available for sale short-term investments for the three months ended April 3, 2022.

Accounts receivable, net

5 unchanged sentences

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

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Three Months Ended

2022 March 28,

(In thousands)

Balance at the beginning of the period $ 337 $ 519

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

Provision for (release of) expected credit losses ( 210 ) ( 301 ) ( 193 ) ( 100 )

Provision for expected credit losses 2 —

Amounts recovered due to collection — —

Balance at the end of the period $ 339 $ 519

Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of October 3, 2021.

Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of April 3, 2022.

ARLO TECHNOLOGIES, INC.

14 unchanged sentences

_________________________

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

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

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

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

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 assets, in the second quarter of 2021.

The assets found to be impaired were written down to their fair value calculated using a discounted cash flow method (income approach).

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

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) $ 2.2 million and $ 2.4 million property and equipment, net, respectively, was included in the sublease arrangement for the San Jose office building as of April 3, 2022 and December 31, 2021.

Depreciation and amortization expense pertaining to property and equipment was $ 1.3 million and $ 1.5 million for the three months ended April 3, 2022 and March 28, 2021, respectively.

There was no change in the carrying amount of goodwill during the three months ended April 3, 2022.

The goodwill as of December 31, 2021 and April 3, 2022 was $ 11.0 million.

Goodwill Impairment

1 unchanged sentence

The Company operates as one operating and reportable segment.

The Company determined that no events occurred or circumstances changed during the three months ended October 3, 2021 that would more likely than not reduce the fair value of the Company below its carrying amount.

The Company determined that no events occurred or circumstances changed during the three months ended April 3, 2022 that would more likely than not reduce the fair value of the Company below its carrying amount.

If there is a significant decline in the Company’s stock price based on market conditions and deterioration of the Company’s business, the Company may have to record a charge to its earnings for the goodwill impairment of up to $ 11.0 million.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other non-current assets

1 unchanged sentence

(In thousands)

Non-current deferred income taxes $ 1,551 $ 1,269

Sublease initial direct cost 1,012 —

Net deferred tax assets $ 1,574 $ 1,565

Sublease 1,762 1,471

Deposits 122 122

17 unchanged sentences

Fair Value Measurements - Recurring Basis

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

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

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of April 3, 2022 and December 31, 2021:

As of April 3, 2022 As of December 31, 2021

Total Quoted market

26 unchanged sentences

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

As of October 3, 2021 and December 31, 2020, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts.

As of April 3, 2022 and December 31, 2021, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts.

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

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

As of April 3, 2022 and December 31, 2021, the Company had no Level 3 fair value assets or liabilities measured on a recurring basis.

Fair Value Measurements - Nonrecurring Basis

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

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

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

For the three months ended April 3, 2022 and March 28, 2021, respectively, the Company had no assets or liabilities measured on a nonrecurring basis.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 assets were $ 8.1 million and $ 2.8 million, respectively.

The Company recorded an impairment charge of $ 9.1 million on the assets measured at fair value on a non-recurring basis, which includes $ 6.8 million associated with the right-of-use assets and $ 2.3 million associated with other lease related property and equipment assets, in the second quarter of 2021.

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

Derivative Financial Instruments

16 unchanged sentences

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair value of derivative instruments

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of October 3, 2021 and December 31, 2020 are summarized as follows:

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of April 3, 2022 and December 31, 2021 are summarized as follows:

Derivative Assets Balance Sheet

Location October 3, 2021 December 31, 2020 Balance Sheet

Location October 3, 2021 December 31, 2020

Location April 3, 2022 December 31, 2021 Balance Sheet

Location April 3, 2022 December 31, 2021

(In thousands) (In thousands)

Derivative assets not designated as hedging instruments Prepaid expenses and other current assets $ — $ 65 Accrued liabilities $ 37 $ 47

Derivative assets designated as hedging instruments Prepaid expenses and other current assets 10 2 Accrued liabilities 1 —

Total $ 90 $ 24 $ 8 $ 199

Refer to Note 5, Fair Value Measurements, for detailed disclosures regarding fair value measurements in accordance with the authoritative guidance for fair value measurements and disclosures.

2 unchanged sentences

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

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

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

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

(In thousands)

HSBC $ 90 $ — $ 90 $ ( 8 ) $ — $ 82

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

There were no derivative assets recorded as of April 3, 2022.

The following table sets forth the offsetting of derivative assets as of December 31, 2021:

December 31, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

2 unchanged sentences

Wells Fargo Bank $ 65 $ — $ 65 $ ( 47 ) $ — $ 18

The following table sets forth the offsetting of derivative liabilities as of October 3, 2021 and December 31, 2020:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The following tables set forth the offsetting of derivative liabilities as of April 3, 2022 and December 31, 2021:

As of April 3, 2022 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

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

(In thousands)

HSBC $ 8 $ — $ 8 $ ( 8 ) $ — $ —

Wells Fargo Bank $ 37 $ — $ 37 $ — $ — $ 37

December 31, 2021 Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets

4 unchanged sentences

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

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

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

Three Months Ended October 3, 2021

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

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

(In thousands)

Statements of operations $ 111,149 $ 86,806 $ 14,377 $ 12,779 $ 12,119

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

Nine Months Ended October 3, 2021

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

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

(In thousands)

Statements of operations 292,276 215,957 45,419 36,445 36,905

Gains (losses) on cash flow hedge $ 122 $ ( 1 ) $ — $ ( 8 ) $ ( 1 )

The Company did not enter into any forward contracts related to its cash flow hedging program for the three months ended April 3, 2022.

There were no cash flow hedge effects on the unaudited condensed consolidated statements of operations for the three months ended April 3, 2022.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Three Months Ended September 27, 2020

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

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

(In thousands)

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

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

Nine Months Ended September 27, 2020

The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three months ended March 28, 2021 are summarized as follows:

Three Months Ended March 28, 2021

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

6 unchanged sentences

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

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

The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the three months ended April 3, 2022 and March 28, 2021.

Non-designated hedges

1 unchanged sentence

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

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

The effects of the Company’s non-designated hedges, which are included in Other income (expense), net in the unaudited condensed consolidated statements of operations for the three months ended April 3, 2022 and March 28, 2021, were as follows:

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

Recognized in Income on Derivative Three Months Ended Nine Months Ended

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

Recognized in Income on Derivative Three Months Ended

April 3, 2022 March 28, 2021

(In thousands)

3 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three and nine months ended October 3, 2021 and September 27, 2020.

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

(In thousands)

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

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

Amount reclassified from accumulated other comprehensive income (loss) — 110 — 110

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

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

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three months ended April 3, 2022 and March 28, 2021.

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

4 unchanged sentences

Net current period other comprehensive income (loss) ( 46 ) — — ( 46 )

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

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

(In thousands)

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

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

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

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

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

Balance as of April 3, 2022 $ ( 46 ) $ — $ — $ ( 46 )

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

4 unchanged sentences

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three months ended April 3, 2022 and March 28, 2021:

Three Months Ended

October 3, 2021 September 27, 2020

Gains (Losses) Recognized in OCI - Effective Portion Gains (Losses) Reclassified from OCI to Income - Effective Portion Gains (Losses) Recognized in OCI - Effective Portion Gains (Losses) Reclassified from OCI to Income - Effective Portion Affected Line Item in the Statements of Operations

(In thousands)

Gains (losses) on cash flow hedge:

Foreign currency contracts $ 122 $ 122 $ ( 39 ) $ ( 37 ) Revenue

Foreign currency contracts — ( 1 ) — — Cost of revenue

Foreign currency contracts — — — 5 Research and development

Foreign currency contracts — ( 10 ) — 2 Sales and marketing

Foreign currency contracts — ( 1 ) — — General and administrative

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

Nine Months Ended

October 3, 2021 September 27, 2020

April 3, 2022 March 28, 2021

10 unchanged sentences

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.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

The borrowing base will be the sum of (i) 90 % of investment grade eligible receivables and (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 request, from time to time, 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 plus two and one-quarter percentage points ( 2.25 %), plus an additional five percentage points ( 5 %) during any period that an event of default has occurred and is continuing.

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

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 unaudited condensed consolidated balance sheets and are being amortized as interest expense over the contractual term of the Credit Agreement.

The Credit Agreement contains customary events of default and other restrictions, including a financial covenant that requires the Company to maintain $ 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 April 3, 2022, 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 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 October 3, 2021, the Company is in compliance with all the covenants of the Credit Agreement.

No amounts had been drawn under the Credit Facility as of October 3, 2021.

The Credit Agreement was terminated on October 27, 2021.

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

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

Refer to Note 14.

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

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 April 3, 2022.

Commitments and Contingencies

6 unchanged sentences

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

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

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

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

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

Lease expense for

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

October 3, 2021 September 27, 2020

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

Gross lease expense was $ 1.8 million and $ 1.6 million for the three months ended April 3, 2022 and March 28, 2021, respectively.

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

The Company recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million for the three months ended April 3, 2022.

Supplemental cash flow information related to operating leases for the three months ended April 3, 2022 and March 28, 2021 was as follows:

April 3, 2022 March 28, 2021

(in thousands)

3 unchanged sentences

Operating leases $ 18 $ —

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

Weighted average remaining lease term 6.5 years

Weighted average remaining lease term and weighted average discount rate related to operating leases were as follows:

April 3, 2022 December 31, 2021

Weighted average remaining lease term 5.9 years 6.1 years

Weighted average discount rate 5.76 % 5.77 %

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

Operating Lease Payments Sublease Payments Net

(In thousands)

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

2022 (Remaining nine months) $ 4,362 $ ( 1,506 ) $ 2,856

2023 5,563 ( 1,891 ) 3,672

10 unchanged sentences

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

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

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

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

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

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

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

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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 and is recorded as a reduction of rental expense.

Letters of Credit

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

As of October 3, 2021, the Company had approximately $ 3.6 million of unused letters of credit outstanding, of which $ 3.1 million pertains to the lease arrangement in San Jose, California.

As of April 3, 2022, the Company had approximately $ 3.6 million of unused letters of credit outstanding, of which $ 3.1 million pertains to the lease arrangement in San Jose, California.

Purchase Obligations

2 unchanged sentences

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

As of October 3, 2021, the Company had approximately $ 40.3 million in non-cancelable purchase commitments with suppliers.

As of April 3, 2022, the Company had approximately $ 34.7 million in non-cancelable purchase commitments with suppliers.

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

3 unchanged sentences

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

As of October 3, 2021, the loss liability from committed purchases was $ 0.7 million.

As of April 3, 2022, the loss liability from committed purchases was $ 0.3 million.

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

2 unchanged sentences

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

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Three Months Ended

2022 March 28,

(In thousands)

3 unchanged sentences

Balance at the end of the period $ 1,330 $ 1,937

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Litigation and Other Legal Matters

Securities Class Action Lawsuits and Derivative Suit

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below.

36 unchanged sentences

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

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

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.

2 unchanged sentences

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

approval of a class action settlement for $ 1.25 million, which was also the amount that the Company had accrued for loss contingency.

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

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

1 unchanged sentence

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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

9 unchanged sentences

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

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

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

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

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.

11 unchanged sentences

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.

Defendants moved to dismiss the second amended complaint on December 17, 2021.

Plaintiff filed his opposition on January 31, 2022, and defendants filed their reply on March 2, 2022.

The hearing on defendants' motion to dismiss is currently scheduled for July 28, 2022.

Skybell Technologies, Inc.

15 unchanged sentences

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

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

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

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 April 3, 2022, the Company is unable to predict the outcome of this matter, and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceeding discussed herein.

Indemnification of Directors and Officers

4 unchanged sentences

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

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

The Company had no liabilities recorded for these agreements as of April 3, 2022 and December 31, 2021.

Indemnifications

4 unchanged sentences

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

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

The Company had no liabilities recorded for these agreements as of April 3, 2022 and December 31, 2021.

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

1 unchanged sentence

The master separation agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of its business with the Company and financial responsibility for the obligations and liabilities of NETGEAR’s business with NETGEAR.

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

such indemnifying party under the intellectual property rights cross-license agreement.

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

In addition, the Company has agreed in the tax matters agreement that each party will generally be responsible for any taxes and related amounts imposed on it or NETGEAR as a result of the failure of the special stock dividend (the “Distribution”) by NETGEAR to NETGEAR stockholders of the 62,500,000 shares of Arlo common stock owned by NETGEAR that was made on December 31, 2018, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S.

6 unchanged sentences

Pursuant to the Severance Agreements, upon a termination without cause or resignation with good reason, the individual would be entitled to (1) cash severance equal to (a) the individual’s annual base salary and an additional amount equal to his or her target annual bonus (for the Chief Executive Officer) or (b) the individual’s annual base salary (for other executive officers), (2) 12 months of health benefits continuation, and (3) accelerated vesting of any unvested time-based equity awards that would have vested during the 12 months following the termination date.

Upon a termination without cause or resignation with good reason that occurs during the one month prior to or 12 months following a change in control, the individual would be entitled to (1) (a) cash severance equal to a multiple ( 2 times for the Chief Executive Officer and 1 times for other executive officers) of the sum of the individual’s annual base salary and target annual bonus, (2) a number of months of health benefits continuation ( 24 months for the Chief Executive Officer and 12 months for other executive officers) and (3) vesting of all outstanding, unvested equity awards (for the Chief Executive Officer) and the vesting of all outstanding, unvested time-based equity awards (for other executive officers).

Upon a termination without cause or resignation with good reason that occurs during the one month prior to or 12 months following a change in control, the individual would be entitled to (1) cash severance equal to a multiple ( 2 times for the Chief Executive Officer and 1 times for other executive officers) of the sum of the individual’s annual base salary and target annual bonus, (2) a number of months of health benefits continuation ( 24 months for the Chief Executive Officer and 12 months for other executive officers) and (3) vesting of all outstanding, unvested equity awards (for the Chief Executive Officer) and the vesting of all outstanding, unvested time-based equity awards (for other executive officers).

Severance will be conditioned upon the execution and non-revocation of a release of claims.

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

The Company had no liabilities recorded for these agreements as of April 3, 2022.

Environmental Regulation

1 unchanged sentence

The Company is subject to various federal, state, local, and foreign environmental laws and regulations, including those governing the use, discharge, and disposal of hazardous substances in the ordinary course of its manufacturing process.

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

however, it is possible that future environmental legislation

The Company believes that its current manufacturing and other operations comply in all material

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

respects with applicable environmental laws and regulations;

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

Employee Benefit Plans

2018 Equity Incentive Plan

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

4 unchanged sentences

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

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

On January 21, 2022, the Company registered an aggregate of up to 4,222,270 shares of the Company’s common stock on Registration Statement on Form S-8, including 3,377,816 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, 2022 pursuant to an “evergreen” provision contained in the 2018 Plan and 844,454 shares issuable pursuant to the ESPP that were automatically added to the shares authorized for issuance under the ESPP on January 1, 2022 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 April 3, 2022.

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

The following table sets forth the available shares for grant under the 2018 Plan as of April 3, 2022:

Number of Shares

2 unchanged sentences

Additional authorized shares 3,378

Granted ( 4,141 )

Forfeited / cancelled 472

Shares traded for taxes 745

Shares available for grant as of October 3, 2021

_________________________

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

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

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

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

The duration of each offering period is generally six months .

As of October 3, 2021, 1,315,080 shares were available for issuance under the ESPP.

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

Shares available for grant as of April 3, 2022

Employee Stock Purchase Plan

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The duration of each offering period is generally six months .

As of April 3, 2022, 2,159,534 shares were available for issuance under the ESPP.

Option Activity

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

Arlo’s stock option activity during the three months ended April 3, 2022 was as follows:

Number of shares Weighted Average Exercise Price Per Share

1 unchanged sentence

Outstanding as of December 31, 2021

2,574 $ 10.55

Granted — $ —

Exercised ( 204 ) $ 6.80

Forfeited / cancelled ( 29 ) $ 7.13

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

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

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

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

Expired ( 173 ) $ 15.99

Outstanding as of April 3, 2022 2,197 $ 10.47

Vested and expected to vest as of April 3, 2022 2,197 $ 10.47

Exercisable Options as of April 3, 2022 2,167 $ 10.42

NETGEAR’s stock option activity for Arlo employees during the three months ended April 3, 2022 was as follows:

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Expired — $ —

Outstanding as of October 3, 2021 12 $ 20.76

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

Exercisable Options as of October 3, 2021 12 $ 20.76

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

Outstanding as of April 3, 2022 8 $ 20.42

Vested and expected to vest as of April 3, 2022 8 $ 20.42

Exercisable Options as of April 3, 2022 8 $ 20.42

Arlo’s RSU activity, excluding PSU activity and MPSU activity, during the three months ended April 3, 2022 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 299 ) $ 5.15

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

Outstanding as of April 3, 2022 11,158 $ 5.90

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) Includes 0.8 million shares consisting of RSUs ( 50 % of the grant), PSUs ( 25 % of the grant) and MPSUs ( 25 % of the grant) granted to the NEOs in the first quarter of 2021.

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

The PSUs will vest in four equal annual installments during the period that begins on the PSU grant date based on the extent to which a cash balance milestone as of December 31, 2021 is achieved.

The 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, 2021 and 2022 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.

As of October 3, 2021, 100 % of the outstanding PSUs are expected to vest.

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

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's PSU activity during the year ended of April 3, 2022 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

(In thousands) (In dollars)

Outstanding as of December 31, 2021

Granted 199 $ 8.28

Vested ( 59 ) $ 8.22

Forfeited — $ —

Outstanding as of April 3, 2022 (1)

_________________________

(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 148,368 shares of PSUs for the 2021 performance period, achieved at 120 % of target, or 178,042 shares and vest over four years .

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 to 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 to four -year periods from the grant dates.

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

1 unchanged sentence

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

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

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

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

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company's TSR MPSU activity during the year ended of April 3, 2022 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

1 unchanged sentence

Outstanding as of December 31, 2021

Granted 189 $ 12.25

Forfeited — $ —

Outstanding as of April 3, 2022

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 performance period end date.

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.

The Company's CEO MPSU activity during the year ended of April 3, 2022 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

(In thousands) (In dollars)

Outstanding as of December 31, 2021

Granted 531 $ 7.18

Vested ( 19 ) $ 5.64

Forfeited — $ —

Outstanding as of October 3, 2021

Outstanding as of April 3, 2022

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

The following table sets forth the weighted average assumptions used to estimate the fair value of purchase rights granted under Arlo’s ESPP for the three and nine months ended October 3, 2021 and September 27, 2020.

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

The following table sets forth the weighted average assumptions used to estimate the fair value of purchase rights granted under Arlo’s ESPP for the three months ended April 3, 2022 and March 28, 2021.

Three Months Ended

2022 March 28,

Expected life (in years) NA 0.5

7 unchanged sentences

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

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

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

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Expected life 4.0 N/A 4.0 3.0

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

Expected volatility 67.9 % N/A 69.5 % 69.3 %

Dividend yield — N/A — —

Stock Beta NA N/A 0.45 0.48

TSR MPSU CEO MPSU

Three Months Ended Three Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

Expected life 4.0 4.0 4.0 NA

Risk-free interest rate 1.49 % 0.33 % 1.54 % NA

Expected volatility 76.4 % 69.9 % 76.3 % NA

Dividend yield — — — NA

Stock Beta 0.42 0.45 NA NA

NETGEAR’s RSU activity for Arlo employees during the three months ended April 3, 2022 was as follows:

Number of shares Weighted Average Grant Date Fair Value Per Share

(In thousands) (In dollars)

Outstanding as of December 31, 2021

Vested ( 31 ) $ 40.38

Forfeited — $ —

Outstanding as of April 3, 2022

Stock-Based Compensation Expense

3 unchanged sentences

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

Three Months Ended Nine Months Ended

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

Three Months Ended

April 3, 2022 March 28, 2021

(In thousands)

5 unchanged sentences

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

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

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

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

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

As of April 3, 2022, $ 0.2 million of unrecognized compensation cost related to Arlo’s stock options was expected to be recognized over a weighted-average period of 0.3 years.

$ 67.8 million of unrecognized compensation cost

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

book losses than the same periods in the prior year.

related to unvested Arlo’s RSUs, PSUs and MPSUs was expected to be recognized over a weighted-average period of 2.4 years.

As of April 3, 2022, there was no unrecognized compensation cost related to NETGEAR’s stock options for Arlo employees.

$ 87 thousand of unrecognized compensation cost related to unvested NETGEAR RSUs for Arlo employees was expected to be recognized over a weighted-average period of 0.1 years.

The provision for income taxes for the three months ended April 3, 2022 was $ 0.2 million, or an effective tax rate of ( 2.6 )%.

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

During the three months ended April 3, 2022, the Company sustained lower U.S.

book losses than the same period in the prior year.

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

1 unchanged sentence

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

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

Net Income (Loss) Per Share

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.

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 increase in provision for income taxes for the three months ended April 3, 2022, compared to the prior year period, was primarily due to higher foreign earnings in fiscal 2022.

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 and vesting of restricted stock awards 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.

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

Three Months Ended Nine Months Ended

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

Net loss per share for the three months ended April 3, 2022 and March 28, 2021 were as follows:

Three Months Ended

April 3, 2022 March 28, 2021

(In thousands, except per share data)

19 unchanged sentences

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

Three Months Ended Nine Months Ended

2021 September 27,

2020 October 3,

2021 September 27,

Three Months Ended

2022 March 28,

(In thousands)

4 unchanged sentences

Total revenue $ 124,751 $ 82,556

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

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

2022 December 31,

5 unchanged sentences

Total property and equipment, net $ 8,522 $ 9,595

Subsequent Event

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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.

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

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

In addition, if the Company files a bankruptcy petition, a bankruptcy petition is filed against the Company and is not dismissed or stayed within thirty days, or the Company makes a general assignment for the benefit of creditors, then any outstanding obligations under the Credit Agreement will automatically and without notice or demand become immediately due and payable.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements