What changed in this filing

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Item 1. Financial Statements

2022-08-10 compared with 2022-05-11 · 237 added, 140 removed, 767 unchanged (33% of the section changed)

40 unchanged sentences

shares issued and outstanding:

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

87,529,758 at July 3, 2022 and 84,453,212 at December 31, 2021

Additional paid-in capital 411,316 401,367

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

2022 March 28,

Three Months Ended Six Months Ended

2022 June 27,

(In thousands, except per share data)

11 unchanged sentences

General and administrative 13,149 13,559 25,770 24,786

Impairment charges — 9,116 — 9,116

Separation expense 25 605 104 659

15 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

2022 March 28,

Three Months Ended Six Months Ended

2022 June 27,

(In thousands)

11 unchanged sentences

(In thousands)

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

Net loss — — — — ( 11,557 ) ( 11,557 )

Stock-based compensation expense — — 7,093 — — 7,093

Settlement of liability classified RSUs — — 95 — — 95

Issuance of common stock under stock-based compensation plans 2,294 2 34 — — 36

Issuance of common stock under Employee Stock Purchase Plan 304 1 1,746 1,747

Restricted stock unit withholdings ( 903 ) ( 1 ) ( 6,894 ) — — ( 6,895 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — ( 122 ) — ( 122 )

Balance as of July 3, 2022 87,530 $ 88 $ 411,316 $ ( 168 ) $ ( 308,835 ) $ 102,401

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

(In thousands)

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

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

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

Settlement of liability classified RSUs — — 104 — — 104

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

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

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

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 4,421 5 1,419 — — 1,424

Issuance of common stock under Employee Stock Purchase Plan 304 1 1,746 — — 1,747

Restricted stock unit withholdings ( 1,648 ) ( 2 ) ( 13,553 ) — — ( 13,555 )

Change in unrealized gains and losses on available-for-sale securities, net of tax — — — ( 168 ) — ( 168 )

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

Balance as of July 3, 2022 87,530 $ 88 $ 411,316 $ ( 168 ) $ ( 308,835 ) $ 102,401

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

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

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

2022 March 28,

Six Months Ended

2022 June 27,

(In thousands)

3 unchanged sentences

Stock-based compensation expense 21,834 19,949

Impairment charges — 9,116

Depreciation and amortization 2,523 3,169

18 unchanged sentences

Restricted stock unit withholdings ( 13,555 ) ( 9,084 )

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

Net cash used in financing activities ( 10,384 ) ( 2,948 )

Net decrease in cash and cash equivalents and restricted cash

35 unchanged sentences

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

Actual results could differ materially from those estimates and operating results for the three months ended 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.

Actual results could differ materially from those estimates and operating results for the six months ended July 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 three months ended April 3, 2022.

There have been no significant changes during the six months ended July 3, 2022.

Recent accounting pronouncements

3 unchanged sentences

Accounting Pronouncements Recently Adopted

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

There were no accounting pronouncements adopted during the six months ended July 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 April 3, 2022:

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 July 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 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.

For the six months ended July 3, 2022 and June 27, 2021, $ 53.4 million and $ 39.6 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 70.1 million and $ 45.3 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

$ 11.9 million and $ 16.1 million of this recognized revenue was included in the contract liability balance at the beginning of the periods.

24 unchanged sentences

Available-for-sale short-term investments

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

As of July 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 investments for the three months ended April 3, 2022.

The Company did not recognize any allowance for credit losses related to available for sale short-term investments for the three months ended July 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

2022 March 28,

Three Months Ended Six Months Ended

2022 June 27,

(In thousands)

3 unchanged sentences

Balance at the end of the period $ 405 $ 536 $ 405 $ 536

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.

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 July 3, 2022.

ARLO TECHNOLOGIES, INC.

14 unchanged sentences

_________________________

(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.

(1) $ 2.0 million and $ 2.4 million property and equipment, net, respectively, was included in the sublease arrangement for the San Jose office building as of July 3, 2022 and December 31, 2021.

Depreciation and amortization expense pertaining to property and equipment was $ 1.2 million and $ 2.5 million for the three and six months ended July 3, 2022, respectively, and $ 1.6 million and $ 3.1 million for the three and six months ended June 27, 2021, respectively.

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

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

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

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

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

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

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

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

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

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

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

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

Goodwill Impairment

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

The Company operates as one operating and reportable segment.

The Company determined that no events occurred or circumstances changed during the three months ended April 3, 2022 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 six months ended July 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

22 unchanged sentences

Fair Value Measurements - Recurring Basis

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

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

As of July 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 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.

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

As of July 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.

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.

For the three and six months ended July 3, 2022, the Company had no assets or liabilities measured on a nonrecurring basis.

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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 at 8.0 %.

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

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

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

Derivative Financial Instruments

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 April 3, 2022 and December 31, 2021 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 July 3, 2022 and December 31, 2021 are summarized as follows:

Derivative Assets Balance Sheet

Location April 3, 2022 December 31, 2021 Balance Sheet

Location April 3, 2022 December 31, 2021

Location July 3, 2022 December 31, 2021 Balance Sheet

Location July 3, 2022 December 31, 2021

(In thousands) (In thousands)

4 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.

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

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

July 3, 2022 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 $ 18 $ — $ 18 $ — $ — $ 18

Wells Fargo Bank $ 2 $ — $ 2 $ — $ — $ 2

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

Total $ 20 $ — $ 20 $ — $ — $ 20

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

(In thousands)

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

There were no derivative liabilities recorded as of July 3, 2022.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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 months ended March 28, 2021 are summarized as follows:

Three Months Ended March 28, 2021

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

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

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

Three Months Ended June 27, 2021

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

3 unchanged sentences

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

Six Months Ended June 27, 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 $ 181,127 $ 129,151 $ 31,042 $ 23,666 $ 24,786

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

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

1 unchanged sentence

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

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

The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the six months ended July 3, 2022 and June 27, 2021.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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:

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 and six months ended July 3, 2022 and June 27, 2021, were as follows:

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

Recognized in Income on Derivative Three Months Ended

April 3, 2022 March 28, 2021

Recognized in Income on Derivative Three Months Ended Six Months Ended

July 3, 2022 June 27, 2021 July 3, 2022 June 27, 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 months ended April 3, 2022 and March 28, 2021.

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three and six months ended July 3, 2022 and June 27, 2021.

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

(In thousands)

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

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

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

1 unchanged sentence

Net current period other comprehensive income (loss) ( 122 ) — — ( 122 )

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

Balance as of July 3, 2022 $ ( 168 ) $ — $ — $ ( 168 )

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) ( 168 ) — — ( 168 )

Balance as of July 3, 2022 $ ( 168 ) $ — $ — $ ( 168 )

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

(In thousands)

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

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:

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

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

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

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

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

(In thousands)

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

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

Amount reclassified from accumulated other comprehensive income (loss) — 2 — 2

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three and six months ended July 3, 2022 and June 27, 2021:

Three Months Ended

April 3, 2022 March 28, 2021

July 3, 2022 June 27, 2021

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

7 unchanged sentences

$ — $ — $ — $ — Total *

Six Months Ended

July 3, 2022 June 27, 2021

(In thousands)

Gains (losses) on cash flow hedge:

Foreign currency contracts $ — $ — $ — $ — Revenue

Foreign currency contracts — — — — Cost of revenue

Foreign currency contracts — — — — Research and development

Foreign currency contracts — — — 2 Sales and marketing

Foreign currency contracts — — — — General and administrative

$ — $ — $ — $ 2 Total *

_________________________

1 unchanged sentence

Revolving Credit Facility

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”).

5 unchanged sentences

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

4 unchanged sentences

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.

As of July 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 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.

No amounts had been drawn under the Credit Facility as of July 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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

Gross lease expense was $ 1.8 million and $ 1.4 million for the three months ended July 3, 2022 and June 27, 2021, respectively, and $ 3.6 million and $ 3.1 million for the six months ended July 3, 2022 and June 27, 2021, 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.

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

The Company recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million and $ 1.0 million for the three and six months ended July 3, 2022.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Supplemental cash flow information related to operating leases for the six months ended July 3, 2022 and June 27, 2021 was as follows:

July 3, 2022 June 27, 2021

(in thousands)

4 unchanged sentences

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

April 3, 2022 December 31, 2021

July 3, 2022 December 31, 2021

Weighted average remaining lease term 5.3 years 6.1 years

Weighted average discount rate 5.71 % 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 April 3, 2022 were as follows:

Operating Lease Payments Sublease Payments Net

(In thousands)

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

2022 (Remaining six months) $ 2,779 $ ( 1,004 ) $ 1,775

2023 6,091 ( 1,891 ) 4,200

12 unchanged sentences

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 includes $ 6.8 million associated with the right-of-use asset and $ 2.3 million associated with other lease related property and equipment assets, for the three and six months ended June 27, 2021.

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

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

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

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

ARLO TECHNOLOGIES, INC.

2 unchanged sentences

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 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.

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

As of July 3, 2022, the Company had approximately $ 67.3 million in non-cancelable purchase commitments with suppliers.

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

1 unchanged sentence

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.

As of July 3, 2022, a further $ 55.7 million of purchase orders beyond contractual termination periods have been issued to supply chain partners in anticipation of demand requirements.

Consequently, the Company may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order if the purchase order is cancelled.

Expenses incurred in respect of cancelled purchase orders has historically not been significant relative to the original order value.

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

As of July 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

2022 March 28,

Three Months Ended Six Months Ended

2022 June 27,

(In thousands)

72 unchanged sentences

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

Plaintiffs-Appellants filed their opening brief on May 20, 2022.

Defendants-Respondents must file their brief on or before August 18, 2022.

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

14 unchanged sentences

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.

On July 28, 2022, the Court heard defendants’ motion to dismiss.

At the hearing, the Court informed the parties that it was inclined to grant defendants’ motion for lack of jurisdiction, but no order has yet been issued.

Skybell Technologies, Inc.

5 unchanged sentences

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”) in violation of Section 337 of the Tariff Act of 1930.

The Asserted Patents are all from the same family and generally

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

violation of Section 337 of the Tariff Act of 1930.

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.

5 unchanged sentences

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.

As of July 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 April 3, 2022 and December 31, 2021.

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

The Company had no liabilities recorded for these agreements as of July 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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

suffered by such indemnified party as a result of the indemnifying party’s practice of the intellectual property licensed to such indemnifying party under the intellectual property rights cross-license agreement.

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

9 unchanged sentences

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

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

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

Environmental Regulation

The Company is required to comply and is currently in compliance with the European Union (“EU”) and other Directives on the Restrictions of the use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), Waste Electrical and Electronic Equipment (“WEEE”) requirements, Energy Using Product (“EuP”) requirements, the REACH Regulation, Packaging Directive and the Battery Directive.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

respects with applicable environmental laws and regulations;

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

8 unchanged sentences

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:

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

Number of Shares

5 unchanged sentences

Shares traded for taxes 1,648

Shares available for grant as of April 3, 2022

Shares available for grant as of July 3, 2022

Employee Stock Purchase Plan

4 unchanged sentences

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.

As of July 3, 2022, 1,855,548 shares were available for issuance under the ESPP.

Option Activity

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

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

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Exercised ( 209 ) $ 6.81

Forfeited / cancelled ( 3 ) $ 16.00

Expired ( 177 ) $ 15.84

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:

Outstanding as of July 3, 2022 2,185 $ 10.47

Vested and expected to vest as of July 3, 2022 2,185 $ 10.47

Exercisable Options as of July 3, 2022 2,180 $ 10.46

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

Number of shares Weighted Average Exercise Price Per Share

4 unchanged sentences

Expired — $ —

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:

Outstanding as of July 3, 2022 7 $ 20.47

Vested and expected to vest as of July 3, 2022 7 $ 20.47

Exercisable Options as of July 3, 2022 7 $ 20.47

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

Number of shares Weighted Average Grant Date Fair Value Per Share

2 unchanged sentences

10,080 $ 5.73

Granted 3,521 $ 7.92

Vested ( 3,917 ) $ 6.26

Forfeited ( 1,172 ) $ 5.89

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

Outstanding as of July 3, 2022 8,512 $ 6.37

ARLO TECHNOLOGIES, INC.

6 unchanged sentences

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:

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

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited — $ —

Outstanding as of April 3, 2022 (1)

Outstanding as of July 3, 2022 (1)

_________________________

8 unchanged sentences

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:

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

Number of Shares Weighted Average Grant Date Fair Value Per Share

3 unchanged sentences

Forfeited — $ —

Outstanding as of April 3, 2022

Outstanding as of July 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").

1 unchanged sentence

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:

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

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited — $ —

Outstanding as of April 3, 2022

Outstanding as of July 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 months ended April 3, 2022 and March 28, 2021.

Three Months Ended

2022 March 28,

The following table sets forth the weighted average assumptions used to estimate the fair value of purchase rights granted under Arlo’s ESPP for the three and six months ended July 3, 2022 and June 27, 2021.

Three Months Ended Six Months Ended

2022 June 27,

Expected life (in years) 0.5 NA 0.5 0.5

9 unchanged sentences

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:

Three Months Ended Six Months Ended Three Months Ended Six Months Ended

2022 June 27,

Expected life NA NA 4.0 4.0 NA NA 4.0 NA

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

Expected volatility NA NA 76.4 % 69.9 % NA NA 76.3 % NA

Dividend yield NA NA — — NA NA — NA

Stock Beta NA NA 0.42 0.45 NA NA NA NA

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

Number of shares Weighted Average Grant Date Fair Value Per Share

3 unchanged sentences

Forfeited ( 1 ) $ 39.69

Outstanding as of April 3, 2022

Outstanding as of July 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

April 3, 2022 March 28, 2021

Three Months Ended Six Months Ended

July 3, 2022 June 27, 2021 July 3, 2022 June 27, 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 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.

As of July 3, 2022, $ 34 thousand of unrecognized compensation cost related to Arlo’s stock options was expected to be recognized over a weighted-average period of 0.1 years.

$ 57.5 million of unrecognized compensation cost

2 unchanged sentences

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.

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

$ 9 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.

The provision for income taxes for the three and six months ended July 3, 2022 was $ 0.2 million and $ 0.4 million, or an effective tax rate of ( 2.0 )% and ( 2.3 )%, respectively.

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

During the three and six months ended July 3, 2022, the Company sustained U.S.

book losses .

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 months ended April 3, 2022, compared to the prior year period, was primarily due to higher foreign earnings in fiscal 2022.

The provision for income taxes for the three months ended July 3, 2022 was slightly higher than the same period in the prior year primarily due to an increase in foreign earnings in the second quarter of 2022.

The provision for income taxes for the six months ended July 3, 2022 was higher than the same period in the prior year primarily due to an increase in foreign earnings in the first half of 2022.

Net Loss Per Share

2 unchanged sentences

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

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

Three Months Ended

April 3, 2022 March 28, 2021

Net loss per share for the three and six months ended July 3, 2022 and June 27, 2021 were as follows:

Three Months Ended Six Months Ended

July 3, 2022 June 27, 2021 July 3, 2022 June 27, 2021

(In thousands, except per share data)

19 unchanged sentences

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

Three Months Ended

2022 March 28,

Three Months Ended Six Months Ended

2022 June 27,

(In thousands)

13 unchanged sentences

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