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Risks Related to Our Business
−Removed: The effects of health epidemics, including the COVID-19 pandemic and its variants, could have an adverse impact on our business, operations and the markets and communities in which we, our partners and customers operate.
−Removed: Our business and operations could be adversely affected by health epidemics, including the recent COVID-19 pandemic, impacting the markets and communities in which we, our partners and our customers operate.
−Removed: On March 11, 2020, the World Health Organization announced that COVID-19, a respiratory illness, caused by a novel coronavirus is a pandemic.
−Removed: In response to the COVID-19 pandemic, many state, local and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to control the spread of the disease.
−Removed: Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that could negatively impact productivity and disrupt our operations and those of our partners and our customers.
−Removed: For example, we have implemented a work-from-home policy for the vast majority of employees, and we may take further actions that alter our operations as may be required by federal, state or local authorities, or which we determine are in the best interests of our employees, customers, partners and stockholders.
−Removed: In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
−Removed: The COVID-19 pandemic also could reduce demand for our products and services as our largest channel partners focus on selling essential goods, temporarily close stores or experience decreases in foot traffic.
−Removed: In addition, a recession or market correction resulting from the spread of COVID-19 could further decrease technology spending, adversely affecting demand for our products and services, our business and the value of our common stock.
−Removed: The COVID-19 pandemic may adversely affect the ability of our third-party manufacturers and other suppliers to fulfill their obligations to us.
−Removed: We rely on these manufacturers to procure components and, in some cases, subcontract engineering work.
−Removed: We cannot guarantee that our third-party manufacturers or other suppliers will be able to meet our near-term or long-term manufacturing requirements.
−Removed: If we experience supply constraints from our third-party manufacturers, we may be required to allocate the affected products amongst our customers, which could have a material adverse effect on our relationships with these customers and on our financial condition.
−Removed: In addition, if we are unable to meet customer demand due to fluctuating or late supply from our third-party manufacturers and other suppliers, it could result in lost sales and have a material adverse effect on our business.
−Removed: We also rely on other suppliers such as cloud infrastructure services providers, distribution centers and logistics and transportation services providers.
−Removed: If our manufacturers and other suppliers are unable to fulfill their obligations to us, we could face products shortages, delay in new product introductions, services to our customers could be interrupted, and our products distribution could be delayed and thus adversely affecting our revenue.
−Removed: For example, increased demand for electronics as a result of the COVID-19 pandemic, effects of the U.S.
−Removed: trade war with China, increased demand for chips in the automotive industry and certain other factors have led to a global
−Removed: shortage of semiconductors.
−Removed: As a result, we have experienced component shortages, including longer lead times for components and supply constraints, that have affected both our ability to meet scheduled product deliveries and worldwide demand for our products.
−Removed: Also, as a result of the COVID-19 pandemic, our supply chain partners are limited by production capacity, constrained by material availability, labor shortages, factory uptime and freight capacity, each of which constrains our ability to capitalize fully on end market demand.
−Removed: As of December 31, 2021, international freight capacity has dropped, causing air and ocean freight rates to materially increase.
−Removed: Furthermore, transit times have also increased, causing us to rely more on air freight in order to meet our customers' demands.
−Removed: For the year ended December 31, 2021, we saw a 138% increase in freight-in expense compared to the prior year, as a result of the higher sea and air freight rates and component shortages which necessitated use of air freight to meet customer requested delivery dates.
−Removed: We expect supply chain constraints to continue in 2022.
−Removed: While we have been successful in navigating COVID-19 related challenges to date, any further disruptions brought about by the COVID-19 pandemic to our supply chain and operations could have a significant negative impact on our net revenue, gross and operating margin performance.
−Removed: The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely.
−Removed: The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.
−Removed: We do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole.
We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs.
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Many of the components used in our products are specifically designed for use in our products, some of which are obtained from sole source suppliers.
−Removed: These components include lens, lens-sensors, and passive infrared (“PIR”) sensors that have been customized for the Arlo application, as well as custom-made batteries that provide power conservation and safety features.
+Added: These components include lens, lens-sensors, and passive infrared sensors that have been customized for the Arlo application, as well as custom-made batteries that provide power conservation and safety features.
In addition, the components used in our end products have been optimized to extend battery life.
Our third-party manufacturers generally purchase these components on our behalf, and we do not have any contractual commitments or guaranteed supply arrangements with our suppliers.
−Removed: If demand for a specific component increases, we may not be able to obtain an adequate number of that component in a timely manner.
+Added: If demand for a specific component increases, we may not be able to obtain an adequate number of that component in a timely manner or at all.
In addition, if worldwide demand for the components increases significantly, the availability of these components could be limited.
−Removed: For example, increased demand for electronics as a result of the COVID-19 pandemic, effects of the U.S.
−Removed: trade war with China, increased demand for chips in the automotive industry and certain other factors have led to a global shortage of semiconductors.
−Removed: Due to such shortage, starting in the fourth quarter of 2020 and throughout 2021 we experienced component shortages, including longer lead times for components, and supply constraints, which we expect to continue in 2022.
−Removed: Such shortages and constraints affected our ability to meet scheduled product deliveries and worldwide demand for our products in 2021, and may affect our ability in 2022.
Further, our suppliers may experience financial or other difficulties as a result of uncertain and weak worldwide economic conditions.
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In addition, difficulties in transitioning from an existing supplier to a new supplier could create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.
−Removed: We provide our third-party manufacturers with a rolling forecast of demand, which they use to determine our material and component requirements.
+Added: We generally provide our third-party manufacturers with a rolling forecast of demand, which they use to determine our material and component requirements.
Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms, and demand and supply for a component at a given time.
Some of our components have long lead times, such as wireless local area network chipsets, physical layer transceivers, connector jacks, and metal and plastic enclosures.
−Removed: If our forecasts are not timely provided or are less than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner.
+Added: If our forecasts are not timely provided or are less than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner or at all.
If our forecasts are too high, our third-party manufacturers will be unable to use the components they have purchased on our behalf.
−Removed: of the components used in our products tends to drop rapidly as volumes increase and the technologies mature.
+Added: The cost of the components used in our products tends to drop rapidly as volumes increase and the technologies mature.
Therefore, if our third-party manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than our competitors due to an oversupply of higher-priced components.
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If we are unable to obtain a sufficient supply of components, or if we experience any interruption in the supply of components, our product shipments could be reduced or delayed or our cost of obtaining these components may increase.
−Removed: For example, in December 2018 we announced a delay in the expected timing of shipment of our Ultra product due to a battery-related issue from one of our suppliers.
−Removed: Component shortages and delays affect our ability to meet scheduled product deliveries, damage our brand and reputation in the market, and cause us to lose sales and market share.
−Removed: For example, component shortages and disruptions in supply in the past have limited our ability to supply all the worldwide demand for our products, and our revenue was affected.
−Removed: At times, we have elected to use more expensive transportation methods, such as air freight, to make up for manufacturing delays caused by component shortages, which reduces our margins.
−Removed: In addition, at times sole suppliers of highly specialized components have provided components that were either defective or did not meet the criteria required by our retailers, distributors, or other channel partners, resulting in delays, lost revenue opportunities, and potentially substantial write-offs.
+Added: In addition, sole suppliers of highly specialized components may provide, or have provided components that were either defective or did not meet the criteria required by us or our manufacturers, retailers, distributors, or other channel partners, resulting in delays, lost revenue opportunities, and potentially substantial write-offs.
We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs.
−Removed: If these third-party manufacturers experience any delay, disruption, or quality control problems in their operations, including due to the COVID-19 pandemic, we could lose market share and our brand may suffer.
+Added: If these third-party manufacturers experience any delay, disruption, or quality control problems in their operations, including due to the COVID-19 pandemic, we could lose or fail to grow our market share and our brand may suffer.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party original design manufacturers (“ODMs”).
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We currently outsource manufacturing to Foxconn Cloud Network Technology Singapore Pte.
−Removed: Ltd., Pegatron Corporation, and Wistron NeWeb Corporation.
+Added: Ltd., Pegatron Corporation, and Chicony Electronics Co., Ltd..
We do not have any long-term contracts with any of these third-party manufacturers, although we have executed product supply agreements with these manufacturers, which typically provide indemnification for intellectual property infringement, epidemic failure clauses, agreed-upon price concessions, and certain product quality requirements.
Some of these third-party manufacturers produce products for our competitors.
−Removed: In addition, one of our principal manufacturers, Foxconn closed its acquisition of Belkin International in September 2018, which includes the WeMo brand of home automation products, which may compete directly with us.
Due to changing economic conditions, including due to the COVID-19 pandemic, the viability of some of these third-party manufacturers may be at risk.
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In addition, there is no assurance that a contract manufacturer can scale its production of our products at the volumes and in the quality that we require.
−Removed: If a contract manufacturer is unable to do these things, we may have to move production for the products to a new or existing third-party manufacturer, which would take significant effort and our business, results of operations, and financial condition could be materially adversely affected.
+Added: If a contract manufacturer is unable to do these things, we may have to move production for the products to a new or existing third-party manufacturer, which would take significant effort and our business, results of operations, and financial condition could be materially and adversely affected.
In addition, as we contemplate moving manufacturing into different jurisdictions, we may be subject to additional significant challenges in ensuring that quality, processes, and costs, among other issues, are consistent with our expectations.
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Our third-party manufacturers are primarily responsible for conducting the tests that support our applications for most regulatory approvals for our products.
−Removed: If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to sell our products in certain jurisdictions.
+Added: If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to
+Added: sell our products in certain jurisdictions.
As a result, we would be unable to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed, and our reputation and brand would suffer.
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If our third-party manufacturers fail to maintain good relations with their employees or contractors, and production and manufacturing of our products are affected, then we may be subject to shortages of products and the quality of products delivered may be affected.
−Removed: Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we could have no other readily available alternatives for manufacturing and assembling our products, and our business, results of operations, and financial condition could be materially adversely affected.
+Added: Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we could have no other readily available alternatives for manufacturing and assembling our products, and our business, results of operations, and financial condition could be materially and adversely affected.
In the future, we may work with more third-party manufacturers on a contract manufacturing basis, which could result in our exposure to additional risks not inherent in a typical ODM arrangement.
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In a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas.
−Removed: If we are unable to properly manage these risks, our products may be more susceptible to defects, and our business, results of operations, and financial condition could be materially adversely affected.
+Added: If we are unable to properly manage these risks, our products may be more susceptible to defects, and our business, results of operations, and financial condition could be materially and adversely affected.
If disruptions in our transportation network occur or our shipping costs substantially increase, including due to the COVID-19 pandemic, we may be unable to sell or timely deliver our products, and our operating expenses could increase.
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Labor disputes among freight carriers and at ports of entry are common, particularly in Europe, and we expect labor unrest and its effects on shipping our products to be a continuing challenge for us.
−Removed: A port worker strike, work slow-down, or other transportation disruption in
−Removed: Long Beach, California, where we import our products to fulfill our American orders, could significantly disrupt our business.
+Added: A port worker strike, work slow-down, or other transportation disruption in Long Beach, California, where we import our products to fulfill our American orders, could significantly disrupt our business.
Our international freight is regularly subject to inspection by governmental entities.
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Transit times have also increased.
−Removed: If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and result in delayed or lost revenue as well as customer imposed penalties.
+Added: If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially and adversely affected and result in delayed or lost revenue as well as customer imposed penalties.
In addition, if increases in fuel prices occur, our transportation costs would likely increase.
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If we continue to rely more heavily upon air freight to deliver our products, our overall shipping costs will increase.
−Removed: A prolonged transportation disruption or a significant increase in the cost of freight could materially adversely affect our business, results of operations, and financial condition.
+Added: A prolonged transportation disruption or a significant increase in the cost of freight could materially and adversely affect our business, results of operations, and financial
+Added: The effects of health epidemics, including the COVID-19 pandemic and its variants, could have an adverse impact on our business, operations and the markets and communities in which we, our partners and customers operate.
+Added: Our business and operations could be adversely affected by health epidemics, including the recent COVID-19 pandemic, impacting the markets and communities in which we, our partners and our customers operate.
+Added: On March 11, 2020, the World Health Organization announced that COVID-19, a respiratory illness, caused by a novel coronavirus is a pandemic.
+Added: In response to the COVID-19 pandemic, many state, local and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to control the spread of the disease.
+Added: Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that could negatively impact productivity and disrupt our operations and those of our partners and our customers.
+Added: For example, we have implemented a work-from-home policy for the vast majority of employees, and we may take further actions that alter our operations as may be required by federal, state or local authorities, or which we determine are in the best interests of our employees, customers, partners and stockholders.
+Added: In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
+Added: The COVID-19 pandemic also could reduce demand for our products and services as our largest channel partners focus on selling essential goods, temporarily close stores or experience decreases in foot traffic.
+Added: In addition, a recession or market correction resulting from the spread of COVID-19 could further decrease technology spending, adversely affecting demand for our products and services, our business and the value of our common stock.
+Added: The COVID-19 pandemic may adversely affect the ability of our third-party manufacturers and other suppliers to fulfill their obligations to us.
+Added: We rely on these manufacturers to procure components and, in some cases, subcontract engineering work.
+Added: We cannot guarantee that our third-party manufacturers or other suppliers will be able to meet our near-term or long-term manufacturing requirements.
+Added: If we experience supply constraints from our third-party manufacturers, we may be required to allocate the affected products amongst our customers, which could have a material adverse effect on our relationships with these customers and on our financial condition.
+Added: In addition, if we are unable to meet customer demand due to fluctuating or late supply from our third-party manufacturers and other suppliers, it could result in lost sales and have a material adverse effect on our business.
+Added: We also rely on other suppliers such as cloud infrastructure services providers, distribution centers and logistics and transportation services providers.
+Added: If our manufacturers and other suppliers are unable to fulfill their obligations to us, we could face products shortages, delay in new product introductions, services to our customers could be interrupted, and our products distribution could be delayed and thus adversely affecting our revenue.
+Added: For example, increased demand for electronics as a result of the COVID-19 pandemic, effects of the U.S.
+Added: trade war with China, increased demand for chips in the automotive industry and certain other factors have led to a global shortage of semiconductors.
+Added: As a result, we have experienced component shortages, including longer lead times for components and supply constraints, that have affected both our ability to meet scheduled product deliveries and worldwide demand for our products.
+Added: Also, as a result of the COVID-19 pandemic, our supply chain partners are limited by production capacity, constrained by material availability, labor shortages, factory uptime and freight capacity, each of which constrains our ability to capitalize fully on end market demand.
+Added: While we have been successful in navigating COVID-19 related challenges to date, any further disruptions brought about by the COVID-19 pandemic to our supply chain and operations could have a significant negative impact on our net revenue, gross and operating margin performance.
+Added: The global pandemic of COVID-19 continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely.
+Added: The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and
+Added: subject to change.
+Added: We do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole.
If we lose the services of key personnel, we may not be able to execute our business strategy effectively.
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The loss of any of our senior management or other key engineering, research, development, sales, or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business strategy and respond to the rapidly changing needs of our business.
−Removed: If we suffer the loss of services of any key executive or key personnel, our business, results of operations, and financial condition could be materially adversely affected.
+Added: If we suffer the loss of services of any key executive or key personnel, our business, results of operations, and financial condition could be materially and adversely affected.
In addition, we may not be able to have the proper personnel in place to effectively execute our long-term business strategy if key personnel retire, resign or are otherwise terminated.
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In order to differentiate our products and services from our competitors’ products, we must continue to increase our focus and capital investment in research and development, including software development.
−Removed: We have committed a substantial amount of resources to the manufacture, development and sale of our Arlo Secure services and our wire-free smart Wi-Fi cameras, advanced baby monitors, and smart lights, and to introducing additional and improved models in
+Added: We have committed a substantial amount of resources to the manufacture, development and sale of our Arlo Secure services and our wire-free smart Wi-Fi cameras, advanced baby monitors, and smart lights, and to introducing additional and improved models in these lines.
In addition, we plan to continue to introduce new categories of smart connected devices to the Arlo platform in the near future.
−Removed: If our existing products and services do not continue, or if our new products or services fail, to achieve widespread market acceptance, if existing customers do not subscribe to our paid subscription services such as Arlo Secure, if those services do not achieve widespread market acceptance, or if we are unsuccessful in capitalizing on opportunities in the connected lifestyle market, as well as in the related market in the small business segment, our future growth may be slowed and our business, results of operations, and financial condition could be materially adversely affected.
+Added: If our existing products and services do not continue, or if our new products or services fail, to achieve widespread market acceptance, if existing customers do not subscribe to our paid subscription services such as Arlo Secure, if those services do not achieve widespread market acceptance, or if we are unsuccessful in capitalizing on opportunities in the connected lifestyle market, as well as in the related market in the small business segment, our future growth may be slowed and our business, results of operations, and financial condition could be materially and adversely affected.
Successfully predicting demand trends is difficult, and it is very difficult to predict the effect that introducing a new product or service will have on existing product or service sales.
−Removed: It is possible that Arlo may not be as successful with its new products and services, and as a result our future growth may be slowed and our business, results of operations and financial condition could be materially adversely affected.
+Added: It is possible that Arlo may not be as successful with its new products and services, and as a result our future growth may be slowed and our business, results of operations and financial condition could be materially and adversely affected.
Also, we may not be able to respond effectively to new product or service announcements by our competitors by quickly introducing competitive products and services.
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• increased levels of product returns.
−Removed: Throughout the past few years, Arlo has significantly increased the rate of new product and service introductions, with the introduction of new lines of Arlo cameras, smart lights, and doorbell products, as well as the introduction of our Arlo Secure services.
+Added: Throughout the past few years, Arlo has significantly increased the rate of new product and service introductions, with the introduction of new lines of Arlo cameras, smart lights, and doorbell products, as well as the introduction of our Arlo Secure services and Arlo Home Security System.
If we cannot sustain that pace of product and service introductions, either through rapid innovation or acquisition of new products and services or product and service lines, we may not be able to maintain or increase the market share of our products and services or expand further into the connected lifestyle market in accordance with our current plans.
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(the "Credit Agreement"), providing for a credit facility of up to $40.0 million and as of December 31, 2022, we have not borrowed against this credit facility.
−Removed: Refer to Note 10, Debt in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details on the Credit Agreement.
+Added: Refer to Note 7, Revolving Credit Facility in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details on the Credit Agreement.
While based on our current plans, the Credit Agreement with Bank of America, N.A., and market conditions, we believe that such sources of liquidity will be sufficient to satisfy our anticipated cash requirements for at least the next 12 months, we may require additional funds, either through equity or debt financings or collaborative agreements or from other sources.
We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all.
−Removed: If adequate financing is not available, we may further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations.
+Added: If adequate financing is not available, we may further delay, postpone or terminate product and service expansion and curtail
+Added: certain selling, general and administrative operations.
The inability to raise additional financing may have a material adverse effect on our future performance.
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We compete in a rapidly evolving and fiercely competitive market, and we expect competition to continue to be intense, including price competition.
−Removed: Our principal competitors include Amazon (Blink and Ring), Google (Nest), Swann, Night Owl, Wyze, Foxconn Corporation (Belkin), Samsung, D-Link, Canary and Eufy.
+Added: Our principal competitors include Amazon (Blink and Ring), Canary, D-Link, Eufy, Google (Nest), Foxconn Corporation (Belkin), Night Owl, Samsung, SimpliSafe, Swann, and Wyze.
Other competitors include numerous local vendors such as Netatmo, Logitech, Bosch, Instar, and Uniden.
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Our competitors may also acquire other companies in the market and leverage combined resources to gain market share.
−Removed: If any of these companies are successful in competing against us, our sales could decline, our margins could be negatively impacted, and we could lose market share, any of which could seriously harm our business, financial condition, and results of operations.
+Added: If any of these companies are successful in competing against us, our sales could decline, our margins could be negatively impacted, and we could lose, or fail to grow, our market share, any of which could seriously harm our business, financial condition, and results of operations.
We entered into an asset purchase agreement (the “Asset Purchase Agreement”) and supply agreement (the “Supply Agreement”) with Verisure Sàrl (“Verisure”) that gives Verisure exclusive marketing and distribution rights for our products in Europe as well as the ability to sell our products through their direct channel globally.
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Our results of operations may be negatively impacted if Verisure is not successful in continuing to sell our products in Europe.
−Removed: Even though the Supply Agreement provides for minimum purchase commitments, if Verisure fails to pay on a timely basis, or at all, including because of effects from COVID-19, or otherwise does not perform under the Supply Agreement, our cash flow would be reduced.
+Added: Even though the Supply Agreement provides for minimum purchase commitments, if Verisure fails to pay on a timely basis, or at all, including because of effects from COVID-19, or otherwise does not perform under the Supply Agreement, our cash flow would be
We are also exposed to increased credit risk if Verisure fails or becomes insolvent.
We also cannot provide any assurance that we will successfully develop custom products as specified by Verisure under the Supply Agreement.
−Removed: The Purchase Agreement and Supply Agreement with Verisure contain customary representations and warranties regarding, the Business and the Assets, indemnification provisions, termination rights, certain financial covenants and other customary provisions.
+Added: The Asset Purchase Agreement and Supply Agreement with Verisure contain customary representations and warranties regarding, the Business and the Assets, indemnification provisions, termination rights, certain financial covenants and other customary provisions.
Additionally, we have agreed not to engage in any business that competes with the Business for a period of three years.
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We are dependent on information technology systems, infrastructure and data.
−Removed: System security risks, breaches of data protection, cyber-attacks, and erroneous or non-malicious actions or failures to act by our employees or others with authorized access to our networks could disrupt our products, services, internal operations, or information technology systems, and could lead to theft of our intellectual property, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation, and cause our stock price to decline significantly.
−Removed: Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign private parties and state actors.
−Removed: Our products and services may contain unknown security vulnerabilities.
−Removed: For example, the firmware, software, and open source software that we or our manufacturing partners have installed on our products may be susceptible to hacking, unauthorized manipulation, or misuse.
−Removed: In addition, we offer a comprehensive online cloud management service, Arlo Secure, paired with our end products, including our cameras, baby monitors, and smart lights and we recently launched our direct to consumer store to sell our products directly to our customers.
−Removed: If malicious actors compromise this cloud service or our direct to consumer store, or if customer confidential information is accessed without authorization, our business will be harmed.
−Removed: Operating an online cloud service and direct to consumer store are a relatively new businesses for us, and we may not have the expertise to properly manage risks related to data security and systems security.
−Removed: We rely on third-party providers for a number of critical aspects of our cloud services and customer support, including web hosting services, billing, and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems.
−Removed: If we or our third-party providers are unable to properly secure our system or successfully prevent breaches of security relating to our products, services, or user private information, including user videos and user personal identification information, or if these third-party systems fail for other reasons, our management could need to spend increasing amounts of time and effort in this area.
−Removed: As a result, we could incur substantial expenses, our brand and reputation could suffer and our business, results of operations, and financial condition could be materially adversely affected.
+Added: If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions;
+Added: fines and penalties;
+Added: disruptions of our business operations;
+Added: reputational harm;
+Added: loss of customers or sales;
+Added: reduced revenue or profits;
+Added: increased expenses;
+Added: significant decline in our stock price;
+Added: and other adverse consequences.
+Added: In the ordinary course of our business, we and the third parties upon which we rely, collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, “processing”) proprietary, confidential, and sensitive data, including personal data about our customers, employees, and others, intellectual property, and trade secrets (collectively, “sensitive information”).
+Added: Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems, and those of the third parties upon which we rely.
+Added: These information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists, threat actors, “hacktivists,” personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors and other external parties.
+Added: Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities.
+Added: During times of war and other major conflicts, we, the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products and services.
+Added: We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats.
+Added: In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, loss of sensitive data and income, reputational harm, and diversion of funds.
+Added: Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
+Added: Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations.
+Added: Future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
+Added: Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.
+Added: We may rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based infrastructure, data center
+Added: facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions.
+Added: We may also rely on third-party service providers to provide other products, services, parts, or otherwise to operate our business.
+Added: Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
+Added: If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences.
+Added: While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
+Added: In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised.
+Added: Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information or our information technology systems, or those of the third parties upon whom we rely.
+Added: A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our products and services.
+Added: We may expend significant resources or modify our business activities to try to protect against security incidents.
+Added: Certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive information.
Maintaining the security of our computer information systems and communication systems is a critical issue for us and our customers and we devote considerable internal and external resources to network security, data encryption, and other security measures to protect our systems, customers, and users, but these security measures cannot provide absolute security.
−Removed: The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, breaches of security, disruption of data integrity, inadvertent errors that expose our data or systems, malicious intrusion, or random attacks.
−Removed: Likewise, data privacy or security incidents or intentional or non-malicious breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, customers or users, or other business partners may be exposed to unauthorized persons or to
−Removed: the public, or that risk of loss or misuse of this information could occur, resulting in litigation and potential liability for us, damage our brand and reputation, or otherwise materially adversely affect our business, results of operations, and financial condition.
−Removed: Malicious actors may develop and deploy malware that is designed to manipulate our systems, including our internal network, or those of our vendors or customers.
−Removed: Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our information technology systems, our data or our customers’ data.
We have established a crisis management plan and business continuity program.
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Changes in how our employees work and access our systems during the current COVID-19 pandemic also could lead to additional opportunities for bad actors to launch cyberattacks or for employees to cause inadvertent security risks or incidents.
+Added: While we have implemented security measures designed to protect against security incidents, including those described above, there can be no assurance that these measures will be effective.
+Added: Our products and services may contain unknown security vulnerabilities.
+Added: We take steps to detect and remediate vulnerabilities, but we have not always been able in the past and may not be able in the future to detect and remediate all vulnerabilities in our information technology systems (including our products) because such threats and techniques used to exploit vulnerabilities change frequently and are often sophisticated in nature.
+Added: Therefore such vulnerabilities could be exploited but may not be detected until after a security incident has occurred.
+Added: These vulnerabilities pose a material risk to our business.
+Added: For example, the firmware, software, and open source software that we or our manufacturing partners have installed on our products may be susceptible to hacking, unauthorized manipulation, or misuse.
+Added: In addition, we offer a comprehensive online cloud management service, Arlo Secure, paired with our end products, including our cameras, baby monitors, and smart lights and we recently launched our direct to consumer store to sell our products directly to our customers.
+Added: If malicious actors compromise this cloud service or our direct to consumer store, or if customer confidential information is accessed without authorization, our business will be harmed.
+Added: Operating an online cloud service and direct to consumer store are a relatively new businesses for us, and we may not have the expertise to properly manage risks related to data security and systems security.
+Added: We rely on third-party providers for a number of critical aspects of our cloud services and customer support, including web hosting services, billing, and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems.
+Added: Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents.
+Added: Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences.
+Added: If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences such as:
+Added: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections);
+Added: additional reporting requirements and/or oversight;
+Added: restrictions on processing sensitive information (including personal data);
+Added: litigation (including class claims);
+Added: indemnification obligations;
+Added: negative publicity;
+Added: reputational harm;
+Added: diversion of management’s attention;
+Added: monetary fund diversions;
+Added: interruptions in our operations (including availability of data);
+Added: negative impacts to our business, results of operations and financial condition;
+Added: financial loss;
+Added: and other similar harms.
+Added: Security incidents and attendant consequences may cause customers to stop using our products and services, deter new customers from using our products and services, and negatively impact our ability to grow and operate our business.
The effects of a security breach or privacy violation could be further amplified during the current COVID-19 pandemic.
In addition, the cost and operational consequences of implementing further data protection measures could be significant and theft of our intellectual property or proprietary business information could require substantial expenditures to remedy.
−Removed: Further, we cannot be certain that (a) our liability insurance will be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches;
+Added: Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.
+Added: Further, we cannot be certain that (a) our liability insurance will be adequate or sufficient in type or amount to protect us from or to mitigate liabilities arising out of our privacy and security practices or security breaches, cyberattacks and other related breaches;
(b) such coverage will cover any indemnification claims against us relating to any incident, will continue to be available to us on economically reasonable terms, or at all;
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Our future success is largely dependent on increasing sales of our paid subscription services.
−Removed: Even if we are successful in selling our smart connected devices and accessories, if we are unable to maintain or increase sales of Arlo Secure services, our revenue and overall gross margin would likely decline.
+Added: Even if we are successful in selling our smart connected devices and accessories, if we are unable to maintain or increase sales of Arlo Secure and Arlo Safe services, our revenue and overall gross margin would likely decline.
Interruptions with the cloud-based systems that we use in our operations provided by an affiliate of Amazon.com, Inc.
−Removed: ("Amazon"), which is also one of our primary competitors, may materially adversely affect our business, results of operations, and financial condition.
+Added: (“Amazon”), which is also one of our primary competitors, may materially and adversely affect our business, results of operations, and financial condition.
We host our platform using Amazon Web Services (“AWS”) data centers, a provider of cloud infrastructure services, and may in the future use other third-party cloud-based systems in our operations.
−Removed: All of our solutions currently reside on systems leased and operated by us in these locations.
+Added: All of our solutions currently reside on systems leased and operated by us in these data center locations.
Accordingly, our operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture, features, and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit.
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Further, if we were to make updates to our platforms that were not compatible with the configuration, architecture, features, and interconnection specifications of the third-party platform, our service could be disrupted.
−Removed: Amazon produces the Amazon Cloud Cam, which competes with our security camera products, and acquired two of our competitors, Blink and Ring, in 2017 and 2018, respectively.
+Added: Amazon previously produced the Amazon Cloud Cam, which competed with our security camera products, and acquired two of our competitors, Blink and Ring, in 2017 and 2018, respectively.
Amazon may choose to hamper our competitive efforts, using provision of AWS services as leverage.
−Removed: In the event that there is a lapse of service, elimination of AWS services or features that we use, interruption of internet service provider connectivity, or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our solutions for deployment on a different cloud infrastructure service provider, which could materially adversely affect our business, results of operations, and financial condition.
−Removed: Our current and future products may experience quality problems, including defects or errors, from time to time that can result in adverse publicity, product recalls, litigation, regulatory proceedings, and warranty claims resulting in significant direct or indirect costs, decreased revenue, and operating margin, and harm to our brand.
+Added: In the event that there is a lapse of service, elimination of AWS services or features that we use, interruption of internet service provider connectivity, or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our solutions for deployment on a different cloud infrastructure service provider, which could materially and adversely affect our business, results of operations, and financial condition.
+Added: Our current and future products may experience quality problems, including defects or errors, from time to time that can result in adverse publicity, product recalls, litigation, regulatory proceedings, and warranty claims and could lead to significant direct or indirect costs, decreased revenue, and operating margin, and harm to our brand.
We sell complex products that could contain design and manufacturing defects in their materials, hardware, and firmware.
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Although we extensively and rigorously test new and enhanced products and services before their release, we cannot assure we will be able to detect, prevent, or fix all defects.
−Removed: Failure to detect, prevent, or fix defects, or an increase in defects, could result in a variety of consequences, including a greater number of product returns than expected from users and retailers, increases in warranty costs, regulatory proceedings, product recalls, and litigation, each of which could materially adversely affect our business, results of operations, and financial condition.
+Added: Failure to detect, prevent, or fix defects, or an increase in defects, could result in a variety of consequences, including a greater number of product returns than expected from users and retailers, increases in warranty costs, regulatory proceedings, product recalls, and litigation, each of which could materially and adversely affect our business, results of operations, and financial condition.
We generally provide a one-year hardware warranty on all of our products.
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If we experience greater returns from retailers or users, or greater warranty claims, in excess of our reserves, our business, financial condition, and results of operations could be harmed.
−Removed: In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also adversely affect our brand, decrease demand for our products and services, and materially adversely affect our business, results of operations, and financial condition.
+Added: In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also adversely affect our brand, decrease demand for our products and services, and materially and adversely affect our business, results of operations, and financial condition.
In addition, epidemic failure clauses are found in certain of our customer contracts.
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In such instances, we may also be obligated to cover significant costs incurred by the customer associated with the consequences of such epidemic failure, including freight and transportation required for product replacement and out-of-pocket costs for truck rolls to end-user sites to collect the defective products.
−Removed: Costs or payments we make in connection with an epidemic failure could materially adversely affect our business, results of operations, and financial condition.
+Added: Costs or payments we make in connection with an epidemic failure could materially and adversely affect our business, results of operations, and financial condition.
If our products contain defects or errors, or are found to be noncompliant with industry standards, we could experience decreased sales and increased product returns, loss of customers and market share, and increased service, warranty, and insurance costs.
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We sell a substantial portion of our products through traditional and online retailers, including Amazon, Best Buy Co., Inc.
−Removed: ("Best Buy"), and Costco Wholesale Corporation (“Costco”) and Verisure and their respective affiliates.
−Removed: For the year ended December 31, 2021, we derived 13.0% of our revenue from Best Buy and its affiliates and 30.8% of our revenue from Verisure and its affiliates, respectively.
+Added: ("Best Buy"), and Costco Wholesale Corporation (“Costco”);
+Added: and to security solutions provider, including Verisure and their respective affiliates.
+Added: For the year ended December 31, 2022, we derived 40.1% of our revenue from Verisure and its affiliates, respectively.
In addition, we sell to wholesale distributors, including Ingram Micro, Inc., D&H Distributing Company, and Synnex Corporation.
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Accordingly, the prices that they pay for our products are subject to negotiation and could change at any time.
−Removed: We have historically benefited from NETGEAR’s strong relationships with these retailers, distributors, and other channel partners, and we may not be able to maintain these relationships following our separation from NETGEAR.
Our ability to maintain strong relationships with these channel partners is essential to our future performance.
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In addition, if, as a result of increased leverage, channel partner pressures require us to reduce our pricing such that our gross margin is diminished, we could decide not to sell our products to a particular channel partner, which could result in a decrease in our revenue.
−Removed: Consolidation among our channel partner base may also lead to reduced demand for our products, elimination of sales opportunities, replacement of our products with those of our competitors, and cancellations of orders, each of which could materially adversely affect our business, results of operations, and financial condition.
−Removed: If consolidation among the retailers, distributors, or other channel partners who purchase our products becomes more prevalent, our business, results of operations, and financial condition could be materially adversely affected.
+Added: Consolidation among our channel partner base may also lead to reduced demand for our products, elimination of sales opportunities, replacement of our products with those of our competitors, and cancellations of orders, each of which could materially and adversely affect our business, results of operations, and financial condition.
+Added: If consolidation among the retailers, distributors, or other channel partners who purchase our products becomes more prevalent, our business, results of operations, and financial condition could be materially and adversely affected.
In particular, the retail and connected home markets in some countries, including the United States, are dominated by a few large retailers with many stores.
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In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces its purchases of our devices, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales.
−Removed: Any reduction in sales by our retailers could materially adversely affect our business, results of operations, and financial condition.
+Added: Any reduction in sales by our retailers could materially and adversely affect our business, results of operations, and financial condition.
We depend on large, recurring purchases from certain significant retailers, distributors, and other channel partners, and a loss, cancellation, or delay in purchases by these channel partners could negatively affect our revenue.
The loss of recurring orders from any of our more significant retailers, distributors, and other channel partners could cause our revenue and profitability to suffer.
−Removed: Our ability to attract new retailers, distributors, and other channel
−Removed: partners will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth, and depth of our products.
+Added: Our ability to attract new retailers, distributors, and other channel partners will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth, and depth of our products.
In addition, a change in the mix of our retailers, distributors, and other channel partners, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margin.
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Additionally, we may from time to time grant our retailers, distributors, and other channel partners the exceptional right to return certain products, based on the best interests of our mutual businesses, and such returns, if material, could adversely affect our revenue and gross margin.
−Removed: Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns from, channel partners, or the loss of any significant channel partners, could materially adversely affect our business, results of operations, and financial condition.
+Added: Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns from, channel partners, or the loss of any significant channel partners, could materially and adversely affect our business, results of operations, and financial condition.
Although our largest channel partners may vary from period to period, we anticipate that our results of operations for any given period will continue to depend on large orders from a small number of channel partners.
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We have spent, and expect to continue to spend, significant amounts on advertising and other marketing campaigns, which may not be successful or cost effective.
−Removed: We have spent, and expect to continue to spend, significant amounts on advertising and other marketing campaigns, such as television, print advertising, and social media, as well as increased promotional activities, to acquire new customers, and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to increase awareness of our smart connected devices and services.
−Removed: For the years ended December 31, 2021 and 2020, sales and marketing expenses were $48.9 million and $49.1 million, respectively, representing approximately 11% and 14% of our revenue, respectively.
+Added: We have spent, and expect to continue to spend, significant amounts on advertising and other marketing campaigns, such as television, print advertising, and social media, as well as increased promotional activities, to acquire new customers.
+Added: For the years ended December 31, 2022 and 2021, sales and marketing expenses were $70.1 million, including a brand awareness campaign of $15.6 million, and $48.9 million, respectively, representing approximately 14% and 11% of our revenue, respectively.
While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to purchase our products and services, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing or to fully understand or estimate the conditions and behaviors that drive customer behavior.
−Removed: If any of our advertising campaigns prove less
−Removed: successful than anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet market expectations, either of which could have an adverse effect on our business.
+Added: If any of our advertising campaigns prove less successful than anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet market expectations, either of which could have an adverse effect on our business.
There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products or services.
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New product models that we introduce may not be successful with consumers or our brand may fall out of favor with consumers.
−Removed: If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues may decrease, our brand image may suffer, our operating performance may decline, and we may not be able to execute our growth plans.
+Added: If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenue may decrease, our brand image may suffer, our operating performance may decline, and we may not be able to execute our growth plans.
We have increased the rate of new product and service introductions, including new lines of Arlo cameras, smart lights, and doorbell products, and we may encounter difficulties that we did not anticipate during the product development stage.
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In addition, brand promotion efforts may not yield significant revenue or increased revenue sufficient to offset the additional expenses incurred in building our brand.
−Removed: Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful.
+Added: Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful or we may suspend or reduce the amount of
+Added: investment spent on brand promotion and awareness efforts.
If we fail to successfully maintain, promote, and position our brand and protect our reputation, or if we incur significant expenses in this effort, our business, financial condition and operating results may be adversely affected.
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Significant defects affecting our services may be found following the introduction of new software or enhancements to existing software or in software implementations in varied information technology environments.
−Removed: quality assurance testing and end-user testing may reveal service performance issues or desirable feature enhancements that could lead us to reallocate service development resources or postpone the release of new versions of our software.
+Added: Internal quality assurance testing and end-user testing may reveal service performance issues or desirable feature enhancements that could lead us to reallocate service development resources or postpone the release of new versions of our software.
The reallocation of resources or any postponement could cause delays in the development and release of future enhancements to our currently available software, damage the reputation of our services in the marketplace, and result in potential loss of revenue.
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System disruptions and defects in our services could result in lost revenue, delays in customer deployment, or legal claims and could be detrimental to our reputation.
−Removed: Because we store, process, and use data, some of which contain personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other related matters, which are subject to change.
−Removed: We are subject to a variety of laws and regulations in the United States and other countries that involve matters central to our business, including with respect to user privacy, rights of publicity, data protection, content, protection of minors, and consumer protection.
−Removed: These laws can be particularly restrictive in countries outside the United States.
−Removed: Both in the United States and abroad, these laws and regulations are constantly evolving and remain subject to significant change.
−Removed: In addition, the application and interpretation of these laws and regulations are often unpredictable and uncertain, particularly in the new and rapidly evolving industry in which we operate.
−Removed: Because we store, process, and use data, some of which contain personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters.
−Removed: Alleged violations of any of these laws and regulations could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could materially adversely affect our business, results of operations, and financial condition.
−Removed: In the EU/EEA, the General Data Protection Regulation (2016/679) (“GDPR”) went into effect in 2018 and replaced Directive 95/46/EC (the EU Privacy Directive), becoming directly applicable in all European Union member states.
−Removed: The GDPR establishes new requirements applicable to the processing of personal data (i.e., data which identifies an individual or from which an individual is identifiable), affords new data protection rights to individuals (e.g., the right to erasure of personal data) and imposes penalties for serious data breaches.
−Removed: Individuals also have a right to compensation under GDPR for financial or non-financial losses.
−Removed: Additionally, Brexit took effect in January 2020, which will lead to further legislative and regulatory changes.
−Removed: While the Data Protection Act of 2018, that “implements” and complements the GDPR achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful in the long term under GDPR.
−Removed: With the expiry of the transition period on December 31, 2020, companies will have to comply with the GDPR and the GDPR as incorporated into United Kingdom national law, which has the ability to separately fine up to the greater of £17.5 million or 4% of global turnover.
−Removed: On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the UK ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the EEA to the UK.
−Removed: Some uncertainty remains, however, as this adequacy determination must be renewed after four years and may be modified or revoked in the interim.
−Removed: We cannot fully predict how the Data Protection Act, the UK GDPR, and other UK data protection laws or regulations may develop in the medium to longer term nor the effects of divergent laws and guidance regarding how data transfers to and from the UK will be regulated.
−Removed: California also recently enacted legislation that has been dubbed the first “GDPR-like” law in the U.S.
−Removed: Known as the California Consumer Privacy Act (“CCPA”), it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households.
−Removed: The CCPA, which went into effect on January 1, 2020, requires covered companies to provide new disclosures to California consumers, and provides such consumers new ways to opt-out of certain sales of personal
−Removed: The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
−Removed: The CCPA may increase our compliance costs and potential liability.
−Removed: Further, California voters approved a new privacy law, the California Privacy Rights Act (“CPRA”) in the November 3, 2020 election.
−Removed: Effective starting on January 1, 2023, the CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.
−Removed: The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA.
−Removed: New legislation proposed or enacted in various other states will continue to shape the data privacy environment nationally.
−Removed: For example, on March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act ("CDPA") which becomes effective on January 1, 2023, and on June 8, 2021, Colorado enacted the Colorado Privacy Act ("CPA") which takes effect on July 1, 2023.
−Removed: The CPA and CDPA are similar to the CCPA and CPRA but aspects of these state privacy statutes remain unclear, resulting in further legal uncertainty and potentially requiring us to modify our data practices and policies and to incur substantial additional costs and expenses in an effort to comply.
−Removed: Complying with the GDPR, CCPA, CPRA, CDPA, CPA, or other laws, regulations, amendments to or re-interpretations of existing laws and regulations, and contractual or other obligations relating to privacy, data protection, data transfers, data localization, or information security may require us to make changes to our services to enable us or our customers to meet new legal requirements, incur substantial operational costs, modify our data practices and policies, and restrict our business operations.
−Removed: Any actual or perceived failure by us to comply with these laws, regulations, or other obligations may lead to significant fines, penalties, regulatory investigations, lawsuits, significant costs for remediation, damage to our reputation, or other liabilities.
−Removed: Some observers have noted that the CCPA, CPRA, CDPA, and CPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
−Removed: GDPR and CCPA will impose additional responsibility and liability in relation to our processing of personal data.
−Removed: GDPR, CCPA, and CPRA may require us to change our policies and procedures and, if we are not compliant, could materially adversely affect our business, results of operations, and financial condition.
+Added: We are subject to stringent and evolving U.S.
+Added: and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security.
+Added: Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions;
+Added: fines and penalties;
+Added: disruptions of our business operations;
+Added: reputational harm;
+Added: loss of revenue or profits;
+Added: loss of customers or sales;
+Added: and other adverse business consequences.
+Added: In the ordinary course of business, we process personal data about our customers, employees, and others and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, and sensitive third-party data.
+Added: Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security, including with respect to user privacy, rights of publicity, data protection, content, protection of minors, and consumer protection.
+Added: In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping and recording laws).
+Added: For example, the California Consumer Privacy Act of 2018 (“CCPA”) applies to personal information of consumers, business representatives and employees and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights.
+Added: The CCPA provides for civil penalties of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages.
+Added: In addition, the California Privacy Rights Act of 2020 (“CPRA”), which became operative January 1, 2023, expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law.
+Added: Other states, such as Colorado, Connecticut, Virginia and Utah, have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels.
+Added: These developments further complicate compliance efforts, and increase legal risk and compliance costs for us, the third parties upon whom we rely.
+Added: Additionally, under various privacy laws and
+Added: other obligations, we may be required to obtain certain consents to process personal data.
+Added: Our inability or failure to do so could result in adverse consequences.
+Added: Outside the United States, an increasing number of laws, regulations, and industry standards may govern data privacy and security.
+Added: For example, the European Union’s General Data Protection Regulation (“EU GDPR”), the United Kingdom’s GDPR (“UK GDPR”), Australia’s Privacy Act 1988 (Privacy Act), and Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”) and various related provincial laws, as well as Canada’s Anti-Spam Legislation (“CASL”), may apply to our operations and impose strict requirements for processing personal data.
+Added: For example, under the EU GDPR, companies may face temporary or definitive bans on data processing and other corrective actions;
+Added: fines of up to 20 million Euros or 4% of annual global revenue, whichever is greater;
+Added: or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests.
+Added: In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries.
+Added: Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries.
+Added: In particular, the European Economic Area (EEA) and the United Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate.
+Added: Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
+Added: Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.
+Added: If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
+Added: Some European regulators have prevented companies from transferring personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations.
+Added: In addition to data privacy and security laws, we may be contractually subject to industry standards adopted by industry groups and may become subject to such obligations in the future.
+Added: For example, we may also be subject to the Payment Card Industry Data Security Standard (“PCI DSS”).
+Added: The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access.
+Added: Noncompliance with PCI-DSS can result in penalties ranging from $5,000 to $100,000 per month by credit card companies, litigation, damage to our reputation, and revenue losses.
+Added: We also rely on vendors to process payment card data, and those vendors may be subject to PCI DSS, and our business may be negatively affected if our vendors are fined or suffer other consequences as a result of PCI DSS noncompliance.
+Added: We may also be bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful.
+Added: For example, certain privacy laws, such as the GDPR and the CCPA, require our customers to impose specific contractual restrictions on their service providers.
+Added: We may publish privacy policies, marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security.
+Added: If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
+Added: Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty.
+Added: Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.
+Added: Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies, systems, and
+Added: practices and to those of any third parties that process personal data on our behalf.
+Added: In addition, these obligations may require us to change our business model.
+Added: Our business model materially depends on our ability to process personal data, so we are particularly exposed to the risks associated with the rapidly changing legal landscape.
+Added: For example, we may be at heightened risk of regulatory scrutiny, and any changes in the regulatory framework could require us to fundamentally change our business model.
+Added: We may at times fail (or be perceived to have failed) in our efforts to comply with our data privacy and security obligations.
+Added: We have in the past received inquiries and/or been the subject of reports regarding our data privacy and security practices and processing.
+Added: Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with such obligations, which could negatively impact our business operations.
+Added: If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to:
+Added: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar);
+Added: litigation (including class-action claims);
+Added: additional reporting requirements and/or oversight;
+Added: bans on processing personal data;
+Added: orders to destroy or not use personal data;
+Added: and imprisonment of company officials.
+Added: Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to:
+Added: loss of customers;
+Added: interruptions or stoppages in our business operations;
+Added: inability to process personal data or to operate in certain jurisdictions;
+Added: limited ability to develop or commercialize our products;
+Added: expenditure of time and resources to defend any claim or inquiry;
+Added: adverse publicity;
+Added: or substantial changes to our business model or operations.
We are subject to financial and operating covenants in the Credit Agreement with Bank of America, N.A.
−Removed: and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the Credit Agreement, resulting in our being unable to borrow under the Credit Agreement and materially adversely impact our liquidity.
+Added: and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the Credit Agreement, resulting in our being unable to borrow under the Credit Agreement and materially and adversely impact our liquidity.
In addition, our operations may not provide sufficient cash to meet the repayment obligations of debt incurred under the Credit Agreement.
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If we are unable to repay those amounts, the Lender could proceed against the collateral granted to them to secure that debt, which would seriously harm our business.
−Removed: Such an event could materially adversely affect our financial condition and liquidity.
−Removed: Additionally, such events of non-compliance could impact the terms of any additional borrowings and/or any
−Removed: credit renewal terms.
+Added: Such an event could materially and adversely affect our financial condition and liquidity.
+Added: Additionally, such events of non-compliance could impact the terms of any additional borrowings and/or any credit renewal terms.
Any failure to comply with such covenants may be a disclosable event and may be perceived negatively.
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Instability in geographies where we have operations and personnel or where we derive amounts of revenue could have a material adverse effect on our business, customers, operations and financial results.
−Removed: Economic, civil, military and political uncertainty exists and may increase regions where we operate and derive our revenue.
+Added: Economic, civil, military and political uncertainty exists and may increase in regions where we operate and derive our revenue.
Various countries in which we operate are experiencing and may continue to experience military action and civil and political unrest.
−Removed: We have operations in the emerging market economies of Eastern Europe, including operations in Belarus utilizing employees and contractors who perform services relating to new product releases.
+Added: We have operations in the emerging market economies of Eastern Europe, previously including operations in Belarus, utilizing employees and contractors who perform services relating to new product releases.
In late February 2022, Russian military forces launched significant military action against Ukraine.
Sustained conflict and disruption in the region is likely.
−Removed: The impact to Belarus and Ukraine, as well as actions taken by other countries, including new and stricter sanctions by Canada, the United Kingdom, the European Union, the U.S.
−Removed: and other countries and organizations against officials, individuals, regions, and industries in Russia, Belarus and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, could have a material adverse effect on our product development timelines.
−Removed: Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our receipt of software development services and cause us to shift all or portions of our work occurring in the region to other countries.
−Removed: We are actively monitoring the security of our employees and contractors in Belarus and the stability of our infrastructure, including communications and internet availability.
−Removed: To date we have not experienced any material interruptions in our operations there and we are in the process of transitioning our operations out of Belarus to other locations.
−Removed: If we are unable to effectively transition those services or replicate their capabilities in another country, our ability to timely introduce new products and financial results may be harmed.
−Removed: Global geopolitical, economic and business conditions could materially adversely affect our revenue and results of operations.
−Removed: Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic, and business conditions, conditions in the financial markets, and changes in the overall demand for connected lifestyle products.
+Added: The impact to Belarus, Russia and Ukraine, as well as actions taken by other countries, including new and stricter export controls and sanctions by Canada, the United Kingdom, the European Union, the U.S.
+Added: and other countries and organizations against officials, individuals, regions, and industries in Russia, Belarus and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, could have a material adverse effect on our product development timelines and increase our research and development expenditure.
+Added: Material adverse effects from the conflict and enhanced sanctions activity has caused us to transition our operations out of Belarus to other countries.
+Added: We are actively monitoring the security of our remaining employees and contractors in Eastern Europe and the stability of our infrastructure, including communications and internet availability.
+Added: To date we have not experienced any material interruptions in our operations there, but if we are unable to effectively replicate the capabilities previously provided by our Belarusian operations in other countries, our ability to timely introduce new products and financial results may be harmed.
+Added: Global geopolitical, economic and business conditions could materially and adversely affect our revenue and results of operations.
+Added: Our business has been, and may continue to be, affected by a number of factors that are beyond our control, including but not limited to general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for connected lifestyle products.
Our products and services may be considered discretionary items for our consumer and small business end-users.
−Removed: A severe and/or prolonged economic downturn, including as a result of the COVID-19 pandemic, could adversely affect our customers’ financial condition and the levels of business activity of our customers.
−Removed: Weakness in, and uncertainty about, global economic conditions may cause businesses to postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products.
+Added: A severe and/or prolonged economic downturn, including as a result of the COVID-19 pandemic, the ongoing conflict in Ukraine, inflation, supply chain disruptions, rising interest rates, or lower consumer confidence, among other things, could adversely affect our customers’ financial condition and their levels of business activity.
+Added: As a result of stimulus programs put in place over the past two years, the U.S.
+Added: and many countries are currently experiencing an inflationary environment.
+Added: In addition, the U.S.
+Added: Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which in turn has negatively impacted equity values.
+Added: capital markets experienced and continue to experience extreme volatility and disruption following the global outbreak of COVID-19, the Russian invasion of Ukraine, and inflationary pressures.
+Added: Weakness in, and uncertainty about, global economic conditions may also cause businesses to postpone spending in response to tighter credit, rising interest rates, inflation, lower consumer confidence, negative financial news and/or general declines in income or asset values, which could have a material negative effect on the demand for our products and services.
In the recent past, various regions worldwide have experienced slow economic growth.
−Removed: In addition, current economic challenges in China, including any global economic ramifications of these challenges, may continue to put negative pressure on global economic conditions.
−Removed: If conditions in the global economy, including Europe, China, Australia and the United States, or other key vertical or geographic markets deteriorate, such conditions could materially adversely affect our business, results of operations, and financial condition.
−Removed: If we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, which could materially adversely affect our business, results of operations, and financial condition.
+Added: In addition, current economic challenges in China may continue to put negative pressure on global economic conditions.
+Added: If conditions in the global economy, including in Europe, China, Australia and the United States, or other key vertical or geographic markets deteriorate, such conditions could materially and adversely affect our business, results of operations, and financial condition.
+Added: If we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, which could materially and adversely affect our business, results of operations, and financial condition.
In addition, the economic problems affecting the financial markets and the uncertainty in global economic conditions resulted in a number of adverse effects, including a low level of liquidity in many financial markets, extreme volatility in credit, equity, currency, and fixed income markets, instability in the stock market, and high unemployment.
−Removed: For example, the challenges faced by the European Union to stabilize some of its member economies, such as Greece, Portugal, Spain, Hungary, and Italy, have had international implications, affecting the stability of global financial markets and hindering economies worldwide.
−Removed: Many member nations in the European Union have been addressing the issues with controversial austerity measures.
+Added: In addition, the challenges faced by the European Union to stabilize some of its member state economies, such as Greece, Portugal, Spain, Hungary, and Italy, have had international implications, affecting the stability of global financial markets and hindering economies worldwide.
+Added: Many member states in the European Union have been addressing the issues
+Added: with controversial austerity measures.
In addition, the potential consequences of the “Brexit” process in the United Kingdom have led to significant uncertainty in the region.
−Removed: Should the European Union monetary policy measures be
−Removed: insufficient to restore confidence and stability to the financial markets, or should the United Kingdom’s “Brexit” decision lead to additional economic or political instability, the global economy, including the U.S.
−Removed: and European Union economies where we have a significant presence, could be hindered, which could have a material adverse effect on us.
+Added: Should the European Union monetary policy measures be insufficient to restore confidence and stability to the financial markets, or should the United Kingdom’s “Brexit” decision lead to additional economic or political instability, the global economy, including the U.S.
+Added: and European Union economies where we have a significant presence, could be hindered, which could have a material adverse effect on our business, results of operations, and financial condition.
There could also be a number of other follow-on effects from these economic developments on our business, including the inability of customers to obtain credit to finance purchases of our products, customer insolvencies, decreased customer confidence to make purchasing decisions, decreased customer demand, and decreased customer ability to pay their trade obligations.
In addition, availability of our products from third-party manufacturers and our ability to distribute our products into non-U.S.
−Removed: jurisdictions may be impacted by factors such as an increase in duties, tariffs, or other restrictions on trade;
+Added: jurisdictions may be impacted by factors such as ongoing supply chain disruptions, an increase in duties, tariffs, or other restrictions on trade;
raw material shortages, work stoppages, strikes and political unrest;
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and China and evolving relations with Russia due to the current hostilities between Russia and Ukraine, create uncertainty regarding our ability to market and distribute our products into non-U.S.
−Removed: jurisdictions and any failure to effectively anticipate or respond to such events could materially adversely affect our business, results of operations, and financial condition.
+Added: jurisdictions and any failure to effectively anticipate or respond to such events could materially and adversely affect our business, results of operations, and financial condition.
A portion of our global and U.S.
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We may need to offset the financial impact by, among other things, moving even more of our product manufacturing to other locations, modifying other business practices or raising prices.
−Removed: If we are not successful in offsetting the impact of any such duties, our revenue, gross margins, and operating results may be materially adversely affected.
+Added: If we are not successful in offsetting the impact of any such duties, our revenue, gross margins, and operating results may be materially and adversely affected.
Our stock price may be volatile and your investment in our common stock could suffer a decline in value.
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In addition, to the extent our retail and distributor channel partners supply products that compete with our own, it is possible that these channel partners may choose not to offer our products to end-users or to offer our products to end-users on less favorable terms, including with respect to product placement.
−Removed: If this were to occur, we may not be able to increase or maintain our sales, and our business, results of operations, and financial condition could be materially adversely affected.
−Removed: For example, Amazon, one of our primary retailers, produces the Amazon Cloud Cam, which competes with our security camera products, and also acquired two of our competitors, Blink and Ring.
−Removed: For the year ended December 31, 2021, we derived 7.6% of our revenue from Amazon and its affiliates.
+Added: If this were to occur, we may not be able to increase or maintain our sales, and our business, results of operations, and financial condition could be materially and adversely affected.
+Added: For example, Amazon, one of our primary retailers, competes with our security camera products, and also acquired two of our competitors, Blink and Ring.
+Added: For the year ended December 31, 2022, we derived 40.1% of our revenue from Verisure and its affiliates.
We must also continuously monitor and evaluate emerging sales channels.
−Removed: If we fail to establish a presence in an important developing sales channel, our business, results of operations, and financial condition could be materially adversely affected.
+Added: If we fail to establish a presence in an important developing sales channel, our business, results of operations, and financial condition could be materially and adversely affected.
If we do not effectively manage our sales channel inventory and product mix, we may incur costs associated with excess inventory, or lose sales from having too few products.
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Furthermore, our competitors may independently develop similar technology or design around our intellectual property.
−Removed: Our inability to secure and protect our intellectual property rights could materially adversely affect our brand and business, results of operations, and financial condition.
+Added: Our inability to secure and protect our intellectual property rights could materially and adversely affect our brand and business, results of operations, and financial condition.
We rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and future technology, our ability to develop, sell, maintain, and support technologically innovative products would be limited.
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In addition, these licenses may require royalty payments or other consideration to the third-party licensor.
−Removed: Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially acceptable terms, if at all.
+Added: Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to
+Added: be licensed to us on commercially acceptable terms, if at all.
In addition, if these third-party licensors fail or experience instability, then we may be unable to continue to sell products and services that incorporate the licensed technologies, in addition to being unable to continue to maintain and support these products and services.
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The acquisition or development of alternative technology may limit and delay our ability to offer new or competitive products and services and increase our costs of production.
−Removed: As a result, our business, results of operations, and financial condition could be materially adversely affected.
+Added: As a result, our business, results of operations, and financial condition could be materially and adversely affected.
We also utilize third-party software development companies and contractors to develop, customize, maintain, and support software that is incorporated into our products and services.
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We are also required to comply with local environmental legislation, and those who sell our products rely on this compliance in order to sell our products.
−Removed: If those who sell our products do not agree with our interpretations and requirements of new legislation, they may cease to order our products and our business, results of operations, and financial condition could be materially adversely affected.
+Added: If those who sell our products do not agree with our interpretations and requirements of new legislation, they may cease to order our products and our business, results of operations, and financial condition could be materially and adversely affected.
Governmental regulations of imports or exports affecting internet security could affect our revenue.
−Removed: Any additional governmental regulation of imports or exports or failure to obtain required export approval of our
−Removed: encryption technologies could adversely affect our international and domestic sales.
+Added: Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies could adversely affect our international and domestic sales.
The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, particularly encryption technology.
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If we are unable to resolve these matters or obtain licenses on acceptable or commercially reasonable terms, we could be sued or we may be forced to initiate litigation to protect our rights.
−Removed: The cost of any necessary licenses and litigation related to alleged infringement could materially adversely affect our business, results of operations, and financial condition.
+Added: The cost of any necessary licenses and litigation related to alleged infringement could materially and adversely affect our business, results of operations, and financial condition.
In the event successful claims of infringement are brought by third parties, and we are unable to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to indemnification obligations, be unable to offer competitive products, or be subject to increased expenses.
−Removed: If we do not resolve these claims on a favorable basis, our business, results of operations, and financial condition could be materially adversely affected.
+Added: If we do not resolve these claims on a favorable basis, our business, results of operations, and financial condition could be materially and adversely affected.
As part of growing our business, we may make acquisitions.
−Removed: If we fail to successfully select, execute, or integrate our acquisitions, then our business, results of operations, and financial condition could be materially adversely affected and our stock price could decline.
+Added: If we fail to successfully select, execute, or integrate our acquisitions, then our business, results of operations, and financial condition could be materially and adversely affected and our stock price could decline.
From time to time, we may undertake acquisitions to add new product and service lines and technologies, acquire talent, gain new sales channels, or enter into new sales territories.
−Removed: Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business, entering into new territories or markets with which we have limited or no prior experience, establishing or maintaining business relationships with new retailers, distributors, or other channel partners, vendors, and suppliers, and potential post-closing disputes.
+Added: Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business, entering into new territories or markets with which
+Added: we have limited or no prior experience, establishing or maintaining business relationships with new retailers, distributors, or other channel partners, vendors, and suppliers, and potential post-closing disputes.
We cannot ensure that we will be successful in selecting, executing, and integrating acquisitions.
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Congress will respond to this decision.
−Removed: To the extent network operators attempt to interfere with our services, extract fees from us to deliver our solution, or otherwise engage in discriminatory practices, our business, results of operations, and financial condition could be materially adversely affected.
−Removed: Within such a regulatory environment, we could experience discriminatory or anti-competitive practices that could impede our domestic and international growth, cause us to incur additional expense, or otherwise materially adversely affect our business, results of operations, and financial condition.
+Added: To the extent network operators attempt to interfere with our services, extract fees from us to deliver our solution, or otherwise engage in discriminatory practices, our business, results of operations, and financial condition could be materially and adversely affected.
+Added: Within such a regulatory environment, we could experience discriminatory or anti-competitive practices that could impede our domestic and international growth, cause us to incur additional expense, or otherwise materially and adversely affect our business, results of operations, and financial condition.
Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
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We are subject to income taxes in the United States and numerous foreign jurisdictions.
−Removed: Because we do not have a long history of operating as a separate company after the Separation from NETGEAR and we have significant expansion plans, our effective tax rate may fluctuate in the future.
Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recognized under GAAP, changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws.
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federal and state net operating loss carryforwards were approximately $91.2 million and approximately $61.3 million, respectively.
+Added: These amounts have been reduced by the amount of net operating losses expected to be utilized to reduce taxable income for such year.
Moreover, our U.S.
−Removed: federal and state research and development tax credits were approximately $4.7 million and approximately $3.8 million, respectively.
−Removed: The utilization of our net operating loss and tax credit carryforwards may be subject to annual limitation due to ownership changes as provided by Sections 382 and 383 of the Code and similar state provisions.
+Added: federal and state research and development tax credits were approximately $6.5 million and approximately $6.4 million, respectively, with the amount of federal credit already reduced by the expected utilization for such year.
+Added: The utilization of our net operating loss and tax
+Added: credit carryforwards may be subject to annual limitation due to ownership changes as provided by Sections 382 and 383 of the Code and similar state provisions.
Such an annual limitation could result in the expiration of portions of our net operating loss and tax credit carryforwards before utilization.
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While we believe we are in compliance with local laws, we cannot assure that tax and customs authorities will agree with our reporting positions and upon audit such tax and customs authorities may assess additional taxes, duties, interest, and penalties against us.
−Removed: Adverse action by any government agencies related to indirect tax laws could materially adversely affect our business, results of operations and financial condition.
+Added: Adverse action by any government agencies related to indirect tax laws could materially and adversely affect our business, results of operations and financial condition.
We are subject to governmental export and import controls, economic sanctions, and anti-corruption laws regulations, that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
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Obtaining the necessary export license or other authorization for a particular sale may be time consuming, and may result in delay or loss of sales opportunities even if the export license ultimately is granted.
−Removed: While we take precautions to prevent our solutions from being exported in violation of these laws, including using authorizations or exceptions for our encryption products and implementing IP address blocking and screenings against U.S.
+Added: While we take precautions to prevent our solutions from being exported in violation of these laws,
+Added: including using authorizations or exceptions for our encryption products and implementing IP address blocking and screenings against U.S.
government and international lists of restricted and prohibited persons and countries, we have not been able to guarantee, and cannot guarantee, that the precautions we take will prevent all violations of export control and sanctions laws, including if purchasers of our products bring our products and services into sanctioned countries without our knowledge.
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We are also subject to various domestic and international anti-corruption laws, such as the United States Foreign Corrupt Practices Act, as well as other similar anti-bribery laws and regulations.
−Removed: These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, providing, and accepting improper
−Removed: payments or benefits for improper purposes.
+Added: These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, providing, and accepting improper payments or benefits for improper purposes.
These laws also require that we keep accurate books and records and maintain compliance procedures designed to prevent any such actions.
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Some of our customers also require that we comply with their own unique requirements relating to these matters.
−Removed: Any failure to comply with such laws, regulations, and requirements, and any associated unanticipated costs, could materially adversely affect our business, results of operations, and financial condition.
+Added: Any failure to comply with such laws, regulations, and requirements, and any associated unanticipated costs, could materially and adversely affect our business, results of operations, and financial condition.
We manufacture and sell products which contain electronic components, and such components may contain materials that are subject to government regulation in both the locations where we manufacture and assemble our products, as well as the locations where we sell our products.
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In addition, the supply-chain due diligence investigation required by the conflict minerals rules will require expenditures of resources and management attention regardless of the results of the investigation.
−Removed: If there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that regulation could materially adversely affect our business, results of operations, and financial condition.
+Added: If there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that regulation could materially and adversely affect our business, results of operations, and financial condition.
One area that has a large number of regulations is environmental compliance.
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Environmental regulations require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances, and participate in required recovery and recycling of our products.
−Removed: While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business.
+Added: While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be
+Added: material to our business.
If there is a new law or regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this could have a material adverse effect on our business, financial condition, and results of operations.
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Many of the competition-related laws that govern these internet sales were adopted prior to the advent of the internet and, as a result, do not contemplate or address the unique issues raised by online sales.
−Removed: New interpretations of existing laws and regulations, whether by courts or by the state, federal, or foreign governmental
−Removed: authorities charged with the enforcement of those laws and regulations, may also impact our business in ways we are currently unable to predict.
+Added: New interpretations of existing laws and regulations, whether by courts or by the state, federal, or foreign governmental authorities charged with the enforcement of those laws and regulations, may also impact our business in ways we are currently unable to predict.
Any failure on our part or on the part of our employees, agents, distributors, or other business partners to comply with the laws and regulations governing competition can result in negative publicity and diversion of management time and effort and may subject us to significant litigation liabilities and other penalties.
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Any bankruptcies or illiquidity among our customer base or sublease counterparties could harm our business and have a material adverse effect on our financial condition and results of operations.
−Removed: To the degree that turmoil in the credit markets makes it more difficult for some customers or sublease counterparties to obtain financing, our customers’ or sublease counterparties' ability to pay could be adversely impacted, which in turn could materially adversely affect our business, results of operations, and financial condition.
+Added: To the degree that turmoil in the credit markets makes it more difficult for some customers or sublease counterparties to obtain financing, our customers’ or sublease counterparties' ability to pay could be adversely impacted, which in turn could materially and adversely affect our business, results of operations, and financial condition.
In June, 2021, we entered into a sublease agreement, with a term that runs concurrent with the term of the head lease, for our San Jose office space in light of the COVID-19 pandemic and its impact on the changing nature of office space use by our workforce.
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Under these circumstances, we would be responsible for any shortfall.
−Removed: If our products are not compatible with some or all leading third-party IoT products and protocols, we could be materially adversely affected.
+Added: If our products are not compatible with some or all leading third-party IoT products and protocols, we could be materially and adversely affected.
A core part of our solution is the interoperability of our platform with third-party IoT products and protocols.
−Removed: We have designed the Arlo platform to seamlessly integrate with third-party IoT products and protocols, such as Amazon Alexa, Apple HomeKit, Apple TV, Google Assistant, IFTTT, Stringify, and Samsung SmartThings.
+Added: We have designed the Arlo platform to seamlessly integrate with third-party IoT products and protocols, such as Amazon
+Added: Alexa, Apple HomeKit, Apple TV, Google Assistant, IFTTT, Stringify, and Samsung SmartThings.
If these third parties were to alter their products, we could be adversely impacted if we fail to timely create compatible versions of our products, and such incompatibility could negatively impact the adoption of our products and solutions.
A lack of interoperability may also result in significant redesign costs, and harm relations with our customers.
−Removed: Further, the mere announcement of an incompatibility problem relating to our products could materially adversely affect our business, results of operations, and financial condition.
+Added: Further, the mere announcement of an incompatibility problem relating to our products could materially and adversely affect our business, results of operations, and financial condition.
In addition, to the extent our competitors supply products that compete with our own, it is possible these competitors could design their technologies to be closed or proprietary systems that are incompatible with our products or work less effectively with our products than their own.
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The success of our business depends, in part, on the capacity, affordability, reliability, and prevalence of wireless data networks provided by wireless telecommunications operators and on which our IoT hardware products and solutions operate.
−Removed: Growth in demand for wireless data access may be limited if, for example, wireless telecommunications operators
−Removed: cease or materially curtail operations, fail to offer services that customers consider valuable at acceptable prices, fail to maintain sufficient capacity to meet demand for wireless data access, delay the expansion of their wireless networks and services, fail to offer and maintain reliable wireless network services, or fail to market their services effectively.
−Removed: We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could materially adversely affect our business, results of operations, and financial condition.
+Added: Growth in demand for wireless data access may be limited if, for example, wireless telecommunications operators cease or materially curtail operations, fail to offer services that customers consider valuable at acceptable prices, fail to maintain sufficient capacity to meet demand for wireless data access, delay the expansion of their wireless networks and services, fail to offer and maintain reliable wireless network services, or fail to market their services effectively.
+Added: We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could materially and adversely affect our business, results of operations, and financial condition.
Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates.
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If the Distribution (as defined below), together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S.
−Removed: federal income tax purposes, NETGEAR, Arlo and Arlo stockholders could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify NETGEAR for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
+Added: federal income tax purposes, NETGEAR, Arlo and Arlo stockholders could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify
+Added: NETGEAR for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
In November 2018, NETGEAR announced that its board of directors had approved a special stock dividend (the “Distribution”) to its stockholders, consisting of 62,500,000 shares of our common stock owned by NETGEAR.
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If any of these representations, statements or undertakings are, or become, incomplete or inaccurate, or if we or NETGEAR breach any of the respective covenants in any of the separation-related agreements, the opinion of the outside tax counsel could be invalid and the conclusions reached therein could be jeopardized.
−Removed: Notwithstanding the opinion of the outside tax counsel, the IRS could determine on an audit that the Distribution, together with certain related transactions, should be taxable if it determines that any of the facts, assumptions, representations, statements or undertakings were incorrect or had been violated, or if it disagrees with the conclusions in the opinion.
−Removed: The opinion of counsel is not binding on the IRS or the courts, and we cannot assure that the IRS or a court
−Removed: would not assert a contrary position.
−Removed: NETGEAR has not requested, and does not intend to request, a ruling from the IRS with respect to the treatment of the Distribution or certain related transactions for U.S.
−Removed: federal income tax purposes.
−Removed: The consolidated U.S.
−Removed: federal income tax return for the calendar year 2018 that we filed with NETGEAR to report the Distribution together with certain related transactions is currently under audit by the IRS.
−Removed: If the Distribution, together with certain related transactions, were to fail to qualify as a tax-free transaction for U.S.
−Removed: federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, NETGEAR would recognize taxable gain as if it had sold our common stock in a taxable sale for its fair market value, and NETGEAR stockholders who receive shares of our common stock in the Distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
+Added: As of December 31, 2022, the 2018 IRS audit had been closed without any adjustments and the 2018 California Franchise Tax Board audit is still ongoing.
We entered into the tax matters agreement with NETGEAR to indemnify NETGEAR for any taxes (and any related costs and other damages) resulting from the Separation and Distribution, and certain other related transactions, to the extent such amounts were to result from (i) an acquisition after the Distribution of all or a portion of our equity securities, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (ii) other actions or failures to act by us or (iii) any of the representations or undertakings contained in any of the Separation-related agreements or in the documents relating to the opinion of counsel being incorrect or violated.
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The transition services agreement generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement.
−Removed: Pursuant to the registration rights agreement, we have agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise.
+Added: Pursuant to the registration rights agreement, we have agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each
+Added: other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise.
NETGEAR and its subsidiaries that hold registrable securities similarly indemnify us but such indemnification will be limited to an amount equal to the net proceeds received by such holder under the sale of registrable securities giving rise to the indemnification obligation.
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Even if we ultimately succeed in recovering from NETGEAR any amounts for which we are held liable, we may be temporarily required to bear these losses.
−Removed: Each of these risks could materially adversely affect our business, results of operations, and financial condition.
+Added: Each of these risks could materially and adversely affect our business, results of operations, and financial condition.
Risks Related to Ownership of Our Common Stock
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Factors that may be considered when determining if the carrying value of our goodwill, other intangible assets and long-lived assets may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.
−Removed: If, in any period our stock price decreases to the point where the fair value of our assets (as partially indicated by our market capitalization) is less than our book value, this could indicate a potential impairment and we may be required to record an impairment charge in that period.
+Added: If, in any period our stock price decreases to the point where the fair value of our assets (as partially indicated by our market capitalization) is less than our book value, this could indicate a potential impairment and we may be required to
+Added: record an impairment charge in that period.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance.
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As a result, we may incur substantial impairment charges to earnings in our financial statements should an impairment of our goodwill, other intangible assets and long-lived assets be determined resulting in an adverse impact on our results of operations.
−Removed: If there is a decline in the Company’s stock price based on market conditions and deterioration of the
−Removed: Company’s business, the Company may have to record a charge to its earnings for the associated goodwill impairment of up to $11.0 million.
+Added: If there is a decline in our stock price based on market conditions and deterioration of our business, we may have to record a charge to our earnings for the associated goodwill impairment of up to $11.0 million.
We are subject to securities class action and derivative litigation.
We are subject to various securities class action and derivative complaints, as more fully discussed in the heading under “Litigation and Other Legal Matters” in Note 8, Commitments and Contingencies , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
−Removed: Regardless of the merits or ultimate results of the above-described litigation matters, they could result in substantial costs, which would hurt the Company's financial condition and results of operations and divert management’s attention and resources from our business.
−Removed: At this point, however, it is too early to reasonably estimate any financial impact to the Company resulting from these litigation matters.
+Added: Regardless of the merits or ultimate results of the above-described litigation matters, they could result in substantial costs, which would hurt our financial condition and results of operations and divert management’s attention and resources from our business.
+Added: At this point, however, it is too early to reasonably estimate any financial impact to us resulting from these litigation matters.
Your percentage ownership in Arlo may be diluted in the future.
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For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002 ("Section 404"), reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
−Removed: We will remain an emerging growth company until the earliest of (1) December 31, 2023, (2) the last day of the fiscal year in which we have total annual revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we become a large accelerated filer, which means that we have been public for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last day of our then most recently completed second fiscal quarter, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
−Removed: Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements
−Removed: including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
+Added: We will remain an emerging growth company until the earliest of (1) December 31, 2023, (2) the last day of the fiscal year in which we have total annual revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we become a large accelerated filer, which means that we have been public for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the
+Added: last day of our then most recently completed second fiscal quarter, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
+Added: Even after we no longer qualify as an emerging growth company, we may still re-qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
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(ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan);
−Removed: or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.
−Removed: We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more
−Removed: time to assess any acquisition proposal.
+Added: or (iii) on or subsequent to such time the business combination is approved by the board of directors of such
+Added: corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.
+Added: We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal.
These provisions are not intended to make Arlo immune from takeovers.
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These changes will require a significant commitment of additional resources.
−Removed: We may not be successful in implementing these requirements and implementing them could materially adversely affect our business, results of operations and financial condition.
+Added: We may not be successful in implementing these requirements and implementing them could materially and adversely affect our business, results of operations and financial condition.
In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired.
If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC and the NYSE.
−Removed: Any such action could harm our reputation and the confidence of investors and customers in us and could materially adversely affect our business and cause our share price to fall.
−Removed: Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could materially adversely affect our business, results of operations, financial condition, and stock price.
+Added: Any such action could harm our reputation and the confidence of investors and customers in us and could materially and adversely affect our business and cause our share price to fall.
+Added: Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could materially and adversely affect our business, results of operations, financial condition, and stock price.
As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal control over financial reporting.
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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.