What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-09 · 255 added, 302 removed, 353 unchanged (61% of the section changed)

36 unchanged sentences

shares issued and outstanding:

88,410,113 at October 2, 2022 and 84,453,212 at December 31, 2021

90,785,158 at April 2, 2023 and 88,887,139 at December 31, 2022

Additional paid-in capital 445,809 433,138

5 unchanged sentences

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

2023 April 3,

(In thousands, except per share data)

11 unchanged sentences

General and administrative 15,622 12,621

Impairment charges — — — 9,116

Separation expense 273 683 377 1,342

Others 632 79

Total operating expenses 49,357 42,247

1 unchanged sentence

Interest income (expense), net 726 ( 5 )

Other income, net 19 599 314 4,170

Other income (expense), net ( 39 ) 411

Loss before income taxes ( 13,453 ) ( 8,266 )

14 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Three Months Ended

2023 April 3,

(In thousands)

Total stockholders’ equity, beginning balances

$ 87,695 $ 112,652

Common stock:

6 unchanged sentences

Stock-based compensation expense 10,270 8,183

Settlement of liability classified RSUs 3,669 8,525 8,731 15,087

Settlement of liability classified restricted stock units 6,739 4,966

Issuance of common stock under stock-based compensation plans 355 1,385

Issuance of common stock under Employee Stock Purchase Plan — 1,265 1,746 2,962

Restricted stock unit withholdings ( 4,693 ) ( 6,659 )

9 unchanged sentences

Total stockholders’ equity, ending balances

$ 86,251 $ 112,004

Common stock shares:

1 unchanged sentence

Issuance of common stock under stock-based compensation plans 3,165 2,127

Issuance of common stock under Employee Stock Purchase Plan — 249 304 602

Restricted stock unit withholdings ( 1,267 ) ( 745 )

3 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

2022 October 3,

Three Months Ended

2023 April 3,

(In thousands)

1 unchanged sentence

Net loss $ ( 14,245 ) $ ( 8,479 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Stock-based compensation expense 14,591 9,589

Impairment charges — 9,116

Depreciation and amortization 1,149 1,302

1 unchanged sentence

Deferred income taxes 127 ( 9 )

Others ( 124 ) 28

Changes in assets and liabilities:

5 unchanged sentences

Accrued and other liabilities ( 7,716 ) ( 1,320 )

Net cash used in operating activities ( 34,783 ) ( 32,656 )

Net cash provided by (used in) operating activities 10,329 ( 24,557 )

Cash flows from investing activities:

2 unchanged sentences

Proceeds from maturities of short-term investments 15,006 —

Net cash provided by (used in) investing activities ( 45,578 ) 18,062

Net cash used in investing activities ( 22,672 ) ( 44,938 )

Cash flows from financing activities:

2 unchanged sentences

Net cash used in financing activities ( 4,691 ) ( 5,272 )

Net decrease in cash and cash equivalents and restricted cash

Net decrease in cash, cash equivalents, and restricted cash

( 17,034 ) ( 74,767 )

Cash and cash equivalents and restricted cash , at beginning of period

Cash, cash equivalents, and restricted cash , at beginning of period

88,179 179,856

Cash and cash equivalents and restricted cash , at end of period

Cash, cash equivalents, and restricted cash , at end of period

$ 71,145 $ 105,089

Reconciliation of cash, cash equivalents, and restricted cash to Unaudited Condensed Consolidated Balance Sheets

Cash and cash equivalents $ 66,970 $ 100,975

Restricted cash 4,175 4,114

Total cash, cash equivalents, and restricted cash $ 71,145 $ 105,089

Supplemental cash flow information:

Non-cash investing activities:

3 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company and Basis of Presentation

Description of Business and Basis of Presentation

Description of Business

Arlo Technologies, Inc.

("Arlo" or the "Company") combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that transform the way people experience the connected lifestyle.

The Company's deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day.

The Company's cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection.

The Company conducts business across three geographic regions—(i) the Americas;

(“Arlo”) combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that transform the way people experience the connected lifestyle.

Our deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day.

Our cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection.

We conduct business across three geographic regions—(i) the Americas;

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

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

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

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

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

Basis of Presentation

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

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

We prepare our unaudited condensed consolidated financial statements in conformity with U.S.

Generally Accepted Accounting Principles (“U.S.

1 unchanged sentence

Securities and Exchange Commission (“SEC”).

These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The unaudited condensed consolidated financial statements include the accounts of Arlo and its wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated.

These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S.

1 unchanged sentence

Fiscal periods

The Company’s fiscal year begins on January 1 of the year stated and ends on December 31 of the same year.

The Company reports its results on a fiscal quarter basis rather than on a calendar quarter basis.

Our fiscal year begins on January 1 of the year stated and ends on December 31 of the same year.

We report the results on a fiscal quarter basis rather than on a calendar quarter basis.

Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.

Reclassification

Certain prior periods amounts have been reclassified to conform to the current period’s presentation.

6 unchanged sentences

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

Actual results could differ materially from those estimates and operating results for the nine months ended October 2, 2022 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period.

Actual results could differ materially from those estimates and operating results for the three months ended April 2, 2023 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any future period.

Significant Accounting Policies and Recent Accounting Pronouncements

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

There have been no significant changes during the nine months ended October 2, 2022.

Recent accounting pronouncements

Our significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no significant changes to such policies during the three months ended April 2, 2023.

Emerging Growth Company Status

As an emerging growth company (“EGC”), the Company may, under the Jumpstart Our Business Startups Act, delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless the Company otherwise irrevocably elects not to avail itself of this exemption.

The Company did not make such an irrevocable election and has not delayed the adoption of any applicable accounting standards.

As an emerging growth company (“EGC”), we may, under the Jumpstart Our Business Startups Act, delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless we otherwise irrevocably elect not to avail ourselves of this exemption.

We did not make such an irrevocable election and have not delayed the adoption of any applicable accounting standards.

We will no longer qualify as an EGC on December 31, 2023.

Accordingly, our Annual Report on Form 10-K for the year ending December 31, 2023 will include an attestation report of our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.

Accounting Pronouncements Recently Adopted

In 2022, the Company adopted Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

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

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

The adoption of this guidance did not have a material impact on the Company's financial statements and related disclosures.

There were no accounting pronouncements adopted during the three months ended April 2, 2023.

Accounting Pronouncements Not Yet Effective

The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not expect any to have a material effect on its financial statements and related disclosures.

Deferred Revenue

Deferred revenue consists of advance payments and customer billings in advance of revenue recognition from subscription contracts where the Company has unsatisfied performance obligations.

Advance payments include prepayments for Non-Recurring Engineering ("NRE") services under the Supply Agreement with Verisure S.à.r.l.

(“Verisure”).

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period.

Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog.

Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted and that are scheduled or in the process of being scheduled for shipment.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of October 2, 2022:

We have considered all recent accounting pronouncements issued, but not yet effective, and do not expect any to have a material effect on our financial statements and related disclosures.

Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied and partially unsatisfied as of April 2, 2023:

1 year 2 years Greater than 2 years Total

2 unchanged sentences

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

For the nine months ended October 2, 2022 and October 3, 2021, $ 82.5 million and $ 64.2 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 101.2 million and $ 70.3 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three months ended April 2, 2023 and April 3, 2022, $ 41.2 million and $ 25.8 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 38.4 million and $ 27.5 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

Approximately $ 8.4 million and $ 9.0 million of this recognized revenue was included in the contract liability balance at the beginning of the periods.

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

During the five-year period that commenced on January 1, 2020, Verisure Sàrl (“Verisure”) has an aggregate purchase commitment of $ 500.0 million.

As of April 2, 2023, $ 378.9 million of the purchase commitment has been fulfilled with a backlog of $ 25.9 million.

Disaggregation of Revenue

The Company conducts business across three geographic regions:

the Americas, EMEA, and APAC.

Sales and usage-based taxes are excluded from revenue.

Refer to Note 11, Segment and Geographic Information , for revenue by geography.

Balance Sheet Components

Cash and Cash Equivalents and Restricted cash

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

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

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

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown on the statements of cash flows:

2022 December 31,

(In thousands)

Cash and cash equivalents $ 80,773 $ 175,749

Restricted cash 4,128 4,107

Total as presented on the unaudited condensed consolidated statements of cash flows $ 84,901 $ 179,856

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2021 December 31,

We disaggregate our revenue into three geographic regions:

the Americas, EMEA, and APAC, where we conduct our business.

The following table presents revenue by geography.

Three Months Ended

2023 April 3,

(In thousands)

Cash and cash equivalents $ 166,057 $ 186,127

Restricted cash 4,105 4,164

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

Available-for-sale short-term investments

As of October 2, 2022 As of December 31, 2021

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

Americas $ 56,632 $ 68,466

EMEA 48,472 49,975

APAC 5,900 6,310

Total $ 111,004 $ 124,751

Balance Sheet Components

Short-term investments

As of April 2, 2023 As of December 31, 2022

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

(In thousands)

Treasuries $ 51,730 $ — $ ( 27 ) $ 51,703 $ 29,849 $ — $ ( 149 ) $ 29,700

The Company’s short-term investments are classified as available-for-sale and consist of government securities with an original maturity or remaining maturity at the time of purchase of greater than three months and no more than twelve months.

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

The Company did not recognize any allowance for credit losses related to available for sale short-term investments for the three months ended October 2, 2022.

Accounts receivable, net

3 unchanged sentences

Allowance for credit losses ( 329 ) ( 423 )

Total accounts receivable, net $ 82,707 $ 79,564

Total $ 52,837 $ 65,960

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

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Three Months Ended

2023 April 3,

(In thousands)

2 unchanged sentences

Balance at the end of the period $ 329 $ 339

Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of October 2, 2022.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and equipment, net

5 unchanged sentences

Computer equipment 3,938 3,992

Furniture and fixtures 2,567 2,404

Leasehold improvements

Furniture and fixtures 2,553 2,554

Total property and equipment, gross 40,313 39,505

Accumulated depreciation and amortization ( 31,404 ) ( 29,023 )

Accumulated depreciation ( 33,258 ) ( 32,169 )

Total property and equipment, net (1)

1 unchanged sentence

_________________________

(1) $ 1.8 million and $ 2.4 million property and equipment, net, respectively, was included in the sublease arrangement for the San Jose office building as of October 2, 2022 and December 31, 2021.

Depreciation and amortization expense pertaining to property and equipment was $ 1.1 million and $ 3.7 million for the three and nine months ended October 2, 2022, respectively, and $ 1.4 million and $ 4.5 million for the three and nine months ended October 3, 2021, respectively.

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

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

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

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

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

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

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

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

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

Refer to Note 5, Fair Value Measurements for additional information about the fair value measured on a non-recurring basis and Note 7, Commitments and Contingencies , for further information about the sublease.

There was no change in the carrying amount of goodwill during the nine months ended October 2, 2022.

The goodwill as of October 2, 2022 and December 31, 2021 was $ 11.0 million.

(1) $ 1.5 million and $ 1.7 million property and equipment, net, was included in the sublease arrangement for the San Jose office building as of April 2, 2023 and December 31, 2022, respectively.

Depreciation expense pertaining to property and equipment was $ 1.1 million and $ 1.3 million for the three months ended April 2, 2023 and April 3, 2022, respectively.

We have determined that no event occurred or circumstances changed during the three months ended April 2, 2023 that would more likely than not reduce the fair value of goodwill below the carrying amount.

No goodwill impairment was recognized in the three months ended April 2, 2023 and the goodwill balance was $ 11.0 million as of April 2, 2023 and December 31, 2022.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Goodwill Impairment

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

The Company operates as one operating and reportable segment.

The Company determined that no events occurred or circumstances changed during the nine months ended October 2, 2022 that would more likely than not reduce the fair value of the Company below its carrying amount.

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

Other non-current assets

1 unchanged sentence

(In thousands)

Net deferred tax assets $ 1,306 $ 1,565

Sublease 793 1,471

Deferred income taxes $ 1,256 $ 1,384

Sublease initial direct cost and adjustments 928 777

Other 1,799 1,920

Total other non-current assets $ 4,208 $ 4,314

Total $ 3,983 $ 4,081

Accrued liabilities

1 unchanged sentence

(In thousands)

Sales and marketing $ 35,988 $ 31,417

Sales incentives $ 33,943 $ 36,271

Sales returns

15,000 18,656

Accrued employee compensation 12,111 12,367

Current operating lease liabilities 4,507 4,609

Freight 2,332 8,086

Warranty obligation 1,121 1,330

Compensation 15,134 15,556

Cloud and other costs 7,196 11,154

Operating lease liabilities 3,880 4,190

Professional services 3,148 3,703

Income taxes payable 2,034 961

Warranty obligations 1,119 1,174

Freight cost 989 1,050

Service cost 907 806

Restructuring charges 749 1,265

Other 4,117 4,069

Total accrued liabilities $ 92,117 $ 97,389

Total $ 88,216 $ 98,855

Other non-current liabilities

2023 December 31,

(In thousands)

Non-current service cost $ 1,196 $ 1,259

Non-current compensation 994 616

Non-current deferred revenue 114 212

Non-current income taxes payable 77 77

Other 861 785

Total $ 3,242 $ 2,949

ARLO TECHNOLOGIES, INC.

10 unchanged sentences

Treasuries (<90 days)

10,174 20,274

Available-for-sale securities:

Treasuries (1)

51,703 29,700

Total $ 63,327 $ 62,588

_________________________

(1) Included in short-term investments on the Company’s unaudited condensed consolidated balance sheets.

The Company’s investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

As of October 2, 2022 and December 31, 2021, assets and liabilities measured as Level 2 fair value were not material and there were no Level 3 fair value assets or liabilities measured on a recurring basis.

(1) Included in short-term investments on our unaudited condensed consolidated balance sheets.

Our investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

As of April 2, 2023 and December 31, 2022, assets and liabilities measured as Level 2 fair value were not material and there were no Level 3 fair value assets or liabilities measured on a recurring basis.

Fair Value Measurements - Nonrecurring Basis

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

For the three and nine months ended October 2, 2022, the Company had no assets or liabilities measured on a nonrecurring basis.

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

The fair value measurements were determined using a discounted cash flow method with unobservable inputs and were classified within Level 3 of the fair value hierarchy.

The fair value of the asset group was calculated by utilizing projected cash flows from the sublease, discounted by a market derived discount rate at 8.0 %.

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

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

For the three months ended April 2, 2023 and April 3, 2022, we had no assets or liabilities measured on a nonrecurring basis.

Restructuring

In November 2022, we initiated a restructuring plan to reduce our cost structure to better align the operational needs of the business to current economic conditions while continuing to support our long-term strategy.

This restructuring includes the reduction of headcount as well as the abandonment of certain lease contracts and the cancellation of contractual services arrangements with certain suppliers.

We expect the completion date to be in the third quarter of 2023 with the total estimated restructuring charges of $ 2.1 million.

The restructuring liabilities are included in accrued liabilities in our unaudited condensed consolidated balance sheets.

Restructuring activities for the three months ended April 2, 2023 are as follows:

Total Severance Expense Office Exit Expense Other Exit Expense

(In thousands)

Balance at the beginning of the period $ 1,265 $ 219 $ 991 $ 55

Restructuring charges 276 248 28 —

Cash payments ( 792 ) ( 440 ) ( 333 ) ( 19 )

Non-cash and other adjustments — — — —

Balance at the end of the period $ 749 $ 27 $ 686 $ 36

Total costs incurred inception to date $ 2,081 $ 1,046 $ 956 $ 79

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revolving Credit Facility

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

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

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

2 unchanged sentences

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

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

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

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

Based on certain terms and conditions including eligible accounts receivable as of April 2, 2023, we had unused borrowing capacity of $ 8.4 million.

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

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

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

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

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

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

As of October 2, 2022, the Company is in compliance with all the covenants of the Credit Agreement.

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

As of April 2, 2023, we were in compliance with all the covenants of the Credit Agreement.

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

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

No amounts had been drawn under the Credit Facility as of October 2, 2022.

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

No amounts had been drawn under the Credit Facility as of April 2, 2023.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Commitments and Contingencies

Operating Leases

The Company primarily leases office space, with various expiration dates through June 2029.

Some of the leases include options to extend such leases for up to five years , and some include options to terminate such leases within one year .

Our operating leases comprise offices, equipment, data centers and distribution centers, with various expiration dates through June 2029.

Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into our determination of lease payments.

The terms of certain leases provide for rental payments on a graduated scale.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities , and non-current operating lease liabilities in the unaudited condensed consolidated balance sheets.

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

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

Gross lease expense was $ 1.8 million and $ 1.7 million for the three months ended October 2, 2022 and October 3, 2021, respectively, and $ 5.4 million and $ 5.3 million for the nine months ended October 2, 2022 and October 3, 2021, respectively.

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

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

The Company recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million and $ 1.5 million for the three and nine months ended October 2, 2022.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Supplemental cash flow information related to operating leases for the nine months ended October 2, 2022 and October 3, 2021 was as follows:

October 2, 2022 October 3, 2021

Gross lease expense was $ 1.5 million and $ 1.8 million for the three months ended April 2, 2023 and April 3, 2022, respectively.

We recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million for each of the three months ended April 2, 2023 and April 3, 2022.

Supplemental cash flow information related to operating leases was as follows:

Three Months Ended

2023 April 3,

(in thousands)

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

October 2, 2022 December 31, 2021

2023 December 31,

Weighted average remaining lease term 4.9 years 5.1 years

Weighted average discount rate 5.78 % 5.69 %

The Company's future minimum undiscounted lease payments under operating leases and future non-cancelable rent payments from its subtenants for each of the next five years and thereafter as of October 2, 2022 were as follows:

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The future minimum undiscounted lease payments under operating leases and future non-cancelable rent payments from our subtenants for each of the next five years and thereafter as of April 2, 2023 were as follows:

Operating Lease Payments Sublease Payments Net

(In thousands)

2022 (Remaining three months) $ 1,166 $ ( 502 ) $ 664

2023 (Remaining nine months) $ 3,657 $ ( 1,551 ) $ 2,106

2024 5,251 ( 1,947 ) 3,304

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Letters of Credit

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

As of October 2, 2022, the Company had approximately $ 3.6 million of unused letters of credit outstanding, of which $ 3.1 million pertains to the lease arrangement in San Jose, California.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

As of April 2, 2023, we had approximately $ 3.6 million of unused letters of credit outstanding, of which $ 3.1 million pertains to the lease arrangement in San Jose, California.

Purchase Obligations

The Company has entered into various inventory-related purchase agreements with suppliers.

We have entered into various inventory-related purchase agreements with suppliers.

Generally, under these agreements, 50 % of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25 % of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date.

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

As of October 2, 2022, the Company had approximately $ 42.5 million in non-cancelable purchase commitments with suppliers.

As of October 2, 2022, a further $ 37.7 million of purchase orders beyond contractual termination periods have been issued to supply chain partners in anticipation of demand requirements.

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

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

As of April 2, 2023, we had approximately $ 36.6 million in non-cancelable purchase commitments with suppliers.

As of April 2, 2023, an additional $ 24.2 million of purchase orders beyond contractual termination periods have been issued to supply chain partners in anticipation of demand requirements.

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

Expenses incurred have historically not been significant relative to the original order value.

As of April 2, 2023, the loss liability from committed purchases was not material.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Warranty Obligations

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

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

Changes in warranty obligations, which are included in accrued liabilities in the unaudited condensed consolidated balance sheets, were as follows:

Three Months Ended

2023 April 3,

(In thousands)

Balance at the beginning of the period $ 1,174 $ 1,330

Provision for (release of) warranty obligation ( 88 ) ( 53 ) 25 ( 438 )

Provision for warranty obligations 15 79

Settlements ( 70 ) ( 79 )

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Litigation and Other Legal Matters

We are involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below.

In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

In such cases, we accrue for the amount or, if a range, we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within general and administrative expenses.

We monitor developments in these legal matters that could affect the estimate we had previously accrued.

In relation to such matters, we currently believe that there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position within the next 12 months, or the outcome of these matters is currently not determinable.

There are many uncertainties associated with any litigation, and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges.

In addition, the resolution of any intellectual property litigation may require us to make royalty payments, which could have an adverse effect in future periods.

If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected.

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

Securities Class Action Lawsuits and Derivative Suit

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

In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

In such cases, the Company accrues for the amount or, if a range, the Company accrues the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net.

The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued.

In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position within the next 12 months, or the outcome of these matters is currently not determinable.

There are many uncertainties associated with any litigation, and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges.

In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could have an adverse effect in future periods.

If any of those events were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On March 2, 2022, the Company filed its Form 10-K for the year ended December 31, 2021 which disclosed the status of certain securities class action lawsuits.

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

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

District Court for the Northern District of California (the "Federal Action") against the Company and certain of its executives and directors.

The plaintiffs in the State Action allege that the Company failed to adequately disclose quality control problems and adverse sales trends ahead of the Company's initial public offering (the "IPO"), violating the Securities Act of 1933, as amended (the "Securities Act").

On December 11, 2018, purported stockholders of Arlo filed six putative securities class action complaints in the Superior Court of California, County of Santa Clara (the “State Action”), and one complaint in the U.S.

District Court for the Northern District of California (the “Federal Action”) against us and certain of our executives and directors.

The plaintiffs in the State Action allege that we failed to adequately disclose quality control problems and adverse sales trends ahead of our initial public offering (the “IPO”), violating the Securities Act of 1933, as amended (the “Securities Act”).

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

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

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

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

Lead plaintiff alleged violations of the Securities Act and the Securities Exchange Act of 1934, as amended, based on alleged materially false and misleading statements about our sales trends and products.

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

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

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

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

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

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

In October 2020, we made a $ 1.25 million payment to an escrow account administered by the court and

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

plaintiff’s counsel (the “Settlement Fund”).

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

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

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

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

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

Defendants-Respondents filed their responding brief on August 18, 2022, and Plaintiffs-Appellants filed their reply brief on September 7, 2022.

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

On April 13, 2023, the court heard oral argument on the appeal and the case was submitted.

On May 5, 2023, the Court of Appeal affirmed by written order the trial court’s dismissal of the State Action based on the federal forum provision in Arlo’s certificate of incorporation and awarded costs to Arlo.

Arlo Technologies, Inc., et al.

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

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

The complaint is based on the same alleged misconduct as the securities class actions but asserts claims for breach of fiduciary duty, waste of corporate

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assets, and violation of the Securities Exchange Act of 1934, as amended.

The Derivative Action is brought on behalf of Arlo against the majority of our current directors.

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

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

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At the hearing, the Court informed the parties that it was inclined to grant defendants’ motion to dismiss for lack of jurisdiction, and the Court’s corresponding written order dismissing the case followed on August 8, 2022.

Skybell Technologies, Inc.

Arlo Technologies, Inc.

On December 18, 2020, Skybell Technologies, Inc., SB IP Holdings, LLC, and Eyetalk365, LLC (collectively, “Skybell”) filed a Section 337 complaint against the Company, Vivint Smart Home, Inc.

and SimpliSafe, Inc.

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

International Trade Commission (“ITC”).

The action alleges that the Company’s cameras and video doorbell cameras infringe certain patents (the Asserted Patents").

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

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

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

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

On June 23, 2022, Skybell and the Respondents stipulated to the dismissal of the Skybell’s appeal, and on June 27, 2022, the Federal Circuit correspondingly dismissed the appeal.

There was no material financial impact to the Company resulting from this litigation matter.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, distributors, resellers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or from intellectual property infringement claims made by third parties.

In addition, the Company has entered into indemnification agreements with members of its board of directors and certain of its executive officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited.

As of October 2, 2022 and December 31, 2021, the Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

The Derivative Action is now closed.

Indemnifications

In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, distributors, resellers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or from intellectual property infringement claims made by third parties.

In addition, we have entered into indemnification agreements with members of our board of directors and certain of our executive officers that require us, among other things, to indemnify them against certain liabilities that may

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

arise by reason of their status or service as directors or officers.

The maximum potential amount of future payments we could be required to make under these indemnification agreements is, in many cases, unlimited.

As of April 2, 2023 and December 31, 2022, we have not incurred any material costs as a result of such indemnifications and we are not currently aware of any indemnification claims.

Employee Benefit Plans

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

The Company also grants performance-based and market-based restricted stock units ("PSUs") to its executive officers periodically.

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

We also grant performance-based and market-based restricted stock units (“PSUs”) to our executive officers periodically.

Award vesting periods for the 2018 Plan are generally three to four years .

As of October 2, 2022, approximately 3.9 million shares were available for future grants.

Options may be granted for periods of up to 10 years or such shorter term as may be provided in the applicable option agreement and at prices no less than 100 % of the fair market value of the Company’s common stock on the date of grant.

As of April 2, 2023, approximately 3.7 million shares were available for future grants.

Options may be granted for periods of up to 10 years or such shorter term as may be provided in the agreement and at prices no less than 100 % of the fair market value of Arlo’s common stock on the date of grant.

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

During the three months ended October 2, 2022 and October 3, 2021, the Compensation Committee of the Board of Directors (the “Committee”) of the unanimously approved amendments to the 2018 Plan to, among other things, reserve an additional 3,000,000 shares and 1,500,000 shares, respectively, of the Company’s common stock to be used exclusively for grants of awards to individuals who were not previously employees or non-employee directors of the Company (or following a bona fide period of non-employment with the Company), as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 303A.08 of the New York Stock Exchange (the “NYSE”) Listed Company Manual (“Rule 303A.08”).

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

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

The following table sets forth the available shares for grant under the 2018 Plan as of October 2, 2022:

On January 20, 2023, we registered an aggregate of up to 4,444,072 shares of common stock on a Registration Statement on Form S-8, including 3,555,258 shares issuable pursuant to the 2018 Plan that were automatically added to the shares authorized for issuance under the 2018 Plan and 888,814 shares issuable pursuant to the Employee Stock Purchase Plan (“ESPP”) that were automatically added to the shares authorized for issuance on January 1, 2023, both pursuant to an “evergreen” provision contained in the respective plans.

The following table sets forth the available shares for grants as of April 2, 2023:

Number of Shares

(In thousands)

Shares available for grant as of December 31, 2021

Shares available for grants as of December 31, 2022

Additional authorized shares 3,555

2 unchanged sentences

Shares traded for taxes 1,267

Shares available for grant as of October 2, 2022

Shares available for grants as of April 2, 2023

Employee Stock Purchase Plan

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

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

The duration of each offering period is generally six months .

As of October 2, 2022, 1,855,548 shares were available for issuance under the ESPP.

We sponsor the ESPP to eligible employees.

As of April 2, 2023, 2.4 million shares were available for issuance under the ESPP.

Option Activity

Stock option activity during the nine months ended October 2, 2022 was as follows:

Stock option activity during the three months ended April 2, 2023 was as follows:

ARLO TECHNOLOGIES, INC.

8 unchanged sentences

Expired ( 12 ) $ 7.55

Outstanding as of October 2, 2022 2,131 $ 10.35

Vested and expected to vest as of October 2, 2022 2,131 $ 10.35

Exercisable Options as of October 2, 2022 2,131 $ 10.35

RSU activity, excluding PSU activity, during the nine months ended October 2, 2022 was as follows:

Outstanding as of April 2, 2023 2,070 $ 10.26

Vested and expected to vest as of April 2, 2023 2,070 $ 10.26

Exercisable Options as of April 2, 2023 2,070 $ 10.26

RSU activity, excluding PSU activity, during the three months ended April 2, 2023 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

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Outstanding as of December 31, 2022

10,080 $ 5.73

Granted 4,583 $ 3.66

1 unchanged sentence

Forfeited ( 342 ) $ 6.43

Outstanding as of October 2, 2022 9,863 $ 6.43

During the three months ended October 2, 2022 and October 3, 2021, the Company's executive officers were granted performance-based awards with vesting occurring at the end of a three or five-year period if performance conditions or market conditions are met.

The number of units earned and eligible to vest are determined based on the achievement of various performance conditions or market conditions, including the cumulative paid accounts targets, the Company's stock price, cash balances at reporting period, and the recipients' continued service with the Company.

At the end of each reporting period, the Company evaluates the probability of achieving these performance conditions and records the related stock-based compensation expense recognized over the expected performance achievement period when the achievement becomes probable.

PSU activity during the nine months ended October 2, 2022 was as follows:

Outstanding as of April 2, 2023 10,656 $ 5.54

During the three months ended April 2, 2023 and April 3, 2022, our executive officers and other senior employees were granted performance-based awards with vesting occurring at the end of a three or five-year period if performance conditions or market conditions are met.

The number of units earned and eligible to vest are determined based on the achievement of various performance conditions or market conditions, including the cumulative paid accounts targets, stock price, cash balances at reporting period, and the recipients’ continued services.

At the end of each reporting period, we evaluate the probability of achieving the performance or market conditions and record the related stock-based compensation expense based on the achievement over the service period.

PSU activity during the three months ended April 2, 2023 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

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Forfeited ( 3 ) $ 8.28

Outstanding as of October 2, 2022

Outstanding as of April 2, 2023

ARLO TECHNOLOGIES, INC.

1 unchanged sentence

Stock-Based Compensation Expense

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

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

The following table sets forth the stock-based compensation expense included in our unaudited condensed consolidated statements of comprehensive loss:

Three Months Ended

2023 April 3,

(In thousands)

3 unchanged sentences

General and administrative 8,098 4,997

Total stock-based compensation $ 9,953 $ 7,599 $ 31,787 $ 27,548

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

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

As of October 2, 2022, there was no unrecognized compensation cost related to stock options.

Approximately $ 82.7 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 2.5 years.

The provision for income taxes for the three and nine months ended October 2, 2022 was $ 0.3 million and $ 0.7 million, or an effective tax rate of ( 2.2 )% and ( 2.2 )%, respectively.

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

During the three and nine months ended October 2, 2022, the Company sustained U.S.

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

Total $ 14,591 $ 9,589

As of April 2, 2023, there was no unrecognized compensation cost related to stock options.

Approximately $ 75.5 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 1.9 years as of April 2, 2023.

The provision for income taxes for the three months ended April 2, 2023 was $ 0.8 million, or an effective tax rate of ( 5.9 )%.

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

During the three months ended April 2, 2023 and April 3, 2022, we sustained U.S.

Consistent with the prior year, we maintained a valuation allowance against our U.S.

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

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

The provision for income taxes for the three and nine months ended October 2, 2022 was slightly higher than the same periods in the prior year primarily due to an increase in foreign earnings.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Provision for income taxes increased for the three months ended April 2, 2023, compared to the prior year period, primarily due to higher U.S.

earnings and also the application of Section 174 of the Internal Revenue Code requiring capitalization of research and experimental expenses.

Net Loss Per Share

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

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

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

Net loss per share for the three and nine months ended October 2, 2022 and October 3, 2021 were as follows:

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Three Months Ended

2023 April 3,

(In thousands, except per share data)

1 unchanged sentence

Weighted average common shares - basic 89,653 85,222

Potentially dilutive common share equivalent — — — —

Potentially dilutive common shares — —

Weighted average common shares - dilutive 89,653 85,222

2 unchanged sentences

Anti-dilutive employee stock-based awards, excluded 7,859 1,031

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Segment and Geographic Information

Segment Information

The Company operates as one operating and reportable segment.

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

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

Geographic Information

The Company conducts business across three geographic regions:

the Americas, EMEA and APAC.

Revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance.

We operate as one operating and reportable segment.

Our Chief Executive Officer (“CEO”) is identified as the Chief Operating Decision Maker (“CODM”), who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Geographic Information for Revenue

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

Sales and usage-based taxes are excluded from revenue.

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

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Three Months Ended Nine Months Ended

2022 October 3,

2021 October 2,

2022 October 3,

The following table presents revenue by geography.

For comparative purposes, amounts in prior periods have been recast.

Three Months Ended

2023 April 3,

(In thousands)

United States (“U.S.”) $ 71,040 $ 74,511 $ 199,851 $ 190,828

EMEA 52,542 30,931 157,000 80,623

APAC 4,575 5,707 15,036 20,825

Total revenue $ 128,157 $ 111,149 $ 371,887 $ 292,276

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

United States $ 55,843 $ 65,237

Spain 38,571 24,568

Ireland 4,879 22,087

Other countries 11,711 12,859

Total $ 111,004 $ 124,751

Geographic Information for Long-Lived Assets

Long-lived assets include property and equipment, net and operating lease right-of-use assets, net.

Our long-lived assets are based on the physical location of the assets.

The following table presents long-lived assets by geography.

2023 December 31,

(In thousands)

$ 4,980 $ 7,302

Americas (excluding U.S.) 416 520

China 600 1,143

APAC (excluding China) 326 228

Total property and equipment, net $ 6,588 $ 9,595

Subsequent Event

In November 2022, the Company initiated a campaign to reduce its cost structure to better align the operational needs of the business to current economic conditions while continuing to support its long-term strategy.

This campaign may potentially include the reduction of headcount as well as the termination of certain lease contracts and contractual services arrangements with vendors.

As of the filing date of this Quarterly Report on Form 10-Q, the Company is still in the process of finalizing the scope and determining related cost of executing this campaign.

United States $ 16,262 $ 17,762

Other countries 2,778 2,383

Total $ 19,040 $ 20,145

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

What changed 10-Q

Item 1. Financial Statements