Arlo Technologies, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-looking Statements This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements, including statements concerning our business and the expected performance characteristics, specifications, reliability, market acceptance, market growth, specific uses, user feedback, and market position of our products and technology. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below. All forward-looking statements in this document are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us,” the “Company,” and “Arlo” refer to Arlo Technologies, Inc. and our subsidiaries. Business and Executive Overview Arlo combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that are transforming the way people experience the connected lifestyle. Arlo’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. 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. Since the launch of our first product in December 2014, we have shipped over 29.4 million smart connected devices. As of July 2, 2023, the Arlo platform had approximately 7.9 million cumulative registered accounts across more than 100 countries around the world coupled with 2.3 million cumulative paid subscribers and annual recurring revenue of $193.6 million. We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and we primarily generate revenue by selling devices through retail, wholesale distribution, wireless carrier channels, security solution providers, Arlo’s direct to consumer store and paid subscription services. For the three months ended July 2, 2023 and July 3, 2022, we generated total revenue of $115.1 million and $119.0 million, respectively. Loss from operations was $8.0 million and $11.3 million for the three months ended July 2, 2023 and July 3, 2022, respectively. For the six months ended July 2, 2023 and July 3, 2022, we generated total revenue of $226.1 million and $243.7 million, respectively. Loss from operations was $22.2 million and $20.0 million for the six months ended July 2, 2023 and July 3, 2022, respectively. Our goal is to continue to develop innovative, world-class connected lifestyle solutions to expand and further monetize our current and future user and paid account bases. We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in channel partnerships and to continue our global expansion. We expect to increase our investment in research and development going forward as we continue to introduce new and innovative products and services to enhance the Arlo platform and compete for engineering talent. We also expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services. 22 Table of Contents Key Business Metrics In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business. Our key business metrics may be calculated in a manner different from the same key business metrics used by other companies. We regularly review our processes for calculating these metrics, and from time to time we may discover inaccuracies in our metrics or make adjustments to better reflect our business or to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated. As of and for the Three Months Ended July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Cumulative registered accounts 7,860 18.4 % 6,640 Cumulative paid accounts (1) 2,289 54.9 % 1,478 Annual recurring revenue $ 193,633 66.1 % $ 116,601 _________________________ (1) The increase for the three months ended July 2, 2023 compared to the prior year period reflects an increase in the number of paid accounts in our EMEA region which were managed by Verisure and now onboarded with us. This does not have an impact to our financial statements and key business metrics other than our number of Cumulative Paid Accounts. Cumulative Registered Accounts . We believe that our ability to increase our user base is an indicator of our market penetration and growth of our business as we continue to expand and innovate our Arlo platform. We define our registered accounts at the end of a particular period as the number of unique registered accounts on the Arlo platform as of the end of such period. The number of registered accounts does not necessarily reflect the number of end-users on the Arlo platform as one registered account may be used by multiple end-users to monitor the devices attached to that household. Cumulative Paid Accounts . Paid accounts are defined as any account worldwide where a subscription to a paid service is being collected (either by us or by our customers or channel partners, including Verisure). Annual Recurring Revenue (“ARR”) . We believe ARR enables measurement of our business initiatives, and serves as an indicator of our future growth. ARR represents the amount of paid service revenue that we expect to recur annually and is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognize from our paid accounts and excludes prepaid service revenue. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. 23 Table of Contents Impact of Global Geopolitical, Economic and Business Conditions During the six months ended July 2, 2023, we remained focused on the ongoing conflict in Ukraine, supply chain disruptions, inflation, fluctuating consumer confidence and rising interest rates by preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs. These actions include, but are not limited to, proactively managing working capital by closely monitoring customers’ credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating non-essential spending, and subleasing or reducing excess office space. We continue to monitor the situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the ongoing conflict in Ukraine, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and rising interest rates and current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, and liquidity levels. 24 Table of Contents Results of Operations We operate as one operating and reportable segment. The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of comprehensive loss data, which we derived from the accompanying unaudited condensed consolidated financial statements: Three Months Ended Six Months Ended July 2, 2023 July 3, 2022 July 2, 2023 July 3, 2022 (In thousands, except percentage data) Revenue: Products $ 64,749 56.3 % $ 86,191 72.4 % $ 131,809 58.3 % $ 181,016 74.3 % Services 50,327 43.7 % 32,788 27.6 % 94,271 41.7 % 62,714 25.7 % Total revenue 115,076 100.0 % 118,979 100.0 % 226,080 100.0 % 243,730 100.0 % Cost of revenue: Products 60,446 52.5 % 73,829 62.0 % 124,487 55.1 % 154,606 63.4 % Services 12,772 11.1 % 11,410 9.6 % 24,518 10.8 % 21,809 8.9 % Total cost of revenue 73,218 63.6 % 85,239 71.6 % 149,005 65.9 % 176,415 72.4 % Gross profit 41,858 36.4 % 33,740 28.4 % 77,075 34.1 % 67,315 27.6 % Operating expenses: Research and development 17,618 15.3 % 17,402 14.6 % 35,368 15.6 % 33,781 13.9 % Sales and marketing 16,921 14.7 % 14,506 12.2 % 32,274 14.3 % 27,674 11.4 % General and administrative 15,007 13.0 % 13,149 11.1 % 30,629 13.5 % 25,770 10.6 % Others 341 0.4 % 25 — % 973 0.5 % 104 — % Total operating expenses 49,887 43.4 % 45,082 37.9 % 99,244 43.9 % 87,329 35.8 % Loss from operations (8,029) (7.0) % (11,342) (9.5) % (22,169) (9.8) % (20,014) (8.2) % Interest income, net 835 0.8 % 129 0.1 % 1,561 0.7 % 124 0.1 % Other income (expense), net 52 — % (116) (0.1) % 13 — % 295 0.1 % Loss before income taxes (7,142) (6.2) % (11,329) (9.5) % (20,595) (9.1) % (19,595) (8.0) % Provision for income taxes 221 0.2 % 228 0.2 % 1,013 0.5 % 441 0.2 % Net loss $ (7,363) (6.4) % $ (11,557) (9.7) % $ (21,608) (9.6) % $ (20,036) (8.2) % Revenue Our gross revenue consists primarily of sales of devices, prepaid and paid subscription service revenue. We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs. Upon device shipment, we attribute a portion of the sales price as prepaid service, deferring this revenue at the outset and subsequently recognizing it ratably over the estimated useful economic life of the device or free trial period, as applicable. Our paid subscription services relate to sales of subscription plans to our registered accounts. Our revenue consists of gross revenue, less customer rebates and other channel sales incentives, allowances for estimated sales returns, price protection, and net changes in deferred revenue. A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition. We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geography on the ship-to location of the customer for device sales and device location for service sales. 25 Table of Contents Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Americas $ 78,136 29.5 % $ 60,345 $ 134,768 4.6 % $ 128,811 Percentage of revenue 67.9 % 50.7 % 59.6 % 52.8 % EMEA 30,958 (43.2) % 54,483 79,430 (24.0) % 104,458 Percentage of revenue 26.9 % 45.8 % 35.1 % 42.9 % APAC 5,982 44.1 % 4,151 11,882 13.6 % 10,461 Percentage of revenue 5.2 % 3.5 % 5.3 % 4.3 % Total revenue $ 115,076 (3.3) % $ 118,979 $ 226,080 (7.2) % $ 243,730 Product revenue decreased by $21.4 million, or 24.9% and $49.2 million, or 27.2% for the three and six months ended July 2, 2023 compared to the prior year periods. The declines were experienced mainly in EMEA and Americas primarily driven by a reduction in the average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and increased subscriber growth coupled with a shift in product mix driven by the softening consumer demand as a result of current macro-economic factors and seasonality. Service revenue increased in all regions by $17.5 million, or 53.5% and $31.6 million, or 50.3% for the three and six months ended July 2, 2023 compared to the prior year periods, primarily due to a 54.9% increase in cumulative paid accounts and rates for our subscription plans. Cost of Revenue Cost of revenue consists of both product costs and service costs. Product costs primarily consist of the cost of finished products from our third-party manufacturers and overhead costs, including personnel expense for operation staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory and excess components, and royalties to third parties. Service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and computing, IT and facilities overhead. Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation product mix, sales channel mix, registered accounts’ acceptance of paid subscription service offerings, and changes in our cost of goods sold due to fluctuations in prices paid for components, net of vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty costs, and charges for excess or obsolete inventory. We outsource our manufacturing, warehousing, and distribution logistics. We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure. We believe this outsourcing strategy allows us to better manage our product and service costs and gross margin and allows us to adapt to changing market dynamics and supply chain constraints. 26 Table of Contents The following table presents cost of revenue and gross margin for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Cost of revenue: Products $ 60,446 (18.1) % $ 73,829 $ 124,487 (19.5) % $ 154,606 Services 12,772 11.9 % 11,410 24,518 12.4 % 21,809 Total cost of revenue $ 73,218 (14.1) % $ 85,239 $ 149,005 (15.5) % $ 176,415 Product cost of revenue decreased 18.1% and 19.5% for the three and six months ended July 2, 2023 compared to the prior year periods, respectively, primarily due to decreases in product shipments coupled with decreases in freight-in costs due to normalization of the supply chain and utilization of ocean freight, partially offset by increases in inventory reserves. Service cost of revenue increased 11.9% and 12.4% for the three and six months ended July 2, 2023 compared to the prior year periods, respectively, as a result of service revenue growth, offset by cost optimizations. Gross Profit The following table presents gross profit for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Gross profit: Products $ 4,303 (65.2) % $ 12,362 $ 7,322 (72.3) % $ 26,410 Services 37,555 75.7 % 21,378 69,753 70.5 % 40,905 Total gross profit $ 41,858 24.1 % $ 33,740 $ 77,075 14.5 % $ 67,315 Gross margin percentage: Products 6.6 % 14.3 % 5.6 % 14.6 % Services 74.6 % 65.2 % 74.0 % 65.2 % Total gross margin 36.4 % 28.4 % 34.1 % 27.6 % Product gross profit decreased for the three and six months ended July 2, 2023 compared to the prior year periods, primarily driven by a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and increased subscriber growth coupled with a shift in product mix driven by the softening consumer demand as a result of current macro-economic factors. The product gross profit decrease was partially offset by the decrease in freight-in costs due to normalization of the supply chain and utilization of ocean freight. Service gross profit increased for the three and six months ended July 2, 2023 compared to the prior year periods, primarily due to growth in paid service revenue in all regions as a result of a 54.9% increase in cumulative paid accounts and rates for our subscription plans as well as cost optimizations. 27 Table of Contents Operating Expenses Research and Development Research and development expense consists primarily of personnel-related expense, safety, security, regulatory services and testing, other research and development consulting fees, and corporate IT and facilities overhead. Generally, we recognize research and development expenses as they are incurred. We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services. We expect research and development expense to increase in absolute dollars as we develop new product and service offerings and compete for engineering talent. We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities. The following table presents research and development expense for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Research and development expense $ 17,618 1.2 % $ 17,402 $ 35,368 4.7 % $ 33,781 Research and development expense increased by $0.2 million for the three months ended July 2, 2023 compared to the prior year period, primarily due to an increase of $0.5 million in personnel-related expenses mainly from increase in base compensation as a result of headcount increase, partially offset by a decrease of $0.2 million in corporate IT and facilities overhead. Research and development expense increased by $1.6 million for the six months ended July 2, 2023 compared to the prior year period, primarily due to an increase of $2.5 million in personnel-related expenses mainly from stock-based compensation and merit increases, partially offset by a decrease of $0.9 million in corporate IT and facilities overhead. Sales and Marketing Sales and marketing expense consists primarily of personnel expense for sales and marketing staff, technical support expense, advertising, trade shows, media and placement, corporate communications and other marketing expense, product marketing expense, IT and facilities overhead, outbound freight costs, and credit card processing fees. We expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services. The following table presents sales and marketing expense for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Sales and marketing expense $ 16,921 16.6 % $ 14,506 $ 32,274 16.6 % $ 27,674 Sales and marketing expense increased $2.4 million for the three months ended July 2, 2023 compared to the prior year period, primarily due to increases of $0.7 million in marketing expenditures, $0.7 million in customer care services, $0.7 million freight-out expenses, and $0.6 million in credit card processing fees as a result of increases in Arlo.com Store sales and paid subscriber accounts. 28 Table of Contents Sales and marketing expense increased $4.6 million for the six months ended July 2, 2023 compared to the prior year period, primarily due to increases of $1.7 million in marketing expenditures, $1.2 million in credit card processing fees as a result of increases in Arlo.com Store sales and paid subscriber accounts, $1.1 million freight-out expenses, and $1.0 million in customer care services. General and Administrative General and administrative expense consists primarily of personnel-related expense for certain executives, finance and accounting, investor relations, human resources, legal, information technology, professional fees, corporate IT and facilities overhead, strategic initiative expense, and other general corporate expense. We expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense. The following table presents general and administrative expense for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) General and administrative expense $ 15,007 14.1 % $ 13,149 $ 30,629 18.9 % $ 25,770 General and administrative expense increased $1.9 million for the three months ended July 2, 2023 compared to the prior year period, primarily due to an increase of $2.6 million in personnel-related expenses mainly from stock-based compensation, partially offset by decreases of $0.6 million in legal and professional services and corporate IT and facilities overhead. General and administrative expense increased $4.9 million for the six months ended July 2, 2023 compared to the prior year period, primarily due to an increase of $6.6 million in personnel-related expenses mainly from stock-based compensation and merit increases, partially offset by decreases of $1.6 million in corporate IT and facilities overhead and legal and professional services. Others Others include separation expense, which consists primarily of costs of legal and professional services for IPO-related litigation associated with our separation from NETGEAR, and restructuring charges, which consist of severance costs and office exit expense associated with the abandonment of certain lease contracts. Interest Income and Other Income (Expense), Net The following table presents interest income and other income (expense), net for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Interest income, net $ 835 ** $ 129 1,561 ** 124 Other income (expense), net $ 52 ** $ (116) 13 (95.6) % 295 **Percentage change not meaningful. Interest income, net increased for the three and six months ended July 2, 2023 compared to the prior year periods, primarily due to the increase in our short-term investments as well as a result of higher interest rates. 29 Table of Contents Provision for Income Taxes The following table presents provision for income taxes for the periods indicated: Three Months Ended Six Months Ended July 2, 2023 % Change July 3, 2022 July 2, 2023 % Change July 3, 2022 (In thousands, except percentage data) Provision for income taxes $ 221 (3.1) % $ 228 $ 1,013 129.7 % $ 441 Effective tax rate (3.1) % (2.0) % (4.9) % (2.3) % Provision for income taxes decreased slightly for the three months ended July 2, 2023, compared to the prior year period and increased for the six months ended July 2, 2023, compared to the prior year period, primarily due to the higher U.S. earnings and also the application of Section 174 of the Internal Revenue Code requiring capitalization of research and experimental expenses, which increase was recognized mostly in the first quarter of 2023. Consistent with the prior year periods, 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. 30 Table of Contents Liquidity and Capital Resources As of July 2, 2023, our cash and cash equivalents and short-term investments totaled $123.7 million and we had unused borrowing capacity of $13.8 million based on the terms and conditions of our revolving credit facility. We have a history of losses and may incur operating and net losses in the future. As of July 2, 2023, our accumulated deficit was $367.0 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand. Material Cash Requirements We believe that our existing sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, in the future we may require or desire additional funds to support our operating expenses and capital requirements. To the extent that current and anticipated future sources of liquidity are insufficient, we may seek to raise additional funds through public or private equity. We have no commitments to obtain such additional financing and cannot provide assurance that additional financing will be available at all or, if available, that such financing would be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures. As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we have increased our subscription rates effective February 3, 2023. Leases and Contractual Commitments Our operating lease obligations mostly include offices, equipment, data centers, and distribution centers. Our contractual commitments are primarily inventory-related purchase obligations with suppliers. Contingencies We are involved in disputes, litigation, and other legal actions. 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. Significant judgment is required to determine both the probability and the estimated amount of loss. 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 litigation reserves, net. Refer to Note 8. Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report for further information about our operating leases, purchase obligations, and legal contingencies. 31 Table of Contents Cash Flow The following table presents our cash flows for the periods presented: Six Months Ended July 2, 2023 July 3, 2022 (In thousands) Net cash provided by (used in) operating activities $ 22,908 $ (29,381) Net cash used in investing activities (33,150) (50,429) Net cash used in financing activities (11,951) (10,384) Net cash decrease $ (22,193) $ (90,194) Operating activities Net cash provided by operating activities increased by $52.3 million for the six months ended July 2, 2023 compared to the prior year period, primarily due to improved profitability and changes in working capital as a result of an increase in our service revenue driven by growth in paid accounts and increased subscription rates, lower payments to suppliers primarily as a result of reduced inventory purchases, and higher collection from customers on products sales due to enhanced collection efforts. Investing activities Net cash used in investing activities decreased by $17.3 million for the six months ended July 2, 2023 compared to the prior year period, primarily due to a decrease in net purchases, and maturities, of short-term investments. Financing activities Net cash used in financing activities increased by $1.6 million for the six months ended July 2, 2023 compared to the prior year period, primarily due to the increase in withholding tax from restricted stock unit releases, partially offset by higher proceeds related to employee benefit plans. Critical Accounting Policies and Estimates For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to our critical accounting policies and estimates during the six months ended July 2, 2023, other than as discussed in Note 2. Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report. 32 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk During the six months ended July 2, 2023, there were no material changes to our market risk disclosures as set forth in Part II Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2022.