What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 90 added, 62 removed, 514 unchanged (23% of the section changed)

36 unchanged sentences

shares issued and outstanding:

93,653,934 at July 2, 2023 and 88,887,139 at December 31, 2022

94,581,808 at October 1, 2023 and 88,887,139 at December 31, 2022

Additional paid-in capital 458,015 433,138

6 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands, except per share data)

15 unchanged sentences

Interest income, net 1,175 290 2,736 414

Other income (expense), net 52 ( 116 ) 13 295

Other income, net

Loss before income taxes ( 1,091 ) ( 14,131 ) ( 21,686 ) ( 33,726 )

12 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands)

4 unchanged sentences

Issuance of common stock under stock-based compensation plans 1 1 8 6

Issuance of common stock under Employee Stock Purchase Plan — 1 — 1

Restricted stock unit withholdings ( 1 ) ( 1 ) ( 3 ) ( 2 )

27 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

2023 October 2,

(In thousands)

73 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 six months ended July 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.

Actual results could differ materially from those estimates and operating results for the nine months ended October 1, 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

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 six months ended July 2, 2023.

There have been no significant changes to such policies during the nine months ended October 1, 2023.

Emerging Growth Company Status

4 unchanged sentences

Accounting Pronouncements Recently Adopted

There were no accounting pronouncements adopted during the six months ended July 2, 2023.

There were no accounting pronouncements adopted during the nine months ended October 1, 2023.

Accounting Pronouncements Not Yet Effective

1 unchanged sentence

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 July 2, 2023:

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 October 1, 2023:

1 year 2 years Greater than 2 years Total

4 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the six months ended July 2, 2023 and July 3, 2022, $ 87.6 million and $ 53.4 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 81.4 million and $ 70.1 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

For the nine months ended October 1, 2023 and October 2, 2022, $ 131.8 million and $ 82.5 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 125.6 million and $ 101.2 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

Approximately $ 10.6 million and $ 13.6 million of this recognized revenue was included in the contract liability balance at the beginning of the periods.

1 unchanged sentence

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 July 2, 2023, $ 403.1 million of the purchase commitment has been fulfilled.

As of October 1, 2023, $ 438.9 million of the purchase commitment has been fulfilled.

Based on the Supply Agreement with Verisure, a purchase obligation is not deemed to exist until we receive and accept Verisure’s purchase order.

As of July 2, 2023, we had a backlog of $ 38.7 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next six months .

As of October 1, 2023, we had a backlog of $ 25.9 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next three months .

Disaggregation of Revenue

2 unchanged sentences

The following table presents revenue disaggregated by geographic regions.

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands)

5 unchanged sentences

Short-term investments

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

As of October 1, 2023 As of December 31, 2022

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

10 unchanged sentences

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands)

16 unchanged sentences

_________________________

(1) $ 1.4 million and $ 1.7 million property and equipment, net, was included in the sublease arrangement for the San Jose office building as of July 2, 2023 and December 31, 2022, respectively.

Depreciation expense pertaining to property and equipment was $ 1.2 million and $ 2.4 million for the three and six months ended July 2, 2023, and $ 1.2 million and $ 2.5 million for the three and six months ended July 3, 2022.

We have determined that no event occurred or circumstances changed during the three and six months ended July 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 and six months ended July 2, 2023 and July 3, 2022.

(1) $ 1.2 million and $ 1.7 million property and equipment, net, was included in the sublease arrangement for the San Jose office building as of October 1, 2023 and December 31, 2022, respectively.

Depreciation expense pertaining to property and equipment was $ 1.5 million and $ 3.8 million for the three and nine months ended October 1, 2023, and $ 1.1 million and $ 3.7 million for the three and nine months ended October 2, 2022.

We have determined that no event occurred or circumstances changed during the three and nine months ended October 1, 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 and nine months ended October 1, 2023.

ARLO TECHNOLOGIES, INC.

50 unchanged sentences

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 July 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.

As of October 1, 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.

Restructuring

1 unchanged sentence

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.

As of July 2, 2023, we have substantially incurred all costs pertaining to restructuring activities, with related cash outflows extending until the fourth quarter of 2024.

As of October 1, 2023, we have substantially incurred all costs pertaining to restructuring activities, with related cash outflows extending until the fourth quarter of 2024.

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

Restructuring activities for the six months ended July 2, 2023 are as follows:

Restructuring activities for the nine months ended October 1, 2023 are as follows:

Total Severance Expense Office Exit Expense Other Exit Expense

4 unchanged sentences

Non-cash and other adjustments ( 26 ) — — ( 26 )

Balance as of July 2, 2023 $ 628 $ 33 $ 566 $ 29

Balance as of October 1, 2023

$ 603 $ 129 $ 474 $ —

Total costs incurred inception to date $ 2,688 $ 1,551 $ 1,073 $ 64

9 unchanged sentences

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

Based on certain terms and conditions including eligible accounts receivable as of July 2, 2023, we had unused borrowing capacity of $ 13.8 million.

Based on certain terms and conditions including eligible accounts receivable as of October 1, 2023, we had unused borrowing capacity of $ 14.4 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.

4 unchanged sentences

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

As of October 1, 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 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 July 2, 2023.

No amounts had been drawn under the Credit Facility as of October 1, 2023.

ARLO TECHNOLOGIES, INC.

5 unchanged sentences

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

Gross lease expense was $ 1.5 million and $ 3.0 million for the three and six months ended July 2, 2023, respectively, and $ 1.8 million and $ 3.6 million for the three and six months ended July 3, 2022, respectively.

We recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million and $ 1.0 million for the three and six months ended July 2, 2023 and July 3, 2022.

Gross lease expense was $ 1.5 million and $ 4.5 million for the three and nine months ended October 1, 2023, respectively, and $ 1.8 million and $ 5.4 million for the three and nine months ended October 2, 2022, respectively.

We 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 1, 2023 and October 2, 2022.

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

Six Months Ended

Nine Months Ended

2023 October 2,

(In thousands)

9 unchanged sentences

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 July 2, 2023 were as follows:

Operating Lease Payments Sublease Payments Net

(In thousands)

2023 (Remaining six months) $ 1,988 $ ( 1,034 ) $ 954

2023 (Remaining three months) $ 949 $ ( 517 ) $ 432

2024 5,673 ( 1,947 ) 3,726

11 unchanged sentences

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 July 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.

As of October 1, 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

2 unchanged sentences

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

As of July 2, 2023, we had approximately $ 50.1 million in non-cancelable purchase commitments with suppliers.

As of July 2, 2023, an additional $ 24.9 million of purchase orders beyond contractual termination periods have been issued to supply chain partners in anticipation of demand requirements.

As of October 1, 2023, we had approximately $ 32.9 million in non-cancelable purchase commitments with suppliers.

As of October 1, 2023, an additional $ 14.3 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 July 2, 2023, the loss liability from committed purchases was not material.

As of October 1, 2023, the loss liability from committed purchases was not material.

ARLO TECHNOLOGIES, INC.

2 unchanged sentences

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands)

47 unchanged sentences

On July 19, 2023, the Supreme Court of California denied Plaintiffs’ petition for review and closed the case.

The deadline for Plaintiffs to file a petition for writ of certiorari to the Supreme Court of the United States appealing the dismissal of the State Action was October 17, 2023.

To our knowledge, no such petition has been filed.

Indemnifications

2 unchanged sentences

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

As of July 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.

As of October 1, 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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Employee Benefit Plans

2 unchanged sentences

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

As of July 2, 2023, approximately 4.0 million shares were available for future grants.

As of October 1, 2023, approximately 3.6 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 .

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 July 2, 2023:

The following table sets forth the available shares for grants as of October 1, 2023:

Number of Shares

5 unchanged sentences

Shares traded for taxes 3,394

Shares available for grants as of July 2, 2023

Shares available for grants as of October 1, 2023

Employee Stock Purchase Plan

We sponsor the ESPP to eligible employees.

As of July 2, 2023, 2.0 million shares were available for issuance under the ESPP.

As of October 1, 2023, 2.0 million shares were available for issuance under the ESPP.

Option Activity

Stock option activity during the six months ended July 2, 2023 was as follows:

Stock option activity during the nine months ended October 1, 2023 was as follows:

Number of Shares Weighted Average Exercise Price Per Share

6 unchanged sentences

Expired ( 12 ) $ 7.55

Outstanding as of July 2, 2023

Outstanding as of October 1, 2023

1,557 $ 11.28

Vested and expected to vest as of July 2, 2023 1,637 $ 11.15

Exercisable Options as of July 2, 2023 1,637 $ 11.15

RSU activity, excluding PSU activity, during the six months ended July 2, 2023 was as follows:

Vested and expected to vest as of October 1, 2023 1,557 $ 11.28

Exercisable Options as of October 1, 2023 1,557 $ 11.28

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RSU activity, excluding PSU activity, during the nine months ended October 1, 2023 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 494 ) $ 6.27

Outstanding as of July 2, 2023

Outstanding as of October 1, 2023

Our executive officers and other senior employees have been 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.

1 unchanged sentence

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 six months ended July 2, 2023 was as follows:

PSU activity during the nine months ended October 1, 2023 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

4 unchanged sentences

Forfeited ( 3 ) $ 8.28

Outstanding as of July 2, 2023

Outstanding as of October 1, 2023

Stock-Based Compensation Expense

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands)

4 unchanged sentences

Total $ 10,287 $ 9,953 $ 37,851 $ 31,787

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

Approximately $ 71.2 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 2.2 years as of July 2, 2023.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The provision for income taxes for the three and six months ended July 2, 2023 was $ 0.2 million and $ 1.0 million, or an effective tax rate of ( 3.1 )% and ( 4.9 )%.

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

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

As of October 1, 2023, there was no unrecognized compensation cost related to stock options.

Approximately $ 65.7 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 2.0 years as of October 1, 2023.

The provision for income taxes for the three and nine months ended October 1, 2023 was $ 0.03 million and $ 1.04 million, or an effective tax rate of ( 2.7 )% and ( 4.8 )%.

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 )%.

During the three and nine months ended October 1, 2023 and October 2, 2022, we sustained U.S.

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.

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.

Provision for income taxes decreased for the three months ended October 1, 2023, compared to the prior year period and increased for the nine months ended October 1, 2023, compared to the prior year period, primarily due to (i) the higher U.S.

earnings, (ii) 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, and (iii) the recognition of a tax benefit from return to provision adjustments in the third quarter of 2023.

Net Loss Per Share

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands, except per share data)

15 unchanged sentences

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

(In thousands)

14 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements