What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 142 added, 189 removed, 415 unchanged (44% of the section changed)

36 unchanged sentences

shares issued and outstanding:

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

97,202,042 at March 31, 2024 and 95,380,281 at December 31, 2023

Additional paid-in capital 476,665 470,322

Accumulated other comprehensive income (loss) 237 ( 107 )

Accumulated other comprehensive income

Accumulated deficit ( 377,105 ) ( 367,461 )

4 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

Three Months Ended

2024 April 2,

(In thousands, except per share data)

15 unchanged sentences

Interest income, net 1,386 726

Other income, net

Other loss, net

( 25 ) ( 39 )

Loss before income taxes

( 9,249 ) ( 13,453 )

Provision for income taxes 395 792

Net loss $ ( 1,120 ) $ ( 14,435 ) $ ( 22,728 ) $ ( 34,471 )

$ ( 9,644 ) $ ( 14,245 )

Net loss per share:

Basic and diluted

$ ( 0.10 ) $ ( 0.16 )

Weighted average shares used to compute net loss per share:

Basic and diluted

96,264 89,653

Comprehensive loss:

Net loss $ ( 1,120 ) $ ( 14,435 ) $ ( 22,728 ) $ ( 34,471 )

$ ( 9,644 ) $ ( 14,245 )

Other comprehensive income (loss), net of tax

Total comprehensive loss

$ ( 9,684 ) $ ( 14,117 )

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

Three Months Ended

2024 April 2,

(In thousands)

11 unchanged sentences

Issuance of common stock under stock-based compensation plans 570 355

Issuance of common stock under Employee Stock Purchase Plan — — 1,617 1,746

Restricted stock unit withholdings ( 14,354 ) ( 4,693 )

4 unchanged sentences

Ending balances $ ( 377,105 ) $ ( 359,670 )

Accumulated other comprehensive income (loss):

Accumulated other comprehensive income:

Beginning balances $ 320 $ ( 107 )

6 unchanged sentences

Issuance of common stock under stock-based compensation plans 3,221 3,165

Issuance of common stock under Employee Stock Purchase Plan — — 460 304

Restricted stock unit withholdings ( 1,399 ) ( 1,267 )

3 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

2023 October 2,

Three Months Ended

2024 April 2,

(In thousands)

1 unchanged sentence

Net loss $ ( 9,644 ) $ ( 14,245 )

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

Adjustments to reconcile net loss to net cash provided by operating activities:

Stock-based compensation expense 18,550 14,591

Depreciation and amortization 903 1,149

Allowance for credit losses and inventory reserves 1,218 ( 211 )

Allowance for credit losses and non-cash changes to reserves

Deferred income taxes 68 127

Others ( 1,224 ) 39

( 792 ) ( 124 )

Changes in assets and liabilities:

Accounts receivable, net ( 4,262 ) ( 3,171 )

Accounts receivable

Inventories ( 6,275 ) 6,341

3 unchanged sentences

Accrued and other liabilities ( 8,191 ) ( 7,716 )

Net cash provided by (used in) operating activities 30,367 ( 34,783 )

Net cash provided by operating activities

19,806 10,329

Cash flows from investing activities:

7 unchanged sentences

Net cash used in financing activities ( 13,782 ) ( 4,691 )

Net decrease in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

5,584 ( 17,034 )

16 unchanged sentences

Arlo Technologies, Inc.

(“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” or “Arlo”) is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security services that combine a globally scaled cloud platform, advanced monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem.

Arlo’s deep expertise in cloud services, cutting-edge AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that is easy to setup and engage with every day.

Our highly secure, 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 – all rooted in a commitment to safeguard privacy for our users and their personal data.

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

9 unchanged sentences

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.

13 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 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.

Actual results could differ materially from those estimates and operating results for the three months ended March 31, 2024 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 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, 2023.

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

Emerging Growth Company Status

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.

There have been no significant changes to such policies during the three months ended March 31, 2024.

Accounting Pronouncements Recently Adopted

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

There were no accounting pronouncements adopted during the three months ended March 31, 2024.

Accounting Pronouncements Not Yet Effective

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 October 1, 2023:

1 year 2 years Greater than 2 years Total

(In thousands)

Performance obligations $ 18,920 $ 24 $ 4 $ 18,948

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

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative , which modifies the disclosure or presentation requirements of a variety of Topics in the Codification.

Among the various codification amendments, Topic 470 Debt is applicable to Arlo which requires the disclosure of amounts, terms and weighted-average interest rates of unused lines of credit.

The effective date is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirement by that date, with early adoption prohibited.

The adoption of this new standard will not have a material impact on our financial statements and related disclosures.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting:

Improvements to Reportable Segment Disclosures , which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

This guidance is effective for annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.

We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes:

Improvements to Income Tax Disclosures , which requires on an annual basis to (1) disclose specific categories in the rate reconciliation, (2) provide additional information for reconciling items that meet a quantitative threshold, and (3) income taxes paid disaggregated by jurisdiction.

This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Performance Obligations

The total estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied and partially unsatisfied was $ 23.5 million as of March 31, 2024 and $ 18.8 million as of December 31, 2023, substantially related to a performance obligation classified as less than one year .

For the three months ended March 31, 2024 and April 2, 2023, $ 52.7 million and $ 41.2 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $ 49.2 million and $ 38.4 million of revenue was recognized for the satisfaction of performance obligations over time, respectively.

Approximately $ 12.1 million and $ 8.4 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 October 1, 2023, $ 438.9 million of the purchase commitment has been fulfilled.

As of March 31, 2024, the entire 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 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 .

As of March 31, 2024, we had a backlog of $ 44.5 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next six months .

On April 25, 2024, Verisure notified us that it is exercising its right under the Supply Agreement to extend the term for another five years (through November 2029) under the same terms but without minimum purchase obligations.

Disaggregation of Revenue

1 unchanged sentence

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

The following table presents revenue disaggregated by geographic regions.

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

The following table presents revenue disaggregated by geographic region.

Three Months Ended

2024 April 2,

(In thousands)

3 unchanged sentences

Total $ 124,200 $ 111,004

As of March 31, 2024 and December 31, 2023, one customer accounted for 69.9 %, and three customers accounted for 37.1 %, 15.2 %, and 10.2 % of the total accounts receivable, net, respectively.

No other customers accounted for 10% or greater of the total accounts receivable, net.

For the three months ended March 31, 2024 and April 2, 2023, one customer accounted for 49.4 % and 43.7 %, respectively.

No other customers accounted for 10% or greater of the total revenue.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Balance Sheet Components

Short-Term Investments

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

As of March 31, 2024 As of December 31, 2023

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

7 unchanged sentences

Total $ 56,496 $ 65,360

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

2023 October 2,

2022 October 1,

2023 October 2,

Three Months Ended

2024 April 2,

(In thousands)

2 unchanged sentences

Balance at the end of the period $ 218 $ 329

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and Equipment, Net

12 unchanged sentences

_________________________

(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.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other non-current assets

2023 December 31,

(In thousands)

Deferred income taxes $ 1,126 $ 1,384

Sublease initial direct cost and adjustments 864 777

Other 1,630 1,920

Total $ 3,620 $ 4,081

(1) $ 0.8 million and $ 1.0 million property and equipment, net, was included in the sublease arrangement for the San Jose office building as of March 31, 2024 and December 31, 2023, respectively.

Depreciation expense pertaining to property and equipment was $ 0.9 million and $ 1.1 million for the three months ended March 31, 2024 and April 2, 2023, respectively.

We have determined that no event occurred or circumstances changed during the three months ended March 31, 2024 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 March 31, 2024 and April 2, 2023.

Accrued Liabilities

6 unchanged sentences

Cloud and other costs 9,085 10,985

Operating lease liabilities 4,239 4,190

Professional services 2,827 3,703

Warranty obligations 1,114 1,174

Freight cost 1,406 1,050

Service cost 1,348 806

Restructuring charges 603 1,265

Other 20,276 18,701

Total $ 79,100 $ 88,209

Other non-current liabilities

2023 December 31,

(In thousands)

Non-current service cost $ 1,289 $ 1,259

Non-current compensation 1,119 616

Non-current deferred revenue 28 212

Non-current income taxes payable 77 77

Other 805 785

Total $ 3,318 $ 2,949

ARLO TECHNOLOGIES, INC.

16 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 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.

As of March 31, 2024 and December 31, 2023, 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.

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

As of March 31, 2024, 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 nine months ended October 1, 2023 are as follows:

The restructuring charges are included in “Others” in the unaudited condensed consolidated statements of comprehensive loss.

Restructuring activity is as follows:

Total Severance Expense Office Exit Expense Other Exit Expense

4 unchanged sentences

Non-cash and other adjustments 48 — 63 ( 15 )

Balance as of October 1, 2023

Balance as of December 31, 2022 $ 1,265 $ 219 $ 991 $ 55

Restructuring charges 692 564 117 11

Cash payments ( 1,479 ) ( 694 ) ( 745 ) ( 40 )

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

Balance as of December 31, 2023 $ 452 $ 89 $ 363 $ —

Restructuring charges 484 484 — —

Cash payments ( 640 ) ( 525 ) ( 115 ) —

Non-cash and other adjustments — — — —

Balance as of March 31, 2024

$ 296 $ 48 $ 248 $ —

10 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 October 1, 2023, we had unused borrowing capacity of $ 14.4 million.

Based on certain terms and conditions including eligible accounts receivable as of March 31, 2024, we had unused borrowing capacity of $ 4.2 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.

3 unchanged sentences

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 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 October 1, 2023, we were in compliance with all the covenants of the Credit Agreement.

The Credit Agreement also contains financial covenants that require us to, 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 March 31, 2024, 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 October 1, 2023.

No amounts had been drawn under the Credit Facility as of March 31, 2024.

ARLO TECHNOLOGIES, INC.

2 unchanged sentences

Operating Leases

Our operating lease obligations mostly include offices, equipment, data centers and distribution centers, with various expiration dates through June 2029.

Our operating lease obligations mostly include offices, equipment, 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.

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:

Nine Months Ended

2023 October 2,

Gross lease expense was $ 1.5 million for each of the three months ended March 31, 2024 and April 2, 2023.

We recorded sublease income as reduction of lease expense, in the amount of $ 0.5 million for each of the three months ended March 31, 2024 and April 2, 2023.

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

Three Months Ended

2024 April 2,

(In thousands)

1 unchanged sentence

Operating cash flows from operating leases $ 1,516 $ 1,889

Right-of-use assets obtained in exchange for lease liabilities

Operating leases $ 1,851 $ 2,670

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

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

2024 December 31,

3 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 October 1, 2023 were as follows:

Operating Lease Payments Sublease Payments Net

(In thousands)

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

2024 (Remaining nine months)

$ 3,923 $ ( 1,598 ) $ 2,325

2 unchanged sentences

2027 4,594 ( 2,322 ) 2,272

2028 3,659 ( 2,392 ) 1,267

Thereafter 1,750 ( 1,228 ) 522

Total future lease payments $ 23,045 $ ( 11,612 ) $ 11,433

interest ( 3,445 )

imputed interest

Present value of future minimum lease payments $ 20,136

4 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 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.

As of March 31, 2024, we had $ 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 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.

As of March 31, 2024, we had $ 40.0 million in non-cancelable purchase commitments with suppliers which is expected to be paid over the next twelve months .

As of March 31, 2024, an additional $ 29.4 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 October 1, 2023, the loss liability from committed purchases was not material.

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

ARLO TECHNOLOGIES, INC.

1 unchanged sentence

Warranty Obligations

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

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

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

Three Months Ended

2024 April 2,

(In thousands)

4 unchanged sentences

Litigation and Other Legal Matters

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

We are involved in disputes, litigation, and other legal actions.

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.

6 unchanged sentences

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

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 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.

On August 6, 2019, defendants filed a motion to dismiss.

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 we had accrued for loss

ARLO TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

On February 5, 2021, lead plaintiff filed a motion for final approval of the settlement.

In advance of the final approval hearing, three of the named plaintiffs in the State Action requested exclusion from the settlement.

The court held a final approval hearing on March 11, 2021, and, on March 25, 2021, entered an order and final judgment approving the settlement and, among other things, dismissed with prejudice all claims of lead plaintiff and the Settlement Class (as defined in the settlement agreement).

The Federal Action is now closed.

In the State Action, on May 5, 2021, the court held a status conference and instructed plaintiffs Perros, Patel, and Pham (“Plaintiffs”), who were the only Arlo stockholders to opt out of the federal settlement, to file an amended complaint by June 4, 2021.

Plaintiffs filed their amended complaint, asserting their individual Securities Act claims, but also purporting to represent a new class of Arlo stockholders who purchased Arlo shares between December 3, 2018 and February 22, 2019.

On June 21, 2021, the Arlo defendants filed a motion to dismiss the State Action (for forum non conveniens) based on the federal forum provision in Arlo’s certificate of incorporation.

Plaintiffs opposed on July 28, 2021, and the Arlo defendants replied on August 13, 2021.

On September 9, 2021, the court issued an order granting the Arlo defendants’ forum non conveniens motion, and on September 17, 2021, the court issued a final judgment dismissing the State Action in its entirety.

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

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.

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.

On June 14, 2023, Plaintiffs filed a petition for review in the Supreme Court of California.

Defendants-Respondents filed their answer to the petition for review on July 5, 2023, and Plaintiffs filed their reply in support of the petition for review on July 17, 2023.

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 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.

As of March 31, 2024 and December 31, 2023, 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.

4 unchanged sentences

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

As of October 1, 2023, approximately 3.6 million shares were available for future grants.

As of March 31, 2024, approximately 3.8 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.

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On January 19, 2024, we registered an aggregate of up to 4,759,901 shares of common stock on a Registration Statement on Form S-8, including 3,807,921 shares issuable pursuant to the 2018 Plan that were automatically added to the shares authorized for issuance under the 2018 Plan and 951,980 shares issuable pursuant to the Employee Stock Purchase Plan (“ESPP”) that were automatically added to the shares authorized for issuance on January 1, 2024, both pursuant to an “evergreen” provision contained in the respective plans.

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

The following table sets forth the available shares for grants as of March 31, 2024:

Number of Shares

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Shares traded for taxes 1,399

Shares available for grants as of October 1, 2023

Shares available for grants as of March 31, 2024

Employee Stock Purchase Plan

We sponsor the ESPP to eligible employees.

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

As of March 31, 2024, 2.8 million shares were available for issuance under the ESPP.

Option Activity

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

We granted no options during the three months ended March 31, 2024.

Stock option activity during the three months ended March 31, 2024 was as follows:

Number of Shares Weighted Average Exercise Price Per Share

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Expired — $ —

Outstanding as of October 1, 2023

Outstanding as of March 31, 2024

1,028 $ 12.76

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

Vested and exercisable as of March 31, 2024

1,028 $ 12.76

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:

RSU activity, excluding PSU activity, during the three months ended March 31, 2024 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

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Forfeited ( 301 ) $ 6.49

Outstanding as of October 1, 2023

Outstanding as of March 31, 2024

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.

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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 nine months ended October 1, 2023 was as follows:

PSU activity during the three months ended March 31, 2024 was as follows:

Number of Shares Weighted Average Grant Date Fair Value Per Share

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Forfeited ( 25 ) $ 4.33

Outstanding as of October 1, 2023

Outstanding as of March 31, 2024

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 Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

Three Months Ended

2024 April 2,

(In thousands)

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

As of March 31, 2024, all outstanding options were fully vested;

therefore, there was no unrecognized compensation cost related to stock options.

Approximately $ 83.3 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 1.5 years as of March 31, 2024.

During the three months ended March 31, 2024 and April 2, 2023, we settled executive and employee bonuses by granting and issuing restricted stock units (non-cash financing activities) that vested immediately amounting to $ 6.9 million and $ 6.7 million, respectively.

The provision for income taxes for the three months ended March 31, 2024 was $ 0.4 million or an effective tax rate of ( 4.3 )%.

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 )%.

During the three months ended March 31, 2024 and April 2, 2023, 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 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.

Provision for income taxes decreased for the three months ended March 31, 2024, compared to the prior year period, primarily due to (i) foreign-derived intangible income (“FDII”) and higher Section 174 amortization in the U.S.

and (ii) the utilization of R&D credit in Ireland to partially offset its tax liability.

Net Loss Per Share

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

Three Months Ended

2024 April 2,

(In thousands, except per share data)

Net loss $ ( 9,644 ) $ ( 14,245 )

Weighted average common shares - basic and dilutive 94,243 88,124 92,069 86,677

Weighted average common shares - basic and diluted 96,264 89,653

Basic and diluted net loss per share $ ( 0.10 ) $ ( 0.16 )

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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.

For reporting purposes, revenue by geographic area is generally based upon the bill-to location of the customer.

The following table presents revenue by geographic area.

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

Three Months Ended Nine Months Ended

2023 October 2,

2022 October 1,

2023 October 2,

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

Three Months Ended

2024 April 2,

(In thousands)

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Spain 40,406 38,571

Ireland 3,535 8,616 12,521 41,368

Sweden 13,261 5,021

Other countries 16,158 11,569

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

What changed 10-Q

Item 1. Financial Statements