What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-27 compared with 2024-02-29 · 280 added, 263 removed, 757 unchanged (42% of the section changed)

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Arlo Technologies, Inc.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheet of Arlo Technologies, Inc.

and subsidiaries (the "Company") as of December 31, 2024, the related consolidated statements of comprehensive loss, stockholders' equity, and cash flows, for the year ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date as a result of information technology general control (ITGC) deficiencies related to (i) user access and segregation of duty controls that restrict user and privileged access to appropriate personnel;

(ii) program change management controls;

and (iii) certain computer operations controls.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits.

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and

disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

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A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Sales Warranty Returns

As described in Note 2 to the consolidated financial statements, the Company’s standard obligation to direct customers for product sales generally provides for a full refund in the event that such product is found to be damaged or defective.

At the time revenue is recognized, management records an estimate of sales warranty returns to reduce revenue in the amount of the expected credit or refund to be provided to direct customers.

In determining estimates for sales returns, management analyzes certain factors, including historical sales and returns data, channel inventory levels, current economic trends, and changes in customer demand for products.

As of December 31, 2023, accrued sales warranty returns were $16.6 million.

The principal considerations for our determination that performing procedures relating to accrued sales warranty returns is a critical audit matter are (i) the significant judgment by management in developing the estimate of accrued sales warranty returns and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s estimate of sales returns considering historical sales and returns data.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to the Company’s information technology general controls, which impacted this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) testing management’s process for developing the estimate of accrued sales warranty returns, (ii) evaluating the appropriateness of

the analysis performed by management, (iii) testing the completeness, accuracy, and relevance of data used by management in the analysis, and (iv) evaluating the reasonableness of management’s estimate of sales returns.

Evaluating management’s estimate of sales returns involved evaluating whether the estimate was reasonable considering the related historical sales and returns activity.

/s/ PricewaterhouseCoopers LLP

San Jose, California

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Sales Returns – Refer to Notes 3 and 4 to the Financial Statements

Critical Audit Matter Description

The Company has a recorded accrual for estimated sales returns as of December 31, 2024.

Revenue is recognized at a transaction price that is calculated as the selling price net of variable consideration which includes estimates for sales returns related to current period product revenue.

Sales returns are estimated by analyzing certain factors, including historical sales and returns data, channel inventory levels, current economic trends, and changes in customer demand for the Company’s products.

We identified the estimation of the sales return accrual as a critical audit matter.

There was a high degree of auditor judgment required to evaluate the impacts of current and historical trends of sales and returns and their impacts on estimated future return levels.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accrued sales returns included the following, among others:

◦ We tested the effectiveness of controls over management’s calculation of the accrual for estimated sales returns, including management’s control over the estimate of the impacts of historical sales and returns activity on current year estimates.

◦ We tested the completeness and accuracy of the underlying data used in the calculation.

For a selection of historical returns we evaluated the reasonableness of trends in return rates compared to sales activity

◦ We evaluated management's ability to accurately estimate returns by comparing actual returns to prior period estimates

◦ Developed an independent estimate of the sales return accrual and compared our estimate to management’s estimate.

Our independent estimate included development of a trend of historical sales and return rates using management’s data.

This trend was used to develop an expected estimate of the accrual when applied to current sales activity.

/s/ Deloitte & Touche LLP

Costa Mesa, California

February 27, 2025

We have served as the Company’s auditor since 2024.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Arlo Technologies, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Arlo Technologies, Inc and its subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of comprehensive loss, of stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 29, 2024, except for the change in the manner in which the Company accounts for segments discussed in Note 2 to the consolidated financial statements, as to which the date is February 27, 2025

We served as the Company’s auditor from 2018 to 2024.

ARLO TECHNOLOGIES, INC.

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Additional paid-in capital 498,739 470,322

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated deficit ( 397,965 ) ( 367,461 )

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General and administrative 72,134 56,371 55,932

Impairment charges — — 9,116

Others 3,356 1,307 2,192

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Loss from operations ( 34,892 ) ( 24,903 ) ( 56,879 )

Interest income 3,935 926 11

Other income, net 107 302 4,775

Interest income, net

5,584 3,935 926

Other income (expense), net

( 104 ) 107 302

Loss before income taxes ( 29,412 ) ( 20,861 ) ( 55,651 )

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Issuance of common stock under employee stock purchase plan — — 2

Repurchase of common stock — — —

Restricted stock unit withholdings ( 3 ) ( 3 ) ( 3 )

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Issuance of common stock under employee stock purchase plan 2,943 2,811 2,833

Repurchase of common stock ( 4,421 ) — —

Restricted stock unit withholdings ( 44,708 ) ( 23,632 ) ( 18,199 )

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Issuance of common stock under employee stock purchase plan 365 621 609

Repurchase of common stock ( 379 ) — —

Restricted stock unit withholdings ( 3,621 ) ( 3,518 ) ( 2,330 )

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Stock-based compensation expense 68,657 47,948 48,476

Impairment charges — — 9,116

Depreciation and amortization 3,200 4,661 4,768

Provision for (release of) expected credit losses and inventory reserves 279 ( 190 ) ( 3,125 )

Allowance for credit losses and non-cash changes to reserves

2,085 279 ( 190 )

Deferred income taxes ( 13 ) 112 181

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Proceeds related to employee benefit plans 8,365 8,493 4,260

Repurchase of common stock ( 4,421 ) — —

Restricted stock unit withholdings ( 44,711 ) ( 23,635 ) ( 18,202 )

Net cash used in financing activities ( 40,767 ) ( 15,142 ) ( 13,942 )

Net decrease in cash, cash equivalents, and restricted cash ( 27,526 ) ( 91,677 ) ( 10,435 )

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

21,379 ( 27,526 ) ( 91,677 )

Cash, cash equivalents, and restricted cash, at beginning of period 60,653 88,179 179,856

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Arlo Technologies, Inc.

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

Arlo’s experience in cloud services, AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that can be setup by the customers and engaged with every day.

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

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

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

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

and (iii) Asia Pacific (“APAC”)—and 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.

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

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

Reclassification

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

None of these reclassifications had a material impact to the consolidated financial statements.

Use of Estimates

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Actual results could differ materially from those estimates and operating results for the year ended December 31, 2024 are not necessarily indicative of the results that may be expected for any future period.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Summary of Significant Accounting Policies

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We deposit cash and cash equivalents with high credit quality financial institutions.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restricted Cash

We maintain certain cash balances restricted as to withdrawal or use.

We maintain certain cash balances restricted historically as to withdrawal or use.

Restricted cash is comprised primarily of cash used as a collateral for a letter of credit associated with our lease agreement for office space in San Jose, California.

We deposit restricted cash with high credit quality financial institutions.

On November 14, 2024, we entered into a Credit Agreement (as defined and further discussed below in Note 7, Revolving Credit Facility ), which provides a three-year revolving credit facility of up to $ 45.0 million that matures on November 14, 2027.

This Credit Agreement includes a $ 10.0 million sublimit for the issuance of letters of credit, which we intend to utilize for our lease agreement for our office space in San Jose, California.

As a result, the depository bank has fully lifted the restriction on our cash and no restricted cash was recognized as of December 31, 2024.

Short-Term Investments

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The marketable securities are held with a high quality financial institution, which acts as our custodian and investment manager.

These marketable securities are classified as available-for-sale securities in accordance with the provisions of the authoritative guidance for investments and are carried at fair value with unrealized gains and losses are included in accumulated other comprehensive income (loss), net of tax, which is reported on consolidated statements of stockholders’ equity.

These marketable securities are classified as available-for-sale securities in accordance with the provisions of the authoritative guidance for investments and are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss), net of tax, which is reported in consolidated statements of stockholders’ equity.

Fair Value Measurements

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values due to their short maturities.

Short-term investments are recognized or disclosed at fair value in the financial statements on a recurring basis.

Short-term investments are recognized and disclosed at fair value in the financial statements on a recurring basis.

The fair value of assets and liabilities is measured based on a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Trade Accounts Receivable

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Balances are written off when determined to be uncollectible.

Although we have historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade accounts receivable.

Although we have historically not

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade accounts receivable.

Concentrations of Risk and Other Uncertainties

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Historically, a substantial portion of revenue has been derived from a limited number of retailers and wholesale distribution partners.

As of December 31, 2023 and 2022, three customers accounted for 37.1 %, 15.2 %, and 10.2 %, and four customers accounted for 28.4 %, 26.8 %, 16.6 %, and 13.3 % of the total accounts receivable, net, respectively.

As of December 31, 2024 and 2023, two customers accounted for 54 % and 13 %, and three customers accounted for 37 %, 15 %, and 10 % of the total accounts receivable, net, respectively.

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

During the year ended December 31, 2023, 2022 and 2021, one customer accounted for 33.5 %, one customer accounted for 40.1 %, and two customers accounted for 30.8 % and 13.0 % of the total revenue, respectively.

During the years ended December 31, 2024, 2023 and 2022, one customer accounted for 43 %, 34 %, and 40 % of the total revenue, respectively.

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

Additionally, we receive certain of our components from a limited number of suppliers and rely on a limited number of third parties to manufacture all of our products.

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At the date of issuance of our financial statements, we are not aware of any event which could cause the severe impact in a near term.

As of December 31, 2024 and 2023, one vendor accounted for 80 % and 88 % of the total accounts payable, respectively.

No other vendors accounted for 10% or greater of the total accounts payable.

As of December 31, 2024 and 2023, one significant vendor accounted for 93 % and 87 % of the total purchases, respectively.

No other vendors accounted for 10% or greater of the total purchases.

Our products are concentrated in the smart security solution industries, which are characterized by rapid technological advances, changes in customer requirements and evolving regulatory requirements and industry standards.

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Any significant delays in the development or introduction of products and services could materially and adversely affect our business, results of operations and financial condition.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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While management believes the estimates and assumptions underlying its current forecasts are reasonable, there is risk that additional charges may be necessary if current forecasts are greater than actual demand.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and Equipment, Net

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We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use assets, net, accrued liabilities, and non-current operating lease liabilities on the consolidated balance sheets.

Leases with an initial term of 12 months or less are expensed as incurred and recorded on the consolidated statements of comprehensive loss.

The lease expense for fixed lease payments is recorded on the consolidated statements of comprehensive loss on a straight-line basis over the lease term and variable lease payments are included in the lease expense when the obligation for those payments is incurred.

Operating leases are included in operating lease right-of-use assets, net, accrued liabilities, and non-current operating lease liabilities in the consolidated balance sheets.

Leases with an initial term of 12 months or less are expensed as incurred and recorded in the consolidated statements of comprehensive loss.

The lease expense for fixed lease payments is recorded in the consolidated statements of comprehensive loss on a straight-line basis over the lease term and variable lease payments are included in the lease expense when the obligation for those payments is incurred.

Operating lease assets represent our right to use an underlying asset over the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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In addition, certain lease agreements contain tenant improvement allowances (“TIA”) from the landlords.

We record lessee-owned improvements as leasehold improvements within property and equipment, net on our consolidated balance sheets and the TIA as a reduction to the lease asset with the impact of the decrease recognized prospectively over the

We record lessee-owned improvements as leasehold improvements within property and equipment, net in our consolidated balance sheets and the TIA as a reduction to the lease asset with the impact of the decrease recognized prospectively over the remaining lease term.

We record lessor-owned improvements as prepaid rent within prepaid expenses and other current assets in our consolidated balance sheets and the TIA as a reduction to prepaid rent.

Sublease income from our sublet office space in San Jose, California is recognized on a straight-line basis over the term of the sublease and is recorded as a reduction of lease expense.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

remaining lease term.

We record lessor-owned improvements as prepaid rent within prepaid expenses and other current assets on our consolidated balance sheets and the TIA as a reduction to prepaid rent.

Sublease income from our sublet office space in San Jose, California is recognized on a straight-line basis over the term of the sublease and is recorded as a reduction of lease expense.

We perform an annual impairment assessment of goodwill at the reporting unit level on the first day of the fourth fiscal quarter.

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Our product revenue is recognized at a point in time when control of the goods is transferred to the customer, generally occurring upon shipment or delivery, dependent upon the terms of the underlying contract.

Our paid subscription services are billed in advance of the start of the monthly subscription and revenues are recognized ratably over subscription period, generally 30 days or 12 months in length.

Our paid subscription services are billed in advance of the start of the subscription and revenues are recognized ratably over subscription period, generally 30 days or 12 months in length.

Revenue from all sales types is recognized at the transaction price, which is the amount we expect to be entitled to in exchange for transferring goods or providing services.

Transaction price is calculated as selling price net of variable consideration which may include estimates for sales returns, sales incentives, and price protection related to current period product revenue.

Our standard obligation to our direct customers generally provides for a full refund in the event that such product is found to be damaged or defective.

At the time revenue is recognized, management records an estimate of sales warranty returns to reduce revenue in the amount of the expected credit or refund to be provided to direct customers as a contra revenue.

Sales incentives and price protection are determined based on a combination of the actual amounts committed and estimated future expenditure based upon historical customary business practice.

Typically, variable consideration does not need to be constrained as estimates are based on predictive historical data or future commitments that we plan and control.

However, we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Transaction price is calculated as selling price net of variable consideration which may include estimates for sales returns and sales incentives related to current period product revenue.

Contracts with Multiple Performance Obligations

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For these contracts, we account for the promises separately as individual performance obligations if they are distinct.

Performance obligations are determined to be distinct if they are both capable of being distinct or separately identifiable within the context of the contract.

Performance obligations are determined to be distinct if they are both capable of being distinct and separately identifiable within the context of the contract.

In determining whether performance obligations meet the criteria for being distinct, we consider a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract.

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Services that are included with certain hardware products are considered distinct and therefore the hardware and service are treated as separate performance obligations.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

After identifying the separate performance obligations, the transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis.

Stand-alone selling prices are generally determined based on the prices charged to customers or using an adjusted market assessment.

Stand-alone selling prices are generally determined based on the prices charged to customers for standalone sales.

Stand-alone selling price of the hardware is directly observable from add-on camera and base station sales.

Stand-alone selling price of the premium services are directly observable from direct sales to end users while the service is estimated using an adjusted market approach.

Stand-alone selling price of the premium services are directly observable from direct sales to end users.

Revenue is then recognized for each distinct performance obligation as control is transferred to the customer.

Revenue attributable to hardware is recognized at the time control of the product transfers to the customer.

The transaction price allocated to the service is recognized over the specified service period or over the estimated useful life of the hardware, beginning when the customer is expected to activate their account.

Useful life of the hardware is determined by industry norms, technical and financial relevance, frequency of new model releases, and user history.

The transaction price allocated to the service is recognized over the specified service period.

Long-Term Supply Arrangement - Verisure

We have entered into a Supply Agreement which includes product purchases, paid subscription services, and an option for Verisure S.à.r.l.

(“Verisure”) to acquire development services by submitting a statement of work (“SOW”).

We have entered into a Supply Agreement which includes product purchases and paid subscription services with Verisure S.à.r.l.

(“Verisure”) .

Products sold come with a standard twelve months warranty.

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Verisure is responsible for any marketing and promotion of our products and services sold in Europe.

We concluded that we are acting as the principal in the Supply Agreement and determined that revenue should be presented gross.

Products are priced at a cost plus markup as specified in the Supply Agreement.

The paid subscription services are billed based on the number of active cameras monthly and are priced at a cost plus markup specified in the Supply Agreement.

Products are priced at cost plus markup, and paid subscription services are billed based on the number of active cameras monthly and are priced at cost plus markup.

The transaction price for products and paid subscription services is entirely variable because the consideration is dependent on the actual costs.

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Each product with a valid PO is considered a single performance obligation.

Non-Recurring Engineering (“NRE”) Arrangement - Verisure

The Supply Agreement also provides for certain development services under an SOW to Verisure, which Verisure pays non-refundable installments upon the commencement of agreed-upon milestones.

There is a single performance obligation as the distinct goods and services promised under the SOW are highly interdependent or interrelated inputs that produce a single combined output given the nature of such arrangements.

We determined that the most appropriate measure of progress for revenue recognition is the input method based on cost because we can reasonably estimate the total costs for the NRE, and the costs incurred reasonably reflect our efforts to satisfy the performance obligation.

The NRE costs include

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

labor, material, overhead as well as the use of outside services.

Any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined.

Sales of hardware products regularly include warranties to end customers that cover bug fixes, minor updates such that the product continues to function according to published specifications in a dynamic environment, and phone support.

The Supply Agreement also provides for certain development services at Verisure's request under various statements of work ("SOW"), which Verisure pays in non-refundable installments upon the commencement of agreed-upon milestones.

There is a single performance obligation as the distinct goods and services are promised under each individual SOW.

Sales of hardware products regularly include warranties to end customers ensuring that the product continues to function according to published specifications in a dynamic environment.

These standard warranties are assurance type warranties and do not offer any services in addition to the assurance that the product will continue working as specified for one or more years.

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Sales Incentives

We recognize sales incentives offered to our customers as a marketing expense if we receive an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received;

otherwise, it is recognized as a contra revenue.

Consequently, we recognize a substantial portion of sales incentives as channel marketing costs accounted as a contra revenue.

We accrue estimated contra revenue or marketing expense for sales incentives when the related revenue is recognized or ahead of customer or end customer commitment if customary business practice creates an implied expectation that such activities will occur in the future.

Sales incentives that are mutually agreed with customers are recognized as contra revenue while marketing expenses paid to the third parties are recognized as a marketing expense.

We accrue estimated contra revenue or marketing expense for these sales incentives either when the related revenue is recognized or prior to customer commitment if customary business practice creates an implied expectation of future activities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Shipping and Handling Costs

We include shipping and handling fees billed to customers in Revenue.

We include shipping and handling fees billed to customers in Product Revenue.

Shipping and handling costs associated with inbound freight are included in Cost of revenue.

In cases where we give a freight allowance to the customer for their own inbound freight costs, such costs are appropriately recorded as a reduction in Revenue.

In cases where we give a freight allowance to the customer for their own inbound freight costs, such costs are appropriately recorded as a reduction in Product Revenue.

Shipping and handling costs associated with outbound freight are included in sales and marketing expenses.

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We recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that otherwise would have been recognized is one year or less.

These costs are included in operating expenses of sales and marketing and general and administrative on the consolidated statements of comprehensive loss.

These costs are included in operating expenses of sales and marketing and general and administrative in the consolidated statements of comprehensive loss.

If the incremental costs of obtaining a contract, which consist of sales commissions, relate to a service recognized over a period longer than one year, costs are deferred and amortized in line with the related services over the period of benefit.

Deferred commissions are classified as non-current based on the original amortization period of over one year.

There were no deferred commissions as of December 31, 2023 and 2022.

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Contract Balances

Contract assets are recorded as accounts receivable, net on the consolidated balance sheets when we have an unconditional right to consideration.

Contract liabilities are recorded as deferred revenue on the consolidated balance sheets when cash payments are received or due in advance of performance.

Contract assets are recorded as accounts receivable, net in the consolidated balance sheets when we have an unconditional right to consideration.

Contract liabilities are recorded as deferred revenue in the consolidated balance sheets when cash payments are received or due in advance of performance.

Contract liabilities consist of advance payments and customer billings in advance of revenue recognition from subscription contracts where we have unsatisfied performance obligations.

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

Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities.

Unsatisfied and remaining performance obligations consist of contract liabilities.

Research and Development

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Technological feasibility is typically reached shortly before the release of such products.

As a result, development costs that meet the criteria for capitalization were $ 0.6 million and $ 1.8 million for the years ended December 31, 2023 and 2022, respectively.

There were no capitalized development costs for the year ended 2021.

As a result, development costs that meet the criteria for capitalization were $ 0.7 million, $ 0.6 million and $ 1.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

We capitalize software development costs related to those software applications to be used solely to meet internal needs during the application development stage.

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Costs capitalized for developing such software applications were not material as of December 31, 2024 and 2023.

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Advertising Costs

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The fair value of restricted stock units (“RSUs”) and performance-based restricted stock units is measured on the grant date based on the closing fair market value of our common stock.

We utilize a Monte Carlo pricing model customized to the specific provisions to value the market-based restricted stock units on the grant date.

We utilize a Monte Carlo pricing model customized to the specific provisions to value certain market-based restricted stock units on the grant date.

The fair value determined using the Monte Carlo simulation model varies based on the assumptions used for the expected stock price volatility, the correlation coefficient between Arlo and Russell 2000 Index, risk-free interest rates, and dividend yield.

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

The duration of each purchasing period is

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generally six months .

The duration of each purchasing period is generally six months .

We determine the fair value using the Black-Scholes Model using various inputs, including its estimate of expected volatility, term, dividend yield and risk-free interest rate.

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Expenses are re-measured at average exchange rates in effect during each period, except for expenses related to non-monetary assets and liabilities, which are re-measured at historical exchange rates.

Gains and losses arising from foreign currency transactions are included in other income, net on the consolidated statements comprehensive loss.

Net Loss Per Share

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

Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of restricted stock awards and performance shares, and issuances of shares under the ESPP, which are reflected in diluted net loss per share by application of the treasury stock method.

Gains and losses arising from foreign currency transactions are included in other income, net in the consolidated statements of comprehensive loss.

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Net Earnings (Loss) Per Share

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

Diluted net earnings per share is computed by dividing the net earnings for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of restricted stock awards and performance shares, and issuances of shares under the ESPP, which are calculated by application of the treasury stock method.

Potentially dilutive common shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive.

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We operate as one operating and reportable segment.

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

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

We record the provision for income taxes in the consolidated financial statements using the asset and liability method.

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We have recorded a valuation allowance against U.S.

federal and state

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deferred tax assets and certain foreign tax attribute carryforwards since we do not anticipate realizing the benefits of these deferred tax assets.

federal and state deferred tax assets and certain foreign tax attribute carryforwards since we do not anticipate realizing the benefits of these deferred tax assets.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

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The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related interest and penalties.

Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act introduced the global intangible low-taxed income (“GILTI”) provisions effective in 2018, which generally impose a tax on the net income earned by foreign subsidiaries of a U.S company in excess of a deemed return on their tangible assets.

company in excess of a deemed return on their tangible assets.

We recognize the tax on GILTI as a period cost when the tax is incurred.

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Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

There were no accounting pronouncements adopted during the year ended December 31, 2023.

In 2024, we adopted Accounting Standards Update (“ASU”) 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.

Refer to Note 12, Segment and Geographic Information for the adoption of this guidance and related disclosures.

Accounting Pronouncements Not Yet Effective

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

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

2023-06, Disclosure Improvements:

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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 consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting:

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 of this guidance may have on our financial statements and related disclosures.

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

In December 2023, the FASB issued ASU No.

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

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

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Contract Balances

The following table reflects the changes in contract balances for the years ended December 31, 2023 and 2022:

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

In November 2024, the FASB issued ASU No.

2024-03, Income Statement:

Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses , which improves disclosure requirements and mandates enhanced transparency about the types of expenses in commonly presented expense captions in financial statements.

This guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted and is effective on either a prospective basis or retrospective basis.

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

Contract Balances

Balance Sheet Location December 31, 2023 December 31, 2022

(In thousands)

Accounts receivable, net Accounts receivable, net $ 65,360 $ 65,960 $ ( 600 ) ( 0.9 ) %

Contract liabilities current

Deferred revenue $ 18,041 $ 11,291 $ 6,750 59.8 %

Contract liabilities non-current

Other non-current liabilities $ 73 $ 212 $ ( 139 ) ( 65.6 ) %

For the year ended December 31, 2023, compared to the previous year, deferred revenue increased, primarily due to deferred service revenue increase, driven by the increases in cumulative paid accounts and rates of subscriptions.

For the years ended December 31, 2023 and 2022, $ 11.3 million and $ 29.4 million, respectively, of the recognized revenue was included in the contract liability balance at the beginning of the periods.

Deferred revenue as of December 31, 2024 increased, compared to the previous year, primarily due to service revenue increase, driven by the increases in cumulative paid accounts and rates of subscriptions.

For the years ended December 31, 2024, 2023, and 2022, $ 17.9 million, $ 11.3 million, and $ 29.4 million, respectively, of the recognized revenue was included in deferred revenue at the beginning of the periods.

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

Refer to Note 4, Balance Sheet Components for further details of accounts receivable, net.

Performance Obligations

The total estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied and partially unsatisfied as of December 31, 2023 was $ 18.8 million, with $ 18.7 million related to a performance obligation classified as less than one year.

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

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

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 December 31, 2023, $ 469.8 million of the purchase commitment has been fulfilled.

As of December 31, 2023, we had a backlog of $ 52.3 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next twelve months .

Remaining Performance Obligations

The total estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied and remaining was $ 29.5 million and $ 18.8 million as of December 31, 2024 and 2023, respectively, substantially related to performance obligations classified as less than one year .

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On April 25, 2024, Verisure Sàrl (“Verisure”), our largest customer, notified us that it was exercising its right under the Supply Agreement to extend the term for another five years (through November 2029) with no minimum purchase obligations.

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

As of December 31, 2024, we had a backlog of $ 33.5 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next six months .

Variable Consideration

Revenue from all sales types is recognized at transaction price, the amount we expect to be entitled to in exchange for transferring goods or providing services.

Transaction price is calculated as selling price net of variable consideration which may include estimates for sales returns and sales incentives related to current period product revenue.

Sales incentives are determined based on a combination of the actual amounts committed and estimated future expenditure based upon historical customary business practice.

Refer to Note 4, Balance Sheet Components for accrued sales returns and sales incentives as of December 31, 2024 and 2023.

Variable consideration estimates are based on predictive historical data or future commitments that we plan and control.

However, we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur.

Disaggregation of Revenue

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Total $ 510,886 $ 491,176 $ 490,414

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Balance Sheet Components

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Treasuries $ 69,385 $ 34 $ — $ 69,419 $ 79,654 $ 320 $ — $ 79,974

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Accounts Receivable, Net

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Balance at the end of the period $ 132 $ 333 $ 423

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Property and Equipment, Net

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$ 4,765 $ 4,761

_________________________

(1) $ 1.0 million and $ 1.7 million property and equipment, net was included in the sublease arrangement for the San Jose office building as of December 31, 2023 and 2022, respectively.

Depreciation expense pertaining to property and equipment was $ 3.2 million, $ 4.7 million and $ 4.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

We have determined that no event occurred or circumstances changed during the year ended December 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 years ended December 31, 2023, 2022 and 2021.

There was no accumulated goodwill impairment recognized as of December 31, 2024.

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Accrued Liabilities

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Total $ 85,730 $ 88,209

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Fair Value Measurements

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_________________________

(1) Included in short-term investments on the consolidated balance sheets.

(1) Included in short-term investments in the consolidated balance sheets.

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

As of December 31, 2024 and 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.

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Restructuring

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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 December 31, 2023, we have substantially incurred all costs pertaining to restructuring activities, with related cash outflows extending until the fourth quarter of 2024.

As of December 31, 2024, we have incurred all costs pertaining to restructuring activities and completed this restructuring plan.

The restructuring liabilities are included in accrued liabilities in the consolidated balance sheets.

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

Restructuring activities for the year ended December 31, 2023 are as follows:

Restructuring activity is as follows:

Total Severance Expense Office Exit Expense Other Exit Expense

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$ 452 $ 89 $ 363 $ —

Restructuring charges 2,503 2,503 — —

Cash payments ( 2,783 ) ( 2,420 ) ( 363 ) —

Balance as of December 31, 2024 $ 172 $ 172 $ — $ —

Total costs incurred inception to date $ 5,022 $ 3,865 $ 1,108 $ 49

Revolving Credit Facility

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

We had historically maintained a Loan and Security Agreement with Bank of America, N.A., which expired and automatically terminated on October 27, 2024.

On November 14, 2024, we entered into a new credit agreement (the “Credit Agreement”) with HSBC Bank USA, National Association, as administrative agent, issuing bank, and lender.

The Credit Agreement provides for a three-year revolving credit facility (the “Credit Facility”) of up to $ 45.0 million that matures on November 14, 2027, which also includes a $ 10.0 million sublimit for the issuance thereunder of letters of credit.

As of December 31, 2024, we had unused borrowing capacity of $ 45.0 million based on the terms and conditions of the Credit Agreement.

In addition, the Credit Agreement includes an uncommitted accordion feature that allows us to, from time to time, request an increase to the aggregate revolving loan commitments by up to an additional $ 30.0 million in the aggregate, subject to the satisfaction of certain conditions.

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

The obligations under the Credit Agreement are secured by substantially all of our assets and will be secured, on a post-closing basis, by substantially all of the assets of a material subsidiary;

Arlo Technologies International Limited, a limited corporation organized under the laws of Ireland (which is the sole guarantor of the Credit Facility as of the closing of the Credit Facility).

Borrowings under the Credit Agreement will bear interest at a floating rate equal to:

(i) the term secured

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Borrowings under the Credit Facility are limited to the lesser of (x) $ 40.0 million, and (y) an amount equal to the borrowing base.

The borrowing base will be the sum of (i) 90 % of investment grade eligible receivables and (ii) 85 % of non-investment grade eligible accounts, less applicable reserves established by the Lender.

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

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

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

Based on certain terms and conditions including eligible accounts receivable as of December 31, 2023, we had unused borrowing capacity of $ 13.9 million.

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

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

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

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

overnight financing rate plus the applicable rate of 2.25 % to 2.75 %, or (ii) the base rate plus the applicable rate of 1.25 % to 1.75 % both determined based on a total net leverage ratio.

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

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 December 31, 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 December 31, 2023.

The Credit Agreement also contains financial covenants that require us to (i) maintain a fixed charge coverage ratio of at least 1.50 to 1.00 and (ii) maintain a total net leverage ratio, not to exceed 3.00 to 1.00;

both covenants being tested quarterly on a trailing four consecutive fiscal quarter basis.

As of December 31, 2024, we were in compliance with all the covenants under the Credit Agreement.

The Credit Agreement also provides for a number of customary events of default, including a provision that a material adverse change constitutes an event of default that permits the Administrative Agent, at its option, to accelerate the loan.

No amount had been drawn under the Credit Facility as of December 31, 2024.

Commitments and Contingencies

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 2033.

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.

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Gross lease expense was $ 5.3 million, $ 5.9 million, and $ 7.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

On June 29, 2021, we entered into a sublease agreement with Vocera Communications, Inc.

for approximately 78,000 rentable square feet of office space located at 3030 Orchard Parkway in San Jose, California.

The initial term of the

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sublease commenced on February 1, 2022, and will expire on June 30, 2029, unless earlier terminated in accordance with the sublease.

The sublease income was $ 2.0 million, $ 2.0 million, and $ 0.5 million which is recorded as a reduction of lease expense for the years ended December 31, 2023, 2022, and 2021, respectively.

We recorded sublease income as reduction of lease expense, in the amount of $ 2.0 million for each of the years ended December 31, 2024, 2023, and 2022.

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

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Operating leases $ 7,155 $ 1,873 $ 3,470

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:

As of December 31,

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Weighted average discount rate 6.66 % 5.74 %

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 December 31, 2023 were as follows:

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Operating Lease Payments Sublease Payments Net

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Total future lease payments $ 28,562 $ ( 10,014 ) $ 18,548

interest ( 3,210 )

imputed interest ( 4,519 )

Present value of future minimum lease payments $ 24,043

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As of December 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.

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Purchase Obligations

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

As of December 31, 2023, we had $ 40.2 million in non-cancelable purchase commitments with suppliers.

As of December 31, 2024, we had $ 25.3 million in non-cancelable purchase commitments with suppliers, which is expected to be paid over the next twelve months .

As of December 31, 2024, an additional $ 22.0 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 December 31, 2023, the loss liability from committed purchases was not material.

Warranty Obligations

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

Year Ended December 31,

2023 2022 2021

(In thousands)

Balance at the beginning of the period $ 1,174 $ 1,330 $ 2,451

Provision for (release of) warranty obligations 286 145 ( 655 )

Settlements ( 267 ) ( 301 ) ( 466 )

Balance at the end of the period $ 1,193 $ 1,174 $ 1,330

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

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Litigation and Other Legal Matters

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

From time to time, we may become 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.

1 unchanged sentence

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

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

We currently believe that there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position within the next 12 months.

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

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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.

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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”), against us and certain of our executives and directors.

The plaintiffs in the State Action alleged 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 sought unspecified monetary damages and other relief on behalf of investors who purchased Company common stock issued pursuant and/or traceable to the IPO.

On May 5, 2021, the court instructed plaintiffs Perros, Patel, and Pham (“Plaintiffs”) 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.

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.

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.

On May 5, 2023, the Court of Appeal affirmed the trial court’s dismissal of the State Action.

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

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 was filed, and the State Action has terminated.

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 December 31, 2023 and 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 December 31, 2024 and 2023, we have not incurred any material costs as a result of such indemnification obligations and we are not currently aware of any indemnification claims.

Employee Benefit Plans

1 unchanged sentence

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

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

As of December 31, 2023, 3.5 million shares were available for future grants.

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

As of December 31, 2024, approximately 3.4 million shares were available for future grants.

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

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

During the year ended December 31, 2022, the Compensation and Human Capital Committee of the Board of Directors (the “Committee”) unanimously approved amendments to the 2018 Plan to, among other things, reserve an additional 3,000,000 shares of our common stock to be used exclusively for grants of awards to individuals who were not previously employees or non-employee directors (or following a bona fide period of non-employment), as an inducement material to the individual’s entry into employment with us within the meaning of Rule 303A.08 of the New York Stock Exchange (the “NYSE”) Listed Company Manual (“Rule 303A.08”).

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

On January 24, 2025, we registered an aggregate of up to 5,050,450 shares of common stock on a Registration Statement on Form S-8, including 4,050,450 shares issuable pursuant to the 2018 Plan that were automatically added to the shares authorized for issuance under the 2018 Plan and 1,000,000 shares issuable pursuant to the Employee Stock Purchase Plan (“ESPP”) that were automatically added to the shares authorized for issuance on January 1, 2025, both pursuant to an “evergreen” provision contained in the respective plans.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 December 31, 2024:

5 unchanged sentences

Forfeited / cancelled

Shares traded for taxes 3,518

Shares traded / withheld for taxes 3,621

Shares available for grants at the end of the period 3,356

1 unchanged sentence

We sponsor the ESPP to eligible employees.

Under our ESPP, employees purchased 365 thousand, 621 thousand, and 609 thousand shares during the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024, 2.4 million shares were available for issuance under the ESPP.

5 unchanged sentences

Expected volatility 54.7 % 64.0 % 69.2 %

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Option Activity

We granted no options during the years ended December 31, 2023, 2022, and 2021.

We did not grant options during the years ended December 31, 2024, 2023, and 2022.

Stock option activity during the year ended of December 31, 2024 was as follows:

Number of Shares Weighted Average Exercise Price Per Share Weighted

Term Aggregate

(In thousands) (In dollars) (In years) (In thousands)

4 unchanged sentences

Outstanding as of December 31, 2024 549 $ 13.24 1.85 $ 382

Vested and expected to vest as of December 31, 2023 1,096 $ 12.48 3.48 $ 483

Exercisable Options as of December 31, 2023 1,096 $ 12.48 3.48 $ 483

Vested and exercisable as of December 31, 2024

549 $ 13.24 1.85 $ 382

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Year Ended December 31,

6 unchanged sentences

Number of Shares Weighted Average Grant Date Fair Value Per Share Weighted

Term Aggregate

(In thousands) (In dollars) (In years) (In thousands)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Our executive officers and other senior employees have been granted performance-based awards with some vesting occurring when performance conditions are met and some vesting occurring at the end of a three or five-year period when market conditions are met.

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

2 unchanged sentences

Number of Shares Weighted Average Grant Date Fair Value Per Share Weighted

Term Aggregate

(In thousands) (In dollars) (In years) (In thousands)

6 unchanged sentences

Year Ended December 31,

2024 2023 2022

(In millions, except per share data)

4 unchanged sentences

$ 10.11 $ 4.56 $ 6.52

For RSUs and PSUs vested prior to September 29, 2024, the tax withholding method is the net withholding method, in which shares with a market value equivalent to the tax withholding obligation are withheld and the net shares are issued to the RSU and PSU holders.

Effective in the fourth quarter of 2024, the tax withholding policy changed and our Named Executive Officers (“NEOs”) will use the sell-to-cover method for their tax withholding, in which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the NEOs upon vesting and settlement to cover the tax withholding liability, and the cash proceeds from such sales are remitted by Arlo to taxing authorities.

The sell-to-cover method applies to all Arlo employees effective on January 1, 2025.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Stock-Based Compensation Expense

9 unchanged sentences

As of December 31, 2024, all outstanding options were fully vested, therefore, there was no unrecognized compensation cost related to stock options.

Approximately $ 58.6 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 1.7 years as of December 31, 2023.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2024, approximately $ 53.5 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 1.3 years.

During the years ended December 31, 2024, 2023, and 2022, we settled executive and employee bonuses by granting and issuing restricted stock units (non-cash financing activities) that vested immediately amounting to $ 12.6 million, $ 13.5 million, and $ 8.7 million, respectively.

9 unchanged sentences

Total $ ( 29,412 ) $ ( 20,861 ) $ ( 55,651 )

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Provision for income taxes consisted of the following:

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Total $ 1,092 $ 1,175 $ 975

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effective tax rate differed from the U.S.

4 unchanged sentences

federal income tax rate 21.0 % 21.0 % 21.0 %

State tax benefit, net of federal benefit ( 1.0 ) % 1.9 % 2.9 %

State tax benefit (provision), net of federal benefit

( 0.8 ) % ( 1.0 ) % 1.9 %

Impact of international operations 3.4 % 3.1 % 1.3 %

1 unchanged sentence

1.0 % 1.8 % — %

taxes on foreign entities — % — % ( 3.9 ) %

Stock-based compensation ( 12.8 ) % ( 22.5 ) % ( 7.3 ) %

4 unchanged sentences

Provision for income taxes ( 3.7 ) % ( 5.6 ) % ( 1.8 ) %

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The significant components of net deferred tax assets consisted of the following:

16 unchanged sentences

Net deferred tax assets $ 1,285 $ 1,272

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Changes in valuation allowance for deferred tax assets were as follows:

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Such an annual limitation could result in the expiration of portions of the net operating loss and tax credit carryforwards before utilization.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2024, net operating loss carryforwards consisted of the following:

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As of December 31, 2024, withholding taxes and state income taxes expected to be incurred on the foreign subsidiaries’ earnings that are not indefinitely reinvested are immaterial.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows:

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We are subject to income tax examinations by taxing authorities globally for years ending or after December 31, 2018.

IRS audit of the consolidated returns of NETGEAR for which Arlo was a part of in 2018, had been closed with no findings, while the 2018 California Franchise Tax Board and 2016-2018 Texas Franchise tax audits are still in progress.

IRS audit of the consolidated returns of Arlo for tax year 2022 was commenced in the fourth fiscal quarter of 2024 and is still pending, while the NETGEAR 2018 California Franchise Tax Board and 2016-2018 Texas Franchise tax audits are likewise still in progress.

Our estimate of the potential outcome of any uncertain tax positions is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time.

2 unchanged sentences

We don't expect a significant change in unrecognized tax benefits within the next twelve months.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net Loss Per Share

11 unchanged sentences

We operate as one operating and reportable segment.

Our CEO is identified as the CODM, who reviews financial information presented in a consolidated basis for purposes of allocating resources and evaluating financial performance.

The CODM does not review segment assets at a different asset level and category.

The consolidated net loss is the measure of segment net loss that is most consistent with U.S.

The CODM is regularly provided with not only the consolidated expenses as noted on the face of the income statement, but also the significant segment expenses and other segment items as below:

Year Ended December 31,

2024 2023 2022

(In thousands)

Revenue $ 510,886 $ 491,176 $ 490,414

Cost of revenue

323,382 323,613 354,379

Operating expenses

Personnel-related expense 66,811 65,249 62,099

Stock-based compensation 64,632 44,415 43,635

Outside professional services 54,229 48,336 43,831

Marketing expenditure 18,925 17,910 27,079

Other segment items (1)

10,497 9,010 11,176

Depreciation 1,332 3,131 3,589

Interest expense 490 373 277

Income taxes expense 1,092 1,175 975

Segment net loss $ ( 30,504 ) $ ( 22,036 ) $ ( 56,626 )

Reconciliation of profit or loss:

Adjustments and reconciling items — — —

Consolidated net loss $ ( 30,504 ) $ ( 22,036 ) $ ( 56,626 )

_________________________

(1) Other segment items include corporate IT and facility overhead, freight out expense, credit card fees, restructuring charges, separation expense, litigation reserves, interest income, net, foreign currency exchange gain (loss), net and others.

ARLO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Geographic Information for Revenue

3 unchanged sentences

The following table presents revenue by geographic area.

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

Year Ended December 31,

3 unchanged sentences

Spain 137,671 113,826 135,896

Ireland 20,148 44,287 40,877

Sweden 49,648 29,502 15,554

Other countries 66,830 48,488 70,529

9 unchanged sentences

Total $ 20,463 $ 16,211

Stock Repurchase Program

On September 24, 2024, we announced that our Board of Directors approved a stock repurchase program of up to an aggregate of $ 50.0 million of shares of Arlo’s common stock through open market purchases in a manner deemed to be in the best interests of our company and stockholders, considering the economic cost and prevailing market conditions, including the relative trading prices and volumes of Arlo’s common stock.

The stock repurchase program is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors.

The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities.

Shares may be repurchased through open market purchases or privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

In the fourth quarter of fiscal year 2024, we repurchased and subsequently retired 378,745 shares of Arlo common stock for an aggregate amount of $ 4.4 million.

As of December 31, 2024, $ 45.6 million remained available and authorized for future repurchases.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data