What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 92 added, 135 removed, 149 unchanged (60% of the section changed)

17 unchanged sentences

Since the launch of our first product in December 2014, we have shipped over 38.5 million smart connected devices.

As of September 29, 2024, the Arlo platform had approximately 10.4 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 4.2 million cumulative paid subscribers and annual recurring revenue of $241.6 million.

As of March 30, 2025, the Arlo platform had approximately 10.9 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 4.9 million cumulative paid subscribers and annual recurring revenue of $276.4 million.

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

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

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

For the three months ended September 29, 2024 and October 1, 2023, we generated total revenue of $137.7 million and $130.0 million, respectively, and loss from operations was $5.5 million and $2.3 million, respectively.

For the nine months ended September 29, 2024 and October 1, 2023, we generated total revenue of $389.3 million and $356.1 million, respectively, and loss from operations was $28.9 million and $24.4 million, respectively.

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

For the three months ended March 30, 2025 and March 31, 2024, we generated total revenue of $119.1 million and $124.2 million, respectively, and a loss from operations was $1.5 million and $10.6 million, respectively.

Our goal is to continue to develop innovative, world-class smart security solutions to expand and further monetize our current and future user and paid account bases.

We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in channel partnerships and to continue our global expansion.

We expect to increase our investment in research and development going forward as we continue to introduce new and

innovative products and services to enhance the Arlo platform and compete for engineering talent.

We also expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services.

We expect to increase our investment in research and development going forward as we continue to introduce new and innovative products and services to enhance the Arlo platform and compete for engineering talent.

also expect our sales and marketing expenses to increase in the future as we invest in marketing to drive demand for our products and services.

Key Business Metrics

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Our key business metrics may be calculated in a manner different from the same key business metrics used by other companies.

We regularly review our processes for calculating these metrics, and from time to time we may discover a need to make adjustments to better reflect our business or to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics.

We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.

September 29,

2024 % Change October 1,

We regularly review our processes for calculating these metrics, and from time to time we may discover a need to make adjustments to better reflect our business or to improve their accuracy.

We believe that any such adjustments are immaterial unless otherwise stated.

2025 % Change March 31,

(In thousands, except percentage data)

4 unchanged sentences

$ 276,357 21.8 % $ 226,968

_________________________

(1) The number of cumulative paid accounts as of September 29, 2024 included paid accounts managed by Verisure Sàrl (“Verisure”) in our EMEA region which are now onboarded with us.

This does not have an impact to our financial statements and key business metrics other than our number of cumulative paid accounts.

(2) As described further below, in the first fiscal quarter of 2024, we changed the methodology on paid service revenue recognition from a mid-month convention to a daily recognition model.

As a result, ARR as of September 29, 2024 was calculated using the daily recognition model while ARR as of October 1, 2023 was calculated using our former methodology, the mid-month convention.

ARR as of October 1, 2023 calculated using the daily recognition model does not represent a material change from the mid-month convention over the same period.

Cumulative Registered Accounts .

6 unchanged sentences

We believe ARR enables measurement of our business initiatives and serves as an indicator of our future growth.

ARR represents the amount of paid service revenue that we expect to recur annually.

In the first fiscal quarter of 2024, we changed the methodology on paid service revenue recognition from a mid-month convention to a daily recognition model which recognizes paid service revenue based on the number of service days within the fiscal reporting period, commencing on the start date of the subscription and continuing over the term of the arrangement.

Accordingly, the methodology used to calculate ARR was also changed in the first fiscal quarter of 2024 and is now calculated by taking the average daily paid service revenue of the last calendar month in the fiscal quarter, multiplied by 365 days.

We believe the daily recognition model aligns with our customers’ subscription period and service usage and allows for a more precise measurement of paid service revenue relative to the former methodology of a mid-month convention, which was based on paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months.

This change in calculation methodology has no material impact on our financial statements or any previously reported ARR numbers.

ARR represents and is defined as the annualized paid subscription and service revenue we expect to recognize from subscription contracts, as calculated by taking the average paid subscription and service revenue multiplied by the number of subscription accounts at the end of the reporting period.

ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.

Impact of Global Geopolitical, Economic and Business Conditions

During the nine months ended September 29, 2024, we remained focused on the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and high interest rates by preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs.

These actions include, but are not limited to, proactively managing working capital by closely monitoring customers’ credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating non-essential spending, and subleasing or reducing excess office space.

We continue to monitor the situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and high interest rates, current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, and liquidity levels.

government recently implemented new tariff measures and potential additional reciprocal tariffs affecting a broad range of imported materials.

We have evaluated the potential impact of these actions on our operations and supply chain and do not expect them to have a material impact on our financial position or results of operations in the near term.

However, given the uncertainty surrounding global markets and general global uncertainty as a result of new U.S.

tariff policy, we do not have clarity at this point over the potential medium to long term impacts our business may face.

The availability of certain goods could be affected if foreign suppliers choose to limit their exposure to U.S.

markets in response to unfavorable trade policies, which could negatively impact our suppliers ability to deliver materials or manufacture equipment for us and, therefore, delay or impede our product deliveries.

Furthermore, rising inflation, slower economic growth and increases in unemployment that may result from global trade disruptions could further deflate consumer demand and impact the demand for our products.

Results of Operations

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The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of comprehensive loss data, which we derived from the accompanying unaudited condensed consolidated financial statements:

Three Months Ended Nine Months Ended

September 29,

2024 October 1,

2023 September 29,

2024 October 1,

Three Months Ended

2025 March 31,

(In thousands, except percentage data)

Subscriptions and services $ 68,849 57.8 % $ 56,707 45.7 %

Products 50,217 42.2 % 67,493 54.3 %

Services 61,883 45.0 % 51,042 39.3 % 178,851 45.9 % 145,313 40.8 %

Total revenue 119,066 100.0 % 124,200 100.0 %

Cost of revenue:

Subscriptions and services 12,265 10.3 % 13,596 10.9 %

Products 54,074 45.4 % 63,224 51.0 %

Services 14,431 10.5 % 13,529 10.4 % 42,584 11.0 % 38,349 10.8 %

Total cost of revenue 66,339 55.7 % 76,820 61.9 %

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General and administrative 17,785 14.9 % 19,348 15.6 %

Others 1,423 1.0 % 263 0.3 % 2,868 0.7 % 1,236 0.4 %

Other operating expense 25 0.0 % 479 0.3 %

Total operating expenses 54,178 45.5 % 57,990 46.6 %

1 unchanged sentence

Interest income, net 1,316 1.1 % 1,386 1.1 %

Other income, net

(57) — % 10 — % (100) — % 23 — %

Other non-operating expense, net (198) (0.2) % (25) — %

Loss before income taxes (333) (0.3) % (9,249) (7.4) %

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Net loss $ (835) (0.7) % $ (9,644) (7.7) %

Our gross revenue consists primarily of sales of devices and paid subscription service revenue.

We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs.

Our gross revenue consists primarily of paid subscription and service revenue and sales of devices.

Our paid subscription services are billed in advance of the start of the monthly subscription and revenue is recognized ratably over subscription period.

We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs.

Our revenue consists of gross revenue, less customer rebates and other channel sales incentives, allowances for estimated sales returns, price protection, and net changes in deferred revenue.

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

and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer.

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer for device location for subscription and service sales and device sales.

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

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Revenue by classification is as follows:

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

Product revenue $ 75,784 (4.0) % $ 78,961 $ 210,463 (0.1) % $ 210,770

Service revenue 61,883 21.2 % 51,042 178,851 23.1 % 145,313

Subscriptions and services $ 68,849 21.4 % $ 56,707

Products 50,217 (25.6) % 67,493

Total revenue $ 119,066 (4.1) % $ 124,200

Product revenue decreased by $3.2 million, or 4.0%, and $0.3 million, or 0.1%, for the three and nine months ended September 29, 2024 compared to the prior year periods, respectively, primarily driven by the decrease in product sales in the Americas and APAC due to seasonality and a reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth.

The decline was partially offset by the increase in product shipments in EMEA due to stronger customer demand and the lower sales returns that are deemed to be reductions of revenue.

The decrease in product revenue for the nine months ended September 29, 2024 was also offset by the lower sales incentives that are deemed to be reductions of revenue.

Service revenue increased in all regions by $10.8 million, or 21.2%, and $33.5 million, or 23.1%, for the three and nine months ended September 29, 2024 compared to the prior year periods, respectively, primarily due to a 70.4% increase in cumulative paid accounts and continued increase in average revenue per user (“ARPU”) of retail subscriptions.

Subscriptions and services revenue increased by $12.1 million or 21.4%, for the three months ended March 30, 2025 compared to the prior year period, respectively, primarily due to a 51.4% increase in cumulative paid accounts and continued increase in average revenue per user (“ARPU”) of retail and direct paid subscriptions.

Products revenue decreased by $17.3 million or 25.6%, for the three months ended March 30, 2025 compared to the prior year period, respectively, primarily from the decrease in product sales in EMEA due to the seasonally driven reduction in demand from our largest customer and the reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth.

The decrease in products revenue was also due to the higher sales incentives that are deemed to be reductions of revenue which was partially offset by the lower sales returns that are deemed to be reductions of revenue.

Cost of Revenue

Cost of revenue consists of both product costs and service costs.

Cost of revenue consists of both subscription and service costs and product costs.

Subscription and service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel expense, data storage, security and computing, IT and facilities overhead.

Product costs primarily consist of the cost of finished products from our third-party manufacturers and overhead costs, including personnel expense for operation staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory and excess components, and royalties to third parties.

Service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and computing, IT and facilities overhead.

Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation, product mix, sales channel mix, registered accounts’ acceptance of paid subscription service offerings, and changes in our cost of

goods sold due to fluctuations in prices paid for components, net of vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty costs, and charges for excess or obsolete inventory.

overhead costs, inbound freight and duty costs, and charges for excess or obsolete inventory.

We outsource our manufacturing, warehousing, and distribution logistics.

We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure.

We believe this outsourcing strategy allows us to better manage our product and service costs and gross margin and allows us to adapt to changing market dynamics and supply chain constraints.

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

We believe this outsourcing strategy allows us to better manage our product costs and subscription and service costs and gross margin and allows us to adapt to changing market dynamics and supply chain constraints.

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

Cost of revenue:

Subscriptions and services $ 12,265 (9.8) % $ 13,596

Products 54,074 (14.5) % 63,224

Services 14,431 6.7 % 13,529 42,584 11.0 % 38,349

Total cost of revenue $ 66,339 (13.6) % $ 76,820

Product cost of revenue increased by 2.0% and 3.3% for the three and nine months ended September 29, 2024, respectively, compared to the prior year periods, primarily due to a decrease in inventory net realizable value.

Service cost of revenue increased by 6.7% and 11.0% for the three and nine months ended September 29, 2024, respectively, compared to the prior year periods, primarily due to service revenue growth as a result of the increase in cumulative paid accounts, partially offset by cost optimizations.

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

Subscription and service cost of revenue decreased by 9.8% for the three months ended March 30, 2025, compared to the prior year period, primarily due to cost savings as we optimize our cloud platform to improve customer experience which assists in reduced data storage and cloud costs.

Products cost of revenue decreased by 14.5% for the three months ended March 30, 2025, compared to the prior year period, primarily due to the decrease in product sales partially offset by an increase in product costs as a result of higher inventory valuation adjustments.

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

Gross profit:

Subscriptions and services $ 56,584 31.3 % $ 43,111

Products (3,857) (190.3) % 4,269

Services 47,452 26.5 % 37,513 136,267 27.4 % 106,964

Total gross profit $ 52,727 11.3 % $ 47,380

Gross margin percentage:

Subscriptions and services 82.2 % 76.0 %

Products (7.7) % 6.3 %

Services 76.7 % 73.5 % 76.2 % 73.6 %

Total gross margin 44.3 % 38.1 %

Product gross profit decreased by $4.7 million and $6.9 million for the three and nine months ended September 29, 2024, respectively, compared to the prior year periods, primarily driven by a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and subscriber growth and an increase in inventory reserves.

Service gross profit increased by $9.9 million and $29.3 million for the three and nine months ended September 29, 2024, respectively, compared to the prior year periods, primarily due to service revenue growth in all regions as a result of increases in cumulative paid accounts, continued increase in ARPU of retail subscriptions, and cost optimizations.

Subscription and service gross profit increased by $13.5 million for the three months ended March 30, 2025, compared to the prior year period, primarily due to subscription and service revenue growth as a result of increases in cumulative paid accounts, continued increase in ARPU of retail subscriptions, and cost optimizations.

Products gross profit decreased by $8.1 million for the three months ended March 30, 2025, compared to the prior year period, primarily driven by a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and subscriber growth and an increase in product costs as a result of higher inventory valuation adjustments.

Operating Expenses

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We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

Research and development expense $ 16,165 (22.3) % $ 20,793

Research and development expense increased by $0.7 million for the three months ended September 29, 2024 compared to the prior year period, primarily due to an increase of $1.1 million in personnel-related expenses mainly from stock-based compensation and merit increases, partially offset by a decrease of $0.3 million in corporate IT and facilities overhead.

Research and development expense increased by $5.7 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to increases of $5.0 million in personnel-related expenses mainly from stock-based compensation and merit increases, and $0.6 million in professional services.

Research and development expense decreased by $4.6 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to decreases of $2.0 million in professional service and $1.4 million in personnel-related expenses mainly as certain software development costs meet the criteria for capitalization, and $1.2 million in IT and facilities overhead related to allocation associated with corporate infrastructure.

The decrease in research and development expense is partially offset by the increase in personnel-related expenses as a result of the headcount increase.

Sales and Marketing

Sales and marketing expense consists primarily of personnel expense for sales and marketing staff, technical support expense, advertising, trade shows, media and placement, corporate communications and other marketing expense, product marketing expense, allocated IT and facilities overhead, outbound freight costs, and credit card processing fees.

We expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services.

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

We expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our subscriptions and services and device products.

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

Sales and marketing expense $ 20,203 16.3 % $ 17,370

Sales and marketing expense increased by $2.0 million for the three months ended September 29, 2024 compared to the prior year period, primarily due to increases of $1.6 million in marketing expenditures, $0.5 million in personnel-related expenses mainly from stock-based compensation and merit increases, $0.3 million in professional services as a result of continued investment in customer experience improvements across customer care and engineering, and $0.3 million in credit card processing fees as a result of increases in paid subscriber accounts, partially offset by a decrease of $0.6 million in freight-out expenses.

Sales and marketing expense increased by $4.8 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to increases of $2.1 million in personnel-related expenses mainly from stock-based compensation and merit increases, $2.0 million in marketing expenditures, $1.1 million in professional services as a result

of continued investment in customer experience improvements across customer care and engineering, and $0.8 million in credit card processing fees as a result of increases in paid subscriber accounts, partially offset by a decrease of $1.1 million in freight-out expenses.

Sales and marketing expense increased by $2.8 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to increases of $1.7 million in credit card and in-app processing fees as a result of increases in paid subscriber accounts and focused efforts to improve our customer’s app experience, $0.8 million in personnel-related expenses mainly from stock-based compensation and merit increases, and $0.6 million in marketing expenditures, partially offset by a decrease of $0.4 million in freight-out expenses.

General and Administrative

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We expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense.

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

General and administrative expense $ 17,785 (8.1) % $ 19,348

General and administrative expense increased by $4.6 million for the three months ended September 29, 2024 compared to the prior year period, primarily due to increases of $3.9 million in personnel-related expenses mainly from stock-based compensation and merit increases, and $0.5 million in legal and other professional services.

General and administrative expense increased by $14.7 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to increases of $11.1 million in personnel-related expenses mainly from stock-based compensation due to the achievement of certain performance-based equity awards target and $3.3 million in legal and professional services.

Others include restructuring charges, which consist of severance costs, office exit expense, and other exit expense associated with the abandonment of certain lease contracts and cancellation of contractual services arrangements with certain suppliers.

Others also include the write-off of deferred financing and separation related expenses, which consist primarily of costs of legal and professional services.

Interest Income, Net and Other Income (Loss), Net

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

General and administrative expense decreased by $1.6 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to decreases of $1.0 million in personnel-related expenses mainly from stock-based compensation and $0.7 million in legal and professional services.

Other operating expenses

Other operating expenses include restructuring charges, which consist primarily of severance costs, and separation expenses, which consist primarily of costs of legal and professional services.

Interest Income, Net and Other Non-Operating Expense, Net

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

1 unchanged sentence

$ 1,316 (5.1) % $ 1,386

Other income (loss), net $ (57) ** $ 10 (100) ** 23

Other non-operating expense, net $ (198) ** $ (25)

**Percentage change not meaningful.

Interest income, net increased for the three and nine months ended September 29, 2024 compared to the prior year periods, primarily due to the increase in our cash and cash equivalents and short-term investments as well as higher interest rates.

Interest income, net slightly decreased for the three months ended March 30, 2025 compared to the prior year, primarily due to the lower interest rates coupled with the decrease in our cash equivalents and short-term investments as we repurchased our common stock and made an investment in a strategic partner.

Provision for Income Taxes

Three Months Ended Nine Months Ended

September 29,

2024 % Change October 1,

2023 September 29,

2024 % Change October 1,

Three Months Ended

2025 % Change March 31,

(In thousands, except percentage data)

1 unchanged sentence

Effective tax rate (150.8) % (4.3) %

The effective tax rate for the three and nine months ended September 29, 2024 was lower than the U.S.

The effective tax rate for the three months ended March 30, 2025 was lower than the U.S.

federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S.

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Liquidity and Capital Resources

As of September 29, 2024, our cash and cash equivalents and short-term investments totaled $146.6 million.

As of March 30, 2025, our cash and cash equivalents and short-term investments totaled $153.1 million and the unused borrowing capacity of $45.0 million based on the terms and conditions of the Credit Agreement.

The proceeds of the borrowings under this credit facility may be used for working capital and general corporate purposes.

We have a history of losses and may incur operating and net losses in the future.

As of September 29, 2024, our accumulated deficit was $393.1 million.

As of March 30, 2025, our accumulated deficit was $398.8 million.

Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.

Our current revolving credit facility with Bank of America, N.A.

matured on October 27, 2024.

We are in the final stage of entering into a new credit agreement and a security agreement with HSBC Bank USA, N.A, for a three-year revolving credit facility of $45.0 million with an uncommitted accordion feature of $30.0 million.

Material Cash Requirements

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We have no commitments to obtain such additional financing and cannot provide assurance that additional financing will be available at all or, if available, that such financing would be obtainable on terms favorable to us and would not be dilutive.

Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures.

Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our subscription and service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures.

As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we may increase our product and subscription rates in the future.

Leases and Contractual Commitments

Our operating lease obligations mostly include offices, equipment, and distribution centers.

Our operating lease obligations mostly include offices, equipment, data centers, and distribution centers.

Our contractual commitments are primarily inventory-related purchase obligations with suppliers.

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Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report for further information about our operating leases, purchase obligations, and legal contingencies.

Nine Months Ended

September 29,

2024 October 1,

Stock Repurchase Program

Our Board of Directors authorized a stock repurchase program of up to an aggregate of $50.0 million of shares, which commenced in September 2024 and is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors.

During the three months ended March 30, 2025, we repurchased and subsequently retired 1.4 million shares of Arlo common stock for an aggregate amount of $15.2 million.

As of March 30, 2025, $30.3 million remained available and authorized for future repurchases.

Three Months Ended

2025 March 31,

(In thousands)

1 unchanged sentence

$ 30,919 $ 19,806

Net cash provided by (used in) investing activities

11,229 (46,094)

Net cash used in investing activities (14,352) (440)

Net cash used in financing activities (14,590) (13,782)

Net cash increase (decrease)

Net cash increase

$ 1,977 $ 5,584

Operating activities

Net cash provided by operating activities increased by $14.3 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to favorable working capital movements as the results of (i) higher accounts payable balances mainly due to timing of the payments and increased marketing expenditures for new products launch and upcoming holiday sales;

and (ii) higher accounts receivable balances due to the growth of sales, offset by increased inventory purchases.

Net cash provided by operating activities increased by $11.1 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to improved profitability coupled with favorable working capital movements as the results of (i) increase in deferred revenue due to the growth in our subscription paid accounts and rates;

and (ii) higher accounts receivable collections due to our continued efforts in collections and effective account management;

partially offset by decreased accounts payable balances mainly due to timing of payments.

Investing activities

Net cash provided by (used in) investing activities increased by $57.3 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to higher proceeds from maturities of short-term investments.

Net cash used in investing activities increased by $13.9 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to our strategic long-term investment in a privately-held company, partially offset by higher proceeds from maturities of short-term investments.

Financing activities

Net cash used in financing activities increased by $18.6 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to the increase in withholding tax from RSU releases, offset by higher proceeds related to employee benefit plans.

Net cash used in financing activities increased by $0.8 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to the repurchases of common stock, offset by the decrease in withholding tax from RSU releases as a result of the sell-to-cover method applied to all Arlo employees for their tax withholding effective on January 1, 2025.

Critical Accounting Policies and Estimates

For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2024.

There have been no material changes to our critical accounting policies and estimates during the nine months ended September 29, 2024, other than as discussed in Note 2.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 30, 2025, other than as discussed in Note 2.

Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report.

Quantitative and Qualitative Disclosures About Market Risk

During the nine months ended September 29, 2024, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2023.

During the three months ended March 30, 2025, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2024.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis