What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-07 · 101 added, 71 removed, 193 unchanged (47% of the section changed)

17 unchanged sentences

Since the launch of our first product in December 2014, we have shipped over 45.6 million smart security devices.

As of March 29, 2026, the Arlo platform had approximately 13.1 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 6.0 million cumulative paid accounts and annual recurring revenue (“ARR”) of $356.9 million.

As of June 28, 2026, the Arlo platform had approximately 13.6 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 6.3 million cumulative paid accounts and annual recurring revenue (“ARR”) of $365.0 million.

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

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

For the three months ended March 29, 2026 and March 30, 2025, we generated total revenue of $150.4 million and $119.1 million, respectively, and income (loss) from operations was $7.6 million and $(1.5) million, respectively.

For the three months ended June 28, 2026 and June 29, 2025, we generated total revenue of $155.9 million and $129.4 million, respectively, and income from operations was $2.5 million and $1.9 million, respectively.

For the six months ended June 28, 2026 and June 29, 2025, we generated total revenue of $306.3 million and $248.5 million, respectively, and income from operations was $10.0 million and $0.5 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 and other strategic 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.

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.

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

2026 % Change March 30,

2026 % Change June 29,

(In thousands, except percentage data)

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government has implemented tariff measures affecting a broad range of imported materials, and these measures have been subject to change.

While we are actively monitoring the changes in global trade policy and the effects they may have on our business and broader macroeconomic environment, we have not experienced a material impact on our financial position to date and do not expect them to have a material detrimental impact on our business operations in the near term.

While we are actively monitoring the changes in global trade policy and the effects they may have on our business and broader macroeconomic environment, we do not expect them to have a material detrimental impact on our business operations in the near term.

However, given the uncertainty surrounding global markets as a result of the fluid U.S.

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

Three Months Ended

2026 March 30,

Three Months Ended Six Months Ended

2026 June 29,

2025 June 28,

2026 June 29,

(In thousands, except percentage data)

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Total operating expenses 72,760 46.6 % 56,142 43.4 % 137,870 45.0 % 110,320 44.4 %

Income (loss) from operations 7,558 5.0 % (1,451) (1.2) %

Income from operations 2,456 1.6 % 1,933 1.5 % 10,014 3.3 % 482 0.2 %

Other income, net:

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Total other income, net 1,004 0.6 % 937 0.7 % 8,738 2.8 % 2,055 0.8 %

Income (loss) before income taxes 15,292 10.2 % (333) (0.3) %

Provision for income taxes 415 0.3 % 502 0.4 %

Net income (loss) $ 14,877 9.9 % $ (835) (0.7) %

Income before income taxes 3,460 2.2 % 2,870 2.2 % 18,752 6.1 % 2,537 1.0 %

Provision (benefit) for income taxes 432 0.3 % (254) (0.2) % 847 0.3 % 248 0.1 %

Net income $ 3,028 1.9 % $ 3,124 2.4 % $ 17,905 5.8 % $ 2,289 0.9 %

Our gross revenue consists primarily of paid subscriptions and services revenue and sales of devices.

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

Three Months Ended

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

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Revenue by classification is as follows:

Three Months Ended

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

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Total revenue $ 155,937 20.5 % $ 129,405 $ 306,319 23.3 % $ 248,471

Subscriptions and services revenue increased by $21.3 million or 30.9%, for the three months ended March 29, 2026 compared to the prior year period, primarily due to a 22.6% increase in cumulative paid accounts and continued increase in average revenue per user (“ARPU”) on retail and direct paid subscription services driven by higher volume of annual plan renewals.

Products revenue increased by $10.1 million or 20.0%, for the three months ended March 29, 2026 compared to the prior year period, primarily due to the increase in product shipments to our largest customer in EMEA due to stronger customer demand coupled with lower sales incentives and sales returns on retail that are both deemed to be reductions of revenue.

The increase was partially offset by a reduction in average selling prices (“ASPs”) of our products in retail channels as we continue promotional activities to stimulate household acquisition and subscriber growth.

Subscriptions and services revenue increased by $14.9 million or 19.0%, and $36.1 million or 24.6%, for the three and six months ended June 28, 2026, respectively, compared with the prior year periods.

The increases were primarily driven by a 23.2% increase in cumulative paid accounts and the growth in average revenue per user (“ARPU”) on retail and direct paid subscription services, reflecting a higher volume of annual plan renewals.

Products revenue increased by $11.7 million or 22.8%, and $21.7 million or 21.4%, for the three and six months ended June 28, 2026, respectively, compared with the prior year periods.

The increases were primarily driven by higher product shipments to our largest customer in EMEA, reflecting stronger customer demand, as well as lower sales incentives and sales returns in retail channels, both of which are recorded as reductions of revenue.

These increases were partially offset by lower average selling prices (“ASPs”) for our products sold through retail channels as we continued promotional activities to stimulate household acquisition and subscriber growth.

Cost of Revenue

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Products cost primarily consists of the cost of finished products from our third-party manufacturers and overhead costs, including personnel expense for operations staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, duty and tariff costs, 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.

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, duty and tariff costs, and charges for excess or obsolete inventory.

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, duty and tariff costs, and charges for excess or obsolete inventory.

We outsource our manufacturing, warehousing, and distribution logistics.

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manufacturers, our ability to manage product costs through this strategy has been, and may continue to be, negatively impacted by tariffs.

Three Months Ended

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

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Total cost of revenue $ 80,721 13.2 % $ 71,330 $ 158,435 15.1 % $ 137,669

Subscriptions and services cost of revenue increased by 19.7% for the three months ended March 29, 2026, compared to the prior year period, primarily due to subscriptions and services revenue growth, partially offset by cost savings as we optimize our cloud platform to improve customer experience which assists in reduced data storage and cloud compute costs.

Products cost of revenue increased by 16.6% for the three months ended March 29, 2026, compared to the prior year period, primarily due to the increase in product shipments, partially offset by decreases in product warranty and inventory reserves, as well as the decrease in freight-in costs as a result of the utilization of ocean freight.

Three Months Ended

2026 % Change March 30,

Subscriptions and services cost of revenue increased by 43.7% and 31.7% for the three and six months ended June 28, 2026, respectively, compared with the prior year periods.

The increases were primarily driven by growth in subscriptions and services revenue and continued investments in platform services to support subscription-based business growth and improve customer experience.

Products cost of revenue increased by 6.8% and 11.5% for the three and six months ended June 28, 2026, respectively, compared with the prior year periods, The increases were primarily driven by higher product shipments and partially offset by an $8.0 million tariff refund recorded as a reduction of cost of revenue and coupled with lower freight-in costs resulting from increased use of ocean freight.

For the six months ended June 28, 2026, the increase was also partially offset by lower product warranty and inventory reserves.

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

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Total gross margin 48.2 % 44.9 % 48.3 % 44.6 %

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**Percentage change not meaningful.

Subscriptions and services gross profit increased by $18.8 million for the three months ended March 29, 2026, compared to the prior year period, primarily due to subscriptions and services revenue growth as a result of increases in cumulative paid accounts, continued increase in ARPU on retail subscriptions, and cost optimizations.

Products gross profit improved by $1.1 million for the three months ended March 29, 2026, compared to the prior year period, primarily driven by lower product warranty and inventory reserves, as well as the decrease in freight-in costs due to the utilization of ocean freight.

The improvement was partially offset by a reduction in the ASPs of our products in retail channel as we continue promotional activities to stimulate household acquisition and subscriber growth.

Subscriptions and services gross profit increased by $9.5 million and $28.4 million for the three and six months ended June 28, 2026, respectively, compared with the prior year periods.

The increases were primarily driven by growth in

subscriptions and services revenue, partially offset by higher subscriptions and services cost of revenue as we continued investing in platform services to support subscription-based business growth and improve customer experience.

Products gross profit increased by $7.6 million and $8.7 million for the three and six months ended June 28, 2026, respectively, compared with the prior year periods.

The increases were primarily driven by the $8.0 million tariff refund recorded as a reduction of cost of revenue, lower freight-in costs resulting from increased use of ocean freight, and lower product warranty and inventory reserves.

These increases were partially offset by lower ASPs for our products sold through retail channels as we continued promotional activities to stimulate household acquisition and subscriber growth.

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

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

Research and development expense $ 23,658 28.0 % $ 18,489 $ 46,472 34.1 % $ 34,654

Research and development expense increased by $6.6 million for the three months ended March 29, 2026, compared to the prior year period, primarily due to increases of $3.3 million in stock-based compensation as a result of the increase in our stock price;

$2.5 million in payroll-related compensation as a result of headcount increases;

and $0.5 million in outside professional services as we continued our investment in platform services.

Research and development expense increased by $5.2 million for the three months ended June 28, 2026 compared to the prior year period, primarily due to increases of $2.2 million in stock-based compensation and $1.0 million in payroll-related compensation, driven by headcount growth, as well as a $1.6 million increase in outside professional services as we continued to invest in platform services to support our subscription business.

Research and development expense increased by $11.8 million for the six months ended June 28, 2026 compared to the prior year period, primarily due to increases of $5.5 million in stock-based compensation and $3.5 million in payroll-related compensation, driven by headcount growth, as well as a $2.3 million increase in outside professional services as we continued to invest in platform services to support our subscription business.

Sales and Marketing

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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 devices.

Three Months Ended

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

Sales and marketing expense $ 24,085 14.1 % $ 21,103 $ 46,739 13.2 % $ 41,306

Sales and marketing expense increased by $2.5 million for the three months ended March 29, 2026, compared to the prior year period, primarily due to increases of $1.2 million in credit card and in-app processing fees as a result of the increase in paid accounts and focused efforts to improve our customer’s app experience;

$0.9 million in marketing expenditures;

and $0.2 million in professional services as we continued our investment in our customer experience improvement.

Sales and marketing expense increased by $3.0 million for the three months ended June 28, 2026 compared to the prior year period, primarily due to increases of $0.8 million in stock-based compensation and $0.7 million in payroll-related compensation, driven by headcount growth, as well as increases of $0.6 million in marketing expenditures and $0.4 million in professional services as we continued to invest in customer experience improvements.

Sales and marketing expense increased by $5.4 million for the six months ended June 28, 2026 compared to the prior year period, primarily due to increases of $1.5 million in marketing expenditures;

$1.2 million in credit card and in-app processing fees, driven by an increase in paid accounts and focused efforts to improve the customer app experience;

$0.9 million in stock-based compensation and $0.7 million in payroll-related compensation, driven by headcount growth;

and $0.7 million in professional services as we continued to invest in customer experience improvements.

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

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

General and administrative expense $ 23,128 41.6 % $ 16,334 $ 41,335 21.1 % $ 34,119

General and administrative expense increased by $0.4 million for the three months ended March 29, 2026, compared to the prior year period, primarily due to an increase of $2.0 million in legal professional services.

The increase was partially offset by decreases of $0.8 million in payroll-related compensation as a result of headcount decreases and $0.6 million in IT and facilities overhead related to allocation associated with corporate infrastructure.

General and administrative expense increased by $6.8 million for the three months ended June 28, 2026 compared to the prior year period, primarily due to increases of $3.4 million in stock-based compensation and $0.8 million in payroll-related compensation, driven by headcount growth, as well as a $2.4 million increase in legal professional services.

General and administrative expense increased by $7.2 million for the six months ended June 28, 2026 compared to the prior year period, primarily due to increases of $2.5 million in stock-based compensation and $1.0 million in payroll-related compensation, driven by headcount growth, as well as a $4.4 million increase in legal professional services.

The increase was partially offset by a $0.5 million decrease in IT and facilities overhead related to allocations associated with corporate infrastructure.

Other operating expenses

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Other Income, Net

Three Months Ended

2026 % Change March 30,

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

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** Percentage change not meaningful.

During the three months ended March 29, 2026, we sold our strategic long-term investment.

During the first fiscal quarter of 2026, we sold our strategic long-term investment.

Upon completion of the sale, we received total cash proceeds of $18.9 million and recognized a realized gain of $6.4 million, representing the excess of proceeds received over the carrying value of the investment.

Interest income, net slightly decreased for the three months ended March 29, 2026 compared to the prior year period, primarily due to the declines in interest rates.

Provision for Income Taxes

Three Months Ended

2026 % Change March 30,

Interest income, net slightly decreased for the three and six months ended June 28, 2026 compared to the prior year periods, primarily due to the decline in interest rates.

Provision (Benefit) for Income Taxes

Three Months Ended Six Months Ended

2026 % Change June 29,

2025 June 28,

2026 % Change June 29,

(In thousands, except percentage data)

Provision for income taxes $ 415 (17.3) % $ 502

Provision (benefit) for income taxes $ 432 (270.1) % $ (254) $ 847 241.5 % $ 248

Effective tax rate 12.5 % (8.9) % 4.5 % 9.8 %

Provision for income taxes decreased for the three months ended March 29, 2026, compared to the prior year period, primarily due to the elimination of the mandatory capitalization of research and development expenses, resulting in higher current deductions, lower taxable income and a reduced income tax provision.

The higher effective tax rate for the three months ended March 29, 2026, compared to the U.S.

federal income tax rate, is primarily driven by the shift from a relatively small pre-tax loss in the prior year period to a larger pre-tax profit in the current period.

Provision (benefit) for income taxes increased for the three and six months ended June 28, 2026 compared to the prior year periods, primarily due to higher pre-tax income in the current periods and the prior year three-month period’s income tax benefit.

The effective tax rate for the six months ended June 28, 2026 was lower than the U.S.

federal income tax rate primarily due to earnings generated in lower-tax foreign jurisdictions and the continued impact of valuation allowances recorded against substantially all of our U.S.

deferred tax assets and certain foreign tax attributes.

Although we have recently generated cumulative pre-tax income, we determined that we have not yet demonstrated a sustained level of profitability sufficient to support realization of the deferred tax assets.

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Based on the totality of evidence, we concluded that it is not more-likely-than-not that the deferred tax assets will be realized.

Accordingly, a full valuation allowance has been maintained as of March 29, 2026.

Accordingly, a full valuation allowance has been maintained as of June 28, 2026.

There is a reasonable possibility that within the next few quarters, sufficient positive evidence will become available to reach a conclusion that all or a significant portion of the valuation allowance against our U.S.

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Liquidity and Capital Resources

As of March 29, 2026, our cash and cash equivalents and short-term investments totaled $167.5 million and our unused borrowing capacity was $45.0 million based on the terms and conditions of the Credit Agreement.

As of June 28, 2026, our cash and cash equivalents and short-term investments totaled $141.1 million and our unused borrowing capacity was $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 March 29, 2026, our accumulated deficit was $368.2 million.

As of June 28, 2026, our accumulated deficit was $365.1 million.

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

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On February 3, 2026, our Board of Directors authorized a stock repurchase program of up to an aggregate of $50.0 million of shares, which commenced in March 2026 and is expected to continue through December 31, 2027 unless extended or shortened by the Board of Directors.

During the three months ended March 29, 2026, we repurchased and subsequently retired 0.6 million shares of Arlo common stock for an aggregate repurchase of $8.0 million.

As of March 29, 2026, $42.0 million remained available and authorized for future repurchases.

During the six months ended June 28, 2026, we repurchased and subsequently retired 2.3 million shares of Arlo common stock for an aggregate repurchase of $29.9 million.

As of June 28, 2026, $20.1 million remained available and authorized for future repurchases.

The following table presents our cash flows for the periods presented.

Three Months Ended

2026 March 30,

Six Months Ended

2026 June 29,

(In thousands)

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Operating activities

Net cash provided by operating activities decreased by $3.1 million for the three months ended March 29, 2026 compared to the prior year period, primarily due to unfavorable working capital movements of (i) higher accounts receivable balance primarily due to strong product sales;

(ii) higher inventory purchases;

and (iii) increases in deferred revenue due to the growth in our paid accounts and subscription rates;

partially offset by the increase in accounts payable balances mainly due to timing of payments;

partially offset by improved profitability.

Net cash provided by operating activities decreased by $0.5 million for the six months ended June 28, 2026 compared with the prior year period.

The decrease was primarily driven by improved profitability offset by unfavorable working capital movements, including higher accounts receivable balances resulting from strong product sales and higher inventory purchases, which were partially offset by an increase in accounts payable balances, primarily due to the timing of payments.

Investing activities

Net cash used in investing activities was flat for the three months ended March 29, 2026 compared to the prior year period, primarily due to the payment for business combination offset by proceeds from the sale of our strategic investment and higher net proceeds from our available-for-sale securities investment.

Net cash used in investing activities increased by $17.4 million for the six months ended June 28, 2026 compared with the prior year period.

The increase was primarily attributable to cash paid for business acquisitions and lower net proceeds from available-for-sale securities, partially offset by proceeds from the sale of a strategic investment.

Financing activities

Net cash used in financing activities decreased by $7.3 million for the three months ended March 29, 2026 compared to the prior year period, primarily due to lower stock repurchases offset by lower proceeds from employee stock plans.

Net cash used in financing activities increased by $14.5 million for the six months ended June 28, 2026 compared with the prior year period, primarily due to higher repurchases of common stock.

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, 2025.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 29, 2026, other than as discussed in Note 2.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 28, 2026, 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 three months ended March 29, 2026, 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, 2025.

During the six months ended June 28, 2026, 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, 2025.

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