Business Wire | Nov 5, 2020 04:06PM EST

Arlo Reports Third Quarter 2020 Results

Nov. 05, 2020

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov. 05, 2020--Arlo Technologies, Inc. (NYSE: ARLO), a leading internet-connected security camera brand, today reported financial results for the third quarter ended September 27, 2020.

Financial Highlights (1)

* Revenue of $110.2 million, an increase of 3.9% year over year. * GAAP gross profit $21.4 million, an increase of 104% year over year; non-GAAP gross profit $22.7 million, an increase of 100% year over year. * GAAP gross margin of 19.4%; non-GAAP gross margin of 20.6%. * GAAP net loss per diluted share of $(0.22); non-GAAP net loss per diluted share of $(0.10). * Cash, cash equivalents and short-term investments of $193.6 million and no debt at the end of Q3.

"The Arlo team delivered another strong quarter that exceeded our guidance in every measure. Paid account growth and strong performance from our European partner, Verisure, helped contribute to revenue coming in at $110.2 million for a growth rate of 65% sequentially and 4% year over year. We also made considerable progress on gross margins - both product and service - and maintained our operating discipline to improve our non-GAAP net loss by $16.3 million year over year," said Matthew McRae, Chief Executive Officer of Arlo Technologies. "In our most prolific new product quarter ever, we added four new cameras to our line up and entered a large and fast-growing market with our wire-free video doorbell. All of these new products are on our new business model, a free, 90-day trial of Arlo Smart, and should add to our service revenue growth. Fueled by our robust innovation and new business model, the third quarter marks another example of the progress Arlo is making in the business."

Three Months Ended Nine Months Ended

September June 28, September September September 27, 2020 29, 27, 29, 2020 2019 2020 2019

(in thousands, except percentage and per share data)

Revenue $ 110,236 $ 66,632 $ 106,116 $ 242,318 $ 247,594

GAAP Gross Margin 19.4 % 8.2 % 9.9 % 12.7 % 8.9 %

Non-GAAP Gross Margin ^ 20.6 % 9.6 % 10.7 % 14.0 % 9.9 %(1)

GAAP Net Income (Loss) $ (0.22 ) $ (0.38 ) $ (0.41 ) $ (1.11 ) $ (1.41 )per Diluted Share

Non-GAAP Net Income(Loss) per Diluted Share $ (0.10 ) $ (0.31 ) $ (0.32 ) $ (0.74 ) $ (1.15 )^(1)

_________________________

^(1) Reconciliation of financial measures computed on a GAAP basis to financialmeasures computed on a non-GAAP basis are provided at the end of this pressrelease.

Business Highlights

* Added a record 58,000 paid accounts in Q3, a sequential increase of 35% over Q2. * Cash, cash equivalents, and short-term investments balance of $193.6 million and no debt at the end of Q3. * 68.7% year over year paid account growth in Q3. * Service revenue of $19.0 million for Q3, for growth of 60.6% year over year. * Announced the all new Arlo Essential Wire-Free Doorbell which brings the same award-winning features of the Wired Video Doorbell in a wire-free and battery-powered design, with industry-leading 180-degree viewing angle, high-definition video, two-way audio, and the ability to connect directly to Wi-Fi. The Essential Wire-Free Doorbell also includes a three-month subscription to Arlo Smart. * Expanded the Arlo Essential product family with the addition of the Essential XL Spotlight Camera and the Essential. The Essential XL Spotlight sports all Essential Spotlight's great features and adds an incredible 12 months of battery life while the Essential is a simplified version targeted to price-sensitive consumers. These cameras also include a three-month subscription to Arlo Smart. * Upgraded the Arlo award-winning Pro and Ultra product families with the Pro 4 and the Ultra 2 Wire-Free Spotlight Cameras. These additions bring all the great features of the original Ultra and Pro 3, with new features and improved performance. The Pro 4 and Ultra 2 are also paired with a three-month subscription to Arlo Smart.

Fourth Quarter 2020 Business Outlook (2)

* Revenue of $105.0 million to $115.0 million. * GAAP net loss per diluted share of $(0.36) to $(0.26), and non-GAAP net loss per diluted share of $(0.26) to $(0.16).

A reconciliation of our business outlook on a GAAP and non-GAAP basis is provided in the following table:

Three Months Ending December 31, 2020

Revenue Net Loss per Diluted Share

(in millions, except per share data)

GAAP $105.0 - $115.0 $(0.36) - $(0.26)

Estimated adjustments for ^(1):

Stock-based compensation - 0.10expense

Tax effects of non-GAAP - -adjustments

Non-GAAP $105.0 - $115.0 $(0.26) - $(0.16)

_________________________

^(1) Business outlook does not include estimates for any currently unknownincome and expense items which, by their nature, could arise late in a quarter,including: litigation reserves, net; acquisition-related charges; impairmentcharges; discrete tax benefits or detriments relating to tax windfalls orshortfalls from equity awards; and any additional impacts relating to theimplementation of U.S. tax reform. New material income and expense items suchas these could have a significant effect on our guidance and future results.

Investor Conference Call / Webcast Details

Arlo will review the third quarter of 2020 results and discuss management's expectations for the fourth quarter of 2020 today, Thursday, November 5, 2020 at 5:00 p.m. ET (2:00 p.m. PT). The toll-free dial-in number for the live audio call is (866) 393-4306. The international dial-in number for the live audio call is (734) 385-2616. The conference ID for the call is 3079383. A live webcast of the conference call will be available on Arlo's Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.

About Arlo Technologies, Inc.

Arlo (NYSE: ARLO) is the award-winning, industry leader that is transforming the way people experience the connected lifestyle. Arlo's deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. Arlo's 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. To date, Arlo has launched several categories of award-winning smart connected devices, including wire-free smart Wi-Fi and LTE-enabled cameras, video doorbells and floodlight cameras.

With a mission to bring users peace of mind, Arlo is as passionate about protecting user privacy as it is about safeguarding homes and families. Arlo is committed to supporting industry standards for data protection designed to keep users' personal information private and in their control. Arlo does not monetize personal data, provides enhanced controls for user data, supports privacy legislation, keeps user data safely secure, and puts security at the forefront of company culture.

(c) 2020 Arlo Technologies, Inc., Arlo and the Arlo logo are trademarks and/or registered trademarks of Arlo Technologies, Inc. and/or certain of its affiliates in the United States and/or other countries. Other brand and product names are for identification purposes only and may be trademarks or registered trademarks of their respective holder(s). The information contained herein is subject to change without notice. Arlo shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate," "expect," "believe," "will," "may," "should," "estimate," "project," "outlook," "forecast" or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.'s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: Arlo's future operating performance and financial condition, expected revenue, GAAP and non-GAAP gross margins, operating margins, and tax expense; expectations regarding market expansion and future growth; plans to invest in product innovation; Arlo's future product offerings; and the quote from Arlo's Chief Executive Officer. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may incur additional costs and charges associated with the transactions contemplated by the Verisure partnership; the Company may not receive the minimum commitment amounts from Verisure; the COVID-19 pandemic could have an adverse impact on the Company's business, operations and the markets and communities in which Arlo and its partners and customers operate; the Company may fail to successfully continue to effect operating expense savings; changes in the level of Arlo's cash resources and the Company's planned usage of such resources; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; the actions and financial health of the Company's customers; the anticipated financial capacity under Arlo's revolving credit line may not be available when expected, or at all; and the Company may not be able to carry out its restructuring plan. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect Arlo and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Part II - Item 1A. Risk Factors," in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2020, filed with the Securities and Exchange Commission on August 6, 2020 and other periodic filings with the Securities and Exchange Commission. Given these circumstances, you should not place undue reliance on these forward-looking statements. Arlo undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

To supplement our unaudited selected financial data presented on a basis consistent with U.S. Generally Accepted Accounting Principles ("GAAP"), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP total operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP provision for income taxes, non-GAAP net income (loss) and non-GAAP net income (loss) per diluted share. These supplemental measures exclude adjustments for separation expense, stock-based compensation expense, amortization of intangibles, activist shareholder response costs, restructuring and other charges, strategic initiative and transaction expenses, gain on sale of business, litigation reserves, and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP measures, provide useful information to investors by offering:

- the ability to make more meaningful period-to-period comparisons of our on-going operating results;

- the ability to better identify trends in our underlying business and perform related trend analyses;

- a better understanding of how management plans and measures our underlying business; and

- an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:

Separation expense consists of expenses that are related to the separation of our business from NETGEAR. These consist primarily of third-party consulting fees, legal fees, IT costs, employee bonuses for services related to the separation, and other one-time expenses incurred to complete the separation. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, performance-based stock options, restricted stock units and shares under the employee stock purchase plan granted to employees. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.

Amortization of intangibles consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to an assessment of our internal operations and comparisons to our prior and future periods and to the performance of our competitors.

Activist shareholder response costs primarily consist of legal fees and third-party consulting costs incurred. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Strategic initiative and transaction expenses consist of legal fees associated with the strategic review of the Company and legal fees, accounting fees and other one-time costs incurred to complete the Verisure transaction. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Gain on sale of business represents gain from sale of the Company's commercial operations in Europe. We consider our operating results without this gain when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such gain when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding the gain is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Other items are the result of either unique or unplanned events, including, when applicable: restructuring and other charges and litigation reserves, net. It is difficult to predict the occurrence or estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. The amounts result from events that often arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Therefore, the amounts do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred.

Tax effects consist of the various above adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. We also believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures provides our management and users of the financial statements with better clarity regarding the on-going performance of our business.

Source: Arlo-F

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of

September December 27, 31, 2020 2019

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents $ 173,619 $ 236,680

Short-term investments 19,992 19,990

Accounts receivable, net 56,431 127,317

Inventories 69,038 68,624

Prepaid expenses and other current assets 10,317 16,958

Total current assets 329,397 469,569

Property and equipment, net 16,832 21,352

Operating lease right-of-use assets, net 25,031 31,300

Intangibles, net 238 1,306

Goodwill 11,038 11,038

Restricted cash 4,147 4,139

Other non-current assets 2,216 4,008

Total assets $ 388,899 $ 542,712



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 74,727 $ 111,650

Deferred revenue 30,567 50,362

Accrued liabilities 106,027 127,400

Income tax payable 431 4,489

Total current liabilities 211,752 293,901

Non-current deferred revenue 7,963 15,736

Non-current operating lease liabilities 26,024 29,001

Non-current income taxes payable 92 92

Other non-current liabilities 1,261 606

Total liabilities 247,092 339,336

Stockholders' Equity:

Preferred stock: $0.001 par value; 50,000,000 shares - - authorized; none issued or outstanding

Common stock: $0.001 par value; 500,000,000 sharesauthorized; shares issued and outstanding: 79,026,508 79 76 at September 27, 2020 and 75,785,952 at December 31,2019

Additional paid-in capital 359,297 334,821

Accumulated other comprehensive income (9 ) (2 )

Accumulated deficit (217,560 ) (131,519 )

Total stockholders' equity 141,807 203,376

Total liabilities and stockholders' equity $ 388,899 $ 542,712

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

September 27,2020

June 28,2020

September 29,2019

September 27,2020

September 29,2019

(in thousands, except percentage and per share data)

Revenue:

Products

$

91,271

$

49,603

$

94,306

$

191,597

$

213,359

Services

18,965

17,029

11,810

50,721

34,235

Total revenue

110,236

66,632

106,116

242,318

247,594

Cost of revenue:

Products

79,107

51,186

88,755

182,481

206,878

Services

9,720

9,957

6,858

28,986

18,618

Total cost of revenue

88,827

61,143

95,613

211,467

225,496

Gross profit

21,409

5,489

10,503

30,851

22,098

Gross margin

19.4

%

8.2

%

9.9

%

12.7

%

8.9

%

Operating expenses:

Research and development

15,436

14,192

16,701

44,871

52,456

Sales and marketing

12,720

11,713

13,657

35,471

42,389

General and administrative

11,137

9,837

11,062

39,758

32,512

Separation expense

77

82

137

238

1,760

Gain on sale of business

-

-

-

(292

)

-

Total operating expenses

39,370

35,824

41,557

120,046

129,117

Loss from operations

(17,961

)

(30,335

)

(31,054

)

(89,195

)

(107,019

)

Operating margin

(16.3

)%

(45.5

)%

(29.3

)%

(36.8

)%

(43.2

)%

Interest income

74

151

596

760

2,170

Other income, net

543

1,111

154

2,837

138

Loss before income taxes

(17,344

)

(29,073

)

(30,304

)

(85,598

)

(104,711

)

Provision for income taxes

115

183

286

443

855

Net loss

$

(17,459

)

$

(29,256

)

$

(30,590

)

$

(86,041

)

$

(105,566

)

Net loss per share:

Basic

$

(0.22

)

$

(0.38

)

$

(0.41

)

$

(1.11

)

$

(1.41

)

Diluted

$

(0.22

)

$

(0.38

)

$

(0.41

)

$

(1.11

)

$

(1.41

)

Weighted average shares used to compute net loss per share:

Basic

78,662

77,885

75,337

77,705

74,831

Diluted

78,662

77,885

75,337

77,705

74,831

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

September June 28, September September September 27, 2020 29, 27, 29, 2020 2019 2020 2019

(in thousands, except percentage and per share data)

Revenue:

Products $ 91,271 $ 49,603 $ 94,306 $ 191,597 $ 213,359

Services 18,965 17,029 11,810 50,721 34,235

Total revenue 110,236 66,632 106,116 242,318 247,594

Cost of revenue:

Products 79,107 51,186 88,755 182,481 206,878

Services 9,720 9,957 6,858 28,986 18,618

Total cost of 88,827 61,143 95,613 211,467 225,496 revenue

Gross profit 21,409 5,489 10,503 30,851 22,098

Gross margin 19.4 % 8.2 % 9.9 % 12.7 % 8.9 %

Operating expenses:

Research and 15,436 14,192 16,701 44,871 52,456 development

Sales and 12,720 11,713 13,657 35,471 42,389 marketing

General and 11,137 9,837 11,062 39,758 32,512 administrative

Separation 77 82 137 238 1,760 expense

Gain on sale - - - (292 ) - of business

Totaloperating 39,370 35,824 41,557 120,046 129,117 expenses

Loss from (17,961 ) (30,335 ) (31,054 ) (89,195 ) (107,019 )operations

Operating (16.3 ) (45.5 ) (29.3 ) (36.8 ) (43.2 )margin % % % % %

Interest 74 151 596 760 2,170 income

Other income, 543 1,111 154 2,837 138 net

Loss before (17,344 ) (29,073 ) (30,304 ) (85,598 ) (104,711 )income taxes

Provision for 115 183 286 443 855 income taxes

Net loss $ (17,459 ) $ (29,256 ) $ (30,590 ) $ (86,041 ) $ (105,566 )

Net loss per share:

Basic $ (0.22 ) $ (0.38 ) $ (0.41 ) $ (1.11 ) $ (1.41 )

Diluted $ (0.22 ) $ (0.38 ) $ (0.41 ) $ (1.11 ) $ (1.41 )

Weightedaverage sharesused to compute netloss pershare:

Basic 78,662 77,885 75,337 77,705 74,831

Diluted 78,662 77,885 75,337 77,705 74,831

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 27,2020

September 29,2019

(In thousands)

Cash flows from operating activities:

Net loss

$

(86,041

)

$

(105,566

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

8,024

7,757

Loss on disposal of fixed assets

19

-

Stock-based compensation expense

26,338

15,261

Allowance for (release of) credit losses and inventory reserves

1,322

(3,232

)

Gain on sale of business

(292

)

-

Deferred income taxes

63

(109

)

Premium amortization (discount accretion) on investments, net

60

(391

)

Changes in assets and liabilities:

Accounts receivable, net

70,985

65,920

Inventories

(1,838

)

54,335

Prepaid expenses and other assets

8,369

(1,729

)

Accounts payable

(37,554

)

(24,381

)

Deferred revenue

(27,569

)

(1,996

)

Accrued and other liabilities

(21,203

)

(48,584

)

Net cash used in operating activities

(59,317

)

(42,715

)

Cash flows from investing activities:

Purchases of property and equipment

(2,070

)

(5,023

)

Purchases of short-term investments

(45,085

)

(29,768

)

Maturities of short-term investments

45,000

40,000

Net cash provided by (used in) investing activities

(2,155

)

5,209

Cash flows from financing activities:

Proceeds related to employee benefit plans

3,051

1,837

Restricted stock unit withholdings

(4,632

)

(1,755

)

Net cash provided by (used in) financing activities

(1,581

)

82

Net decrease in cash and cash equivalents and restricted cash

(63,053

)

(37,424

)

Cash and cash equivalents and restricted cash, at beginning of period

240,819

155,424

Cash and cash equivalents and restricted cash, at end of period

$

177,766

$

118,000

Non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable and accrued liabilities

$

1,470

$

1,578

De-recognition of build-to-suit assets and liabilities

$

-

$

(21,610

)

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September September 27, 29, 2020 2019

(In thousands)

Cash flows from operating activities:

Net loss $ (86,041 ) $ (105,566 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 8,024 7,757

Loss on disposal of fixed assets 19 -

Stock-based compensation expense 26,338 15,261

Allowance for (release of) credit losses and 1,322 (3,232 )inventory reserves

Gain on sale of business (292 ) -

Deferred income taxes 63 (109 )

Premium amortization (discount accretion) on 60 (391 )investments, net

Changes in assets and liabilities:

Accounts receivable, net 70,985 65,920

Inventories (1,838 ) 54,335

Prepaid expenses and other assets 8,369 (1,729 )

Accounts payable (37,554 ) (24,381 )

Deferred revenue (27,569 ) (1,996 )

Accrued and other liabilities (21,203 ) (48,584 )

Net cash used in operating activities (59,317 ) (42,715 )

Cash flows from investing activities:

Purchases of property and equipment (2,070 ) (5,023 )

Purchases of short-term investments (45,085 ) (29,768 )

Maturities of short-term investments 45,000 40,000

Net cash provided by (used in) investing activities (2,155 ) 5,209

Cash flows from financing activities:

Proceeds related to employee benefit plans 3,051 1,837

Restricted stock unit withholdings (4,632 ) (1,755 )

Net cash provided by (used in) financing activities (1,581 ) 82

Net decrease in cash and cash equivalents and (63,053 ) (37,424 )restricted cash

Cash and cash equivalents and restricted cash, at 240,819 155,424 beginning of period

Cash and cash equivalents and restricted cash, at $ 177,766 $ 118,000 end of period



Non-cash investing and financing activities:

Purchases of property and equipment included in $ 1,470 $ 1,578 accounts payable and accrued liabilities

De-recognition of build-to-suit assets and $ - $ (21,610 )liabilities

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

STATEMENT OF OPERATIONS DATA:

Three Months Ended

Nine Months Ended

September 27,2020

June 28,2020

September 29,2019

September 27,2020

September 29,2019

(in thousands, except percentage data)

GAAP gross profit

$

21,409

$

5,489

$

10,503

$

30,851

$

22,098

GAAP gross margin

19.4

%

8.2

%

9.9

%

12.7

%

8.9

%

Stock-based compensation expense

942

562

467

2,007

1,286

Amortization of intangibles

356

357

381

1,069

1,144

Restructuring and other charges

-

-

-

23

-

Non-GAAP gross profit

$

22,707

$

6,408

$

11,351

$

33,950

$

24,528

Non-GAAP gross margin

20.6

%

9.6

%

10.7

%

14.0

%

9.9

%

GAAP research and development

$

15,436

$

14,192

$

16,701

$

44,871

$

52,456

Stock-based compensation expense

(2,870

)

(1,729

)

(1,569

)

(6,259

)

(4,501

)

Non-GAAP research and development

$

12,566

$

12,463

$

15,132

$

38,612

$

47,955

GAAP sales and marketing

$

12,720

$

11,713

$

13,657

$

35,471

$

42,389

Stock-based compensation expense

(1,160

)

(984

)

(791

)

(2,895

)

(2,722

)

Non-GAAP sales and marketing

$

11,560

$

10,729

$

12,866

$

32,576

$

39,667

GAAP general and administrative

$

11,137

$

9,837

$

11,062

$

39,758

$

32,512

Stock-based compensation expense

(4,029

)

(1,289

)

(2,392

)

(15,177

)

(6,752

)

Restructuring and other charges

-

-

-

(21

)

-

Strategic initiative and transaction expenses

(17

)

(206

)

(502

)

(768

)

(502

)

Litigation reserves, net

-

(249

)

(140

)

(256

)

(140

)

Non-GAAP general and administrative

$

7,091

$

8,093

$

8,028

$

23,536

$

25,118

GAAP total operating expenses

$

39,370

$

35,824

$

41,557

$

120,046

$

129,117

Separation expense

(77

)

(82

)

(136

)

(238

)

(1,759

)

Strategic initiative and transaction expenses

(17

)

(206

)

(502

)

(768

)

(502

)

Stock-based compensation expense

(8,059

)

(4,002

)

(4,752

)

(24,331

)

(13,975

)

Restructuring and other charges

-

-

-

(21

)

-

Litigation reserves, net

-

(249

)

(140

)

(256

)

(140

)

Activist shareholder response costs

-

-

-

-

(237

)

Gain on sale of business

-

-

-

292

-

Non-GAAP total operating expenses

$

31,217

$

31,285

$

36,027

$

94,724

$

112,504

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

STATEMENT OF OPERATIONS DATA:



Three Months Ended Nine Months Ended

September June 28, September September September 27, 2020 29, 27, 29, 2020 2019 2020 2019

(in thousands, except percentage data)

GAAP gross $ 21,409 $ 5,489 $ 10,503 $ 30,851 $ 22,098 profit

GAAP gross 19.4 % 8.2 % 9.9 % 12.7 % 8.9 %margin

Stock-basedcompensation 942 562 467 2,007 1,286 expense

Amortization 356 357 381 1,069 1,144 of intangibles

Restructuringand other - - - 23 - charges

Non-GAAP gross $ 22,707 $ 6,408 $ 11,351 $ 33,950 $ 24,528 profit

Non-GAAP gross 20.6 % 9.6 % 10.7 % 14.0 % 9.9 %margin



GAAP researchand $ 15,436 $ 14,192 $ 16,701 $ 44,871 $ 52,456 development

Stock-basedcompensation (2,870 ) (1,729 ) (1,569 ) (6,259 ) (4,501 )expense

Non-GAAPresearch and $ 12,566 $ 12,463 $ 15,132 $ 38,612 $ 47,955 development



GAAP sales and $ 12,720 $ 11,713 $ 13,657 $ 35,471 $ 42,389 marketing

Stock-basedcompensation (1,160 ) (984 ) (791 ) (2,895 ) (2,722 )expense

Non-GAAP sales $ 11,560 $ 10,729 $ 12,866 $ 32,576 $ 39,667 and marketing



GAAP generaland $ 11,137 $ 9,837 $ 11,062 $ 39,758 $ 32,512 administrative

Stock-basedcompensation (4,029 ) (1,289 ) (2,392 ) (15,177 ) (6,752 )expense

Restructuringand other - - - (21 ) - charges

Strategicinitiative and (17 ) (206 ) (502 ) (768 ) (502 )transactionexpenses

Litigation - (249 ) (140 ) (256 ) (140 )reserves, net

Non-GAAPgeneral and $ 7,091 $ 8,093 $ 8,028 $ 23,536 $ 25,118 administrative



GAAP totaloperating $ 39,370 $ 35,824 $ 41,557 $ 120,046 $ 129,117 expenses

Separation (77 ) (82 ) (136 ) (238 ) (1,759 )expense

Strategicinitiative and (17 ) (206 ) (502 ) (768 ) (502 )transactionexpenses

Stock-basedcompensation (8,059 ) (4,002 ) (4,752 ) (24,331 ) (13,975 )expense

Restructuringand other - - - (21 ) - charges

Litigation - (249 ) (140 ) (256 ) (140 )reserves, net

Activistshareholder - - - - (237 )response costs

Gain on sale - - - 292 - of business

Non-GAAP totaloperating $ 31,217 $ 31,285 $ 36,027 $ 94,724 $ 112,504 expenses

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Nine Months Ended

September 27,2020

June 28,2020

September 29,2019

September 27,2020

September 29,2019

(in thousands, except percentage and per share data)

GAAP operating loss

$

(17,961

)

$

(30,335

)

$

(31,054

)

$

(89,195

)

$

(107,019

)

GAAP operating margin

(16.3

)%

(45.5

)%

(29.3

)%

(36.8

)%

(43.2

)%

Separation expense

77

82

136

238

1,759

Strategic initiative and transaction expenses

17

206

502

768

502

Stock-based compensation expense

9,001

4,564

5,219

26,338

15,261

Amortization of intangibles

356

357

381

1,069

1,144

Restructuring and other charges

-

-

-

44

-

Litigation reserves, net

-

249

140

256

140

Activist shareholder response costs

-

-

-

-

237

Gain on sale of business

-

-

-

(292

)

-

Non-GAAP operating loss

$

(8,510

)

$

(24,877

)

$

(24,676

)

$

(60,774

)

$

(87,976

)

Non-GAAP operating margin

(7.7

)%

(37.3

)%

(23.3

)%

(25.1

)%

(35.5

)%

GAAP provision for income taxes

$

115

$

183

$

286

$

443

$

855

GAAP income tax rate

(0.7

)%

(0.6

)%

(0.9

)%

(0.5

)%

(0.8

)%

Tax effects

-

2

(46

)

31

96

Non-GAAP provision for income taxes

$

115

$

181

$

332

$

412

$

759

Non-GAAP income tax rate

(1.5

)%

(0.8

)%

(1.4

)%

(0.7

)%

(0.9

)%

GAAP net loss

$

(17,459

)

$

(29,256

)

$

(30,590

)

$

(86,041

)

$

(105,566

)

Separation expense

77

82

136

238

1,759

Strategic initiative and transaction expenses

17

206

502

768

502

Stock-based compensation expense

9,001

4,564

5,219

26,338

15,261

Amortization of intangibles

356

357

381

1,069

1,144

Restructuring and other charges

-

-

-

44

-

Litigation reserves, net

-

249

140

256

140

Activist shareholder response costs

-

-

-

-

237

Gain on sale of business

-

-

-

(292

)

-

Tax effects

-

2

(46

)

31

96

Non-GAAP net loss

$

(8,008

)

$

(23,796

)

$

(24,258

)

$

(57,589

)

$

(86,427

)

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

STATEMENT OF OPERATIONS DATA (CONTINUED):



Three Months Ended Nine Months Ended

September June 28, September September September 27, 2020 29, 27, 29, 2020 2019 2020 2019

(in thousands, except percentage and per share data)

GAAPoperating $ (17,961 ) $ (30,335 ) $ (31,054 ) $ (89,195 ) $ (107,019 )loss

GAAP ) ) ) ) )operating (16.3 % (45.5 % (29.3 % (36.8 % (43.2 %margin

Separation 77 82 136 238 1,759 expense

Strategicinitiativeand 17 206 502 768 502 transactionexpenses

Stock-basedcompensation 9,001 4,564 5,219 26,338 15,261 expense

Amortizationof 356 357 381 1,069 1,144 intangibles

Restructuringand other - - - 44 - charges

Litigation - 249 140 256 140 reserves, net

Activistshareholder - - - - 237 responsecosts

Gain on sale - - - (292 ) - of business

Non-GAAPoperating $ (8,510 ) $ (24,877 ) $ (24,676 ) $ (60,774 ) $ (87,976 )loss

Non-GAAP ) ) ) ) )operating (7.7 % (37.3 % (23.3 % (25.1 % (35.5 %margin



GAAPprovision for $ 115 $ 183 $ 286 $ 443 $ 855 income taxes

GAAP income (0.7 ) (0.6 ) (0.9 ) (0.5 ) (0.8 )tax rate % % % % %

Tax effects - 2 (46 ) 31 96

Non-GAAPprovision for $ 115 $ 181 $ 332 $ 412 $ 759 income taxes

Non-GAAP ) ) ) ) )income tax (1.5 % (0.8 % (1.4 % (0.7 % (0.9 %rate



GAAP net loss $ (17,459 ) $ (29,256 ) $ (30,590 ) $ (86,041 ) $ (105,566 )

Separation 77 82 136 238 1,759 expense

Strategicinitiativeand 17 206 502 768 502 transactionexpenses

Stock-basedcompensation 9,001 4,564 5,219 26,338 15,261 expense

Amortizationof 356 357 381 1,069 1,144 intangibles

Restructuringand other - - - 44 - charges

Litigation - 249 140 256 140 reserves, net

Activistshareholder - - - - 237 responsecosts

Gain on sale - - - (292 ) - of business

Tax effects - 2 (46 ) 31 96

Non-GAAP net $ (8,008 ) $ (23,796 ) $ (24,258 ) $ (57,589 ) $ (86,427 )loss

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Nine Months Ended

September 27,2020

June 28,2020

September 29,2019

September 27,2020

September 29,2019

(in thousands, except percentage and per share data)

NET INCOME (LOSS) PER DILUTED SHARE:

GAAP net income (loss) per diluted share

$

(0.22

)

$

(0.38

)

$

(0.41

)

$

(1.11

)

$

(1.41

)

Separation expense

-

-

-

0.01

0.02

Strategic initiative and transaction expenses

-

-

0.01

0.01

0.01

Stock-based compensation expense

0.11

0.06

0.07

0.34

0.21

Amortization of intangibles

0.01

0.01

0.01

0.01

0.02

Restructuring and other charges

-

-

-

-

-

Litigation reserves, net

-

-

-

-

-

Gain on sale of business

-

-

-

-

-

Tax effects

-

-

-

-

0.00

Non-GAAP net loss per diluted share

$

(0.10

)

$

(0.31

)

$

(0.32

)

$

(0.74

)

$

(1.15

)

Shares used in computing GAAP net income (loss) per diluted share

78,662

77,885

75,337

77,705

74,831

Shares used in computing non-GAAP net income (loss) per diluted share

78,662

77,885

75,337

77,705

74,831

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

STATEMENT OF OPERATIONS DATA (CONTINUED):



Three Months Ended Nine Months Ended

September June 28, September September September 27, 2020 29, 27, 29, 2020 2019 2020 2019

(in thousands, except percentage and per share data)

NET INCOME (LOSS) PER DILUTED SHARE:

GAAP net income(loss) per diluted $ (0.22 ) $ (0.38 ) $ (0.41 ) $ (1.11 ) $ (1.41 )share

Separation expense - - - 0.01 0.02

Strategic initiativeand transaction - - 0.01 0.01 0.01 expenses

Stock-based 0.11 0.06 0.07 0.34 0.21 compensation expense

Amortization of 0.01 0.01 0.01 0.01 0.02 intangibles

Restructuring and - - - - - other charges

Litigation reserves, - - - - - net

Gain on sale of - - - - - business

Tax effects - - - - 0.00

Non-GAAP net loss per $ (0.10 ) $ (0.31 ) $ (0.32 ) $ (0.74 ) $ (1.15 )diluted share



Shares used incomputing GAAP net 78,662 77,885 75,337 77,705 74,831 income (loss) perdiluted share

Shares used incomputing non-GAAP 78,662 77,885 75,337 77,705 74,831 net income (loss) perdiluted share

ARLO TECHNOLOGIES, INC.

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended

September 27,2020

June 28,2020

March 29,2020

December 31,2019

September 29,2019

(in thousands, except headcount and per share data)

Cash, cash equivalents and short-term investments

$

193,611

$

205,454

$

206,582

$

256,670

$

153,811

Cash, cash equivalents and short-term investments per diluted share

$

2.46

$

2.64

$

2.70

$

3.37

$

2.04

Accounts receivable, net

$

56,431

$

46,466

$

61,376

$

127,317

$

99,698

Days sales outstanding

47

63

83

97

85

Inventories

$

69,038

$

65,814

$

61,027

$

68,624

$

74,117

Inventory turns

4.6

3.1

3.4

5.9

4.8

Weeks of channel inventory:

U.S. retail channel

8.4

6.6

13.7

6.3

13.3

U.S. distribution channel

8.6

8.4

20.3

8.0

3.3

APAC distribution channel

4.2

6.8

6.0

3.6

4.3

Deferred revenue (current and non-current)

$

38,530

$

54,546

$

59,848

$

66,098

$

47,995

Cumulative registered accounts (1)

4,774

4,518

4,245

4,015

3,691

Cumulative paid accounts (2)

356

298

255

230

211

Headcount

358

355

356

349

406

Non-GAAP diluted shares

78,662

77,885

76,560

76,090

75,337

_________________________

(1) We define our registered accounts at the end of a particular period as the number of unique registered accounts on the Arlo platform as of the end of such particular period, and includes accounts owned by Verisure S.a.r.l.. The number of registered accounts does not necessarily reflect the number of end-users on the Arlo platform, as one registered account may be used by multiple people.

(2) Paid accounts worldwide measured as any account where a subscription to a paid service is being collected (either by the Company or by the Company's customers or channel partners), plus paid service plans of a duration of more than 3 months bundled with products (such bundles being counted as a paid account after 90 days have elapsed from the date of registration). Paid accounts includes accounts transferred to Verisure S.a.r.l..

ARLO TECHNOLOGIES, INC.

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended

September June 28, March 29, December September 27, 2020 2020 31, 29, 2020 2019 2019

(in thousands, except headcount and per share data)

Cash, cash equivalentsand short-term $ 193,611 $ 205,454 $ 206,582 $ 256,670 $ 153,811 investments

Cash, cash equivalentsand short-term $ 2.46 $ 2.64 $ 2.70 $ 3.37 $ 2.04 investments per dilutedshare



Accounts receivable, net $ 56,431 $ 46,466 $ 61,376 $ 127,317 $ 99,698

Days sales outstanding 47 63 83 97 85



Inventories $ 69,038 $ 65,814 $ 61,027 $ 68,624 $ 74,117

Inventory turns 4.6 3.1 3.4 5.9 4.8



Weeks of channel inventory:

U.S. retail channel 8.4 6.6 13.7 6.3 13.3

U.S. distribution channel 8.6 8.4 20.3 8.0 3.3

APAC distribution channel 4.2 6.8 6.0 3.6 4.3



Deferred revenue (current $ 38,530 $ 54,546 $ 59,848 $ 66,098 $ 47,995 and non-current)



Cumulative registered 4,774 4,518 4,245 4,015 3,691 accounts ^(1)

Cumulative paid accounts 356 298 255 230 211 ^(2)



Headcount 358 355 356 349 406

Non-GAAP diluted shares 78,662 77,885 76,560 76,090 75,337

_________________________

(1) We define our registered accounts at the end of a particular period as thenumber of unique registered accounts on the Arlo platform as of the end of suchparticular period, and includes accounts owned by Verisure S.a.r.l.. The numberof registered accounts does not necessarily reflect the number of end-users onthe Arlo platform, as one registered account may be used by multiple people.

(2) Paid accounts worldwide measured as any account where a subscription to apaid service is being collected (either by the Company or by the Company'scustomers or channel partners), plus paid service plans of a duration of morethan 3 months bundled with products (such bundles being counted as a paidaccount after 90 days have elapsed from the date of registration). Paidaccounts includes accounts transferred to Verisure S.a.r.l..

REVENUE BY GEOGRAPHY

Three Months Ended

Nine Months Ended

September 27,2020

June 28,2020

September 29,2019

September 27,2020

September 29,2019

(in thousands, except percentage data)

Americas

$

75,861

69

%

$

50,971

76

%

$

85,562

81

%

$

176,990

73

%

$

194,492

79

%

EMEA

28,010

25

%

11,263

17

%

13,002

12

%

46,846

19

%

37,370

15

%

APAC

6,365

6

%

4,398

7

%

7,552

7

%

18,482

8

%

15,732

6

%

Total

$

110,236

100

%

$

66,632

100

%

$

106,116

100

%

$

242,318

100

%

$

247,594

100

%

View source version on businesswire.com: https://www.businesswire.com/news/home/20201105006024/en/

CONTACT: Arlo Investor Relations Erik Bylin investors@arlo.com (510) 315-1004