Business Wire | Aug 4, 2021 04:06PM EDT

Arlo Reports Second Quarter 2021 Results

Aug. 04, 2021

SAN JOSE, Calif.--(BUSINESS WIRE)--Aug. 04, 2021--Arlo Technologies, Inc. (NYSE: ARLO), a leading internet-connected security camera brand, today reported financial results for the second quarter ended June 27, 2021.

Financial Highlights (1)

* Revenue of $98.6 million, an increase of 47.9% year over year. * GAAP gross profit of $26.2 million, an increase of 376.8% year over year; non-GAAP gross profit of $27.5 million, an increase of 328.5% year over year. * GAAP gross margin of 26.6%; non-GAAP gross margin of 27.9%. * GAAP net loss per diluted share of $(0.28); non-GAAP net loss per diluted share of $(0.04). * Cash, cash equivalents and short-term investments of $178.7 million and no debt at the end of Q2.

"I am proud to say the Arlo team delivered exceptional results across the entire business in Q2, successfully navigating considerable supply chain challenges. Revenue and non-GAAP EPS both came in above the high end of our guidance range. Our new business model for services continued to gather momentum, adding a record 146,000 Paid Accounts in the quarter and surpassing 700,000 Paid Accounts in total on July 4th, propelling our service revenue to a record $25.3 million, up an impressive 48% year-over-year. Our refreshed product line-up also contributed to very strong product revenue growth of 48% year-over-year. We continued to execute to plan in our partnership with Verisure, delivering 123% year-over-year revenue growth in Europe and commencing production of a new camera system designed specifically for the needs of the Verisure Security Channel," said Matthew McRae, Chief Executive Officer of Arlo Technologies. "Our impressive revenue growth of 48% was significantly over-indexed by non-GAAP gross profit, which grew 328% and by $21.0 million year-over-year. Our innovation in Services accelerated with the launch of Arlo Secure and Arlo Secure Plus, our new Service plans, which will extend Arlo's technological leadership, while adding significant value to our customers. Our industry-leading hardware continued to garner acclaim, winning multiple awards and commendations. With this tremendous progress on all fronts, we believe we are well-positioned to achieve $100.0 million in service revenue and $410.0 to $420.0 million total revenue this year."

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, 2021 June 28, 2020 2021 2021 2020

(in thousands, except percentage and per share data)

Revenue $ 98,571 $ 82,556 $ 66,632 $ 181,127 $ 132,082

GAAPGross 26.6 % 31.3 % 8.2 % 28.7 % 7.1 %Margin

Non-GAAPGross 27.9 % 32.3 % 9.6 % 29.9 % 8.5 %Margin ^(1)

GAAP NetIncome(Loss) $ (0.28 ) $ (0.13 ) $ (0.38 ) $ (0.42 ) $ (0.89 ) perDilutedShare

Non-GAAPNetIncome(Loss) $ (0.04 ) $ (0.03 ) $ (0.31 ) $ (0.07 ) $ (0.64 ) perDilutedShare ^(1)

_________________________

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

Financial and Business Highlights

* Service revenue of $25.3 million for Q2, for growth of 48.3% year over year, the eighth consecutive quarter of record service revenue. * Concluded an agreement to sublease our entire San Jose office which starts in February 2022 and runs to the end of our committed term in 2029. We expect the sublease will save $3 million to $4 million per annum across the business from next year, but due to the nature of the transaction it did generate a non-cash impairment charge of $9.1 million, which is included within our GAAP operating expenses in Q2. * Added a record 146,000 Paid Accounts in Q2, a sequential increase of 28.1% over Q1, and a year over year increase of 239.5%. * Launched Arlo Secure and Secure Plus, our next generation service offering to deliver the ultimate security experience. * Won numerous awards including the Editors' Choice award from TechHive (Pro 4 series), a Highly Recommended award from Tom's Guide (Ultra 2), a recommendation by Digital Trends (Essential Indoor), acclaim from T3 (Essential Spotlight).

Third Quarter 2021 Business Outlook (2)

* Revenue of $100.0 million to $110.0 million. * GAAP net loss per diluted share of $(0.30) to $(0.23), and non-GAAP net loss per diluted share of $(0.19) to $(0.12).

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

Three Months Ending October 3, 2021

Revenue Net Loss per Diluted Share

(in millions, except per share data)

GAAP $100.0 - $110.0 $(0.30) - $(0.23)

Estimated adjustments for ^(2):

Stock-based compensation expense - 0.10

Separation expense - 0.01

Tax effects of non-GAAP adjustments - -

Non-GAAP $100.0 - $110.0 $(0.19) - $(0.12)

_________________________

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

Investor Conference Call / Webcast Details

Arlo will review the second quarter of 2021 results and discuss management's expectations for the third quarter of 2021 today, Wednesday, August 4, 2021 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 2694444. 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. The company'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 security cameras, indoor security cameras, video doorbells, and floodlight.

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 doesn't 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) 2021 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 (the "Company") expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding our potential future business, operating performance and financial condition, including descriptions of our expected revenue, GAAP and non-GAAP gross margins, operating margins, tax rates, expenses, and cash outlook; our transition to a services-first business model; the commercial launch and momentum of Arlo Secure and Arlo Secure Plus; strategic objectives and initiatives, including our collaboration with Verisure; the commercial launch and momentum of Arlo Secure and Arlo Secure Plus; strategic objectives and initiatives, including our collaboration with Verisure; expectations regarding market expansion and future growth; plans to invest in product innovation; the Company's future product offerings; supply chain challenges; and the quote from the Company'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 the Company and its partners and customers operate; the Company may fail to successfully continue to effect operating expense savings; changes in the level of the Company'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 the Company'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 the Company's 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 March 28, 2021, filed with the Securities and Exchange Commission on May 6, 2021 and subsequent filings with the Securities and Exchange Commission. Given these circumstances, you should not place undue reliance on these forward-looking statements. The Company 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 other income (expenses), net, 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, impairment charges, 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 costs of legal and professional services for IPO-related litigation associated with our separation from NETGEAR. 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, performance-based restricted stock units, shares under the employee stock purchase plan granted to employees and employees' annual bonus in RSU form. 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.

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, litigation reserves, net and Impairment charges. 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

June 27, December 2021 31, 2020

(In thousands, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents $ 178,698 $ 186,127

Short-term investments (amortized cost of $- and - 19,997 $19,996)

Accounts receivable, net (net of allowance for credit 51,890 77,643 losses of $536 and $519)

Inventories 43,155 64,705

Prepaid expenses and other current assets 11,852 8,076

Total current assets 285,595 356,548

Property and equipment, net 11,368 15,821

Operating lease right-of-use assets, net 15,148 23,998

Goodwill 11,038 11,038

Restricted cash 4,113 4,164

Other non-current assets 3,519 2,399

Total assets $ 330,781 $ 413,968



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 42,884 $ 62,171

Deferred revenue 47,668 53,142

Accrued liabilities 97,707 121,766

Income tax payable 96 267

Total current liabilities 188,355 237,346

Non-current deferred revenue 3,235 16,563

Non-current operating lease liabilities 22,780 25,029

Non-current income taxes payable 111 104

Other non-current liabilities 1,515 1,159

Total liabilities 215,996 280,201

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: 82,916,535 83 79 at June 27, 2021 and 79,336,242 at December 31, 2020

Additional paid-in capital 381,511 366,455

Accumulated other comprehensive income - 3

Accumulated deficit (266,809 ) (232,770 )

Total stockholders' equity 114,785 133,767

Total liabilities and stockholders' equity $ 330,781 $ 413,968

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

June 27,2021

March 28, 2021

June 28,2020

June 27,2021

June 28,2020

(in thousands, except percentage and per share data)

Revenue:

Products

$

73,311

$

59,761

$

49,603

$

133,072

$

100,326

Services

25,260

22,795

17,029

48,055

31,756

Total revenue

98,571

82,556

66,632

181,127

132,082

Cost of revenue:

Products

62,019

47,157

51,186

109,176

103,374

Services

10,383

9,592

9,957

19,975

19,266

Total cost of revenue

72,402

56,749

61,143

129,151

122,640

Gross profit

26,169

25,807

5,489

51,976

9,442

Gross margin

26.6

%

31.3

%

8.2

%

28.7

%

7.1

%

Operating expenses:

Research and development

16,251

14,791

14,192

31,042

29,435

Sales and marketing

12,459

11,207

11,713

23,666

22,751

General and administrative

13,559

11,227

9,837

24,786

28,621

Impairment charges

9,116

-

-

9,116

-

Separation expense

605

54

82

659

161

Gain on sale of business

-

-

-

-

(292

)

Total operating expenses

51,990

37,279

35,824

89,269

80,676

Loss from operations

(25,821

)

(11,472

)

(30,335

)

(37,293

)

(71,234

)

Operating margin

(26.2

)%

(13.9

)%

(45.5

)%

(20.6

)%

(53.9

)%

Interest income

3

24

151

27

686

Other income (expense), net

2,662

909

1,111

3,571

2,294

Loss before income taxes

(23,156

)

(10,539

)

(29,073

)

(33,695

)

(68,254

)

Provision for income taxes

164

180

183

344

328

Net loss

$

(23,320

)

$

(10,719

)

$

(29,256

)

$

(34,039

)

$

(68,582

)

Net loss per share:

Basic

$

(0.28

)

$

(0.13

)

$

(0.38

)

$

(0.42

)

$

(0.89

)

Diluted

$

(0.28

)

$

(0.13

)

$

(0.38

)

$

(0.42

)

$

(0.89

)

Weighted average shares used to compute net loss per share:

Basic

82,134

80,370

77,885

81,275

77,229

Diluted

82,134

80,370

77,885

81,275

77,229

ARLO TECHNOLOGIES, INC.



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020

(in thousands, except percentage and per share data)

Revenue:

Products $ 73,311 $ 59,761 $ 49,603 $ 133,072 $ 100,326

Services 25,260 22,795 17,029 48,055 31,756

Total revenue 98,571 82,556 66,632 181,127 132,082

Cost of revenue:

Products 62,019 47,157 51,186 109,176 103,374

Services 10,383 9,592 9,957 19,975 19,266

Total cost of 72,402 56,749 61,143 129,151 122,640 revenue

Gross profit 26,169 25,807 5,489 51,976 9,442

Gross margin 26.6 % 31.3 % 8.2 % 28.7 % 7.1 %

Operating expenses:

Research and 16,251 14,791 14,192 31,042 29,435 development

Sales and 12,459 11,207 11,713 23,666 22,751 marketing

General and 13,559 11,227 9,837 24,786 28,621 administrative

Impairment 9,116 - - 9,116 - charges

Separation 605 54 82 659 161 expense

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

Totaloperating 51,990 37,279 35,824 89,269 80,676 expenses

Loss from (25,821 ) (11,472 ) (30,335 ) (37,293 ) (71,234 )operations

Operating (26.2 ) (13.9 ) (45.5 ) (20.6 ) (53.9 )margin % % % % %

Interest 3 24 151 27 686 income

Other income 2,662 909 1,111 3,571 2,294 (expense), net

Loss before (23,156 ) (10,539 ) (29,073 ) (33,695 ) (68,254 )income taxes

Provision for 164 180 183 344 328 income taxes

Net loss $ (23,320 ) $ (10,719 ) $ (29,256 ) $ (34,039 ) $ (68,582 )

Net loss per share:

Basic $ (0.28 ) $ (0.13 ) $ (0.38 ) $ (0.42 ) $ (0.89 )

Diluted $ (0.28 ) $ (0.13 ) $ (0.38 ) $ (0.42 ) $ (0.89 )

Weightedaverage sharesused to compute netloss pershare:

Basic 82,134 80,370 77,885 81,275 77,229

Diluted 82,134 80,370 77,885 81,275 77,229

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

June 27,2021

June 28,2020

(In thousands)

Cash flows from operating activities:

Net loss

$

(34,039

)

$

(68,582

)

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

Stock-based compensation expense

19,949

17,337

Impairment charges

9,116

-

Depreciation and amortization

3,169

5,476

Allowance for credit losses and inventory reserves

(1,085

)

1,182

Deferred income taxes

(115

)

27

Premium amortization (discount accretion) on investments, net

(3

)

44

Gain on sale of business

-

(292

)

Changes in assets and liabilities:

Accounts receivable, net

25,736

80,650

Inventories

22,652

1,827

Prepaid expenses and other assets

(4,782

)

8,745

Accounts payable

(19,189

)

(58,669

)

Deferred revenue

(18,802

)

(11,553

)

Accrued and other liabilities

(26,073

)

(24,875

)

Net cash used in operating activities

(23,466

)

(48,683

)

Cash flows from investing activities:

Purchases of property and equipment

(1,066

)

(1,184

)

Purchases of short-term investments

-

(25,094

)

Maturities of short-term investments

20,000

25,000

Net cash provided by (used in) investing activities

18,934

(1,278

)

Cash flows from financing activities:

Proceeds related to employee benefit plans

6,136

1,856

Restricted stock unit withholdings

(9,084

)

(3,149

)

Net cash used in financing activities

(2,948

)

(1,293

)

Net decrease in cash and cash equivalents and restricted cash

(7,480

)

(51,254

)

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

190,291

240,819

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

$

182,811

$

189,565

Non-cash investing and financing activities:

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

$

549

$

1,523

ARLO TECHNOLOGIES, INC.



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

June 27, June 28, 2021 2020

(In thousands)

Cash flows from operating activities:

Net loss $ (34,039 ) $ (68,582 )

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

Stock-based compensation expense 19,949 17,337

Impairment charges 9,116 -

Depreciation and amortization 3,169 5,476

Allowance for credit losses and inventory reserves (1,085 ) 1,182

Deferred income taxes (115 ) 27

Premium amortization (discount accretion) on (3 ) 44 investments, net

Gain on sale of business - (292 )

Changes in assets and liabilities:

Accounts receivable, net 25,736 80,650

Inventories 22,652 1,827

Prepaid expenses and other assets (4,782 ) 8,745

Accounts payable (19,189 ) (58,669 )

Deferred revenue (18,802 ) (11,553 )

Accrued and other liabilities (26,073 ) (24,875 )

Net cash used in operating activities (23,466 ) (48,683 )

Cash flows from investing activities:

Purchases of property and equipment (1,066 ) (1,184 )

Purchases of short-term investments - (25,094 )

Maturities of short-term investments 20,000 25,000

Net cash provided by (used in) investing activities 18,934 (1,278 )

Cash flows from financing activities:

Proceeds related to employee benefit plans 6,136 1,856

Restricted stock unit withholdings (9,084 ) (3,149 )

Net cash used in financing activities (2,948 ) (1,293 )

Net decrease in cash and cash equivalents and (7,480 ) (51,254 )restricted cash

Cash and cash equivalents and restricted cash, at 190,291 240,819 beginning of period

Cash and cash equivalents and restricted cash, at end $ 182,811 $ 189,565 of period



Non-cash investing and financing activities:

Purchases of property and equipment included in $ 549 $ 1,523 accounts payable and accrued liabilities

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

UNAUDITED STATEMENT OF OPERATIONS DATA:

Three Months Ended

Six Months Ended

June 27,2021

March 28,2021

June 28,2020

June 27,2021

June 28,2020

(in thousands, except percentage data)

GAAP gross profit:

Products

$

11,292

$

12,604

$

(1,583

)

$

23,896

$

(3,048

)

Services

14,877

13,203

7,072

28,080

12,490

Total GAAP gross profit

26,169

25,807

5,489

51,976

9,442

GAAP gross margin:

Products

15.4

%

21.1

%

(3.2

)%

18.0

%

(3.0

)%

Services

58.9

%

57.9

%

41.5

%

58.4

%

39.3

%

Total GAAP gross margin

26.6

%

31.3

%

8.2

%

28.7

%

7.1

%

Stock-based compensation expense

1,289

874

562

2,163

1,065

Amortization of intangibles

-

-

357

-

713

Restructuring and other charges

-

-

-

-

23

Non-GAAP gross profit:

Products

12,581

13,478

(664

)

26,059

(1,247

)

Services

14,877

13,203

7,072

28,080

12,490

Total Non-GAAP gross profit

$

27,458

$

26,681

$

6,408

$

54,139

$

11,243

Non-GAAP gross margin:

Products

17.2

%

22.6

%

(1.3

)%

19.6

%

(1.2

)%

Services

58.9

%

57.9

%

41.5

%

58.4

%

39.3

%

Total Non-GAAP gross margin

27.9

%

32.3

%

9.6

%

29.9

%

8.5

%

GAAP research and development

$

16,251

$

14,791

$

14,192

$

31,042

$

29,435

Stock-based compensation expense

(3,832

)

(2,556

)

(1,729

)

(6,388

)

(3,389

)

Non-GAAP research and development

$

12,419

$

12,235

$

12,463

$

24,654

$

26,046

GAAP sales and marketing

$

12,459

$

11,207

$

11,713

$

23,666

$

22,751

Stock-based compensation expense

(1,638

)

(1,190

)

(984

)

(2,828

)

(1,735

)

Non-GAAP sales and marketing

$

10,821

$

10,017

$

10,729

$

20,838

$

21,016

GAAP general and administrative

$

13,559

$

11,227

$

9,837

$

24,786

$

28,621

Stock-based compensation expense

(4,850

)

(3,720

)

(1,289

)

(8,570

)

(11,148

)

Restructuring and other charges

-

-

-

-

(21

)

Strategic initiative and transaction expenses

-

-

(206

)

-

(751

)

Litigation reserves, net

(157

)

(10

)

(249

)

(167

)

(256

)

Non-GAAP general and administrative

$

8,552

$

7,497

$

8,093

$

16,049

$

16,445

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

UNAUDITED STATEMENT OF OPERATIONS DATA:



Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020

(in thousands, except percentage data)

GAAP gross profit:

Products $ 11,292 $ 12,604 $ (1,583 ) $ 23,896 $ (3,048 )

Services 14,877 13,203 7,072 28,080 12,490

Total GAAP gross 26,169 25,807 5,489 51,976 9,442 profit

GAAP gross margin:

Products 15.4 % 21.1 % (3.2 ) 18.0 % (3.0 ) % %

Services 58.9 % 57.9 % 41.5 % 58.4 % 39.3 %

Total GAAP gross 26.6 % 31.3 % 8.2 % 28.7 % 7.1 %margin

Stock-basedcompensation 1,289 874 562 2,163 1,065 expense

Amortization of - - 357 - 713 intangibles

Restructuringand other - - - - 23 charges

Non-GAAP gross profit:

Products 12,581 13,478 (664 ) 26,059 (1,247 )

Services 14,877 13,203 7,072 28,080 12,490

Total Non-GAAP $ 27,458 $ 26,681 $ 6,408 $ 54,139 $ 11,243 gross profit

Non-GAAP gross margin:

Products 17.2 % 22.6 % (1.3 ) 19.6 % (1.2 ) % %

Services 58.9 % 57.9 % 41.5 % 58.4 % 39.3 %

Total Non-GAAP 27.9 % 32.3 % 9.6 % 29.9 % 8.5 %gross margin



GAAP research $ 16,251 $ 14,791 $ 14,192 $ 31,042 $ 29,435 and development

Stock-basedcompensation (3,832 ) (2,556 ) (1,729 ) (6,388 ) (3,389 )expense

Non-GAAPresearch and $ 12,419 $ 12,235 $ 12,463 $ 24,654 $ 26,046 development



GAAP sales and $ 12,459 $ 11,207 $ 11,713 $ 23,666 $ 22,751 marketing

Stock-basedcompensation (1,638 ) (1,190 ) (984 ) (2,828 ) (1,735 )expense

Non-GAAP sales $ 10,821 $ 10,017 $ 10,729 $ 20,838 $ 21,016 and marketing



GAAP general and $ 13,559 $ 11,227 $ 9,837 $ 24,786 $ 28,621 administrative

Stock-basedcompensation (4,850 ) (3,720 ) (1,289 ) (8,570 ) (11,148 )expense

Restructuringand other - - - - (21 )charges

Strategicinitiative and - - (206 ) - (751 )transactionexpenses

Litigation (157 ) (10 ) (249 ) (167 ) (256 )reserves, net

Non-GAAP generaland $ 8,552 $ 7,497 $ 8,093 $ 16,049 $ 16,445 administrative

ARLO TECHNOLOGIES, INC.

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

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 27,2021

March 28,2021

June 28,2020

June 27,2021

June 28,2020

(in thousands, except percentage and per share data)

GAAP total operating expenses

$

51,990

$

37,279

$

35,824

$

89,269

$

80,676

Separation expense

(605

)

(54

)

(82

)

(659

)

(161

)

Strategic initiative and transaction expenses

-

-

(206

)

-

(751

)

Stock-based compensation expense

(10,320

)

(7,466

)

(4,002

)

(17,786

)

(16,272

)

Impairment charges

(9,116

)

-

-

(9,116

)

-

Restructuring and other charges

-

-

-

-

(21

)

Litigation reserves, net

(157

)

(10

)

(249

)

(167

)

(256

)

Gain on sale of business

-

-

-

-

292

Non-GAAP total operating expenses

$

31,792

$

29,749

$

31,285

$

61,541

$

63,507

GAAP operating loss

$

(25,821

)

$

(11,472

)

$

(30,335

)

$

(37,293

)

$

(71,234

)

GAAP operating margin

(26.2

)%

(13.9

)%

(45.5

)%

(20.6

)%

(53.9

)%

Separation expense

605

54

82

659

161

Strategic initiative and transaction expenses

-

-

206

-

751

Stock-based compensation expense

11,609

8,340

4,564

19,949

17,337

Impairment charges

9,116

-

-

9,116

-

Amortization of intangibles

-

-

357

-

713

Restructuring and other charges

-

-

-

-

44

Litigation reserves, net

157

10

249

167

256

Gain on sale of business

-

-

-

-

(292

)

Non-GAAP operating loss

$

(4,334

)

$

(3,068

)

$

(24,877

)

$

(7,402

)

$

(52,264

)

Non-GAAP operating margin

(4.4

)%

(3.7

)%

(37.3

)%

(4.1

)%

(39.6

)%

GAAP other income (expense), net

$

2,662

$

909

$

1,111

$

3,571

$

2,294

Employee Retention Credit

$

(1,811

)

$

-

$

-

$

(1,811

)

$

-

Non-GAAP other income (expense), net

$

851

$

909

$

1,111

$

1,760

$

2,294

GAAP provision for income taxes

$

164

$

180

$

183

$

344

$

328

GAAP income tax rate

(0.7

)%

(1.7

)%

(0.6

)%

(1.0

)%

(0.5

)%

Tax effects

-

-

2

-

31

Non-GAAP provision for income taxes

$

164

$

180

$

181

$

344

$

297

Non-GAAP income tax rate

(4.7

)%

(8.4

)%

(0.8

)%

(6.1

)%

(0.6

)%

ARLO TECHNOLOGIES, INC.



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

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):



Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020

(in thousands, except percentage and per share data)

GAAP totaloperating $ 51,990 $ 37,279 $ 35,824 $ 89,269 $ 80,676 expenses

Separation (605 ) (54 ) (82 ) (659 ) (161 )expense

Strategicinitiative and - - (206 ) - (751 )transactionexpenses

Stock-basedcompensation (10,320 ) (7,466 ) (4,002 ) (17,786 ) (16,272 )expense

Impairment (9,116 ) - - (9,116 ) - charges

Restructuringand other - - - - (21 )charges

Litigation (157 ) (10 ) (249 ) (167 ) (256 )reserves, net

Gain on sale - - - - 292 of business

Non-GAAP totaloperating $ 31,792 $ 29,749 $ 31,285 $ 61,541 $ 63,507 expenses



GAAP operating $ (25,821 ) $ (11,472 ) $ (30,335 ) $ (37,293 ) $ (71,234 )loss

GAAP operating (26.2 ) (13.9 ) (45.5 ) (20.6 ) (53.9 )margin % % % % %

Separation 605 54 82 659 161 expense

Strategicinitiative and - - 206 - 751 transactionexpenses

Stock-basedcompensation 11,609 8,340 4,564 19,949 17,337 expense

Impairment 9,116 - - 9,116 - charges

Amortization - - 357 - 713 of intangibles

Restructuringand other - - - - 44 charges

Litigation 157 10 249 167 256 reserves, net

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

Non-GAAP $ (4,334 ) $ (3,068 ) $ (24,877 ) $ (7,402 ) $ (52,264 )operating loss

Non-GAAP ) ) ) ) )operating (4.4 % (3.7 % (37.3 % (4.1 % (39.6 %margin



GAAP otherincome $ 2,662 $ 909 $ 1,111 $ 3,571 $ 2,294 (expense), net

EmployeeRetention $ (1,811 ) $ - $ - $ (1,811 ) $ - Credit

Non-GAAP otherincome $ 851 $ 909 $ 1,111 $ 1,760 $ 2,294 (expense), net



GAAP provisionfor income $ 164 $ 180 $ 183 $ 344 $ 328 taxes

GAAP income (0.7 ) (1.7 ) (0.6 ) (1.0 ) (0.5 )tax rate % % % % %

Tax effects - - 2 - 31

Non-GAAPprovision for $ 164 $ 180 $ 181 $ 344 $ 297 income taxes

Non-GAAP ) ) ) ) )income tax (4.7 % (8.4 % (0.8 % (6.1 % (0.6 %rate

ARLO TECHNOLOGIES, INC.

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

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 27,2021

March 28,2021

June 28,2020

June 27,2021

June 28,2020

(in thousands, except percentage and per share data)

GAAP net loss

$

(23,320

)

$

(10,719

)

$

(29,256

)

$

(34,039

)

$

(68,582

)

Separation expense

605

54

82

659

161

Strategic initiative and transaction expenses

-

-

206

-

751

Stock-based compensation expense

11,609

8,340

4,564

19,949

17,337

Impairment charges

9,116

-

-

9,116

-

Amortization of intangibles

-

-

357

-

713

Restructuring and other charges

-

-

-

-

44

Litigation reserves, net

157

10

249

167

256

Gain on sale of business

-

-

-

-

(292

)

Employee Retention Credit

(1,811

)

-

-

(1,811

)

-

Tax effects

-

-

2

-

31

Non-GAAP net loss

$

(3,644

)

$

(2,315

)

$

(23,796

)

$

(5,959

)

$

(49,581

)

NET LOSS PER DILUTED SHARE:

GAAP net loss per diluted share

$

(0.28

)

$

(0.13

)

$

(0.38

)

$

(0.42

)

$

(0.89

)

Separation expense

0.01

-

-

0.01

0.01

Strategic initiative and transaction expenses

-

-

-

-

0.01

Stock-based compensation expense

0.14

0.10

0.06

0.25

0.22

Impairment charges

0.11

-

-

0.11

-

Amortization of intangibles

-

-

0.01

-

0.01

Employee Retention Credit

$

(0.02

)

$

-

$

-

$

(0.02

)

$

-

Non-GAAP net loss per diluted share

$

(0.04

)

$

(0.03

)

$

(0.31

)

$

(0.07

)

$

(0.64

)

Shares used in computing GAAP net loss per diluted share

82,134

80,370

77,885

81,275

77,229

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

82,134

80,370

77,885

81,275

77,229

ARLO TECHNOLOGIES, INC.



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

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):



Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020

(in thousands, except percentage and per share data)

GAAP net loss $ (23,320 ) $ (10,719 ) $ (29,256 ) $ (34,039 ) $ (68,582 )

Separation 605 54 82 659 161 expense

Strategicinitiativeand - - 206 - 751 transactionexpenses

Stock-basedcompensation 11,609 8,340 4,564 19,949 17,337 expense

Impairment 9,116 - - 9,116 - charges

Amortizationof - - 357 - 713 intangibles

Restructuringand other - - - - 44 charges

Litigation 157 10 249 167 256 reserves, net

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

EmployeeRetention (1,811 ) - - (1,811 ) - Credit

Tax effects - - 2 - 31

Non-GAAP net $ (3,644 ) $ (2,315 ) $ (23,796 ) $ (5,959 ) $ (49,581 )loss



NET LOSS PER DILUTED SHARE:

GAAP net lossper diluted $ (0.28 ) $ (0.13 ) $ (0.38 ) $ (0.42 ) $ (0.89 )share

Separation 0.01 - - 0.01 0.01 expense

Strategicinitiativeand - - - - 0.01 transactionexpenses

Stock-basedcompensation 0.14 0.10 0.06 0.25 0.22 expense

Impairment 0.11 - - 0.11 - charges

Amortizationof - - 0.01 - 0.01 intangibles

EmployeeRetention $ (0.02 ) $ - $ - $ (0.02 ) $ - Credit

Non-GAAP netloss per $ (0.04 ) $ (0.03 ) $ (0.31 ) $ (0.07 ) $ (0.64 )diluted share



Shares usedin computingGAAP net loss 82,134 80,370 77,885 81,275 77,229 per dilutedshare

Shares usedin computingnon-GAAP net 82,134 80,370 77,885 81,275 77,229 loss perdiluted share

ARLO TECHNOLOGIES, INC.

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended

June 27,2021

March 28,2021

December 31,2020

September 27,2020

June 28,2020

(in thousands, except headcount and per share data)

Cash, cash equivalents and short-term investments

$

178,698

$

177,113

$

206,124

$

193,611

$

205,454

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

$

2.18

$

2.20

$

2.60

$

2.46

$

2.64

Accounts receivable, net

$

51,890

$

51,121

$

77,643

$

56,431

$

46,466

Days sales outstanding

48

54

64

47

63

Inventories

$

43,155

$

55,972

$

64,705

$

69,038

$

65,814

Inventory turns

5.7

3.4

5.0

4.6

3.1

Weeks of channel inventory:

U.S. retail channel

8.0

12.5

9.2

8.4

6.6

U.S. distribution channel

12.5

9.6

11.7

8.6

8.4

APAC distribution channel

8.6

6.9

2.8

4.2

6.8

Deferred revenue (current and non-current)

$

50,903

$

61,604

$

69,705

$

38,530

$

54,546

Cumulative registered accounts (1)

5,527

5,275

5,047

4,774

4,518

Cumulative paid accounts (2)

695

549

435

356

298

Headcount

349

355

359

358

355

Non-GAAP diluted shares

82,134

80,370

79,164

78,662

77,885

ARLO TECHNOLOGIES, INC.



UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended

June 27, March 28, December September June 28, 2021 2021 31, 27, 2020 2020 2020

(in thousands, except headcount and per share data)

Cash, cashequivalentsand $ 178,698 $ 177,113 $ 206,124 $ 193,611 $ 205,454 short-terminvestments

Cash, cashequivalentsandshort-term $ 2.18 $ 2.20 $ 2.60 $ 2.46 $ 2.64 investmentsper dilutedshare



Accountsreceivable, $ 51,890 $ 51,121 $ 77,643 $ 56,431 $ 46,466 net

Days sales 48 54 64 47 63 outstanding



Inventories $ 43,155 $ 55,972 $ 64,705 $ 69,038 $ 65,814

Inventory 5.7 3.4 5.0 4.6 3.1 turns



Weeks ofchannel inventory:

U.S. retail 8.0 12.5 9.2 8.4 6.6 channel

U.S.distribution 12.5 9.6 11.7 8.6 8.4 channel

APACdistribution 8.6 6.9 2.8 4.2 6.8 channel



Deferredrevenue $ 50,903 $ 61,604 $ 69,705 $ 38,530 $ 54,546 (current andnon-current)



Cumulativeregistered 5,527 5,275 5,047 4,774 4,518 accounts ^(1)

Cumulativepaid 695 549 435 356 298 accounts ^(2)



Headcount 349 355 359 358 355

Non-GAAPdiluted 82,134 80,370 79,164 78,662 77,885 shares

(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..

REVENUE BY GEOGRAPHY

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(1) 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.



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(2) 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..

REVENUE BY GEOGRAPHY

Three Months Ended Six Months Ended

June 27, March 28, June 28, June 27, June 28, 2021 2021 2020 2021 2020

(in thousands, except percentage data)

Americas $ 66,681 68 % $ 49,636 60 % $ 50,999 76 % $ 116,317 65 % $ 101,169 77 %

EMEA 25,101 25 % 24,591 30 % 11,263 17 % 49,692 27 % 18,521 14 %

APAC 6,789 7 % 8,329 10 % 4,370 7 % 15,118 8 % 12,392 9 %

Total $ 98,571 100 % $ 82,556 100 % $ 66,632 100 % $ 181,127 100 % $ 132,082 100 %

View source version on businesswire.com: https://www.businesswire.com/news/home/20210804006037/en/

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