Arlo Technologies Inc

Previous wording

Since the launch of our first product in December 2014, we have shipped over 34.6 million smart connected devices. As of June 30, 2024, the Arlo platform had approximately 10.0 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 4.0 million cumulative paid subscribers and annual recurring revenue of $235.0 million.

Current wording

Since the launch of our first product in December 2014, we have shipped over 36.1 million smart connected devices. As of September 29, 2024, the Arlo platform had approximately 10.4 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 4.2 million cumulative paid subscribers and annual recurring revenue of $241.6 million.

Previous wording

We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and we primarily generate revenue by selling devices through retail, wholesale distribution, wireless carrier channels, security solution providers, Arlo’s direct to consumer store and paid subscription services. For the three months ended June 30, 2024 and July 2, 2023, we generated total revenue of $127.4 million and $115.1 million, respectively, and loss from operations was $12.8 million and $8.0 million, respectively. For the six months ended June 30, 2024 and July 2, 2023, we generated total revenue of $251.6 million and $226.1 million, respectively, and loss from operations was $23.4 million and $22.2 million, respectively.

Current wording

We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and we primarily generate revenue by selling devices through retail, wholesale distribution, security solution providers, Arlo’s direct to consumer store and paid subscription services. For the three months ended September 29, 2024 and October 1, 2023, we generated total revenue of $137.7 million and $130.0 million, respectively, and loss from operations was $5.5 million and $2.3 million, respectively. For the nine months ended September 29, 2024 and October 1, 2023, we generated total revenue of $389.3 million and $356.1 million, respectively, and loss from operations was $28.9 million and $24.4 million, respectively.

Previous wording

In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business. Our key business metrics may be calculated in a manner different from the same key business metrics used by other companies. We regularly review our processes for calculating these metrics, and from time to time we may discover inaccuracies in our metrics or make adjustments to better reflect our business or to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.

Current wording

In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business. Our key business metrics may be calculated in a manner different from the same key business metrics used by other companies. We regularly review our processes for calculating these metrics, and from time to time we may discover a need to make adjustments to better reflect our business or to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.

Previous wording

During the six months ended June 30, 2024, we remained focused on the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and rising interest rates by preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs. These actions include, but are not limited to, proactively managing working capital by closely monitoring customers’ credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating non-essential spending, and subleasing or reducing excess office space. We continue to monitor the situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and rising interest rates, current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, and liquidity levels.

Current wording

During the nine months ended September 29, 2024, we remained focused on the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and high interest rates by preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs. These actions include, but are not limited to, proactively managing working capital by closely monitoring customers’ credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating non-essential spending, and subleasing or reducing excess office space. We continue to monitor the situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and high interest rates, current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, and liquidity levels.

Previous wording

Our gross revenue consists primarily of sales of devices and prepaid and paid subscription service revenue. We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs. Our paid subscription services relate to sales of subscription plans to our registered accounts.

Current wording

Our gross revenue consists primarily of sales of devices and paid subscription service revenue. We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs. Our paid subscription services are billed in advance of the start of the monthly subscription and revenue is recognized ratably over subscription period.

Previous wording

Product revenue increased by $2.4 million, or 3.8%, and $2.9 million, or 2.2%, for the three and six months ended June 30, 2024 compared to the prior year periods, respectively, primarily driven by an increase in product shipments in EMEA due to stronger customer demand, partially offset by the decrease in product sales in the Americas and APAC due to seasonality and a reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth. The increase in product revenue was also attributable to lower sales returns which are partially offset by higher sales incentives that are deemed to be reductions of revenue.

Current wording

Product revenue decreased by $3.2 million, or 4.0%, and $0.3 million, or 0.1%, for the three and nine months ended September 29, 2024 compared to the prior year periods, respectively, primarily driven by the decrease in product sales in the Americas and APAC due to seasonality and a reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth. The decline was partially offset by the increase in product shipments in EMEA due to stronger customer demand and the lower sales returns that are deemed to be reductions of revenue. The decrease in product revenue for the nine months ended September 29, 2024 was also offset by the lower sales incentives that are deemed to be reductions of revenue.

Previous wording

Service revenue increased in all regions by $9.9 million, or 19.7%, and $22.7 million, or 24.1%, for the three and six months ended June 30, 2024 compared to the prior year periods, respectively, primarily due to a 73.9% increase in cumulative paid accounts.

Current wording

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

Previous wording

Product cost of revenue increased 9.2% and 3.8% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods, primarily due to an increase in product shipments, partially offset by decreases in product warranty reserves and inventory reserves.

Current wording

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

Previous wording

Service cost of revenue increased 14.0% and 14.8% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods, primarily due to service revenue growth as a result of the increase in cumulative paid accounts, partially offset by cost optimizations.

Current wording

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

Previous wording

Product gross profit decreased $3.2 million and $1.9 million for the three and six months ended June 30, 2024, respectively, compared to the prior year periods, primarily driven by a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and subscriber growth. The product gross profit decrease was partially offset by decreases in product warranty reserves and inventory reserves due to subsequent sale of the related inventory units.

Current wording

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

Previous wording

Service gross profit increased $8.1 million and $19.1 million for the three and six months ended June 30, 2024, respectively, compared to the prior year periods, primarily due to service revenue growth in all regions as a result of increases in cumulative paid accounts and cost optimizations.

Current wording

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

Previous wording

Research and development expense increased by $5.0 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to increases of $3.9 million in personnel-related expenses mainly from stock-based compensation and merit increases, $0.7 million in professional services, and $0.3 million in corporate IT and facilities overhead.

Current wording

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

Previous wording

Research and development expense increased by $1.9 million for the three months ended June 30, 2024 compared to the prior year period, primarily due to increases of $1.7 million in personnel-related expenses mainly from stock-based compensation and merit increases and $0.4 million in professional services.

Current wording

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

Previous wording

Sales and marketing expense increased $2.8 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to increases of $1.6 million in personnel-related expenses mainly from stock-based compensation and merit increases, $1.4 million in professional services as a result of continued investment in customer experience improvements across customer care and engineering, and $0.5 million in credit card processing fees as a result of increases in Arlo.com store sales and paid subscriber accounts, partially offset by a decrease of $0.6 million in freight-out expenses.

Current wording

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

Previous wording

Sales and marketing expense increased $0.8 million for the three months ended June 30, 2024 compared to the prior year period, primarily due to increases of $0.7 million in personnel-related expenses mainly from stock-based compensation and merit increases, $0.4 million in professional services as a result of continued investment in customer experience improvements across customer care and engineering, and $0.3 million in credit card processing fees as a result of increases in Arlo.com store sales and paid subscriber accounts, partially offset by a decrease of $0.4 million in freight-out expenses.

Current wording

Sales and marketing expense increased by $4.8 million for the nine months ended September 29, 2024 compared to the prior year period, primarily due to increases of $2.1 million in personnel-related expenses mainly from stock-based compensation and merit increases, $2.0 million in marketing expenditures, $1.1 million in professional services as a result of continued investment in customer experience improvements across customer care and engineering, and $0.8 million in credit card processing fees as a result of increases in paid subscriber accounts, partially offset by a decrease of $1.1 million in freight-out expenses.

Previous wording

General and administrative expense increased $6.4 million for the three months ended June 30, 2024 compared to the prior year period, primarily due to increases of $5.4 million in personnel-related expenses mainly from stock-based compensation due to the achievement of performance-based awards target and $0.9 million in professional services.

Current wording

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

Previous wording

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

Current wording

Others include restructuring charges, which consist of severance costs, office exit expense, and other exit expense associated with the abandonment of certain lease contracts and cancellation of contractual services arrangements with certain suppliers. Others also include the write-off of deferred financing and separation related expenses, which consist primarily of costs of legal and professional services.

Previous wording

Interest income, net increased for the three and six months ended June 30, 2024 compared to the prior year periods, primarily due to the increase in our short-term investments as well as higher interest rates.

Current wording

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

Previous wording

The effective tax rate for the three and six months ended June 30, 2024 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes as it is more likely than not that some or all of our deferred tax assets will not be realized.

Current wording

The effective tax rate for the three and nine months ended September 29, 2024 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes as it is more likely than not that some or all of our deferred tax assets will not be realized.

Previous wording

As of June 30, 2024, our cash and cash equivalents and short-term investments totaled $144.0 million and we had unused borrowing capacity of $6.2 million based on the terms and conditions of our revolving credit facility. We have a history of losses and may incur operating and net losses in the future. As of June 30, 2024, our accumulated deficit was $388.7 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.

Current wording

As of September 29, 2024, our cash and cash equivalents and short-term investments totaled $146.6 million. We have a history of losses and may incur operating and net losses in the future. As of September 29, 2024, our accumulated deficit was $393.1 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.

Previous wording

Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures. As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we increased our subscription rates effective February 3, 2023.

Current wording

Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures. As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we may increase our product and subscription rates in the future.

Previous wording

Net cash provided by operating activities increased by $3.4 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to improved profitability offset by unfavorable working capital movements as a result of increased inventory purchases, partially offset by higher trade payable balances due to the timing of payments.

Current wording

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

Previous wording

Net cash used in investing activities decreased by $32.9 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to lower net purchases of short-term investments and lower purchases of property and equipment.

Current wording

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

Previous wording

Net cash used in financing activities increased by $8.2 million for the six months ended June 30, 2024 compared to the prior year period, primarily due to the increase in withholding tax from restricted stock unit releases and lower proceeds related to employee benefit plans.

Current wording

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

Previous wording

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, 2023. There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2024, 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.

Current wording

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, 2023. There have been no material changes to our critical accounting policies and estimates during the nine months ended September 29, 2024, other than as discussed in Note 2. 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.