Arlo Technologies, Inc.

Previous wording

Since the launch of our first product in December 2014, we have shipped over 38.5 million smart connected devices. As of March 30, 2025, the Arlo platform had approximately 10.9 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 4.9 million cumulative paid subscribers and annual recurring revenue of $276.4 million.

Current wording

Since the launch of our first product in December 2014, we have shipped over 39.7 million smart connected devices. As of June 29, 2025, the Arlo platform had approximately 11.2 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 5.1 million cumulative paid subscribers and annual recurring revenue of $315.7 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 paid subscription services, as well as devices through retail, wholesale distribution, wireless carrier channels, security solution providers, and Arlo’s direct to consumer store. For the three months ended March 30, 2025 and March 31, 2024, we generated total revenue of $119.1 million and $124.2 million, respectively, and a loss from operations was $1.5 million and $10.6 million, respectively.

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 paid subscription services, as well as devices through retail, wholesale distribution, wireless carrier channels, security solution providers, and Arlo’s direct to consumer store. For the three months ended June 29, 2025 and June 30, 2024, we generated total revenue of $129.4 million and $127.4 million, respectively, and income (loss) from operations was $1.9 million and $(12.8) million, respectively. For the six months ended June 29, 2025 and June 30, 2024, we generated total revenue of $248.5 million and $251.6 million, respectively, and income (loss) from operations was $0.5 million and $(23.4) 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 a need to make adjustments to better reflect our business or to improve their accuracy. We believe that any such adjustments are immaterial unless otherwise stated.

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

Previous wording

Annual Recurring Revenue. We believe ARR enables measurement of our business initiatives and serves as an indicator of our future growth. ARR represents and is defined as the annualized paid subscription and service revenue we expect to recognize from subscription contracts, as calculated by taking the average paid subscription and service revenue multiplied by the number of subscription accounts at the end of the reporting period. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.

Current wording

Annual Recurring Revenue. We believe ARR enables measurement of our business initiatives and serves as an indicator of our future growth. ARR represents and is defined as the annualized paid subscriptions and services revenue we expect to recognize from subscription contracts, as calculated by taking the average paid subscriptions and services revenue of the reporting period multiplied by the number of subscription accounts at the end of the reporting period. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.

Previous wording

The U.S. government recently implemented new tariff measures and potential additional reciprocal tariffs affecting a broad range of imported materials. We have evaluated the potential impact of these actions on our operations and supply chain and do not expect them to have a material impact on our financial position or results of operations in the near term. However, given the uncertainty surrounding global markets and general global uncertainty as a result of new U.S. tariff policy, we do not have clarity at this point over the potential medium to long term impacts our business may face. The availability of certain goods could be affected if foreign suppliers choose to limit their exposure to U.S. markets in response to unfavorable trade policies, which could negatively impact our suppliers ability to deliver materials or manufacture equipment for us and, therefore, delay or impede our product deliveries. Furthermore, rising inflation, slower economic growth and increases in unemployment that may result from global trade disruptions could further deflate consumer demand and impact the demand for our products.

Current wording

The U.S. government recently implemented new tariff measures and potential additional reciprocal tariffs affecting a broad range of imported materials. Certain countries have responded to the U.S. tariffs by imposing or threatening retaliatory tariffs. While we are actively monitoring the changes in global trade policy and the effects they may have on our business and broader macroeconomic environment, we have not experienced a material impact on our financial position to date and do not expect them to have a material detrimental impact on our business operations in the near term. However, given the uncertainty surrounding global markets and general global uncertainty as a result of the new U.S. tariff policy, we do not have clarity at this point over the potential medium to long term impacts our business may face. The availability of certain goods could be affected if foreign suppliers choose to limit their exposure to U.S. markets in response to unfavorable trade policies, which could negatively impact our suppliers ability to deliver materials or manufacture equipment for us and, therefore, delay or impede our product deliveries. Furthermore, rising inflation, slower economic growth and increases in unemployment that may result from global trade disruptions could further deflate consumer demand and impact the demand for our products.

Previous wording

We operate as one operating and reportable segment. The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of comprehensive loss data, which we derived from the accompanying unaudited condensed consolidated financial statements:

Current wording

We operate as one operating and reportable segment. The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of comprehensive income (loss) data, which we derived from the accompanying unaudited condensed consolidated financial statements:

Previous wording

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

Current wording

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

Previous wording

We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer for device location for subscription and service sales and device sales.

Current wording

We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer for device location for subscriptions and services sales and device sales.

Previous wording

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

Current wording

Subscriptions and services revenue increased by $17.9 million or 29.7%, and $30.1 million or 25.7%, for the three and six months ended June 29, 2025 compared to the prior year periods, respectively, primarily due to a 28.5% increase in cumulative paid accounts and continued increase in average revenue per user (“ARPU”) of retail and direct paid subscriptions.

Previous wording

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

Current wording

Products revenue decreased by $16.0 million or 23.7%, and $33.2 million or 24.7%, for the three and six months ended June 29, 2025 compared to the prior year periods, respectively, primarily from the decrease in product sales in EMEA due to the timing of device shipments from our largest customer and the reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth. The decrease in products revenue due to the higher sales incentives are deemed to be reductions of revenue.

Previous wording

Cost of revenue consists of both subscription and service costs and product costs. Subscription and service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel expense, data storage, security and computing, IT and facilities overhead. Product costs primarily consist of the cost of finished products from our third-party manufacturers and overhead costs, including personnel expense for operation staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory and excess components, and royalties to third parties.

Current wording

Cost of revenue consists of both subscriptions and services cost as well as products cost. Subscriptions and services cost consists of costs attributable to the provision and maintenance of our cloud-based platform, including personnel expense, data storage, security and computing, IT and facilities overhead. Products cost primarily consists of the cost of finished products from our third-party manufacturers and overhead costs, including personnel expense for operations staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, duty and tariff costs, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory and excess components, and royalties to third parties.

Previous wording

Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation, product mix, sales channel mix, registered accounts’ acceptance of paid subscription service offerings, and changes in our cost of goods sold due to fluctuations in prices paid for components, net of vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty costs, and charges for excess or obsolete inventory. We outsource our manufacturing, warehousing, and distribution logistics. We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure. We believe this outsourcing strategy allows us to better manage our product costs and subscription and service costs and gross margin and allows us to adapt to changing market dynamics and supply chain constraints.

Current wording

Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation, product mix, sales channel mix, registered accounts’ acceptance of paid subscription service offerings, and changes in our cost of goods sold due to fluctuations in prices paid for components, net of vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight, duty and tariff costs, and charges for excess or obsolete inventory. We outsource our manufacturing, warehousing, and distribution logistics. We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure. We believe this outsourcing strategy generally allows us to better manage our products cost and subscriptions and services cost and gross margin and allows us to adapt to changing market dynamics and supply chain constraints. However, with respect to manufacturing that we have outsourced to ex-U.S. manufacturers, our ability to manage product costs through this strategy has been, and may continue to be, negatively impacted by tariffs.

Previous wording

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

Current wording

Subscriptions and services cost of revenue decreased by 16.0% and 13.0% for the three and six months ended June 29, 2025, compared to the prior year periods, primarily due to cost savings as we optimize our cloud platform to improve customer experience which assists in reduced data storage and cloud costs.

Previous wording

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

Current wording

Products cost of revenue decreased by 10.5% and 12.4% for the three and six months ended June 29, 2025, compared to the prior year periods, primarily due to the decrease in product sales partially offset by an increase in freight cost mainly as a result of increased duties and tariffs, and to a lesser extent, the utilization of air freight.

Previous wording

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

Current wording

Subscriptions and services gross profit increased by $20.2 million and $33.7 million for the three and six months ended June 29, 2025, compared to the prior year periods, respectively, primarily due to subscriptions and services revenue growth as a result of increases in cumulative paid accounts, continued increase in ARPU of retail subscriptions, and cost optimizations.

Previous wording

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

Current wording

Products gross profit decreased by $9.0 million and $17.1 million for the three and six months ended June 29, 2025, compared to the prior year periods, respectively, 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 freight cost mainly as a result of increased duties and tariffs, and to a lesser extent, the utilization of air freight.

Previous wording

Research and development expense consists primarily of personnel-related expense, safety, security, regulatory services and testing, other research and development consulting fees, and allocated IT and facilities overhead. Generally, we recognize research and development expenses as they are incurred. We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services. We expect research and development expense to increase in absolute dollars as we develop new product and service offerings and compete for engineering talent. We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.

Current wording

Research and development expense consists primarily of personnel-related expense, safety, security, regulatory services and testing, other research and development consulting fees, and allocated IT and facilities overhead. Generally, we recognize research and development expenses as they are incurred, exclusive of capitalized software development costs. We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services. We expect research and development expense to increase in absolute dollars as we develop new product and service offerings and compete for engineering talent. We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.

Previous wording

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

Current wording

Research and development expense decreased by $5.7 million for the six months ended June 29, 2025 compared to the prior year period, primarily due to decreases of $3.7 million in professional services, $2.3 million in IT and facilities overhead related to allocation associated with corporate infrastructure, and $1.3 million in personnel-related expenses as a result of the capitalization of software development costs, partially offset by an increase of $1.7 million in personnel-related expenses due the headcount increase as a result of our research and development investment.

Previous wording

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

Current wording

Sales and marketing expense increased by $6.2 million for the six months ended June 29, 2025 compared to the prior year period, primarily due to increases of $4.1 million in credit card and in-app processing fees as a result of increases in paid subscriber accounts and focused efforts to improve our customer’s app experience, $1.9 million in marketing expenditures, and $0.7 million in personnel-related expenses mainly from stock-based compensation, partially offset by a decrease of $0.5 million in freight-out expenses.

Previous wording

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

Current wording

General and administrative expense decreased by $5.1 million and $6.7 million for the three and six months ended June 29, 2025, respectively compared to the prior year periods, primarily due to the decrease of $5.2 million and $6.3 million, respectively, in personnel-related expenses mainly from stock-based compensation from the achievement of performance-based awards target in the prior year periods.

Previous wording

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

Current wording

Interest income, net decreased for the three and six months ended June 29, 2025 compared to the prior year periods, primarily due to the lower interest rates.

Previous wording

The effective tax rate for the three months ended March 30, 2025 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. 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 six months ended June 29, 2025 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes. Based on a review of all available evidence, we have concluded that it is more likely than not that we will not be able to realize the benefit of the deferred tax assets in the foreseeable future. As a result, we are maintaining the full valuation allowance. However, as we continue to generate income, we are approaching the point at which the accumulated rolling 36-month pre-tax income turns positive—a key piece of objectively verifiable evidence supporting the realizability of deferred tax assets. If this positive trend continues and a cumulative income position is achieved within the year, we may consider a partial or full reversal of the valuation allowance.

Previous wording

As of March 30, 2025, our cash and cash equivalents and short-term investments totaled $153.1 million and the unused borrowing capacity of $45.0 million based on the terms and conditions of the Credit Agreement. The proceeds of the borrowings under this credit facility may be used for working capital and general corporate purposes.

Current wording

As of June 29, 2025, our cash and cash equivalents and short-term investments totaled $160.4 million and the unused borrowing capacity of $45.0 million based on the terms and conditions of the Credit Agreement. The proceeds of the borrowings under this credit facility may be used for working capital and general corporate purposes.

Previous wording

We have a history of losses and may incur operating and net losses in the future. As of March 30, 2025, our accumulated deficit was $398.8 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.

Current wording

We have a history of losses and may incur operating and net losses in the future. As of June 29, 2025, our accumulated deficit was $395.7 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 subscription and service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures. As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we may increase our product and subscription rates in the future.

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 subscriptions and services 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

Our Board of Directors authorized a stock repurchase program of up to an aggregate of $50.0 million of shares, which commenced in September 2024 and is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors. During the three months ended March 30, 2025, we repurchased and subsequently retired 1.4 million shares of Arlo common stock for an aggregate amount of $15.2 million. As of March 30, 2025, $30.3 million remained available and authorized for future repurchases.

Current wording

Our Board of Directors authorized a stock repurchase program of up to an aggregate of $50.0 million of shares, which commenced in September 2024 and is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors. During the six months ended June 29, 2025, we repurchased and subsequently retired 1.5 million shares of Arlo common stock for an aggregate amount of $16.1 million. As of June 29, 2025, $29.4 million remained available and authorized for future repurchases.

Previous wording

Net cash provided by operating activities increased by $11.1 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to improved profitability coupled with favorable working capital movements as the results of (i) increase in deferred revenue due to the growth in our subscription paid accounts and rates; and (ii) higher accounts receivable collections due to our continued efforts in collections and effective account management; partially offset by decreased accounts payable balances mainly due to timing of payments.

Current wording

Net cash provided by operating activities increased by $13.5 million for the six months ended June 29, 2025 compared to the prior year period, primarily due to improved profitability, partially offset by unfavorable working capital movements as a result of (i) decreased accounts payable balances mainly due to timing of payments; and (ii) higher accounts receivable balances in connection with our subscription sales growth; partially offset by (i) lower inventory balances as a result of strong hardware sales with higher inventory turn; and (ii) increase in deferred revenue due to the growth in our subscription paid accounts and rates.

Previous wording

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

Current wording

Net cash used in investing activities increased by $36.4 million for the six months ended June 29, 2025 compared to the prior year period, primarily due to our strategic long-term investment in a privately-held company, higher net purchases of short-term investments, and to a lesser extent, an increase in capitalized software development costs.

Previous wording

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

Current wording

Net cash used in financing activities decreased by $6.2 million for the six months ended June 29, 2025 compared to the prior year period, primarily due to the decrease in withholding tax from RSU and PSU releases as a result of the sell-to-cover method being applied to all Arlo employees for their tax withholding effective on January 1, 2025, partially offset by the stock repurchases.

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, 2024. There have been no material changes to our critical accounting policies and estimates during the three months ended March 30, 2025, other than as discussed in Note 2. Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report.

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, 2024. There have been no material changes to our critical accounting policies and estimates during the six months ended June 29, 2025, other than as discussed in Note 2. Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report.