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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2024
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    

Commission file number: 001-38618

ARLO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter) 
Delaware38-4061754
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
2200 Faraday Ave., Suite #150
Carlsbad,California92008
(Address of principal executive offices)(Zip Code)
(408) 890-3900
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareARLONew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  x

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 100,341,376 as of November 1, 2024.


Arlo Technologies, Inc.
Form 10-Q
For the Quarterly Period Ended September 29, 2024

TABLE OF CONTENTS

 
2

PART I: FINANCIAL INFORMATION

Item 1.Financial Statements

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of
September 29,
2024
December 31,
2023
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents$77,032 $56,522 
Short-term investments69,542 79,974 
Accounts receivable, net68,567 65,360 
Inventories51,975 38,408 
Prepaid expenses and other current assets12,424 10,271 
Total current assets279,540 250,535 
Property and equipment, net4,436 4,761 
Operating lease right-of-use assets, net9,510 11,450 
Goodwill11,038 11,038 
Restricted cash3,654 4,131 
Other non-current assets4,197 3,623 
Total assets$312,375 $285,538 
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$93,745 $55,201 
Deferred revenue24,596 18,041 
Accrued liabilities78,933 88,209 
Total current liabilities197,274 161,451 
Non-current operating lease liabilities14,479 17,021 
Other non-current liabilities3,713 3,790 
Total liabilities215,466 182,262 
Commitments and contingencies (Note 8)
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 shares authorized; shares issued and outstanding: 100,321,524 at September 29, 2024 and 95,380,281 at December 31, 2023
100 95 
Additional paid-in capital489,677 470,322 
Accumulated other comprehensive income
236 320 
Accumulated deficit(393,104)(367,461)
Total stockholders’ equity96,909 103,276 
Total liabilities and stockholders’ equity$312,375 $285,538 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 Three Months EndedNine Months Ended
September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands, except per share data)
Revenue:
Products$75,784 $78,961 $210,463 $210,770 
Services61,883 51,042 178,851 145,313 
Total revenue137,667 130,003 389,314 356,083 
Cost of revenue:
Products74,820 73,335 204,080 197,520 
Services14,431 13,529 42,584 38,349 
Total cost of revenue89,251 86,864 246,664 235,869 
Gross profit48,416 43,139 142,650 120,214 
Operating expenses:
Research and development17,562 16,829 57,916 52,197 
Sales and marketing17,832 15,863 52,900 48,137 
General and administrative17,052 12,460 57,830 43,089 
Others1,423 263 2,868 1,236 
Total operating expenses53,869 45,415 171,514 144,659 
Loss from operations(5,453)(2,276)(28,864)(24,445)
Interest income, net1,400 1,175 4,281 2,736 
Other income (loss), net(57)10 (100)23 
Loss before income taxes
(4,110)(1,091)(24,683)(21,686)
Provision for income taxes329 29 960 1,042 
Net loss
$(4,439)$(1,120)$(25,643)$(22,728)
Net loss per share:
Basic and diluted
$(0.04)$(0.01)$(0.26)$(0.25)
Weighted average shares used to compute net loss per share:
Basic and diluted
99,731 94,243 97,932 92,069 
Comprehensive loss:
Net loss
$(4,439)$(1,120)$(25,643)$(22,728)
Other comprehensive income (loss), net of tax
45 85 (84)344 
Total comprehensive loss
$(4,394)$(1,035)$(25,727)$(22,384)


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 Three Months EndedNine Months Ended
September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands)
Total stockholders’ equity, beginning balances
$99,268 $81,756 $103,276 $87,695 
Common stock:
Beginning balances$98 $94 $95 $89 
Issuance of common stock under stock-based compensation plans3 1 8 8 
Restricted stock unit withholdings(1)(1)(3)(3)
Ending balances$100 $94 $100 $94 
Additional paid-in capital:
Beginning balances$487,644 $448,543 $470,322 $433,138 
Stock-based compensation expense12,073 8,021 42,596 28,643 
Settlement of liability classified restricted stock units5,691 6,741 12,594 13,480 
Issuance of common stock under stock-based compensation plans4,730 681 5,413 3,667 
Issuance of common stock under Employee Stock Purchase Plan  1,692 1,617 
Restricted stock unit withholdings(20,461)(5,971)(42,940)(22,530)
Ending balances$489,677 $458,015 $489,677 $458,015 
Accumulated deficit:
Beginning balances$(388,665)$(367,033)$(367,461)$(345,425)
Net loss(4,439)(1,120)(25,643)(22,728)
Ending balances$(393,104)$(368,153)$(393,104)$(368,153)
Accumulated other comprehensive income:
Beginning balances$191 $152 $320 $(107)
Other comprehensive income (loss), net of tax
45 85 (84)344 
Ending balances$236 $237 $236 $237 
Total stockholders’ equity, ending balances
$96,909 $90,193 $96,909 $90,193 
Common stock shares:
Beginning balances98,326 93,654 95,380 88,887 
Issuance of common stock under stock-based compensation plans3,403 1,488 8,187 8,629 
Issuance of common stock under Employee Stock Purchase Plan  233 460 
Restricted stock unit withholdings(1,407)(560)(3,478)(3,394)
Ending balances100,322 94,582 100,322 94,582 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended
September 29,
2024
October 1,
2023
(In thousands)
Cash flows from operating activities:
Net loss$(25,643)$(22,728)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense54,159 37,851 
Depreciation and amortization2,395 3,809 
Allowance for credit losses and non-cash changes to reserves
2,930 1,218 
Deferred income taxes(23)257 
Other
(2,493)(1,224)
Changes in assets and liabilities:
Accounts receivable
(3,095)(4,262)
Inventories(16,609)(8,250)
Prepaid expenses and other assets (2,703)(4,353)
Accounts payable 38,159 31,049 
Deferred revenue6,714 6,202 
Accrued and other liabilities(9,157)(9,202)
Net cash provided by operating activities
44,634 30,367 
Cash flows from investing activities:
Purchases of property and equipment (1,612)(2,448)
Purchases of short-term investments(145,955)(110,905)
Proceeds from maturities of short-term investments158,796 67,259 
Net cash provided by (used in) investing activities
11,229 (46,094)
Cash flows from financing activities:
Proceeds related to employee benefit plans7,113 5,293 
Restricted stock unit withholdings(42,943)(22,533)
Net cash used in financing activities(35,830)(17,240)
Net increase (decrease) in cash, cash equivalents, and restricted cash
20,033 (32,967)
Cash, cash equivalents, and restricted cash, at beginning of period
60,653 88,179 
Cash, cash equivalents, and restricted cash, at end of period
$80,686 $55,212 
Reconciliation of cash, cash equivalents, and restricted cash to Unaudited Condensed Consolidated Balance Sheets
Cash and cash equivalents$77,032 $51,133 
Restricted cash3,654 4,079 
Total cash, cash equivalents, and restricted cash$80,686 $55,212 
Supplemental cash flow information:
Non-cash investing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities$647 $726 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1.    Description of Business and Basis of Presentation

Description of Business

Arlo Technologies, Inc. (“we” or “Arlo”) is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security services that combine a globally scaled cloud platform, advanced monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem. Arlo’s deep expertise in cloud services, cutting-edge AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that is easy to setup and engage with every day. Our highly secure, 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 – all rooted in a commitment to safeguard privacy for our users and their personal data.

We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and primarily generate revenue by selling devices through retail channels, wholesale distribution, security solution providers, and Arlo’s direct to consumer store and paid subscription services.

Our corporate headquarters is located in Carlsbad, California, with other satellite offices across North America and various other global locations.

Basis of Presentation

We prepare our unaudited condensed consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of Arlo and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 29, 2024. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for fair statement of the unaudited condensed consolidated financial statements for interim periods.

Fiscal Periods

Our fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. We report the results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.
7



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Management bases its estimates on various assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates and operating results for the three and nine months ended September 29, 2024 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any future period.

Note 2.    Significant Accounting Policies and Recent Accounting Pronouncements

Our significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to such policies during the nine months ended September 29, 2024.

Accounting Pronouncements Recently Adopted

There were no accounting pronouncements adopted during the nine months ended September 29, 2024.

Accounting Pronouncements Not Yet Effective

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Among the various codification amendments, Topic 470 Debt is applicable to Arlo which requires the disclosure of amounts, terms and weighted-average interest rates of unused lines of credit. The effective date is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirement by that date, with early adoption prohibited. The adoption of this new standard will not have a material impact on our financial statements and related disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. This guidance is effective for annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which requires on an annual basis to (1) disclose specific categories in the rate reconciliation, (2) provide additional information for reconciling items that meet a quantitative threshold, and (3) income taxes paid disaggregated by jurisdiction. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.

8



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3.    Revenue

Performance Obligations

The total estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied and partially unsatisfied was $29.0 million as of September 29, 2024 and $18.8 million as of December 31, 2023, substantially related to performance obligations classified as less than one year.

For the nine months ended September 29, 2024 and October 1, 2023, $161.3 million and $131.8 million of revenue, respectively, was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $154.5 million and $125.6 million of revenue, respectively, was recognized for the satisfaction of performance obligations over time. Approximately $17.3 million and $10.6 million of this recognized revenue, respectively, was included in the contract liability balance at the beginning of the periods. There were no significant changes in estimates during the period that would affect the contract balances.

On April 25, 2024, Verisure Sàrl (“Verisure”), our largest customer, notified us that it was exercising its right under the Supply Agreement to extend the term for another five years (through November 2029) with no minimum purchase obligations. Under the Supply Agreement, a purchase obligation is not deemed to exist until we receive and accept Verisure’s purchase order. As of September 29, 2024, we had a backlog of $27.9 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next six months.

Disaggregation of Revenue

We disaggregate our revenue into three geographic regions: the Americas, EMEA, and APAC, where we conduct our business. The following table presents revenue disaggregated by geographic region.

 Three Months EndedNine Months Ended
 September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands)
Americas$73,303 $79,948 $195,766 $214,716 
EMEA57,773 42,887 175,980 122,317 
APAC6,591 7,168 17,568 19,050 
Total$137,667 $130,003 $389,314 $356,083 

As of September 29, 2024 and December 31, 2023, three customers accounted for 55.4%, 11.3%, and 10.7%, and three customers accounted for 37.1%, 15.2%, and 10.2% of the total accounts receivable, net, respectively. No other customers accounted for 10% or greater of the total accounts receivable, net. For the three months ended September 29, 2024 and October 1, 2023, one customer accounted for 42.0% and 33.0% of the total revenue, respectively. For the nine months ended September 29, 2024 and October 1, 2023, one customer accounted for 45.2% and 34.4% of the total revenue, respectively. No other customers accounted for 10% or greater of the total revenue.

9



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4.    Balance Sheet Components

Short-Term Investments

As of September 29, 2024As of December 31, 2023
 Amortized CostUnrealized GainsUnrealized LossesEstimated Fair ValueAmortized CostUnrealized GainsUnrealized LossesEstimated Fair Value
(In thousands)
U.S. Treasuries$69,379 $163 $ $69,542 $79,654 $320 $ $79,974 

Accounts Receivable, Net
As of
September 29,
2024
December 31,
2023
(In thousands)
Gross accounts receivable$68,788 $65,693 
Allowance for credit losses(221)(333)
Total$68,567 $65,360 

    The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.

Three Months EndedNine Months Ended
September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands)
Balance at the beginning of the period$142 $322 $333 $423 
Provision for (release of) expected credit losses
79 10 (112)(91)
Balance at the end of the period$221 $332 $221 $332 

10



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment, Net

The components of property and equipment are as follows:
As of
September 29,
2024
December 31,
2023
(In thousands)
Machinery and equipment$14,599 $14,148 
Software16,716 15,639 
Computer equipment910 1,438 
Leasehold improvements
4,689 4,661 
Furniture and fixtures2,418 2,544 
Total property and equipment, gross39,332 38,430 
Accumulated depreciation(34,896)(33,669)
Total property and equipment, net (1)
$4,436 $4,761 
_________________________
(1)    $0.6 million and $1.0 million of property and equipment, net, was included in the sublease arrangement for the San Jose office building as of September 29, 2024 and December 31, 2023, respectively.

Depreciation expense pertaining to property and equipment was $0.7 million and $2.4 million for the three and nine months ended September 29, 2024, respectively, and $1.5 million and $3.8 million for the three and nine months ended October 1, 2023, respectively.

Goodwill

We have determined that no event occurred or circumstances changed during the nine months ended September 29, 2024 that would more likely than not reduce the fair value of goodwill below the carrying amount. No goodwill impairment was recognized in the nine months ended September 29, 2024 and October 1, 2023.

Accrued Liabilities
As of
September 29,
2024
December 31,
2023
(In thousands)
Sales incentives$28,228 $28,187 
Sales returns
10,039 17,058 
Compensation14,736 13,278 
Cloud and other costs7,824 10,985 
Other18,106 18,701 
Total$78,933 $88,209 

11



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5.    Fair Value Measurements

The following table summarizes assets measured at fair value on a recurring basis:
As of
September 29,
2024
December 31,
2023
(In thousands)
Cash equivalents: money-market funds (<90 days)
$8,184 $5,782 
Cash equivalents: U.S. Treasuries (<90 days)
17,332 520 
Available-for-sale securities: U.S. Treasuries (1)
69,542 79,974 
Total$95,058 $86,276 
_________________________
(1)Included in short-term investments on our unaudited condensed consolidated balance sheets.

Our investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

As of September 29, 2024 and December 31, 2023, assets and liabilities measured as Level 2 fair value were not material and there were no Level 3 fair value assets or liabilities measured on a recurring basis.

12



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6.    Restructuring

In November 2022, we initiated a restructuring plan to reduce our cost structure to better align the operational needs of the business to current economic conditions while continuing to support our long-term strategy. This restructuring includes the reduction of headcount as well as the abandonment of certain lease contracts and the cancellation of contractual services arrangements with certain suppliers. As of September 29, 2024, we have substantially incurred all costs pertaining to restructuring activities, with related cash outflows extending until the fourth quarter of 2024.

The restructuring liabilities are included in accrued liabilities in our unaudited condensed consolidated balance sheets. The restructuring charges are included in “Others” in the unaudited condensed consolidated statements of comprehensive loss. Restructuring activity is as follows:

TotalSeverance ExpenseOffice Exit ExpenseOther Exit Expense
(In thousands)
Balance as of December 31, 2021$ $ $ $ 
Restructuring charges1,805 798 928 79 
Cash payments(588)(579) (9)
Non-cash and other adjustments48  63 (15)
Balance as of December 31, 2022$1,265 $219 $991 $55 
Restructuring charges692 564 117 11 
Cash payments(1,479)(694)(745)(40)
Non-cash and other adjustments(26)  (26)
Balance as of December 31, 2023$452 $89 $363 $ 
Restructuring charges484 484   
Cash payments(640)(525)(115) 
Balance as of March 31, 2024
$296 $48 $248 $ 
Restructuring charges914 914   
Cash payments(569)(477)(92) 
Balance as of June 30, 2024$641 $485 $156 $ 
Restructuring charges613 613   
Cash payments(1,036)(943)(93) 
Balance as of September 29, 2024$218 $155 $63 $ 
Total costs incurred inception to date$4,530 $3,373 $1,108 $49 

13



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7.    Revolving Credit Facility

On October 27, 2021, we entered into a Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A., a national banking association, as lender (the “Lender”). As of September 29, 2024, we were in compliance with all the covenants of the Credit Agreement. No amounts had been drawn under the credit facility as of September 29, 2024. The Credit Agreement provided for a three-year revolving credit facility that matured on October 27, 2024, in which the Credit Agreement and the credit facility provided thereunder were automatically terminated.

Note 8.    Commitments and Contingencies

Operating Leases

Our operating lease obligations mostly include offices, equipment, and distribution centers, with various expiration dates through June 2029. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into our determination of lease payments. The terms of certain leases provide for rental payments on a graduated scale. Gross lease expense was $1.4 million and $4.2 million for the three and nine months ended September 29, 2024, respectively, and $1.5 million and $4.5 million for the three and nine months ended October 1, 2023, respectively. We recorded sublease income as reduction of lease expense, in the amount of $0.5 million and $1.5 million for the three and nine months ended September 29, 2024 and October 1, 2023, respectively.

Supplemental cash flow information related to operating leases is as follows:
Nine Months Ended
September 29,
2024
October 1,
2023
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
    Operating cash flows from operating leases$4,486 $5,274 
Right-of-use assets obtained in exchange for lease liabilities
    Operating leases$ $1,851 

Weighted average remaining lease term and weighted average discount rate related to operating leases are as follows:
As of
September 29,
2024
December 31,
2023
Weighted average remaining lease term4.3 years5.0 years
Weighted average discount rate5.75 %5.74 %

14



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The future minimum undiscounted lease payments under operating leases and future non-cancelable rent payments from our subtenants for each of the next five years and thereafter as of September 29, 2024 are as follows:

Operating Lease PaymentsSublease PaymentsNet
(In thousands)
2024 (Remaining three months)
$1,267 $(533)$734 
20254,593 (2,006)2,587 
20264,734 (2,066)2,668 
20274,635 (2,322)2,313 
20283,658 (2,392)1,266 
Thereafter1,750 (1,228)522 
Total future lease payments$20,637 $(10,547)$10,090 
Less: imputed interest(2,388)
Present value of future minimum lease payments$18,249 
Accrued liabilities$3,770 
Non-current operating lease liabilities14,479 
Total lease liabilities$18,249 


We entered into an operating lease for our new corporate headquarter located in Carlsbad, California. Upon lease commencement expected to be December 1, 2024, the initial base term is 8.5 years, with a renewal option to extend the term for an additional five years. As of September 29, 2024, we had approximately $7.3 million of future lease obligations subject to non-cancellable leases that have been signed but have not yet commenced.

Letters of Credit

In connection with the lease agreement for our office space located in San Jose, California, we executed a letter of credit with the landlord as the beneficiary. As of September 29, 2024, we had $3.6 million of unused letters of credit outstanding, of which $3.1 million pertains to the lease arrangement in San Jose, California.

Purchase Obligations

We have entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-cancelable within 30 days prior to the expected shipment date. As of September 29, 2024, we had $29.3 million in non-cancelable purchase commitments with suppliers which is expected to be paid over the next twelve months.

As of September 29, 2024, an additional $25.8 million of purchase orders beyond contractual termination periods have been issued to supply chain partners in anticipation of demand requirements. Consequently, we may incur expenses for the materials and components, such as chipsets already purchased by the supplier to fulfill our orders if the purchase order is cancelled. Expenses incurred have historically not been material relative to the original order value.


15



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Warranty Obligations

Changes in warranty obligations, which are included in accrued liabilities in the unaudited condensed consolidated balance sheets, are as follows:
 Three Months EndedNine Months Ended
 September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands)
Balance at the beginning of the period$1,056 $1,093 $1,193 $1,174 
Provision for (release of) warranty obligations
(89)86 (80)141 
Settlements(63)(65)(209)(201)
Balance at the end of the period$904 $1,114 $904 $1,114 

Litigation and Other Legal Matters

We are involved in disputes, litigation, and other legal actions. In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, we accrue for the amount or, if a range, we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within general and administrative expenses. We monitor developments in these legal matters that could affect the estimate we had previously accrued. In relation to such matters, we currently believe that there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position within the next 12 months, or the outcome of these matters is currently not determinable. There are many uncertainties associated with any litigation, and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require us to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust the liability and record additional expenses.

Indemnifications

In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, distributors, resellers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with members of our board of directors and certain of our executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments we could be required to make under these indemnification agreements is, in many cases, unlimited. As of September 29, 2024 and December 31, 2023, we have not incurred any material costs as a result of such indemnification obligations and we are not currently aware of any indemnification claims.

16



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9.    Employee Benefit Plans

We grant options and restricted stock units (“RSUs”) under the 2018 Equity Incentive Plan (the “2018 Plan”), under which awards may be granted to all employees. We also grant performance-based and market-based restricted stock units (“PSUs”) to our executive officers periodically. Award vesting periods for the 2018 Plan are generally three to five years. As of September 29, 2024, approximately 4.8 million shares were available for future grants. Options may be granted for periods of up to 10 years or such shorter term as may be provided in the agreement and at prices no less than 100% of the fair market value of Arlo’s common stock on the date of grant. Options granted under the 2018 Plan generally vest over four years, the first tranche at the end of 12 months and the remaining shares underlying the option vesting monthly over the remaining three years.

On January 19, 2024, we registered an aggregate of up to 4,759,901 shares of common stock on a Registration Statement on Form S-8, including 3,807,921 shares issuable pursuant to the 2018 Plan that were automatically added to the shares authorized for issuance and 951,980 shares issuable pursuant to the Employee Stock Purchase Plan (“ESPP”) that were automatically added to the shares authorized for issuance on January 1, 2024, both pursuant to an “evergreen” provision contained in the respective plans.

The following table sets forth the available shares for grants as of September 29, 2024:
 Number of Shares
(In thousands)
Shares available for grants as of December 31, 2023
3,516 
Additional authorized shares3,808 
Granted(7,164)
Forfeited / cancelled1,158 
Shares traded / withheld for taxes
3,478 
Shares available for grants as of September 29, 2024
4,796 

Employee Stock Purchase Plan

We sponsor the ESPP to eligible employees. Under our ESPP, employees purchased 233 thousand shares and 460 thousand shares during the nine months ended September 29, 2024 and October 1, 2023, respectively. As of September 29, 2024, 2.5 million shares were available for issuance under the ESPP.
17



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Option Activity

We did not grant options during the nine months ended September 29, 2024. Stock option activity during the nine months ended September 29, 2024 was as follows:
 Number of SharesWeighted Average Exercise Price Per Share
(In thousands)(In dollars)
Outstanding as of December 31, 2023
1,096 $12.48 
Granted  $ 
Exercised(478)$11.34 
Forfeited / cancelled $ 
Expired(50)$14.39 
Outstanding as of September 29, 2024
568 $13.28 
Vested and exercisable as of September 29, 2024
568 $13.28 


RSU Activity

RSU activity, excluding PSU activity, during the nine months ended September 29, 2024 was as follows:
 Number of SharesWeighted Average Grant Date Fair Value Per Share
(In thousands)(In dollars)
Outstanding as of December 31, 2023
9,043 $6.15 
Granted3,464 $11.00 
Vested(4,270)$7.55 
Forfeited (1,039)$6.99 
Outstanding as of September 29, 2024
7,198 $7.53 

PSU Activity

Our executive officers and other senior employees have been granted performance-based awards with some vesting occurring when performance conditions are met and some vesting occurring at the end of a three or five-year period when market conditions are met. The number of units earned and eligible to vest are determined based on the achievement of various performance conditions or market conditions, including the cumulative paid accounts targets, stock price, cash balances at reporting period, and the recipients’ continued services. At the end of each reporting period, we evaluate the probability of achieving the performance or market conditions and record the related stock-based compensation expense based on the achievement over the service period.

18



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PSU activity during the nine months ended September 29, 2024 was as follows:

Number of SharesWeighted Average Grant Date Fair Value Per Share
(In thousands)(In dollars)
Outstanding as of December 31, 2023
3,851 $5.72 
Granted 3,699 $9.66 
Vested (3,439)$6.46 
Forfeited (67)$6.63 
Outstanding as of September 29, 2024
4,044 $8.67 

For RSUs and PSUs vested prior to September 29, 2024, the tax withholding method is the net withholding method, in which shares with a market value equivalent to the tax withholding obligation are withheld and the net shares are issued to the RSU and PSU holders. Effective the fourth quarter of 2024, the tax withholding policy changed and our Named Executive Officers (“NEOs”) will use the sell-to-cover method for their tax withholding, in which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the NEOs of their RSUs and PSUs upon vesting and settlement to cover the tax withholding liability, and the cash proceeds from such sales are remitted by Arlo to taxing authorities. The sell-to-cover method will apply to all Arlo employees effective on January 1, 2025.

Stock-Based Compensation Expense

The following table sets forth the stock-based compensation expense included in our unaudited condensed consolidated statements of comprehensive loss:
 Three Months EndedNine Months Ended
September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands)
Cost of revenue$955 $868 $3,618 $2,696 
Research and development3,584 2,847 13,266 10,069 
Sales and marketing1,594 1,224 6,010 4,616 
General and administrative8,556 5,348 31,265 20,470 
Total$14,689 $10,287 $54,159 $37,851 

As of September 29, 2024, all outstanding options were fully vested; therefore, there was no unrecognized compensation cost related to stock options. Approximately $59.7 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 1.3 years as of September 29, 2024. During the nine months ended September 29, 2024 and October 1, 2023, we settled executive and employee bonuses by granting and issuing RSUs (non-cash financing activities) that vested immediately amounting to $12.6 million and $13.5 million, respectively.

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10.     Income Taxes

The provision for income taxes for the three and nine months ended September 29, 2024 was $0.3 million and $1.0 million, respectively, or an effective tax rate of (8.0)% and (3.9)%, respectively. The provision for income taxes for the three and nine months ended October 1, 2023 was $0.03 million and $1.04 million, respectively, or an effective tax rate of (2.7)% and (4.8)%, respectively. During the three and nine months ended September 29, 2024 and October 1, 2023, we sustained U.S. book losses. Consistent with the prior year periods, we maintained a valuation allowance against our U.S. federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since it is more likely than not that these deferred tax assets will not be realized.

Provision for income taxes increased for the three months ended September 29, 2024, compared to the prior year period, primarily due to increase in U.S. state taxes. Provision for income taxes decreased for the nine months ended September 29, 2024, compared to the prior year period, primarily due to (i) foreign-derived intangible income (“FDII”) and higher Section 174 amortization in the U.S. and (ii) the utilization of R&D credit in Ireland to partially offset its tax liability.

Note 11.     Net Loss Per Share

Three Months EndedNine Months Ended
September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands, except per share data)
Numerator:
Net loss$(4,439)$(1,120)$(25,643)$(22,728)
Denominator:
Weighted average common shares - basic and diluted99,731 94,243 97,932 92,069 
Basic and diluted net loss per share$(0.04)$(0.01)$(0.26)$(0.25)
Anti-dilutive employee stock-based awards, excluded789 989 739 2,137 

Note 12.     Segment and Geographic Information

Segment Information

We operate as one operating and reportable segment. Our Chief Executive Officer (“CEO”) is identified as the Chief Operating Decision Maker (“CODM”), who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Geographic Information for Revenue

Revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates, net changes in deferred revenue, and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance. Sales and usage-based taxes are excluded from revenue. For reporting purposes, revenue by geographic area is generally based upon the bill-to location of the customer. The following table presents revenue by geographic area. For comparative purposes, amounts in prior period have been recast.
20



ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 Three Months EndedNine Months Ended
 September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
(In thousands)
United States$71,461 $79,775 $189,194 $213,804 
Spain35,051 32,802 111,241 90,923 
Sweden13,220 6,550 38,819 18,874 
Other countries17,935 10,876 50,060 32,482 
Total$137,667 $130,003 $389,314 $356,083 

Geographic Information for Long-Lived Assets

Long-lived assets include property and equipment, net and operating lease right-of-use assets, net. Our long-lived assets are based on the physical location of the assets. The following table presents long-lived assets by geographic area.
As of
September 29,
2024
December 31,
2023
(In thousands)
United States$11,449 $13,372 
Other countries2,497 2,839 
Total$13,946 $16,211 


Note 13.     Stock Repurchase Program

On September 19, 2024, our Board of Directors approved a stock repurchase program of up to an aggregate of $50 million of shares of Arlo’s common stock through open market purchases in a manner deemed to be in the best interests of our company and stockholders, considering the economic cost and prevailing market conditions, including the relative trading prices and volumes of Arlo’s common stock. The stock repurchase program is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors.

There were no repurchases during the three months ended September 29, 2024 and $50 million remained authorized for repurchase under this stock repurchase program as of September 29, 2024.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements, including statements concerning our business and the expected performance characteristics, specifications, reliability, market acceptance, market growth, specific uses, user feedback, and market position of our products and technology. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below.

All forward-looking statements in this document are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us,” the “Company,” and “Arlo” refer to Arlo Technologies, Inc. and our subsidiaries.

Business and Executive Overview

Arlo is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security services that combine a globally scaled cloud platform, advanced monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem. Arlo’s deep expertise in cloud services, cutting-edge AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that is easy to setup and engage with every day. Our highly secure, 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 – all rooted in a commitment to safeguard privacy for our users and their personal data.

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.

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.

Our goal is to continue to develop innovative, world-class smart security solutions to expand and further monetize our current and future user and paid account bases. We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in channel partnerships and to continue our global expansion. We expect to increase our investment in research and development going forward as we continue to introduce new and
22

innovative products and services to enhance the Arlo platform and compete for engineering talent. We also expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services.

Key Business Metrics

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.
As of
September 29,
2024
% ChangeOctober 1,
2023
(In thousands, except percentage data)
Cumulative registered accounts10,383 26.7 %8,193 
Cumulative paid accounts (1)
4,235 70.4 %2,486 
Annual recurring revenue (“ARR”) (2)
$241,572 20.8 %$199,993 
_________________________
(1)     The number of cumulative paid accounts as of September 29, 2024 included paid accounts managed by Verisure Sàrl (“Verisure”) in our EMEA region which are now onboarded with us. This does not have an impact to our financial statements and key business metrics other than our number of cumulative paid accounts.

(2)     As described further below, in the first fiscal quarter of 2024, we changed the methodology on paid service revenue recognition from a mid-month convention to a daily recognition model. As a result, ARR as of September 29, 2024 was calculated using the daily recognition model while ARR as of October 1, 2023 was calculated using our former methodology, the mid-month convention. ARR as of October 1, 2023 calculated using the daily recognition model does not represent a material change from the mid-month convention over the same period.

Cumulative Registered Accounts. We believe that our ability to increase our user base is an indicator of our market penetration and growth of our business as we continue to expand and innovate our Arlo platform. 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 period. 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 end-users to monitor the devices attached to that household.

Cumulative Paid Accounts. Paid accounts are defined as any account worldwide where a subscription to a paid service is being collected (either by us or by our customers or channel partners, including Verisure).

Annual Recurring Revenue. We believe ARR enables measurement of our business initiatives and serves as an indicator of our future growth. ARR represents the amount of paid service revenue that we expect to recur annually. In the first fiscal quarter of 2024, we changed the methodology on paid service revenue recognition from a mid-month convention to a daily recognition model which recognizes paid service revenue based on the number of service days within the fiscal reporting period, commencing on the start date of the subscription and continuing over the term of the arrangement. Accordingly, the methodology used to calculate ARR was also changed in the first fiscal quarter of 2024 and is now calculated by taking the average daily paid service revenue of the last calendar month in the fiscal quarter, multiplied by 365 days. We believe the daily recognition model aligns with our customers’ subscription period and service usage and allows for a more precise measurement of paid service revenue relative to the former methodology of a mid-month convention, which was based on paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. This change in calculation methodology has no material impact on our financial statements or any previously reported ARR numbers. 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.
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Impact of Global Geopolitical, Economic and Business Conditions

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.


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Results of Operations

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:

 Three Months EndedNine Months Ended
 September 29,
2024
October 1,
2023
September 29,
2024
October 1,
2023
 (In thousands, except percentage data)
Revenue:
Products$75,784 55.0 %$78,961 60.7 %$210,463 54.1 %$210,770 59.2 %
Services61,883 45.0 %51,042 39.3 %178,851 45.9 %145,313 40.8 %
Total revenue137,667 100.0 %130,003 100.0 %389,314 100.0 %356,083 100.0 %
Cost of revenue:
Products74,820 54.3 %73,335 56.4 %204,080 52.4 %197,520 55.5 %
Services14,431 10.5 %13,529 10.4 %42,584 11.0 %38,349 10.8 %
Total cost of revenue89,251 64.8 %86,864 66.8 %246,664 63.4 %235,869 66.2 %
Gross profit48,416 35.2 %43,139 33.2 %142,650 36.6 %120,214 33.8 %
Operating expenses:
Research and development17,562 12.8 %16,829 12.9 %57,916 14.9 %52,197 14.7 %
Sales and marketing17,832 13.0 %15,863 12.2 %52,900 13.6 %48,137 13.5 %
General and administrative17,052 12.4 %12,460 9.6 %57,830 14.9 %43,089 12.1 %
Others1,423 1.0 %263 0.3 %2,868 0.7 %1,236 0.4 %
Total operating expenses53,869 39.2 %45,415 35.0 %171,514 44.1 %144,659 40.7 %
Loss from operations(5,453)(4.0)%(2,276)(1.8)%(28,864)(7.5)%(24,445)(6.9)%
Interest income, net1,400 1.0 %1,175 0.9 %4,281 1.1 %2,736 0.8 %
Other income, net
(57)— %10 — %(100)— %23 — %
Loss before income taxes(4,110)(3.0)%(1,091)(0.9)%(24,683)(6.4)%(21,686)(6.1)%
Provision for income taxes329 0.2 %29 — %960 0.2 %1,042 0.3 %
Net loss$(4,439)(3.2)%$(1,120)(0.9)%$(25,643)(6.6)%$(22,728)(6.4)%

Revenue

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.

Our revenue consists of gross revenue, less customer rebates and other channel sales incentives, allowances for estimated sales returns, price protection, and net changes in deferred revenue. A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition.
25


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.

 Three Months EndedNine Months Ended
 September 29,
2024
% ChangeOctober 1,
2023
September 29,
2024
% ChangeOctober 1,
2023
 (In thousands, except percentage data)
Americas$73,303 (8.3)%$79,948 $195,766 (8.8)%$214,716 
Percentage of revenue53.2 %61.5 %50.3 %60.3 %
EMEA57,773 34.7 %42,887 175,980 43.9 %122,317 
Percentage of revenue42.0 %33.0 %45.2 %34.4 %
APAC6,591 (8.0)%7,168 17,568 (7.8)%19,050 
Percentage of revenue4.8 %5.5 %4.5 %5.3 %
Total revenue$137,667 5.9 %$130,003 $389,314 9.3 %$356,083 

Revenue by classification is as follows:
 Three Months EndedNine Months Ended
 September 29,
2024
% ChangeOctober 1,
2023
September 29,
2024
% ChangeOctober 1,
2023
 (In thousands, except percentage data)
Product revenue$75,784 (4.0)%$78,961 $210,463 (0.1)%$210,770 
Service revenue61,883 21.2 %51,042 178,851 23.1 %145,313 
Total revenue$137,667 5.9 %$130,003 $389,314 9.3 %$356,083 


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.

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.

Cost of Revenue

Cost of revenue consists of both product costs and service costs. 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. Service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and computing, IT and facilities overhead.

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
26

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 and service costs and gross margin and allows us to adapt to changing market dynamics and supply chain constraints.

 Three Months EndedNine Months Ended
 September 29,
2024
% ChangeOctober 1,
2023
September 29,
2024
% ChangeOctober 1,
2023
 (In thousands, except percentage data)
Cost of revenue:
Products$74,820 2.0 %$73,335 $204,080 3.3 %$197,520 
Services14,431 6.7 %13,529 42,584 11.0 %38,349 
Total cost of revenue$89,251 2.7 %$86,864 $246,664 4.6 %$235,869 

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.

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.

Gross Profit
 Three Months EndedNine Months Ended
 September 29,
2024
% ChangeOctober 1,
2023
September 29,
2024
% ChangeOctober 1,
2023
 (In thousands, except percentage data)
Gross profit:
Products$964 (82.9)%$5,626 $6,383 (51.8)%$13,250 
Services47,452 26.5 %37,513 136,267 27.4 %106,964 
Total gross profit$48,416 12.2 %$43,139 $