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Arlo Reports Second Quarter 2020 Results

·26-min read

Exceeded Revenue and EPS Guidance

53% Service Revenue Growth Year over Year

Maintained Cash, Cash Equivalents and Short-term Investments of $205.5 million with No Debt

Arlo Technologies, Inc. (NYSE: ARLO), a leading internet-connected security camera brand, today reported financial results for the second quarter ended June 28, 2020.

Financial Highlights (1)

  • Revenue of $66.6 million, a decrease of 20.3% year over year.

  • GAAP gross margin of 8.2%; non-GAAP gross margin of 9.6%.

  • GAAP net loss per diluted share of $(0.38); non-GAAP net loss per diluted share of $(0.31).

  • Cash, cash equivalents and short-term investments of $205.5 million and no debt at the end of Q2.

"I am extraordinarily proud of the team at Arlo for their remarkable execution in outperforming our expectations for the quarter, delivering top and bottom line results above the upper end of our guidance, despite supply and go-to-market challenges," said Matthew McRae, Chief Executive Officer of Arlo Technologies. "Importantly, our new business model that includes a free 90-day trial of Arlo Smart continues to show very strong conversion rates and once again we set records for registered accounts, paid accounts and service revenue. The launch of the Arlo Essential Spotlight Camera, the latest addition to our award-winning smart home security ecosystem, completes our transition to this new business model and addresses the fastest growing price segment in the market. I believe the second quarter marks an inflection point in our subscription business and expect this momentum to continue."

Three Months Ended

Six Months Ended

June 28, 2020

March 29, 2020

June 30, 2019

June 28, 2020

June 30, 2019

(in thousands, except percentage and per share data)

Revenue

$

66,632

$

65,450

$

83,598

$

132,082

$

141,478

GAAP Gross Margin

8.2

%

6.0

%

11.5

%

7.1

%

8.2

%

Non-GAAP Gross Margin

9.6

%

7.4

%

12.5

%

8.5

%

9.3

%

GAAP Net Income (Loss) per Diluted Share

$

(0.38)

$

(0.51)

$

(0.45)

$

(0.89)

$

(1.01)

Non-GAAP Net Income (Loss) per Diluted Share

$

(0.31)

$

(0.34)

$

(0.36)

$

(0.64)

$

(0.83)

_________________________

(1)

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

Business Highlights

  • Added a record 43,000 paid accounts in Q2, a sequential increase of 72% over Q1.

  • Cash, cash equivalents, and short term investments balance of $205.5 million and no debt at the end of Q2.

  • 59.4% year over year paid account growth in Q2.

  • Service revenue of $17.0 million for Q2, for growth of 52.7% year over year.

  • Announced an agreement with Securitas Security Services USA for integration of Arlo SmartCloud and our award winning cameras into their platform, enabling centralized, remote monitoring of their commercial assets and efficient deployment of their Remote Guarding services for their commercial clients.

  • Launched the all-new Arlo Essential Spotlight Camera, which features high definition video, two-way audio, an integrated spotlight, color night vision, and six months of battery life. The Essential Spotlight Camera can connect directly to a Wi-Fi network without the optional smart hub, providing users greater flexibility, and is also paired with a three month subscription to Arlo Smart.

Third Quarter 2020 Business Outlook (2)

  • Revenue of $85.0 million to $95.0 million.

  • GAAP net loss per diluted share of $(0.41) to $(0.32), and non-GAAP net loss per diluted share of $(0.33) to $(0.24).

Due to the uncertainty presented by the ongoing COVID-19 pandemic Arlo has suspended providing full year guidance.

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

Three Months Ending September 27, 2020

Revenue

Net Loss per Diluted
Share

(in millions, except per share data)

GAAP

$85.0 - $95.0

($0.41) - ($0.32)

Estimated adjustments for (2) :

Stock-based compensation expense

0.08

Tax effects of non-GAAP adjustments

Non-GAAP

$85.0 - $95.0

($0.33) - ($0.24)

_________________________

(2)

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

Investor Conference Call / Webcast Details

Arlo will review the second quarter of 2020 results and discuss managements expectations for the third quarter of 2020 today, Wednesday, August 5, 2020 at 5:00 p.m. ET (2:00 p.m. PT). The toll free dial-in number for the live audio call is (866) 393-4306. The international dial-in number for the live audio call is (734) 385-2616. The conference ID for the call is 9584805. A live webcast of the conference call will be available on Arlos Investor Relations website at https://investor.arlo.com . A replay of the call will be available via the web at https://investor.arlo.com .

About Arlo Technologies, Inc.

Arlo (NYSE: ARLO) is the award-winning, industry leader that is transforming the way people experience the connected lifestyle. Arlos deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. Arlos cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. To date, Arlo has launched several categories of award-winning smart connected devices, including wire-free smart Wi-Fi and LTE-enabled cameras, video doorbells and floodlight cameras.

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

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

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

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate," "expect," "believe," "will," "may," "should," "estimate," "project," "outlook," "forecast" or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: Arlos future operating performance and financial condition, expected revenue, GAAP and non-GAAP gross margins, operating margins, and tax expense; expectations regarding market expansion and future growth; plans to invest in product innovation; Arlo's future product offerings; and the quote from Arlo's Chief Executive Officer. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may incur additional costs and charges associated with the transactions contemplated by the Verisure partnership; the Company may not receive the minimum commitment amounts from Verisure; the COVID-19 pandemic could have an adverse impact on the Company's business, operations and the markets and communities in which Arlo and its partners and customers operate; the Company may fail to successfully continue to effect operating expense savings; changes in the level of Arlo's cash resources and the Company's planned usage of such resources; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; the actions and financial health of the Company's customers; the anticipated financial capacity under Arlo's revolving credit line may not be available when expected, or at all; and the Company may not be able to carry out its restructuring plan. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect Arlo and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Part II - Item 1A. Risk Factors," in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020, filed with the Securities and Exchange Commission on May 11, 2020 and other periodic filings with the Securities and Exchange Commission. Given these circumstances, you should not place undue reliance on these forward-looking statements. Arlo undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Arlo-F

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of

June 28,
2020

December 31,
2019

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$

185,424

$

236,680

Short-term investments

20,030

19,990

Accounts receivable, net

46,466

127,317

Inventories

65,814

68,624

Prepaid expenses and other current assets

9,948

16,958

Total current assets

327,682

469,569

Property and equipment, net

18,210

21,352

Operating lease right-of-use assets, net

26,048

31,300

Intangibles, net

594

1,306

Goodwill

11,038

11,038

Restricted cash

4,141

4,139

Other non-current assets

2,244

4,008

Total assets

$

389,957

$

542,712

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

52,902

$

111,650

Deferred revenue

44,287

50,362

Accrued liabilities

99,423

127,400

Income tax payable

3,491

4,489

Total current liabilities

200,103

293,901

Non-current deferred revenue

10,259

15,736

Non-current operating lease liabilities

27,026

29,001

Non-current income taxes payable

92

92

Other non-current liabilities

573

606

Total liabilities

238,053

339,336

Stockholders Equity:

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

Common stock: : $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 78,089,035 at June 28, 2020 and 75,785,952 at December 31, 2019

78

76

Additional paid-in capital

351,913

334,821

Accumulated other comprehensive income

14

(2)

Accumulated deficit

(200,101)

(131,519)

Total stockholders equity

151,904

203,376

Total liabilities and stockholders equity

$

389,957

$

542,712

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage and per share data)

Revenue:

Products

$

49,603

$

50,723

$

72,445

$

100,326

$

119,053

Services

17,029

14,727

11,153

31,756

22,425

Total revenue

66,632

65,450

83,598

132,082

141,478

Cost of revenue:

Products

51,186

52,188

67,839

103,374

118,123

Services

9,957

9,309

6,109

19,266

11,760

Total cost of revenue

61,143

61,497

73,948

122,640

129,883

Gross profit

5,489

3,953

9,650

9,442

11,595

Gross margin

8.2

%

6.0

%

11.5

%

7.1

%

8.2

%

Operating expenses:

Research and development

14,192

15,243

17,594

29,435

35,755

Sales and marketing

11,713

11,038

14,511

22,751

28,732

General and administrative

9,837

18,784

10,914

28,621

21,450

Separation expense

82

79

717

161

1,623

Gain on sale of business

(292)

(292)

Total operating expenses

35,824

44,852

43,736

80,676

87,560

Loss from operations

(30,335)

(40,899)

(34,086)

(71,234)

(75,965)

Operating margin

(45.5)

%

(62.5)

%

(40.8)

%

(53.9)

%

(53.7)

%

Interest income

151

535

712

686

1,574

Other income (expense), net

1,111

1,183

31

2,294

(16)

Loss before income taxes

(29,073)

(39,181)

(33,343)

(68,254)

(74,407)

Provision for income taxes

183

145

349

328

569

Net loss

$

(29,256)

$

(39,326)

$

(33,692)

$

(68,582)

$

(74,976)

Net loss per share:

Basic

$

(0.38)

$

(0.51)

$

(0.45)

$

(0.89)

$

(1.01)

Diluted

$

(0.38)

$

(0.51)

$

(0.45)

$

(0.89)

$

(1.01)

Weighted average shares used to compute net loss per share:

Basic

77,885

76,560

74,729

77,229

74,569

Diluted

77,885

76,560

74,729

77,229

74,569

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

June 28,
2020

June 30,
2019

(In thousands)

Cash flows from operating activities:

Net loss

$

(68,582)

$

(74,976)

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

Depreciation and amortization

5,476

4,980

Stock-based compensation expense

17,337

10,042

Allowance for (Release of) credit losses and inventory reserves

1,182

(51)

Gain on sale of business

(292)

Deferred income taxes

27

74

Premium amortization / discount accretion on investments, net

44

(274)

Changes in assets and liabilities:

Accounts receivable, net

80,650

85,916

Inventories

1,827

28,042

Prepaid expenses and other assets

8,745

1,784

Accounts payable

(58,669)

(59,865)

Deferred revenue

(11,553)

(2,527)

Accrued and other liabilities

(24,875)

(47,806)

Net cash used in operating activities

(48,683)

(54,661)

Cash flows from investing activities:

Purchases of property and equipment

(1,184)

(7,116)

Purchases of short-term investments

(25,094)

(24,793)

Maturities of short-term investments

25,000

30,000

Net cash used in investing activities

(1,278)

(1,909)

Cash flows from financing activities:

Proceeds related to employee benefit plans

1,856

12

Restricted stock unit withholdings

(3,149)

(1,682)

Net cash used in financing activities

(1,293)

(1,670)

Net decrease in cash and cash equivalents and restricted cash

(51,254)

(58,240)

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

240,819

155,424

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

$

189,565

$

97,184

Non-cash investing and financing activities:

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

$

1,523

$

(2,753)

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

$

$

(21,610)

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

STATEMENT OF OPERATIONS DATA:

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage data)

GAAP gross profit

$

5,489

$

3,953

$

9,650

$

9,442

$

11,595

GAAP gross margin

8.2

%

6.0

%

11.5

%

7.1

%

8.2

%

Stock-based compensation expense

562

503

450

1,065

819

Amortization of intangibles

357

356

382

713

763

Restructuring and other charges

23

23

Non-GAAP gross profit

$

6,408

$

4,835

$

10,482

$

11,243

$

13,177

Non-GAAP gross margin

9.6

%

7.4

%

12.5

%

8.5

%

9.3

%

GAAP research and development

$

14,192

$

15,243

$

17,594

$

29,435

$

35,755

Stock-based compensation expense

(1,729)

(1,660)

(1,635)

(3,389)

(2,932)

Restructuring and other charges

Non-GAAP research and development

$

12,463

$

13,583

$

15,959

$

26,046

$

32,823

GAAP sales and marketing

$

11,713

$

11,038

$

14,511

$

22,751

$

28,732

Stock-based compensation expense

(984)

(751)

(991)

(1,735)

(1,931)

Restructuring and other charges

Non-GAAP sales and marketing

$

10,729

$

10,287

$

13,520

$

21,016

$

26,801

GAAP general and administrative

$

9,837

$

18,784

$

10,914

$

28,621

$

21,450

Stock-based compensation expense

(1,289)

(9,859)

(2,313)

(11,148)

(4,360)

Restructuring and other charges

(21)

(21)

Strategic initiative and transaction expenses

(206)

(545)

(751)

Litigation reserves, net

(249)

(7)

(256)

Non-GAAP general and administrative

$

8,093

$

8,352

$

8,601

$

16,445

$

17,090

GAAP total operating expenses

$

35,824

$

44,852

$

43,736

$

80,676

$

87,560

Separation expense

(82)

(79)

(717)

(161)

(1,623)

Strategic initiative and transaction expenses

(206)

(545)

(751)

Stock-based compensation expense

(4,002)

(12,270)

(4,939)

(16,272)

(9,223)

Restructuring and other charges

(21)

(21)

Litigation reserves, net

(249)

(7)

(256)

Activist shareholder response costs

(237)

(237)

Gain on sale of business

292

292

Non-GAAP total operating expenses

$

31,285

$

32,222

$

37,843

$

63,507

$

76,477

ARLO TECHNOLOGIES, INC.

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

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage and per share data)

GAAP operating loss

$

(30,335)

$

(40,899)

$

(34,086)

$

(71,234)

$

(75,965)

GAAP operating margin

(45.5)

%

(62.5)

%

(40.8)

%

(53.9)

%

(53.7)

%

Separation expense

82

79

717

161

1,623

Strategic initiative and transaction expenses

206

545

751

Stock-based compensation expense

4,564

12,773

5,389

17,337

10,042

Amortization of intangibles

357

356

382

713

763

Restructuring and other charges

44

44

Litigation reserves, net

249

7

256

Activist shareholder response costs

237

237

Gain on sale of business

(292)

(292)

Non-GAAP operating loss

$

(24,877)

$

(27,387)

$

(27,361)

$

(52,264)

$

(63,300)

Non-GAAP operating margin

(37.3)

%

(41.8)

%

(32.7)

%

(39.6)

%

(44.7)

%

GAAP provision for income taxes

$

183

$

145

$

349

$

328

$

569

GAAP income tax rate

(0.6)

%

(0.4)

%

(1.0)

%

(0.5)

%

(0.8)

%

Tax effects

2

29

142

31

142

Non-GAAP provision for income taxes

$

181

$

116

$

207

$

297

$

427

Non-GAAP income tax rate

(0.8)

%

(0.5)

%

(0.8)

%

(0.6)

%

(0.7)

%

GAAP net loss

$

(29,256)

$

(39,326)

$

(33,692)

$

(68,582)

$

(74,976)

Separation expense

82

79

717

161

1,623

Strategic initiative and transaction expenses

206

545

751

Stock-based compensation expense

4,564

12,773

5,389

17,337

10,042

Amortization of intangibles

357

356

382

713

763

Restructuring and other charges

44

44

Litigation reserves, net

249

7

256

Activist shareholder response costs

237

237

Gain on sale of business

(292)

(292)

Tax effects

2

29

142

31

142

Non-GAAP net loss

$

(23,796)

$

(25,785)

$

(26,825)

$

(49,581)

$

(62,169)

ARLO TECHNOLOGIES, INC.

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

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage and per share data)

NET INCOME (LOSS) PER DILUTED SHARE:

GAAP net income (loss) per diluted share

$

(0.38)

$

(0.51)

$

(0.45)

$

(0.89)

$

(1.01)

Separation expense

0.01

0.01

0.02

Strategic initiative and transaction expenses

0.01

0.01

Stock-based compensation expense

0.06

0.16

0.07

0.22

0.15

Amortization of intangibles

0.01

0.01

0.01

0.01

Restructuring and other charges

Litigation reserves, net

Gain on sale of business

Tax effects

0.00

Non-GAAP net loss per diluted share

$

(0.31)

$

(0.34)

$

(0.36)

$

(0.64)

$

(0.83)

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

77,885

76,560

74,729

77,229

74,569

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

77,885

76,560

74,729

77,229

74,569

ARLO TECHNOLOGIES, INC.

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended

June 28,
2020

March 29,
2020

December 31,
2019

September 29,
2019

June 30,
2019

(in thousands, except headcount and per share data)

Cash, cash equivalents and short-term investments

$

205,454

$

206,582

$

256,670

$

153,811

$

137,927

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

$

2.64

$

2.70

$

3.37

$

2.04

$

1.85

Accounts receivable, net

$

46,466

$

61,376

$

127,317

$

99,698

$

79,707

Days sales outstanding

63

83

97

85

87

Inventories

$

65,814

$

61,027

$

68,624

$

74,117

$

97,222

Inventory turns

3.1

3.4

5.9

4.8

2.8

Weeks of channel inventory:

U.S. retail channel

6.6

13.7

6.3

13.3

10.1

U.S. distribution channel

8.4

20.3

8.0

3.3

8.9

APAC distribution channel

6.8

6.0

3.6

4.3

5.1

Deferred revenue (current and non-current)

$

54,546

$

59,848

$

66,098

$

47,995

$

47,464

Cumulative registered accounts (1)

4,518

4,245

4,015

3,691

3,397

Cumulative paid accounts (2)

298

255

230

211

187

Headcount

355

356

349

406

402

Non-GAAP diluted shares

77,885

76,560

76,090

75,337

74,729

_________________________

(1)

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

(2)

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

REVENUE BY GEOGRAPHY

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage data)

Americas

$

50,971

76

%

$

50,158

77

%

$

64,564

77

%

$

101,129

77

%

$

108,930

77

%

EMEA

11,263

17

%

7,573

11

%

15,066

18

%

18,836

14

%

24,368

17

%

APAC

4,398

7

%

7,719

12

%

3,968

5

%

12,117

9

%

8,180

6

%

Total

$

66,632

100

%

$

65,450

100

%

$

83,598

100

%

$

132,082

100

%

$

141,478

100

%

Contacts

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

(751)

(991)

(1,735)

(1,931)

Restructuring and other charges

Non-GAAP sales and marketing

$

10,729

$

10,287

$

13,520

$

21,016

$

26,801

GAAP general and administrative

$

9,837

$

18,784

$

10,914

$

28,621

$

21,450

Stock-based compensation expense

(1,289)

(9,859)

(2,313)

(11,148)

(4,360)

Restructuring and other charges

(21)

(21)

Strategic initiative and transaction expenses

(206)

(545)

(751)

Litigation reserves, net

(249)

(7)

(256)

Non-GAAP general and administrative

$

8,093

$

8,352

$

8,601

$

16,445

$

17,090

GAAP total operating expenses

$

35,824

$

44,852

$

43,736

$

80,676

$

87,560

Separation expense

(82)

(79)

(717)

(161)

(1,623)

Strategic initiative and transaction expenses

(206)

(545)

(751)

Stock-based compensation expense

(4,002)

(12,270)

(4,939)

(16,272)

(9,223)

Restructuring and other charges

(21)

(21)

Litigation reserves, net

(249)

(7)

(256)

Activist shareholder response costs

(237)

(237)

Gain on sale of business

292

292

Non-GAAP total operating expenses

$

31,285

$

32,222

$

37,843

$

63,507

$

76,477

ARLO TECHNOLOGIES, INC.

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

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage and per share data)

GAAP operating loss

$

(30,335)

$

(40,899)

$

(34,086)

$

(71,234)

$

(75,965)

GAAP operating margin

(45.5)

%

(62.5)

%

(40.8)

%

(53.9)

%

(53.7)

%

Separation expense

82

79

717

161

1,623

Strategic initiative and transaction expenses

206

545

751

Stock-based compensation expense

4,564

12,773

5,389

17,337

10,042

Amortization of intangibles

357

356

382

713

763

Restructuring and other charges

44

44

Litigation reserves, net

249

7

256

Activist shareholder response costs

237

237

Gain on sale of business

(292)

(292)

Non-GAAP operating loss

$

(24,877)

$

(27,387)

$

(27,361)

$

(52,264)

$

(63,300)

Non-GAAP operating margin

(37.3)

%

(41.8)

%

(32.7)

%

(39.6)

%

(44.7)

%

GAAP provision for income taxes

$

183

$

145

$

349

$

328

$

569

GAAP income tax rate

(0.6)

%

(0.4)

%

(1.0)

%

(0.5)

%

(0.8)

%

Tax effects

2

29

142

31

142

Non-GAAP provision for income taxes

$

181

$

116

$

207

$

297

$

427

Non-GAAP income tax rate

(0.8)

%

(0.5)

%

(0.8)

%

(0.6)

%

(0.7)

%

GAAP net loss

$

(29,256)

$

(39,326)

$

(33,692)

$

(68,582)

$

(74,976)

Separation expense

82

79

717

161

1,623

Strategic initiative and transaction expenses

206

545

751

Stock-based compensation expense

4,564

12,773

5,389

17,337

10,042

Amortization of intangibles

357

356

382

713

763

Restructuring and other charges

44

44

Litigation reserves, net

249

7

256

Activist shareholder response costs

237

237

Gain on sale of business

(292)

(292)

Tax effects

2

29

142

31

142

Non-GAAP net loss

$

(23,796)

$

(25,785)

$

(26,825)

$

(49,581)

$

(62,169)

ARLO TECHNOLOGIES, INC.

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

STATEMENT OF OPERATIONS DATA (CONTINUED):

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage and per share data)

NET INCOME (LOSS) PER DILUTED SHARE:

GAAP net income (loss) per diluted share

$

(0.38)

$

(0.51)

$

(0.45)

$

(0.89)

$

(1.01)

Separation expense

0.01

0.01

0.02

Strategic initiative and transaction expenses

0.01

0.01

Stock-based compensation expense

0.06

0.16

0.07

0.22

0.15

Amortization of intangibles

0.01

0.01

0.01

0.01

Restructuring and other charges

Litigation reserves, net

Gain on sale of business

Tax effects

0.00

Non-GAAP net loss per diluted share

$

(0.31)

$

(0.34)

$

(0.36)

$

(0.64)

$

(0.83)

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

77,885

76,560

74,729

77,229

74,569

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

77,885

76,560

74,729

77,229

74,569

ARLO TECHNOLOGIES, INC.

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended

June 28,
2020

March 29,
2020

December 31,
2019

September 29,
2019

June 30,
2019

(in thousands, except headcount and per share data)

Cash, cash equivalents and short-term investments

$

205,454

$

206,582

$

256,670

$

153,811

$

137,927

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

$

2.64

$

2.70

$

3.37

$

2.04

$

1.85

Accounts receivable, net

$

46,466

$

61,376

$

127,317

$

99,698

$

79,707

Days sales outstanding

63

83

97

85

87

Inventories

$

65,814

$

61,027

$

68,624

$

74,117

$

97,222

Inventory turns

3.1

3.4

5.9

4.8

2.8

Weeks of channel inventory:

U.S. retail channel

6.6

13.7

6.3

13.3

10.1

U.S. distribution channel

8.4

20.3

8.0

3.3

8.9

APAC distribution channel

6.8

6.0

3.6

4.3

5.1

Deferred revenue (current and non-current)

$

54,546

$

59,848

$

66,098

$

47,995

$

47,464

Cumulative registered accounts (1)

4,518

4,245

4,015

3,691

3,397

Cumulative paid accounts (2)

298

255

230

211

187

Headcount

355

356

349

406

402

Non-GAAP diluted shares

77,885

76,560

76,090

75,337

74,729

_________________________

(1)

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

(2)

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

REVENUE BY GEOGRAPHY

Three Months Ended

Six Months Ended

June 28,
2020

March 29,
2020

June 30,
2019

June 28,
2020

June 30,
2019

(in thousands, except percentage data)

Americas

$

50,971

76

%

$

50,158

77

%

$

64,564

77

%

$

101,129

77

%

$

108,930

77

%

EMEA

11,263

17

%

7,573

11

%

15,066

18

%

18,836

14

%

24,368

17

%

APAC

4,398

7

%

7,719

12

%

3,968

5

%

12,117

9

%

8,180

6

%

Total

$

66,632

100

%

$

65,450

100

%

$

83,598

100

%

$

132,082

100

%

$

141,478

100

%

View source version on businesswire.com: https://www.businesswire.com/news/home/20200805005901/en/

Contacts

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