NEWS RELEASE
Arlo Reports Second Quarter 2022 Results
Q2 ARR ended at $117 million, growing 67% year over year
Revenue Growth of 20.7% year over year, exceeding high-end of Guidance for the Quarter
Record GAAP gross profit of $33.7 million, record non-GAAP gross profit of $35.1 million
113% Year over Year growth in Cumulative Paid Accounts, surpassing 1.5 million in July
Delivered GAAP operating loss of $11.3 million, third consecutive quarter of non-GAAP Operating Profit of $1.0 million
Carlsbad, California - August 9, 2022 - Arlo Technologies, Inc. (NYSE: ARLO), a leading smart home security brand, today reported financial results for the second quarter ended July 3, 2022.
Financial Highlights (1)
•Record revenue for any second fiscal quarter of $119.0 million, an increase of 20.7% year over year.
•GAAP gross profit of $33.7 million, an increase of 28.9% year over year; non-GAAP gross profit of $35.1 million, an increase of 27.7% year over year and an all-time record for the company.
•GAAP gross margin of 28.4%; non-GAAP gross margin of 29.5%.
•GAAP operating loss of $11.3 million, a decrease of $14.5 million year over year; non-GAAP operating profit of $1.0 million, an increase of $5.3 million year over year and the third consecutive quarter of non-GAAP operating profitability.
•GAAP net loss per diluted share of $(0.13); non-GAAP net income per diluted share of $0.01.
"The strong growth of our service business coupled with solid execution by the Arlo team continues to deliver exceptional results across all metrics. In Q2, revenue reached $119.0 million for 20.7% growth year over year, above the top end of our guidance and a record for the quarter. This growth was driven by highly profitable ARR, which ended Q2 at $117 million. Arlo posted record non-GAAP gross profit and our third consecutive quarter of non-GAAP operating profitability. These exceptional Q2 results underline how the powerful combination of our recurring revenue business model coupled with our successful channel and product diversification are delivering truly transformative results for Arlo,” said Matthew McRae, Chief Executive Officer of Arlo Technologies. “Having delivered a record-breaking first half year of non-GAAP operating profit, we are looking forward to deploying the building blocks of our long-range plan in the second half of the year. Firstly, we are excited to commence the roll out of our brand awareness advertising campaign this month, which we will conduct in a targeted manner focused on new household formation to drive incremental subscription revenue. Secondly, we will be expanding our product portfolio with our new personal protection app, Arlo Safe, and our new innovative security system, which will bring full sensor-based security functionality to our ecosystem of smart cameras. We expect both of these will be available before the end of the year and will provide significant opportunities to drive new subscriptions and increase ARPU. Thirdly, we continue to broaden our routes to market and build on the success we are seeing with partners such as Verisure, Calix, Verizon and T-Mobile. We look forward to reporting more to you on the success of these initiatives which we believe will drive incremental long-term growth and profitability."
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | June 27, 2021 | July 3, 2022 | June 27, 2021 | |||||||||||||||||||||||||
| (in thousands, except percentage and per share data) | |||||||||||||||||||||||||||||
| Revenue | $ | 118,979 | $ | 124,751 | $ | 98,571 | $ | 243,730 | $ | 181,127 | |||||||||||||||||||
| GAAP Gross Margin | 28.4 | % | 26.9 | % | 26.6 | % | 27.6 | % | 28.7 | % | |||||||||||||||||||
Non-GAAP Gross Margin (1) | 29.5 | % | 27.6 | % | 27.9 | % | 28.5 | % | 29.9 | % | |||||||||||||||||||
| GAAP Net Loss per Diluted Share | $ | (0.13) | $ | (0.10) | $ | (0.28) | $ | (0.23) | $ | (0.42) | |||||||||||||||||||
Non-GAAP Net Income (Loss) per Diluted Share (1) | $ | 0.01 | $ | 0.01 | $ | (0.04) | $ | 0.02 | $ | (0.07) | |||||||||||||||||||
_________________________
(1) Reconciliation of financial measures computed on a GAAP basis to the most directly comparable financial measures computed on a non-GAAP basis is provided at the end of this press release.
Financial and Business Highlights
•Record Q2 service revenue of $32.8 million, for growth of 29.8% year over year.
•Ended Q2 with ARR of $116.6 million, growing 67.2% year over year. (2)
•GAAP service gross margin of 65.2%. Non-GAAP service gross margin of 65.8% in Q2 which is a record for Arlo as a standalone company. (1)
•Added a record 206,000 paid accounts in Q2, a sequential increase of 0.5% over Q1, and a year over year increase of 41.1%.
•Our Go 2 LTE/Wi-Fi camera won the Editor’s Choice Award at PCMag.
_________________________
(1) Reconciliation of financial measures computed on a GAAP basis to the most directly comparable financial measures computed on a non-GAAP basis is provided at the end of this press release.
(2) ARR is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognized from our paid accounts and excludes prepaid service revenue and non-recurring engineering (NRE) service revenue from strategic partners.
Third Quarter 2022 Business Outlook (3)
•Revenue of $125.0 million to $135.0 million.
•GAAP net loss per diluted share of $(0.28) to $(0.21), and non-GAAP net loss per diluted share of $(0.17) to $(0.10).
A reconciliation of our business outlook on a GAAP and non-GAAP basis is provided in the following table:
Three Months Ending October 2, 2022 | |||||||||||
| Revenue | Net Loss per Diluted Share | ||||||||||
| (in millions, except per share data) | |||||||||||
| GAAP | $125.0 - $135.0 | $(0.28) - $(0.21) | |||||||||
Estimated adjustments for (3): | |||||||||||
| Stock-based compensation expense | — | 0.11 | |||||||||
| Tax effects of non-GAAP adjustments | — | — | |||||||||
| Non-GAAP | $125.0 - $135.0 | $(0.17) - $(0.10) | |||||||||
_________________________
(3) 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.
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Investor Conference Call / Webcast Details
Arlo will review the second quarter of 2022 results and discuss management’s expectations for the third quarter of 2022 today, Tuesday, August 9, 2022 at 5:00 p.m. ET (2:00 p.m. PT). The toll-free dial-in number for the live audio call is (888) 660-6387. The international dial-in number for the live audio call is +1 (929) 203-1909. The conference ID for the call is 7749064. A live webcast of the conference call will be available on Arlo’s Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.
About Arlo Technologies, Inc.
Arlo is the award-winning, industry leader that is transforming the way people experience the connected lifestyle. Arlo’s deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. Arlo’s cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. To date, Arlo has launched several categories of award-winning smart connected devices, including wire-free smart Wi-Fi and LTE-enabled security cameras, indoor security cameras, audio and video doorbells, and floodlights.
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.
© 2022 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.
Contact:
Arlo Investor Relations
Erik Bylin
investors@arlo.com
(510) 315-1004
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.’s (the "Company") expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding its potential future business, operating performance and financial condition, including descriptions of its expected revenue, GAAP and non-GAAP gross margins, operating margins, tax rates, expenses, and cash outlook; the deployment of elements of the Company’s long-range plan in the second half of 2022; the commencement of the deployment of the brand awareness advertising campaign and the targeting thereof; the expansion of the Company’s product portfolio with Arlo Safe and the new security system, the timing of availability thereof and the potential to provide opportunities for new subscription and increased ARPU; and the broadening of routes to market and continued relationships with Verisure, Calix, Verizon, and T-Mobile. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: deployment of elements of the Company’s long-range plans may be delayed or may not occur; the deployment of the brand awareness advertising campaign may be delayed or may not occur and the risk that it may not drive incremental paid accounts; the expansion of the Company’s product portfolio with Arlo Safe and the new security system may not materialize; routes to market may not materialize or prove as successful as anticipated; the relationships with Verisure, Calix, Verizon, and T-Mobile may deteriorate; future demand for the Company's products may be lower than anticipated; the Company may be unsuccessful in developing and expanding its sales and marketing capabilities; the COVID-19 pandemic could continue to have an adverse impact on the Company's business, operations and the markets and communities in which the Company and its partners and customers operate; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect the Company 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 “Risk Factors” in the Company's most recently filed Annual Report and Quarterly Report filed with the Securities and Exchange Commission (the “SEC”) and subsequent filings with the SEC. Given these circumstances, you should not place undue reliance on these forward-looking statements. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Non-GAAP Financial Information:
To supplement our unaudited selected financial data presented on a basis consistent with U.S. Generally Accepted Accounting Principles (“GAAP”), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP total operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP other income (expenses), net, non-GAAP provision for income taxes, non-GAAP net income (loss) and non-GAAP net income (loss) per diluted share. These supplemental measures exclude adjustments for separation expense, stock-based compensation expense, litigation reserves, employee retention credit and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.
In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management’s incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results “through the eyes” of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP measures, provide useful information to investors by offering:
–the ability to make more meaningful period-to-period comparisons of our on-going operating results;
–the ability to better identify trends in our underlying business and perform related trend analyses;
–a better understanding of how management plans and measures our underlying business; and
–an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.
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The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:
Separation expense consists of expenses that are related to the separation of our business from NETGEAR. These consist primarily of costs of legal and professional services for IPO-related litigation associated with our separation from NETGEAR. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.
Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, performance-based stock options, restricted stock units, performance-based restricted stock units, shares under the employee stock purchase plan granted to employees and employees' annual bonus in RSU form. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.
Other items are the result of either unique or unplanned events, including, when applicable: litigation reserves, net and employee retention credit. 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
***Financial Tables Attached***
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| ARLO TECHNOLOGIES, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| As of | |||||||||||
| July 3, 2022 | December 31, 2021 | ||||||||||
| (In thousands, except share and per share data) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 85,537 | $ | 175,749 | |||||||
Short-term investments (amortized cost of $49,901 and $—) | 49,721 | — | |||||||||
Accounts receivable, net (net of allowance for credit losses of $405 and $337) | 73,998 | 79,564 | |||||||||
| Inventories | 39,208 | 38,390 | |||||||||
| Prepaid expenses and other current assets | 8,890 | 9,919 | |||||||||
| Total current assets | 257,354 | 303,622 | |||||||||
| Property and equipment, net | 7,478 | 9,595 | |||||||||
| Operating lease right-of-use assets, net | 15,242 | 14,814 | |||||||||
| Goodwill | 11,038 | 11,038 | |||||||||
| Restricted cash | 4,125 | 4,107 | |||||||||
| Other non-current assets | 4,441 | 4,314 | |||||||||
| Total assets | $ | 299,678 | $ | 347,490 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 77,423 | $ | 84,098 | |||||||
| Deferred revenue | 13,445 | 29,442 | |||||||||
| Accrued liabilities | 82,225 | 97,377 | |||||||||
| Income tax payable | 138 | 12 | |||||||||
| Total current liabilities | 173,231 | 210,929 | |||||||||
| Non-current deferred revenue | 577 | 1,344 | |||||||||
| Non-current operating lease liabilities | 21,469 | 21,470 | |||||||||
| Non-current income taxes payable | 94 | 94 | |||||||||
| Other non-current liabilities | 1,906 | 1,001 | |||||||||
| Total liabilities | 197,277 | 234,838 | |||||||||
| 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: 87,529,758 at July 3, 2022 and 84,453,212 at December 31, 2021 | 88 | 84 | |||||||||
| Additional paid-in capital | 411,316 | 401,367 | |||||||||
| Accumulated other comprehensive income | (168) | — | |||||||||
| Accumulated deficit | (308,835) | (288,799) | |||||||||
| Total stockholders’ equity | 102,401 | 112,652 | |||||||||
| Total liabilities and stockholders’ equity | $ | 299,678 | $ | 347,490 | |||||||
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| ARLO TECHNOLOGIES, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | June 27, 2021 | July 3, 2022 | June 27, 2021 | |||||||||||||||||||||||||
| (in thousands, except percentage and per share data) | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Products | $ | 86,191 | $ | 94,825 | $ | 73,311 | $ | 181,016 | $ | 133,072 | |||||||||||||||||||
| Services | 32,788 | 29,926 | 25,260 | 62,714 | 48,055 | ||||||||||||||||||||||||
| Total revenue | 118,979 | 124,751 | 98,571 | 243,730 | 181,127 | ||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||
| Products | 73,829 | 80,777 | 62,019 | 154,606 | 109,176 | ||||||||||||||||||||||||
| Services | 11,410 | 10,399 | 10,383 | 21,809 | 19,975 | ||||||||||||||||||||||||
| Total cost of revenue | 85,239 | 91,176 | 72,402 | 176,415 | 129,151 | ||||||||||||||||||||||||
| Gross profit | 33,740 | 33,575 | 26,169 | 67,315 | 51,976 | ||||||||||||||||||||||||
| Gross margin | 28.4 | % | 26.9 | % | 26.6 | % | 27.6 | % | 28.7 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development | 17,402 | 16,379 | 16,251 | 33,781 | 31,042 | ||||||||||||||||||||||||
| Sales and marketing | 14,506 | 13,168 | 12,459 | 27,674 | 23,666 | ||||||||||||||||||||||||
| General and administrative | 13,149 | 12,621 | 13,559 | 25,770 | 24,786 | ||||||||||||||||||||||||
| Impairment charges | — | — | 9,116 | — | 9,116 | ||||||||||||||||||||||||
| Separation expense | 25 | 79 | 605 | 104 | 659 | ||||||||||||||||||||||||
| Total operating expenses | 45,082 | 42,247 | 51,990 | 87,329 | 89,269 | ||||||||||||||||||||||||
| Loss from operations | (11,342) | (8,672) | (25,821) | (20,014) | (37,293) | ||||||||||||||||||||||||
| Operating margin | (9.5) | % | (7.0) | % | (26.2) | % | (8.2) | % | (20.6) | % | |||||||||||||||||||
| Interest income (expense), net | 129 | (5) | 3 | 124 | 27 | ||||||||||||||||||||||||
| Other income (expense), net | (116) | 411 | 2,662 | 295 | 3,571 | ||||||||||||||||||||||||
| Loss before income taxes | (11,329) | (8,266) | (23,156) | (19,595) | (33,695) | ||||||||||||||||||||||||
| Provision for income taxes | 228 | 213 | 164 | 441 | 344 | ||||||||||||||||||||||||
| Net loss | $ | (11,557) | $ | (8,479) | $ | (23,320) | $ | (20,036) | $ | (34,039) | |||||||||||||||||||
| Net loss per share: | |||||||||||||||||||||||||||||
| Basic | $ | (0.13) | $ | (0.10) | $ | (0.28) | $ | (0.23) | $ | (0.42) | |||||||||||||||||||
| Diluted | $ | (0.13) | $ | (0.10) | $ | (0.28) | $ | (0.23) | $ | (0.42) | |||||||||||||||||||
| Weighted average shares used to compute net loss per share: | |||||||||||||||||||||||||||||
| Basic | 86,868 | 85,222 | 82,134 | 85,966 | 81,275 | ||||||||||||||||||||||||
| Diluted | 86,868 | 85,222 | 82,134 | 85,966 | 81,275 | ||||||||||||||||||||||||
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| ARLO TECHNOLOGIES, INC. | ||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| Six Months Ended | |||||||||||
| July 3, 2022 | June 27, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (20,036) | $ | (34,039) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Stock-based compensation expense | 21,834 | 19,949 | |||||||||
| Impairment charges | — | 9,116 | |||||||||
| Depreciation and amortization | 2,523 | 3,169 | |||||||||
| Allowance for credit losses and inventory reserves | (120) | (1,085) | |||||||||
| Deferred income taxes | 133 | (115) | |||||||||
| Premium amortization (discount accretion) on investments, net | 89 | (3) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | 5,498 | 25,736 | |||||||||
| Inventories | (628) | 22,652 | |||||||||
| Prepaid expenses and other assets | 767 | (4,782) | |||||||||
| Accounts payable | (6,565) | (19,189) | |||||||||
| Deferred revenue | (16,763) | (18,802) | |||||||||
| Accrued and other liabilities | (16,113) | (26,073) | |||||||||
| Net cash used in operating activities | (29,381) | (23,466) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | (451) | (1,066) | |||||||||
| Purchases of short-term investments | (59,490) | — | |||||||||
| Proceeds from maturities of short-term investments | 9,512 | 20,000 | |||||||||
| Net cash provided by (used in) investing activities | (50,429) | 18,934 | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds related to employee benefit plans | 3,171 | 6,136 | |||||||||
| Restricted stock unit withholdings | (13,555) | (9,084) | |||||||||
| Net cash used in financing activities | (10,384) | (2,948) | |||||||||
Net decrease in cash and cash equivalents and restricted cash | (90,194) | (7,480) | |||||||||
| Cash and cash equivalents and restricted cash, at beginning of period | 179,856 | 190,291 | |||||||||
| Cash and cash equivalents and restricted cash, at end of period | $ | 89,662 | $ | 182,811 | |||||||
| Non-cash investing and financing activities: | |||||||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 333 | $ | 549 | |||||||
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| ARLO TECHNOLOGIES, INC. | ||
| RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES | ||
UNAUDITED STATEMENT OF OPERATIONS DATA: | |||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | June 27, 2021 | July 3, 2022 | June 27, 2021 | |||||||||||||||||||||||||
| (in thousands, except percentage data) | |||||||||||||||||||||||||||||
| GAAP gross profit: | |||||||||||||||||||||||||||||
| Products | $ | 12,362 | $ | 14,048 | $ | 11,292 | $ | 26,410 | $ | 23,896 | |||||||||||||||||||
| Services | 21,378 | 19,527 | 14,877 | 40,905 | 28,080 | ||||||||||||||||||||||||
| Total GAAP gross profit | 33,740 | 33,575 | 26,169 | 67,315 | 51,976 | ||||||||||||||||||||||||
| GAAP gross margin: | |||||||||||||||||||||||||||||
| Products | 14.3 | % | 14.8 | % | 15.4 | % | 14.6 | % | 18.0 | % | |||||||||||||||||||
| Services | 65.2 | % | 65.3 | % | 58.9 | % | 65.2 | % | 58.4 | % | |||||||||||||||||||
| Total GAAP gross margin | 28.4 | % | 26.9 | % | 26.6 | % | 27.6 | % | 28.7 | % | |||||||||||||||||||
| Stock-based compensation expense - Products | 1,148 | 855 | 1,289 | 2,003 | 2,163 | ||||||||||||||||||||||||
| Stock-based compensation expense - Services | 187 | 55 | — | 242 | — | ||||||||||||||||||||||||
| Non-GAAP gross profit: | |||||||||||||||||||||||||||||
| Products | 13,510 | 14,903 | 12,581 | 28,413 | 26,059 | ||||||||||||||||||||||||
| Services | 21,565 | 19,582 | 14,877 | 41,147 | 28,080 | ||||||||||||||||||||||||
| Total Non-GAAP gross profit | $ | 35,075 | $ | 34,485 | $ | 27,458 | $ | 69,560 | $ | 54,139 | |||||||||||||||||||
| Non-GAAP gross margin: | |||||||||||||||||||||||||||||
| Products | 15.7 | % | 15.7 | % | 17.2 | % | 15.7 | % | 19.6 | % | |||||||||||||||||||
| Services | 65.8 | % | 65.4 | % | 58.9 | % | 65.6 | % | 58.4 | % | |||||||||||||||||||
| Total Non-GAAP gross margin | 29.5 | % | 27.6 | % | 27.9 | % | 28.5 | % | 29.9 | % | |||||||||||||||||||
| GAAP research and development | $ | 17,402 | $ | 16,379 | $ | 16,251 | $ | 33,781 | $ | 31,042 | |||||||||||||||||||
| Stock-based compensation expense | (3,621) | (2,302) | (3,832) | (5,923) | (6,388) | ||||||||||||||||||||||||
| Non-GAAP research and development | $ | 13,781 | $ | 14,077 | $ | 12,419 | $ | 27,858 | $ | 24,654 | |||||||||||||||||||
| GAAP sales and marketing | $ | 14,506 | $ | 13,168 | $ | 12,459 | $ | 27,674 | $ | 23,666 | |||||||||||||||||||
| Stock-based compensation expense | (1,790) | (1,380) | (1,638) | (3,170) | (2,828) | ||||||||||||||||||||||||
| Non-GAAP sales and marketing | $ | 12,716 | $ | 11,788 | $ | 10,821 | $ | 24,504 | $ | 20,838 | |||||||||||||||||||
| GAAP general and administrative | $ | 13,149 | $ | 12,621 | $ | 13,559 | $ | 25,770 | $ | 24,786 | |||||||||||||||||||
| Stock-based compensation expense | (5,499) | (4,997) | (4,850) | (10,496) | (8,570) | ||||||||||||||||||||||||
| Litigation reserves, net | (65) | (47) | (157) | (112) | (167) | ||||||||||||||||||||||||
| Non-GAAP general and administrative | $ | 7,585 | $ | 7,577 | $ | 8,552 | $ | 15,162 | $ | 16,049 | |||||||||||||||||||
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| ARLO TECHNOLOGIES, INC. | ||
| RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED) | ||
UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED): | |||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | June 27, 2021 | July 3, 2022 | June 27, 2021 | |||||||||||||||||||||||||
| (in thousands, except percentage and per share data) | |||||||||||||||||||||||||||||
| GAAP total operating expenses | $ | 45,082 | $ | 42,247 | $ | 51,990 | $ | 87,329 | $ | 89,269 | |||||||||||||||||||
| Separation expense | (25) | (79) | (605) | (104) | (659) | ||||||||||||||||||||||||
| Stock-based compensation expense | (10,910) | (8,679) | (10,320) | (19,589) | (17,786) | ||||||||||||||||||||||||
| Impairment charges | — | — | (9,116) | — | (9,116) | ||||||||||||||||||||||||
| Litigation reserves, net | (65) | (47) | (157) | (112) | (167) | ||||||||||||||||||||||||
| Non-GAAP total operating expenses | $ | 34,082 | $ | 33,442 | $ | 31,792 | $ | 67,524 | $ | 61,541 | |||||||||||||||||||
| GAAP operating loss | $ | (11,342) | $ | (8,672) | $ | (25,821) | $ | (20,014) | $ | (37,293) | |||||||||||||||||||
| GAAP operating margin | (9.5) | % | (7.0) | % | (26.2) | % | (8.2) | % | (20.6) | % | |||||||||||||||||||
| Separation expense | 25 | 79 | 605 | 104 | 659 | ||||||||||||||||||||||||
| Stock-based compensation expense | 12,245 | 9,589 | 11,609 | 21,834 | 19,949 | ||||||||||||||||||||||||
| Impairment charges | — | — | 9,116 | — | 9,116 | ||||||||||||||||||||||||
| Litigation reserves, net | 65 | 47 | 157 | 112 | 167 | ||||||||||||||||||||||||
| Non-GAAP operating income (loss) | $ | 993 | $ | 1,043 | $ | (4,334) | $ | 2,036 | $ | (7,402) | |||||||||||||||||||
| Non-GAAP operating margin | 0.8 | % | 0.8 | % | (4.4) | % | 0.8 | % | (4.1) | % | |||||||||||||||||||
| GAAP other income (expense), net | $ | (116) | $ | 411 | $ | 2,662 | $ | 295 | $ | 3,571 | |||||||||||||||||||
| Employee Retention Credit | (26) | (39) | (1,811) | (65) | (1,811) | ||||||||||||||||||||||||
| Non-GAAP other income (expense), net | $ | (142) | $ | 372 | $ | 851 | $ | 230 | $ | 1,760 | |||||||||||||||||||
| GAAP provision for income taxes | $ | 228 | $ | 213 | $ | 164 | $ | 441 | $ | 344 | |||||||||||||||||||
| GAAP income tax rate | (2.0) | % | (2.6) | % | (0.7) | % | (2.3) | % | (1.0) | % | |||||||||||||||||||
| Tax effects | — | — | — | — | — | ||||||||||||||||||||||||
| Non-GAAP provision for income taxes | $ | 228 | $ | 213 | $ | 164 | $ | 441 | $ | 344 | |||||||||||||||||||
| Non-GAAP income tax rate | 23.3 | % | 15.1 | % | (4.7) | % | 18.5 | % | (6.1) | % | |||||||||||||||||||
Page 10
| ARLO TECHNOLOGIES, INC. | ||
| RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED) | ||
UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED): | |||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | June 27, 2021 | July 3, 2022 | June 27, 2021 | |||||||||||||||||||||||||
| (in thousands, except percentage and per share data) | |||||||||||||||||||||||||||||
| GAAP net loss | $ | (11,557) | $ | (8,479) | $ | (23,320) | $ | (20,036) | $ | (34,039) | |||||||||||||||||||
| Separation expense | 25 | 79 | 605 | 104 | 659 | ||||||||||||||||||||||||
| Stock-based compensation expense | 12,245 | 9,589 | 11,609 | 21,834 | 19,949 | ||||||||||||||||||||||||
| Impairment charges | — | — | 9,116 | — | 9,116 | ||||||||||||||||||||||||
| Litigation reserves, net | 65 | 47 | 157 | 112 | 167 | ||||||||||||||||||||||||
| Employee Retention Credit | (26) | (39) | (1,811) | (65) | (1,811) | ||||||||||||||||||||||||
| Tax effects | — | — | — | — | — | ||||||||||||||||||||||||
| Non-GAAP net income (loss) | $ | 752 | $ | 1,197 | $ | (3,644) | $ | 1,949 | $ | (5,959) | |||||||||||||||||||
| NET LOSS PER SHARE - BASIC AND DILUTED: | |||||||||||||||||||||||||||||
| GAAP net loss per share - basic and diluted | $ | (0.13) | $ | (0.10) | $ | (0.28) | $ | (0.23) | $ | (0.42) | |||||||||||||||||||
| Separation expense | — | — | 0.01 | — | 0.01 | ||||||||||||||||||||||||
| Stock-based compensation expense | 0.14 | 0.11 | 0.14 | 0.25 | 0.25 | ||||||||||||||||||||||||
| Impairment charges | — | — | 0.11 | — | 0.11 | ||||||||||||||||||||||||
| Tax effects | — | — | — | — | — | ||||||||||||||||||||||||
| Employee Retention Credit | — | — | (0.02) | — | (0.02) | ||||||||||||||||||||||||
| Non-GAAP net income (loss) - diluted | $ | 0.01 | $ | 0.01 | $ | (0.04) | $ | 0.02 | $ | (0.07) | |||||||||||||||||||
| Shares used in computing GAAP net income (loss) - basic | 86,868 | 85,222 | 82,134 | 85,966 | 81,275 | ||||||||||||||||||||||||
| Shares used in computing non-GAAP net income (loss) - diluted | 91,787 | 93,135 | 82,134 | 92,687 | 81,275 | ||||||||||||||||||||||||
Page 11
| ARLO TECHNOLOGIES, INC. | ||
UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION | ||
| Three Months Ended | |||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | December 31, 2021 | October 3, 2021 | June 27, 2021 | |||||||||||||||||||||||||
| (in thousands, except headcount and per share data) | |||||||||||||||||||||||||||||
| Cash, cash equivalents and short-term investments | $ | 135,258 | $ | 145,541 | $ | 175,749 | $ | 166,057 | $ | 178,698 | |||||||||||||||||||
| Cash, cash equivalents and short-term investments per diluted share | $ | 1.47 | $ | 1.56 | $ | 1.94 | $ | 1.98 | $ | 2.18 | |||||||||||||||||||
| Accounts receivable, net | $ | 73,998 | $ | 78,054 | $ | 79,564 | $ | 70,124 | $ | 51,890 | |||||||||||||||||||
| Days sales outstanding | 57 | 58 | 50 | 62 | 48 | ||||||||||||||||||||||||
| Inventories | $ | 39,208 | $ | 37,038 | $ | 38,390 | $ | 39,769 | $ | 43,155 | |||||||||||||||||||
| Inventory turns | 7.5 | 8.7 | 10.5 | 7.6 | 5.7 | ||||||||||||||||||||||||
| Weeks of channel inventory: | |||||||||||||||||||||||||||||
| U.S. retail channel | 11.9 | 15.8 | 7.0 | 14.0 | 8.0 | ||||||||||||||||||||||||
| U.S. distribution channel | 7.4 | 10.5 | 8.5 | 8.0 | 12.5 | ||||||||||||||||||||||||
| APAC distribution channel | 9.8 | 18.1 | 8.9 | 10.2 | 8.6 | ||||||||||||||||||||||||
| Deferred revenue (current and non-current) | $ | 14,022 | $ | 17,375 | $ | 30,786 | $ | 41,686 | $ | 50,903 | |||||||||||||||||||
Cumulative registered accounts (1) | 6,640 | 6,389 | 6,131 | 5,822 | 5,527 | ||||||||||||||||||||||||
Cumulative paid accounts (2) | 1,478 | 1,272 | 1,067 | 877 | 695 | ||||||||||||||||||||||||
Annual recurring revenue (ARR) (3) | $ | 116,601 | $ | 101,341 | $ | 90,100 | $ | 80,400 | $ | 69,753 | |||||||||||||||||||
| Headcount | 354 | 358 | 353 | 346 | 349 | ||||||||||||||||||||||||
| Non-GAAP diluted shares | 91,787 | 93,135 | 90,679 | 83,809 | 82,134 | ||||||||||||||||||||||||
_________________________
(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. 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.
(3) Effective as of the third quarter of 2021, we adopted ARR as one of the key indicators of our business performance. ARR represents the amount of paid service revenue that we expect to recur annually and is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognize from our paid accounts and excludes prepaid service revenue, and NRE service revenue from strategic partners. The ARR for the comparative periods presented was derived following the same methodology. 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.
Page 12
REVENUE BY GEOGRAPHY
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| July 3, 2022 | April 3, 2022 | June 27, 2021 | July 3, 2022 | June 27, 2021 | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentage data) | ||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 60,345 | 51 | % | $ | 68,466 | 55 | % | $ | 66,681 | 68 | % | $ | 128,811 | 53 | % | $ | 116,317 | 65 | % | ||||||||||||||||||||||||
| EMEA | 54,483 | 46 | % | 49,975 | 40 | % | 25,101 | 25 | % | 104,458 | 43 | % | 49,692 | 27 | % | |||||||||||||||||||||||||||||
| APAC | 4,151 | 3 | % | 6,310 | 5 | % | 6,789 | 7 | % | 10,461 | 4 | % | 15,118 | 8 | % | |||||||||||||||||||||||||||||
| Total | $ | 118,979 | 100 | % | $ | 124,751 | 100 | % | $ | 98,571 | 100 | % | $ | 243,730 | 100 | % | $ | 181,127 | 100 | % | ||||||||||||||||||||||||
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