EX-99.1 2 arloexhibit99119q3earn.htm EXHIBIT 99.1 Exhibit


arlologoa14.jpg
NEWS RELEASE

Arlo Reports Third Quarter 2019 Results

Exceeded High End of Revenue and EPS Guidance
Executes Sale of European Commercial Operations for $50 Million
Secured $40 Million Revolving Credit Line
Announces Restructuring to Reduce Costs


SAN JOSE, California - November 7, 2019 - Arlo Technologies, Inc. (NYSE: ARLO), the #1 network connected camera brand (1), today reported financial results for the third quarter ended September 29, 2019.

Third Quarter 2019 Financial Highlights

•
Revenue of $106.1 million.
•
GAAP gross margin of 9.9%; non-GAAP gross margin of 10.7%.
•
GAAP net loss per diluted share of $0.41, non-GAAP net loss per diluted share of $0.32.

“Arlo delivered on numerous operational and financial fronts to make the last quarter truly transformative. To position Arlo for the holiday season, we brought two important new products to market with the launch of the Pro 3 and the first channel shipments of the new Video Doorbell generally available in late November. We announced an agreement with Verisure, the leading provider of monitored security solutions in Europe, that will provide a substantial cash infusion, revenue growth opportunities, and greater channel exposure. We have maintained a strong focus on operational discipline and implemented a restructuring plan to deliver cost savings while also securing a $40 million revolving credit line,” said Matthew McRae, Chief Executive Officer of Arlo Technologies. “With these accomplishments, we have substantially altered Arlo’s trajectory. As we diversify the business to capture growth opportunities, I believe our innovative products and strategic partnerships solidly position Arlo on the path to growth and profitability.”

Business Highlights

•
Service revenue of $11.8 million for Q3’19, for growth of 20.2% year over year.
•
68.8% year over year paid subscriber growth in Q3.
•
47.8% year over year cumulative registered user growth in Q3.
•
Launched the Arlo Pro 3, the newest camera in our popular Pro line with 2K resolution, color night vision, integrated spotlight, 160° field of view and mid-level price point paired with a three month subscription to Arlo Smart.
•
Commenced shipping of the Video Doorbell into the channel for late November availability, our first video integrated product in this fast-growing space, which features an industry-leading vertical field-of-view with a unique 1:1 aspect ratio, and SIP technology for true video calls to your mobile device.
•
Announced definitive agreements to enter into a strategic partnership with Verisure, a leading provider of professionally monitored security solutions. This partnership will provide cash, revenue, and diversification for Arlo on both a regional and channel basis. Verisure will pay Arlo $50 million for Arlo's European commercial operations, creating the first European multi-channel go to market strategy for consumer security and surveillance services. Additionally, Verisure will purchase a minimum of $500 million cumulatively of Arlo products over the next five years to be distributed by Verisure and will also purchase associated Arlo cloud services.

Page 1


•
Announced a restructuring plan that has already resulted in lower operating expenses in Q3. We anticipate that savings from the restructuring plan will be fully actualized by the second quarter of 2020, and estimate that such savings will lower ongoing GAAP operating expenses to an annualized run rate of approximately $39.0-$40.0 million per quarter, and ongoing non-GAAP operating expenses to an annualized run rate of approximately $33.0-$34.0 million per quarter, contingent on the successful closing of the Verisure transaction.(2)  
•
Secured a $40 million revolving credit line.
•
As previously disclosed, in April 2019 the Company’s Board of Directors commenced a comprehensive strategic review of the Company. On November 7, 2019, the Company announced that the strategic review had formally concluded, but that the Company will continue to evaluate a wide range of strategic alternatives available to the Company to optimize the value of the Company and to improve returns to its stockholders.
_________________________
(1) The NPD Group, Inc., U.S. Retail Tracking Service, Security & Monitoring, Camera Technology: Decentralized IP Camera and Centralized IP Camera, based on Dollars, Jan 2018-June 2019.
(2) The estimated ongoing non-GAAP operating expenses per quarter are adjusted for and do not include approximately $6.0 million of stock-based compensation expense per quarter.


Fourth Quarter 2019 Business Outlook (3) 

•
Revenue of $115 million to $125 million
•
GAAP gross margin between 9.9% and 12.9%, and non-GAAP gross margin between 10.5% and 13.5%
•
GAAP net loss per diluted share of ($0.45) to ($0.39), and non-GAAP net loss per diluted share of ($0.34) to ($0.28)
•
GAAP Operating loss of $35 million to $30 million and non-GAAP operating loss of $26 million to $21 million.
•
GAAP and non-GAAP tax expense of $0.4 million

A reconciliation of our business outlook on a GAAP and non-GAAP basis is provided in the following table:
 
Three Months Ending December 31, 2019
 
Gross
Margin Rate
 
Net Loss
per Diluted Share
 
Tax
Expense
 
Operating Loss
 
 
 
 
 
(in millions)
 
(in millions)
GAAP
9.9% - 12.9%
 
($0.45) - ($0.39)
 
$0.4
 
($34.8) - ($30.0)
Estimated adjustments for (3):
 
 
 
 
 
 
 
Separation expense
__
 
$0.01
 
__
 
$0.5
Stock-based compensation expense
0.3%
 
$0.07
 
__
 
$5.5
Strategic initiative expense
__
 
$0.01
 
 
 
$1.0
Amortization of intangibles
0.3%
 
$0.00
 
__
 
$0.4
Restructuring and other charges
__
 
$0.02
 
__
 
$1.5
Tax effects of non-GAAP adjustments
__
 
__
 
__
 
__
Non-GAAP
10.5% - 13.5%
 
($0.34) - ($0.28)
 
$0.4
 
($25.9) - ($21.1)
_________________________
(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.

Page 2



Investor Conference Call / Webcast Details

Arlo will review the third quarter of 2019 results and discuss management’s expectations for the fourth quarter of 2019 today, Thursday, November 7, 2019 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 5695255. 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 (NYSE: 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 cameras, advanced baby monitors and smart security lights.

© 2019 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





Page 3


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: Arlo’s 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; the expected closing of the transactions contemplated by the agreement with Verisure and the expected timing thereof, the Verisure minimum commitment amounts; the financial capacity available under the revolving credit line; and the impact and timing of the restructuring plan . 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 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 Verisure transaction may not close in a timely manner or at all; the Company may incur additional costs and charges associated with the transactions contemplated by the Verisure agreement; the Company may not receive the minimum commitment amounts from Verisure; the anticipated financial capacity under the 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 June 30, 2019, filed with the Securities and Exchange Commission on August 6, 2019. 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 expense, 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, 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.

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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 expense consist of legal fees 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.
 

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

-Financial Tables Attached-

Page 5


ARLO TECHNOLOGIES, INC.
 
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
As of
 
September 29,
2019
 
December 31,
2018
 
(in thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
113,870

 
$
151,290

Short-term investments
39,941

 
49,737

Accounts receivable, net
99,698

 
166,045

Inventories
74,117

 
124,791

Prepaid expenses and other current assets
16,088

 
23,611

Total current assets
343,714

 
515,474

Property and equipment, net
24,216

 
49,428

Operating lease right-of-use assets, net
32,008

 
—

Intangibles, net
1,679

 
2,823

Goodwill
15,638

 
15,638

Restricted cash
4,130

 
4,134

Other non-current assets
5,610

 
8,449

Total assets
$
426,995

 
$
595,946

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
57,772

 
$
82,542

Deferred revenue
28,443

 
26,678

Accrued liabilities
110,071

 
172,036

Income tax payable
995

 
734

Total current liabilities
197,281

 
281,990

Non-current deferred revenue
19,552

 
23,313

Non-current operating lease liabilities
30,484

 
—

Non-current financing lease obligation
—

 
19,978

Non-current income taxes payable
58

 
22

Other non-current liabilities
14

 
1,141

Total liabilities
247,389

 
326,444

Stockholders’ Equity:
 
 
 
Common stock
76

 
74

Additional paid-in capital
330,618

 
315,277

Accumulated other comprehensive income
46

 
—

Accumulated deficit
(151,134
)
 
(45,849
)
Total stockholders’ equity
179,606

 
269,502

Total liabilities and stockholders’ equity
$
426,995

 
$
595,946



Page 6


ARLO TECHNOLOGIES, INC.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended
 
Nine Months Ended
 
September 29,
2019
 
June 30,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018 (1)
 
(in thousands, except percentage and per share data)
Revenue:
 
 
 
 
 
 
 
 
 
Products
$
94,306

 
$
72,445

 
$
121,347

 
$
213,359

 
$
315,678

Services
11,810

 
11,153

 
9,827

 
34,235

 
27,082

Total revenue
106,116

 
83,598

 
131,174

 
247,594

 
342,760

Cost of revenue:
 
 
 
 
 
 
 
 
 
Products
88,755

 
67,839

 
96,754

 
206,878

 
241,808

Services
6,858

 
6,109

 
4,673

 
18,618

 
13,858

Total cost of revenue
95,613

 
73,948

 
101,427

 
225,496

 
255,666

Gross profit
10,503

 
9,650

 
29,747

 
22,098

 
87,094

Gross margin
9.9
 %
 
11.5
 %
 
22.7
 %
 
8.9
 %
 
25.4
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
16,701

 
17,594

 
16,100

 
52,456

 
41,929

Sales and marketing
13,657

 
14,511

 
12,843

 
42,389

 
37,123

General and administrative
11,062

 
10,914

 
8,357

 
32,512

 
19,553

Separation expense
137

 
717

 
5,823

 
1,760

 
23,649

Total operating expenses
41,557

 
43,736

 
43,123

 
129,117

 
122,254

Loss from operations
(31,054
)
 
(34,086
)
 
(13,376
)
 
(107,019
)
 
(35,160
)
Operating margin
(29.3
)%
 
(40.8
)%
 
(10.2
)%
 
(43.2
)%
 
(10.3
)%
Interest income
596

 
712

 
503

 
2,170

 
503

Other income (expense), net
154

 
31

 
(129
)
 
138

 
(923
)
Loss before income taxes
(30,304
)
 
(33,343
)
 
(13,002
)
 
(104,711
)
 
(35,580
)
Provision for income taxes
286

 
349

 
223

 
855

 
830

Net loss
$
(30,590
)
 
$
(33,692
)
 
$
(13,225
)
 
$
(105,566
)
 
$
(36,410
)
Net loss per share:
 
 
 
 
 
 
 
 
 
Basic
$
(0.41
)
 
$
(0.45
)
 
$
(0.19
)
 
$
(1.41
)
 
$
(0.56
)
Diluted
$
(0.41
)
 
$
(0.45
)
 
$
(0.19
)
 
$
(1.41
)
 
$
(0.56
)
Weighted average shares used to compute net loss per share:
 
 
 
 
 
 
 
 
 
Basic
75,337

 
74,729

 
69,600

 
74,831

 
64,867

Diluted
75,337

 
74,729

 
69,600

 
74,831

 
64,867

________________________
(1) The nine months ended September 30, 2018 includes carve-out financials for the six months ended July 1, 2018 and standalone financials for the quarter ended September 30, 2018. Further detail regarding carve-out financials was contained in our SEC filings, including our previously filed Form 10-K, Form S-1 and related public offering prospectus, standalone financials represents our actual results for the period as a standalone public company.

Page 7


ARLO TECHNOLOGIES, INC.
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine Months Ended
 
September 29,
2019
 
September 30,
2018
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(105,566
)
 
$
(36,410
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
10,950

 
3,406

Premium amortization / discount accretion on investments, net
(391
)
 
(3
)
Stock-based compensation
15,261

 
5,336

Deferred income taxes
(109
)
 
(438
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
66,348

 
(69,724
)
Inventories
50,675

 
(50,009
)
Prepaid expenses and other assets
(1,729
)
 
(17,319
)
Accounts payable
(24,381
)
 
53,717

Deferred revenue
(1,996
)
 
7,169

Accrued and other liabilities
(51,777
)
 
57,966

Net cash used in operating activities
(42,715
)
 
(46,309
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(5,023
)
 
(10,854
)
Purchases of short-term investments
(29,768
)
 
(39,774
)
Maturities of short-term investments
40,000

 
—

Net cash provided by (used in) used in investing activities
5,209

 
(50,628
)
Cash flows from financing activities:
 
 
 
Proceeds from initial public offering, net of offering costs
—

 
173,395

Proceeds related to employee benefit plans
1,837

 
—

Restricted stock unit withholdings
(1,755
)
 
—

Net investment from parent
—

 
71,507

Net cash provided by (used in) financing activities
82

 
244,902

Net increase (decrease) in cash and cash equivalents and restricted cash
(37,424
)
 
147,965

Cash and cash equivalents and restricted cash, at beginning of period
155,424

 
108

Cash and cash equivalents and restricted cash, at end of period
$
118,000

 
$
148,073

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
$
1,578

 
$
5,279

De-recognition of build-to-suit assets and liabilities
$
(21,610
)
 
$
—

Estimated fair value of a facility under build-to-suit lease
$
—

 
$
21,858



Page 8


ARLO TECHNOLOGIES, INC.
 
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
STATEMENT OF OPERATIONS DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2019
 
June 30,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
 
(in thousands, except percentage data)
GAAP gross profit
$
10,503

 
$
9,650

 
$
29,747

 
$
22,098

 
$
87,094

GAAP gross margin
9.9
%
 
11.5
%
 
22.7
%
 
8.9
%
 
25.4
%
Stock-based compensation expense
467

 
450

 
236

 
1,286

 
919

Amortization of intangibles
381

 
382

 
381

 
1,144

 
1,144

Non-GAAP gross profit
$
11,351

 
$
10,482

 
$
30,364

 
$
24,528

 
$
89,157

Non-GAAP gross margin
10.7
%
 
12.5
%
 
23.1
%
 
9.9
%
 
26.0
%
 
 
 
 
 
 
 
 
 
 
GAAP research and development
$
16,701

 
$
17,594

 
$
16,100

 
$
52,456

 
$
41,929

Stock-based compensation expense
(1,569
)
 
(1,635
)
 
(872
)
 
(4,501
)
 
(2,582
)
Non-GAAP research and development
$
15,132

 
$
15,959

 
$
15,228

 
$
47,955

 
$
39,347

 
 
 
 
 
 
 
 
 
 
GAAP sales and marketing
$
13,657

 
$
14,511

 
$
12,843

 
$
42,389

 
$
37,123

Stock-based compensation expense
(791
)
 
(991
)
 
(754
)
 
(2,722
)
 
(2,208
)
Non-GAAP sales and marketing
$
12,866

 
$
13,520

 
$
12,089

 
$
39,667

 
$
34,915

 
 
 
 
 
 
 
 
 
 
GAAP general and administrative
$
11,062

 
$
10,914

 
$
8,357

 
$
32,512

 
$
19,553

Stock-based compensation expense
(2,392
)
 
(2,313
)
 
(1,575
)
 
(6,752
)
 
(3,675
)
Restructuring and other charges
—

 
—

 
—

 
—

 
(74
)
Strategic initiative
(502
)
 
—

 
—

 
(502
)
 
—

Litigation reserves, net
(140
)
 
—

 
—

 
(140
)
 
—

Non-GAAP general and administrative
$
8,028

 
$
8,601

 
$
6,782

 
$
25,118

 
$
15,804

 
 
 
 
 
 
 
 
 
 
GAAP total operating expenses
$
41,557

 
$
43,736

 
$
43,123

 
$
129,117

 
$
122,254

Separation expense
(136
)
 
(717
)
 
(5,823
)
 
(1,759
)
 
(23,649
)
Strategic initiative expense
(502
)
 
—

 
—

 
(502
)
 
—

Stock-based compensation expense
(4,752
)
 
(4,939
)
 
(3,201
)
 
(13,975
)
 
(8,465
)
Restructuring and other charges
—

 
—

 
—

 
—

 
(74
)
Legal settlement
(140
)
 
—

 
—

 
(140
)
 
—

Activist shareholder response costs
—

 
(237
)
 
—

 
(237
)
 
—

Non-GAAP total operating expenses
$
36,027

 
$
37,843

 
$
34,099

 
$
112,504

 
$
90,066



Page 9


ARLO TECHNOLOGIES, INC.
 
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

STATEMENT OF OPERATIONS DATA (CONTINUED):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2019
 
June 30,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
 
(in thousands, except percentage and per share data)
GAAP operating loss
$
(31,054
)
 
$
(34,086
)
 
$
(13,376
)
 
$
(107,019
)
 
$
(35,160
)
GAAP operating margin
(29.3
)%
 
(40.8
)%
 
(10.2
)%
 
(43.2
)%
 
(10.3
)%
Separation expense
136

 
717

 
5,823

 
1,759

 
23,649

Strategic initiative expense
502

 
—

 
—

 
502

 
—

Stock-based compensation expense
5,219

 
5,389

 
3,437

 
15,261

 
9,384

Amortization of intangibles
381

 
382

 
381

 
1,144

 
1,144

Restructuring and other charges
—

 
—

 
—

 
—

 
74

Legal settlement
140

 
—

 
—

 
140

 
—

Activist shareholder response costs
—

 
237

 
—

 
237

 
—

Non-GAAP operating income (loss)
$
(24,676
)
 
$
(27,361
)
 
$
(3,735
)
 
$
(87,976
)
 
$
(909
)
Non-GAAP operating margin
(23.3
)%
 
(32.7
)%
 
(2.8
)%
 
(35.5
)%
 
(0.3
)%
 
 
 
 
 
 
 
 
 
 
GAAP provision for income taxes
$
286

 
$
349

 
$
223

 
$
855

 
$
830

GAAP income tax rate
(0.9
)%
 
(1.0
)%
 
(1.7
)%
 
(0.8
)%
 
(2.3
)%
Tax effects
(46
)
 
142

 
223

 
96

 
223

Non-GAAP provision for income taxes
$
332

 
$
207

 
$
—

 
$
759

 
$
607

Non-GAAP income tax rate
(1.4
)%
 
(0.8
)%
 
—
 %
 
(0.9
)%
 
(45.7
)%
 
 
 
 
 
 
 
 
 
 
GAAP net loss
$
(30,590
)
 
$
(33,692
)
 
$
(13,225
)
 
$
(105,566
)
 
$
(36,410
)
Separation expense
136

 
717

 
5,823

 
1,759

 
23,649

Strategic initiative expense
502

 
—

 
—

 
502

 
—

Stock-based compensation expense
5,219

 
5,389

 
3,437

 
15,261

 
9,384

Amortization of intangibles
381

 
382

 
381

 
1,144

 
1,144

Restructuring and other charges
—

 
—

 
—

 
—

 
74

Legal settlement
140

 
—

 
—

 
140

 
—

Activist shareholder response costs
—

 
237

 
—

 
237

 
—

Tax effects
(46
)
 
142

 
223

 
96

 
223

Non-GAAP net income (loss)
$
(24,258
)
 
$
(26,825
)
 
$
(3,361
)
 
$
(86,427
)
 
$
(1,936
)







Page 10









ARLO TECHNOLOGIES, INC.
 
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

STATEMENT OF OPERATIONS DATA (CONTINUED):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2019
 
June 30,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
 
(in thousands, except percentage and per share data)
NET INCOME (LOSS) PER DILUTED SHARE:
 
 
 
 
 
 
GAAP net loss per diluted share
$
(0.41
)
 
$
(0.45
)
 
$
(0.19
)
 
$
(1.41
)
 
$
(0.56
)
Separation expense
0.00

 
0.01

 
0.08

 
0.02

 
0.36

Strategic initiative expense
0.01

 
—

 
—

 
0.01

 
—

Stock-based compensation expense
0.07

 
0.07

 
0.05

 
0.21

 
0.15

Amortization of intangibles
0.01

 
0.01

 
0.01

 
0.02

 
0.02

Restructuring and other charges
—

 
—

 
—

 
—

 
0.00

Legal settlement
0.00

 
—

 
—

 
0.00

 
—

Activist shareholder response costs
0.00

 
0.00

 
—

 
0.00

 
—

Tax effects
0.00

 
0.00

 
0.00

 
0.00

 
0.00

Non-GAAP net income (loss) per diluted share
$
(0.32
)
 
$
(0.36
)
 
$
(0.05
)
 
$
(1.15
)
 
$
(0.03
)
 
 
 
 
 
 
 
 
 
 
Shares used in computing GAAP net loss per diluted share
75,337

 
74,729

 
69,600

 
74,831

 
64,867

Shares used in computing non-GAAP net income (loss) per diluted share
75,337

 
74,729

 
69,600

 
74,831

 
64,867



Page 11


ARLO TECHNOLOGIES, INC.
 
UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION
 
Three Months Ended
 
September 29,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
(in thousands, except headcount and per share data)
Cash, cash equivalents and short-term investments
$
153,811

 
$
137,927

 
$
180,374

 
$
201,027

 
$
187,846

Cash, cash equivalents and short-term investments per diluted share
$
2.04

 
$
1.85

 
$
2.42

 
$
2.71

 
$
2.70

 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
$
99,698

 
$
79,707

 
$
71,566

 
$
166,045

 
$
117,119

Days sales outstanding
85

 
87

 
111

 
125

 
81

 
 
 
 
 
 
 
 
 
 
Inventories
$
74,117

 
$
97,222

 
$
131,227

 
$
124,791

 
$
132,479

Ending inventory turns
4.8

 
2.8

 
1.5

 
3.6

 
2.9

 
 
 
 
 
 
 
 
 
 
Weeks of channel inventory:
 
 
 
 
 
 
 
 
 
U.S. retail channel
13.3

 
10.1

 
14.5

 
8.1

 
13.5

U.S. distribution channel
3.3

 
8.9

 
8.9

 
10.9

 
9.1

EMEA distribution channel
5.6

 
2.7

 
4.4

 
6.7

 
4.4

APAC distribution channel
4.3

 
5.1

 
6.7

 
6.0

 
9.2

 
 
 
 
 
 
 
 
 
 
Deferred revenue (current and non-current)
$
47,995

 
$
47,464

 
$
47,737

 
$
49,991

 
$
45,906

 
 
 
 
 
 
 
 
 
 
Cumulative registered users
3,691

 
3,397

 
3,126

 
2,850

 
2,498

Paid subscribers 
211

 
187

 
162

*
144

 
125

 
 
 
 
 
 
 
 
 
 
Headcount
406

 
402

 
401

 
386

 
344

Non-GAAP diluted shares
75,337

 
74,729

 
74,409

 
74,247

 
69,600

_________________________
* 
We factored in an adjustment to our Q1’19 paid subscriber number and have subsequently revised the Q1’19 total to 162,000.

REVENUE BY GEOGRAPHY
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2019
 
June 30,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
 
(in thousands, except percentage data)
Americas
$
85,562

81
%
 
$
64,564

77
%
 
$
112,849

86
%
 
$
194,492

79
%
 
$
274,253

80
%
EMEA
13,002

12
%
 
15,066

18
%
 
11,760

9
%
 
37,370

15
%
 
50,416

15
%
APAC
7,552

7
%
 
3,968

5
%
 
6,565

5
%
 
15,732

6
%
 
18,091

5
%
Total
$
106,116

100
%
 
$
83,598

100
%
 
$
131,174

100
%
 
$
247,594

100
%
 
$
342,760

100
%


Page 12