On February 6, 2018, NETGEAR announced that its board of directors had unanimously approved the pursuit of a separation of its Arlo business from NETGEAR (the “Separation”) to be effected through an initial public offering (the “IPO”) of newly issued shares of the common stock of Arlo Technologies, Inc., a wholly owned subsidiary of NETGEAR. On July 6, 2018, the Company filed a registration statement (as amended, the “IPO Registration Statement”) relating to the IPO of common stock of Arlo with the U.S. Securities and Exchange Commission (the “SEC”). The IPO Registration Statement was declared effective on August 2, 2018 and Arlo’s shares began trading under the ticker symbol “ARLO” on the New York Stock Exchange market on August 3, 2018. NETGEAR currently owns approximately 84.2% of the outstanding shares of Arlo’s common stock. NETGEAR has informed the Company that it currently intends that, no earlier than the expiration or earlier termination of the 145-day lock-up period applicable to NETGEAR, it will complete the Separation by distributing the shares of Arlo common stock then held by NETGEAR to NETGEAR’s stockholders in a manner generally intended to qualify as tax-free to NETGEAR stockholders for U.S. federal income tax purposes (the “Distribution”). The Distribution is subject to market, tax and legal considerations, final approval by NETGEAR’s board of directors, and other customary requirements, and NETGEAR may abandon or change the structure of the Distribution if it determines, in its sole discretion, that the Distribution is not in the best interest of NETGEAR or its stockholders.

Key Business Metrics

In addition to the measures presented in our ~~combined~~unaudited condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business. Our key business metrics may be calculated in a manner different from ~~similar~~the same key business metrics used by other companies. We regularly review our processes for calculating these metrics, and from time to time we may discover inaccuracies in our metrics or make adjustments to better reflect our business or to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated.


	As of
	April 3, 2022		% Change		March 28, 2021
	(In thousands, except percentage data)
Cumulative registered accounts	6,389		21.1	%	5,275
Cumulative paid accounts	1,272		131.7	%	549
Annual recurring revenue	$	101,341	74.0	%	$	58,238

Three Months Ended Six Months Ended
July 1, 2018 % Change July 2, 2017 July 1, 2018 % Change July 2, 2017
(In thousands, except percentage data)
Registered users 2,204
103.1 % 1,085
2,204
103.1 % 1,085
Devices shipped 1,043
32.4 % 788
1,948
41.1 % 1,381
Service revenue $ 9,048
37.8 % $ 6,566
$ 17,255
40.2 % $ 12,306

Cumulative Registered ~~Users~~Accounts. We believe that our ability to increase our user base is an indicator of our market penetration and growth of our business as we continue to expand and innovate our Arlo platform. We define our registered ~~users~~accounts at the end of a particular period as the number of unique registered accounts on the Arlo ~~app~~platform as of the end of such particular period. The number of registered ~~users~~accounts does not necessarily reflect the number of end-users on the Arlo platform, as one registered account may be used by multiple people. We changed our definition from registered users to registered accounts starting in the fourth quarter of 2019 due to the Verisure transaction. Verisure will own the registered accounts but we will continue to provide services to these European customers under the Verisure Agreements.

~~Devices Shipped~~Cumulative Paid Accounts. 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). ~~Devices shipped~~In the fourth quarter of 2019, we redefined paid subscribers as paid accounts to include customers that were transferred to Verisure as part of the disposal of our commercial operations in Europe because we will continue to provide services to these European customers and receive payments associated with them, under the Verisure Agreements.

Annual Recurring Revenue ("ARR"). Effective as of the quarter ended October 3, 2021, we have adopted ARR as one of the key indicators of our business performance. We believe ARR enables measurement of our business initiatives, and serves as an indicator of our future growth. ARR represents the ~~number~~amount of ~~Arlo cameras~~paid service revenue that we expect to recur annually and ~~lights that are shipped to~~is calculated by taking our ~~customers during~~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 Non-Recurring Engineering ("NRE") service revenue from strategic partners. The ARR for the comparative period presented was derived following the same methodology. ARR is a ~~period. Devices shipped does not include shipments~~performance metric and should be viewed independently of ~~Arlo accessories~~revenue and ~~Arlo base stations, nor does it take into account returns of Arlo cameras~~deferred revenue, and ~~lights. The growth rate of our revenue~~ is not necessarily correlated with our growth rate of devices shipped, as our revenue is affected by a number of other variables, including but not limited to returns from customers, end-user customer rebates and other channel sales incentives deemedintended to be a ~~reduction~~substitute for, or combined with, any of ~~revenue per~~these items.

COVID-19 Update

We continue to closely monitor developments and are taking steps to mitigate the ~~authoritative guidance for revenue recognition, sales~~potential risks related to the COVID-19 pandemic to us, our employees and our customers. The extent of ~~accessories,~~the impact of the COVID-19 pandemic on our business operations will depend on future developments, including the duration of the pandemic, the broader implications of the macro-economic recovery and ~~premium services,~~ the ~~types~~impact on overall customer demand, all of ~~Arlo products sold~~which are uncertain and cannot be predicted. Our priorities and actions during the ~~relevant period~~COVID-19 pandemic continue to be focused on protecting the health and

safety of all those we serve, our employees, our customers, our suppliers and our communities, including implementing continuous updates to our health and safety policies and processes and progress made through vaccinations. We continue to instruct all but a limited number of our global workforce to work remotely as a precautionary measure intended to minimize the risk of the virus to them and the ~~introduction~~communities in which we operate, while we continue to focus on providing our team with the resources that they need to meet the needs of our customers and deliver new ~~product offerings~~innovations to the markets we serve, despite challenges presented by the COVID-19 pandemic. We also continue to work with our suppliers to address any supply chain disruptions, which might include larger component backlogs, component cost increases, travel restrictions and logistics changes that can impact our operations. For example, increased demand for electronics as a result of the COVID-19 pandemic increased demand for chips in the automotive industry and certain other factors have led to a global shortage of semiconductors. As a result, we have experienced component shortages, including longer lead times for components and supply constraints that have ~~different U.S. manufacturer’s suggested retail prices (“MSRPs”).~~

~~Service Revenue.~~ ~~Service revenue represents revenue recognized relating to prepaid services and paid service subscriptions. Our prepaid services pertain to devices which are sold with~~affected both our ~~Arlo prepaid services offering, providing users with the~~ ability to ~~store~~meet scheduled product deliveries and ~~access data~~worldwide demand for ~~up to five cameras for a rolling seven-day period. Our paid subscription services relate to sales of subscription plans to~~ our ~~registered users.~~

~~Comparability of Historical Results~~

Our historical combined financial statements, which are discussed below, are prepared on a stand-alone basis in accordance with U.S. generally accepted accounting principles (“GAAP”) and are derived from NETGEAR’s consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our operations, and include allocations of expenses from NETGEAR. Our combined results are not necessarily indicative of our future performance and do not reflect what our financial performance would have been had we been a stand-alone public company during the periods presented.

~~The operating results of Arlo have historically been disclosed~~products. Also, as a ~~reportable segment within~~result of the ~~consolidated financial statements~~COVID-19 pandemic, our supply chain partners are limited by production capacity, constrained by material availability, labor shortages, factory uptime and freight capacity, each of ~~NETGEAR enabling identification~~which constrains our ability to capitalize fully on end-market demand. As of ~~directly attributable transactional information, functional departments,~~April 3, 2022, international freight capacity has dropped, causing air and ~~headcount. The condensed combined balance sheets were primarily derived by reference~~ocean freight rates to one, or a combination, of Arlo transaction-level information, functional department, or headcount. Revenue and Cost of revenue, with the exception of channel sales incentives, were derived from transactional information specificmaterially increase compared to ~~Arlo products and services. Directly attributable operating expenses were derived from activities relating~~pre-pandemic levels. Furthermore, transit times have also increased, causing us to Arlo functional departments and headcount. Certain additional costs, including compensation costs for corporate employees, have been allocated from NETGEAR. The allocated costs for corporate functions included, but were not limitedrely more on air freight in order to executive management, information technology, legal, finance and accounting, human resources, tax, treasury, research and development, sales and marketing activities, shared facilities and other shared services, which are not provided at the Arlo level. These costs were allocated on a basis of revenue, headcount, or other measures Arlo has determined to be reasonable.

Arlo employees also historically participated in NETGEAR’s stock-based incentive plans, in the form of restricted stock units (“RSUs”), stock options, and purchase rights issued pursuant to NETGEAR’s employee stock purchase plan. Stock-based compensation expense has been either directly reported by or allocated to Arlo based on the awards and terms previously granted to NETGEAR’s employees.

The condensed combined statements of operations of Arlo as presented reflect allocations of general corporate expenses from NETGEAR including expenses related to corporate services, such as executive management, information technology, legal, finance and accounting, human resources, tax, treasury, research and development, sales and marketing, shared facilities and other shared services. These costs were allocated based on revenue, headcount, or other measures Arlo has determined to be reasonable. These allocations are primarily reflected within operating expenses in the condensed combined statements of operations. The amount of these allocations from NETGEAR was $16.8 million formeet our customers' demands. For the three months ended ~~July 1, 2018, which included $5.1 million for research and development, $5.4 million for sales and marketing, and $6.3 million for general and administrative expense. Allocations amounted~~April 3, 2022, we saw a 606% increase in freight-in expense compared to ~~$9.4 million for~~ the three months ended July 2, 2017, which included $3.0 million for research and development, $3.0 million for sales and marketing, and $3.4 million for general and administrative expense. The amount of these allocations from NETGEAR was $30.6 million for the six months ended July 1, 2018, which included $9.4 million for research and development, $10.0 million for sales and marketing, and $11.2 million for general and administrative expense. Allocations amounted to $16.3 million for the six months ended July 2, 2017, which included $5.0 million for research and development, $5.2 million for sales and marketing, and $6.1 million for general and administrative expense.

The management of Arlo believes the assumptions underlying the condensed combined financial statements, including the assumptions regarding the allocated expenses, reasonably reflect the utilization of services provided, or the benefit received by, Arlo during the periods presented. Nevertheless, the condensed combined financial statements may not be indicative of Arlo’s future performance and do not necessarily reflect Arlo’s results of operations, financial position, and cash flows had Arlo beenprior year period as a ~~stand-alone company during the periods presented.~~

~~Our Relationship with NETGEAR~~

~~Following the completion~~result of the ~~IPO, NETGEAR has agreed~~higher sea and air freight rates and component shortages which necessitated use of air freight to meet customer requested delivery dates. We expect supply chain constraints to persist through 2022. While we believe we have been broadly successful in navigating COVID-19 related challenges to date, any further disruptions brought about by the COVID-19 pandemic to our supply chain and operations could have a significant negative impact on our net revenue, gross and operating margin performance. In addition, as a result of the COVID-19 pandemic, we could experience material charges from potential adjustments of the carrying value of our inventories and trade receivables, impairment charges on our long-lived assets, intangible assets and goodwill, and changes in the effectiveness of our hedging instruments, among others.

During the first quarter of 2022, we remained focused on navigating these on-going challenges presented by the COVID-19 pandemic through preserving our liquidity and managing our cash flow through taking preemptive action to enhance our ability to meet our short-term liquidity needs. These actions include, but are not limited to, proactively managing working capital by closely monitoring customers' credit and collections, renegotiating payment terms with third-party manufacturers and key suppliers, closely monitoring inventory levels and purchases against forecasted demand, reducing or eliminating non-essential spending, subleasing excess office space, and deferment of hiring. We continue to ~~provide certain~~monitor this rapidly developing situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of the services described above on a transitional basis pursuant to the transition services agreement. We generally expect to use the vast majority of these services for less than a year following the completion of the IPO, depending on the type of the service

and the location at which such service is provided. However, we may agree with NETGEAR to extend the service periods for a limited amount of time (which period will not extend past the first anniversary of the distribution) or may terminate such service periods by providing prior written notice. Pursuant to the transition services agreement, NETGEAR will charge a fee that is consistent with our historical allocation for such services. We estimate the total cost for such transition services to be in the approximate range of $5.0 million to $10.0 million. As we begin to reduce our reliance on these services and build such functions as executive management, information technology, legal, finance and accounting, human resources, tax, treasury, research and development, sales and marketing, shared facilities, and other services, the actual expenses we will incur in the future may differ from the costs that were historically allocated to us from NETGEAR.

In addition, to operate as a stand-alone company, we expect to incur costs to replace certain services that were previously provided by NETGEAR, which may be higher than those reflected in our historical combined financial statements. We expect the most significant component of these costs to be IT-related costs, including capital expenditures, to implement certain new systems, including infrastructure and an enterprise resource planning system, which we estimate to be $35.0 million to $55.0 million in the next 12 months, of which approximately $10.0 million to $20.0 million is expected to constitute capital expenditures. Actual costs that may ~~have been incurred had we been a stand-alone company depend on a number~~include other forms of ~~factors, including organizational structure and decisions made relating to various areas such as information technology and infrastructure.~~

~~We are subject to the reporting requirements of the Exchange Act, and we are required to establish procedures and practices as a stand-alone public company~~external financing in order to ~~comply with~~maintain our ~~obligations under~~cash position and preserve financial flexibility in response to the ~~Exchange Act~~uncertainty in the United States and related rules and regulations, as well as rules of the New York Stock Exchange. As a result, we will continue to incur additional costs, including internal audit, investor relations, stock administration, and regulatory compliance costs. These additional costs may differglobal markets resulting from the ~~costs that were historically allocated to us~~COVID-19 pandemic.

Results of Operations

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


	Three Months Ended
	April 3, 2022				March 28, 2021
	(In thousands, except percentage data)
Revenue:
Products	$	94,825	76.0	%	$	59,761	72.4	%


Services	29,926		24.0	%	22,795		27.6	%

Total revenue	124,751		100.0	%	82,556		100.0	%
Cost of revenue:
Products	80,777		64.8	%	47,157		57.1	%


Services	10,399		8.3	%	9,592		11.6	%

Total cost of revenue	91,176		73.1	%	56,749		68.7	%
Gross profit	33,575		26.9	%	25,807		31.3	%
Operating expenses:
Research and development	16,379		13.1	%	14,791		17.9	%
Sales and marketing	13,168		10.6	%	11,207		13.6	%
General and administrative	12,621		10.1	%	11,227		13.6	%

Separation expense	79		0.1	%	54		0.1	%

Total operating expenses	42,247		33.9	%	37,279		45.2	%
Loss from operations	(8,672)		(7.0)	%	(11,472)		(13.9)	%
Interest income (expense), net	(5)		—	%	24		—	%
Other income (expense), net	411		0.3	%	909		1.1	%
Loss before income taxes	(8,266)		(6.7)	%	(10,539)		(12.8)	%
Provision for income taxes	213		0.2	%	180		0.2	%
Net loss	$	(8,479)	(6.9)	%	$	(10,719)	(13.0)	%

~~Components of Our Operating Results~~

Revenue

~~Revenue~~

Our gross revenue consists primarily of sales of devices, ~~and to a much lesser extent,~~ prepaid and paid subscription service ~~revenue.~~revenue and NRE service revenue from Verisure. We generally recognize revenue from product sales at the time the product is ~~shipped.~~shipped and transfer of control from us to the customer occurs. Our first generation camera products come with a prepaid ~~services primarily pertain to devices which are sold with our Arlo prepaid services offering, providing~~service that provides users with rolling seven-day cloud video storage, the ability to ~~store and access data for~~connect up to five cameras ~~for~~and 90 days of customer support. Our second generation camera, doorbell and floodlight products under our new business model come with a ~~rolling seven-day period.~~prepaid service that includes a one-year free trial period of Arlo Secure bundled with our Arlo Ultra products launched in early 2019, and a three-month free trial period of Arlo Secure bundled with our products launched after September 2019. Upon device shipment, we attribute a portion of the sales price to the prepaid service, deferring this revenue at the outset and subsequently recognizing it ratably over the estimated useful life of the ~~device.~~device or free trial period, as applicable. Our paid subscription services relate to sales of subscription plans to our registered ~~users.~~accounts. Our services also include certain development services provided to Verisure and other customers under NRE arrangements. In the third quarter of 2021, we introduced Arlo Secure, our new service plan with coverage for unlimited cameras and an enhanced Emergency Response solution. Arlo Secure replaced Arlo Smart, our previous service plan. Existing Arlo Smart customers are entitled to either retain their existing plans or upgrade to the new Arlo Secure plan of their choosing.

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

~~Our revenue can vary based on a number~~Under the Supply Agreement that we entered into with Verisure in 2019 (the "Supply Agreement"), Verisure became the exclusive distributor of ~~factors, including changes in average selling prices, end-user customer rebates and other channel sales incentives, uncertainties surrounding demand for~~ our products in Europe for all channels, and ~~allowances~~will non-exclusively distribute our products through its direct channels globally for ~~estimated~~an initial term of five years. During the five-year period commencing January 1, 2020, Verisure has an aggregate product purchase commitment of $500.0 million. As of April 3, 2022, $205.5 million of the purchase commitment has been fulfilled. The Supply Agreement also provides for certain NRE services to Verisure, including developing certain custom products specified by Verisure in exchange for an aggregate of $13.5 million, payable in installments upon meeting certain development milestones. As of April 3, 2022, Verisure has paid the full cash consideration of $13.5 million for these NRE services. For the three months ended April 3, 2022 and March 28, 2021, the Company recognized service revenue of $0.1 million and $1.5 million, respectively, for these NRE services.

We conduct business across three geographic regions: Americas, EMEA, and APAC. We generally base revenue by geography on the ship-to location of the customer for device sales and device location for service sales.


	Three Months Ended
	April 3, 2022			% Change		March 28, 2021
	(In thousands, except percentage data)





Americas	$	68,466		37.9	%	$	49,636
Percentage of revenue	54.9		%			60.1		%





EMEA	49,975			103.2	%	24,591
Percentage of revenue	40.1		%			29.8		%





APAC	6,310			(24.2)	%	8,329
Percentage of revenue	5.0		%			10.1		%





Total revenue	$	124,751		51.1	%	$	82,556

Revenue for the three months ended April 3, 2022 increased 51.1%, compared to the prior year period, primarily due to higher product sales and service revenue. Product revenue increased by $35.1 million, or 58.7% for the three months ended April 3, 2022 compared to the prior year period, primarily driven by an increase in product shipments in Americas and EMEA due to stronger customer demand, partially offset by higher provisions for sales returns ~~including future pricing and/~~and marketing expenditures that are deemed to be a reduction of revenue. Service revenue increased by $7.1 million, or ~~potential discounts as a result of competition or in response~~31.3% for the three months ended April 3, 2022 compared to ~~fluctuations of~~ the ~~U.S. dollar in our international markets, and related production level variances; changes in technology; and market adoption of our current and future paid subscription service offerings.~~

~~We continue to experience robust user demand across all regions for our Arlo products. We believe this demand will lead~~prior year period, primarily due to an increase in ~~absolute dollars~~paid accounts, partially offset by a decrease in prepaid and paid subscription service revenues as our number of registered users continues to grow. Furthermore, we expect that as we introduce more features in our subscription services, the rate of adoption of our paid subscription services will increase, which we expect to increase revenue. While we expect prepaid andVerisure NRE revenue recognition.

~~paid subscription service revenue to grow, we anticipate revenue from device sales will continue to generate the majority of our revenue for the foreseeable future.~~

Cost of Revenue

Cost of revenue consists of both product costs and costs of service. Product costs primarily consist of: the cost of finished products from our third-party manufacturers; overhead costs, including personnel expense for operation staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory, royalties to third parties; and amortization expense of certain acquired intangibles. Cost of service consists of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and ~~computing.~~computing, as well as NRE service costs incurred under the Verisure and other NRE arrangements.

Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation: product mix, sales channel mix, registered ~~user~~accounts' acceptance of paid subscription service offerings, fluctuation in foreign exchange rates and changes in our cost of goods sold due to fluctuations in prices paid for components, net of

vendor rebates, cloud platform costs, warranty and overhead costs, inbound freight and duty product conversion costs, charges for excess or obsolete inventory, and amortization of acquired intangibles. We outsource our manufacturing, warehousing, and distribution logistics. We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure. We believe this outsourcing strategy allows us to better manage our product and ~~services~~service costs and gross margin.

~~We expect that~~The following table presents cost of revenue derived from paid subscription service plans will increase as a percentage of our revenue in the future, which may have a positive impact on our gross margin. From time to time, however, we may experience fluctuations in ourand gross margin for the periods indicated:


	Three Months Ended
	April 3, 2022		% Change		March 28, 2021
	(In thousands, except percentage data)
Cost of revenue:
Products	$	80,777	71.3	%	$	47,157

Services	10,399		8.4	%	9,592
Total cost of revenue	$	91,176	60.7	%	$	56,749

Cost of product revenue increased for the three months ended April 3, 2022 compared to the prior year period, primarily due to increases in product revenue and freight-in expense as a result of COVID-19 related supply chain disruption and price inflation. Cost of service revenue increased for the ~~factors discussed above.~~three months ended April 3, 2022 compared to the prior year period, as a result of service revenue growth, offset by cost optimizations.

Gross Profit

The following table presents gross profit for the periods indicated:


	Three Months Ended
	April 3, 2022			% Change		March 28, 2021
	(In thousands, except percentage data)
Gross profit:
Products	$	14,048		11.5	%	$	12,604

Services	19,527			47.9	%	13,203
Total gross profit	$	33,575		30.1	%	$	25,807
Gross margin percentage:
Products	14.8		%			21.1		%

Services	65.3		%			57.9		%
Total gross margin percentage	26.9		%			31.3		%

Gross profit increased for the three months ended April 3, 2022, compared to the prior year period, due to a combination of both product and service revenue increases. The product gross profit increase is primarily due to an increase in product revenue, partially offset by higher freight-in costs as a result of COVID-19 related supply chain disruption. The service gross profit increase is primarily due to growth in paid service revenue and cost optimizations implemented.Product gross margin reduced for the three months ended April 3, 2022, compared to the prior year period, due to higher warranty expense and higher freight-in costs as a result of COVID-19 related supply chain disruption. Service gross margin increased for the three months ended April 3, 2022, compared to the prior year period, due to cost optimizations and a higher mix of recurring paid service revenue.

Operating Expenses

Research and Development

Research and development expense consists primarily of personnel-related expense, safety, security, regulatory services and testing, other research and development consulting fees, and corporate IT and ~~facility~~facilities overhead. We

recognize research and development expense as it is incurred. We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services. We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities. We expect research and development expense to ~~grow~~increase in absolute dollars as we ~~continue to~~ develop new product and service offerings and compete for engineering talent. Research and development expense directly attributable to ~~support~~delivering the ~~connected lifestyle market. We expect~~Verisure NRE is recognized in cost of service.

The following table presents research and development expense for the periods indicated:


	Three Months Ended
	April 3, 2022		% Change		March 28, 2021
	(In thousands, except percentage data)
Research and development expense	$	16,379	10.7	%	$	14,791

Research and development expense increased $1.6 million for the three months ended April 3, 2022, compared to ~~fluctuate depending on~~ the ~~timing~~prior year period, primarily due to increases of $0.9 million in outside professional services and ~~number~~$0.2 million in personnel-related expenses and a decrease in certain research and development expenses amounting to $0.4 million, which were attributed to the Verisure NRE projects, and are classified as cost of ~~development activities in any given period, and such expense could vary significantly as a percentage of revenue, depending on actual revenue achieved in any given period.~~service revenue.

Sales and Marketing

Sales and marketing expense consists primarily of personnel expense for sales and marketing staff; technical support expense; advertising; trade shows; corporate communications and other marketing expense; product marketing expense; IT and facilities overhead; outbound freight costs; and ~~amortization of certain intangibles.~~credit card processing fees. We expect our sales and marketing expense to significantly increase in ~~absolute dollars for~~ the ~~foreseeable~~ future as we ~~continue to~~ invest in ~~brand~~ marketing to ~~strengthen~~drive awareness of our ~~competitive position,~~brand and drive demand for our products and services.

The following table presents sales and marketing expense for the periods indicated:


	Three Months Ended
	April 3, 2022		% Change		March 28, 2021
	(In thousands, except percentage data)
Sales and marketing expense	$	13,168	17.5	%	$	11,207

Sales and marketing expense increased $2.0 million for the three months ended April 3, 2022, compared to ~~accelerate growth~~the prior year period, primarily due to increases of $0.9 million in marketing expenditures, $0.8 million in personnel-related expenses, $0.5 million in credit card processing fees and ~~to raise brand awareness.~~$0.3 million in freight-out expenses, partially offset by a decrease of $0.6 million in outside professional services.

General and Administrative

General and administrative expense consists primarily of personnel-related expense for certain executives, finance and accounting, investor relations, human resources, legal, information technology, professional fees, corporate IT and ~~facility~~facilities overhead, strategic initiative expense and other general corporate expense. We ~~expect our general and administrative expense to increase in~~

~~absolute dollars, primarily as a result of the increased costs associated with being a stand-alone public company. However, we also~~ expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense.

The following table presents general and administrative expense for the periods indicated:


	Three Months Ended
	April 3, 2022		% Change		March 28, 2021
	(In thousands, except percentage data)
General and administrative expense	$	12,621	12.4	%	$	11,227

General and administrative expense increased $1.4 million for the three months ended April 3, 2022, compared to the prior year period, primarily due to an increase of $1.8 million in personnel-related expenses, partially offset by a decrease of $0.3 million in IT and facility overhead.

Separation Expense

Separation expense consists primarily of costs of legal and professional services for IPO-related litigation associated with our separation from ~~NETGEAR, including third-party advisory, consulting, legal~~NETGEAR.

The following table presents separation expense for the periods indicated:


	Three Months Ended
	April 3, 2022		% Change		March 28, 2021
	(In thousands, except percentage data)
Separation expense	$	79	46.3	%	$	54

Interest Income and professional services, IT-related expenses directly related to our separation from NETGEAR, and other items that are incremental and one-time in nature. To operate as a stand-alone company, we expect to incur increased separation costs to replicate certain services previously provided by NETGEAR, which may be higher than those reflected in our historical combined financial statements.

Other Income (Expense), Net

The following table presents other income (expense), net for the periods indicated:


	Three Months Ended
	April 3, 2022		% Change	March 28, 2021
	(In thousands, except percentage data)
Interest income (expense), net	$	(5)	**	$	24
Other income (expense), net	$	411	**	$	909

**Percentage change not meaningful.

Our interest income was primarily earned from our short-term investments and cash and cash equivalents. We expect our interest income in absolute dollars to stay relatively flat as we deploy our short-term investments and cash and cash equivalents to fund our operations, while interest rates are expected to increase.

Other income (expense), net primarily represents gains and losses on transactions denominated in foreign currencies, foreign currency contract gain (loss), net, and other miscellaneous income and expense. We have also included reimbursements for the Verisure Transition Service Agreement ("TSA") and the Employee Retention Credit ("ERC") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") for qualified wages in Other income.

Other income (expense), net decreased for the three months ended April 3, 2022 compared to the prior year period, primarily due to a decrease of $0.8 million in Verisure TSA related income, partially offset by an increase of $0.3 million in foreign currency gains.

Provision for Income Taxes


	Three Months Ended
	April 3, 2022			% Change		March 28, 2021
	(In thousands, except percentage data)
Provision for income taxes	$	213		18.3	%	$	180
Effective tax rate	(2.6)		%			(1.7)		%

~~Our business has historically been included~~

The Company’s provision for income taxes was primarily attributable to income taxes on foreign earnings. The increase in NETGEAR’s consolidated U.S. federal income tax return. We have adopted the separate return approach for the purpose of the Arlo financial statements. The income tax provisions and related deferred tax assets and liabilities that have been reflected in our historical combined financial statements have been estimated as if we were a separate taxpayer. The historical operations of the Arlo business reflect a separate return approach for each jurisdiction in which Arlo had presence and NETGEAR filed a tax return. We record a provision for income taxes for the ~~anticipated tax consequences of~~three months ended April 3, 2022, compared to the ~~reported results of operations using~~prior year period, was primarily due to higher foreign earnings in fiscal 2022. Consistent with the ~~asset~~prior year, the Company maintained a valuation allowance against its U.S. federal and ~~liability method. Under this method, we recognize~~state deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Wedid not record a ~~valuation allowance to reduce our~~tax benefit on these deferred tax assets to the net amount that we believe is more likely than not to be realized. As a result of the separation of the Arlo business from NETGEAR’s other businesses, there were changes to the organizational structure of the business, which did not impact our historical financial statements.

~~We recognize tax benefits from uncertain tax positions only if we believe that~~since it is more likely than not that these deferred tax assets will not be realized.

Liquidity and Capital Resources

We have a history of losses and may continue to incur operating and net losses for the ~~tax position will be sustained on examination by~~foreseeable future. As of April 3, 2022, our accumulated deficit was $297.3 million.

Our principal sources of liquidity are cash, cash equivalents and short-term investments. Short-term investments are marketable government securities with an original maturity or a remaining maturity at the ~~taxing authorities based on the technical merits~~time of purchase of greater than three months and no more than 12 months. The marketable securities are held in our company’s name with a high quality financial institution, which acts as our custodian and investment manager. As of April 3, 2022, we had cash, cash equivalents and short-term investments totaling $145.5 million. 11.3% of our cash and cash equivalents were held outside of the ~~position. As we expand internationally, we will face increased complexity~~U.S. Starting in determining the appropriate tax jurisdictions for revenue and expense items which may differ from that of NETGEAR. Our policy is to adjust these reserves when facts and circumstances change, such as the closing of a tax audit or refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.

~~On December 22, 2017,~~2018, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law, making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). Changes include, but are not limited to, a U.S. federal corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system and a one-time transition taximpact on the ~~mandatory deemed~~ repatriation of ~~cumulative~~ foreign ~~earnings.~~earnings is generally immaterial. The Tax Act significantly changed how the United States taxes corporations. At this time, significant judgment is required in implementing the law due to the lack of sufficient interpretive guidance from the U.S. or state regulatory bodies and standards settings bodies. The computations required are complex and data-intensive. The amounts reported in the audited combined financial statements and accompanying notes for the year ended December 31, 2017 included in the prospectus filed with the SEC on August 6,

2018 (the “Prospectus”) pursuant to Rule 424(b) under the Securities Act are provisional based on the uncertainty discussed above. As we complete our analysis and prepare necessary data, and interpret any additional guidance, we will adjust our calculations and provisional amounts that we have recorded in our tax provision. Any such adjustments may materially impact our provision for income taxes in our financial statements.

~~Results of Operations~~

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

Three Months Ended Six Months Ended
July 1,
2018 July 2,
2017 July 1,
2018 July 2,
2017
(In thousands, except percentage data)
Revenue $ 110,948
100.0 % $ 79,194
100.0 % $ 211,586
100.0 % $ 140,997
100.0 %
Cost of revenue 82,654
74.5 % 62,482
78.9 % 154,239
72.9 % 107,932
76.5 %
Gross profit 28,294
25.5 % 16,712
21.1 % 57,347
27.1 % 33,065
23.5 %
Operating expenses:
Research and development 13,804
12.4 % 8,613
10.9 % 25,829
12.2 % 16,597
11.8 %
Sales and marketing 13,068
11.8 % 7,363
9.3 % 24,280
11.5 % 13,084
9.3 %
General and administrative 6,318
5.7 % 3,344
4.2 % 11,196
5.3 % 6,089
4.3 %
Separation expense 11,269
10.2 % —
— % 17,826
8.4 % —
— %
Total operating expenses 44,459
40.1 % 19,320
24.4 % 79,131
37.4 % 35,770
25.4 %
Loss from operations (16,165 ) (14.6 )% (2,608 ) (3.3 )% (21,784 ) (10.3 )% (2,705 ) (1.9 )%
Other income (expense), net (1,369 ) (1.2 )% 593
0.8 % (794 ) (0.4 )% 933
0.6 %
Loss before income taxes (17,534 ) (15.8 )% (2,015 ) (2.5 )% (22,578 ) (10.7 )% (1,772 ) (1.3 )%
Provision for income taxes 288
0.3 % 137
0.2 % 607
0.3 % 356
0.2 %
Net loss $ (17,822 ) (16.1 )% $ (2,152 ) (2.7 )% $ (23,185 ) (11.0 )% $ (2,128 ) (1.5 )%

~~Revenue by Geographic Region~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Americas $ 86,681
27.6 % $ 67,949
$ 161,404
42.9 % $ 112,922
Percentage of revenue 78.1 % 85.8 % 76.3 % 80.1 %
EMEA $ 19,390
118.3 % $ 8,881
$ 38,656
91.1 % $ 20,229
Percentage of revenue 17.5 % 11.2 % 18.3 % 14.3 %
APAC $ 4,877
106.3 % $ 2,364
$ 11,526
46.9 % $ 7,846
Percentage of revenue 4.4 % 3.0 % 5.4 % 5.6 %
Total revenue $ 110,948
40.1 % $ 79,194
$ 211,586
50.1 % $ 140,997

Revenue for the three and six months ended July 1, 2018 increased 40.1% and 50.1% compared to the prior year periods, respectively. The increase was primarily driven by the launch and continued rollout of our Arlo Pro 2 camera,

which launched in the fourth quarter of fiscal 2017. We continued to experience robust demand for existing product categories which, combined with the continued rollout of our Arlo Pro 2 camera, drove revenue growth across all geographic regions. Additionally, service revenue increased by $2.5 million, or 37.8%, and $4.9 million, or 40.2%, for the three and six months ended July 1, 2018 compared to the prior year periods, respectively.

~~Cost of Revenue and Gross Margin~~

~~The following table presents cost of revenue and gross margin for the periods indicated:~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Cost of revenue $ 82,654
32.3 % $ 62,482
$ 154,239
42.9 % $ 107,932
Gross margin 25.5 % 21.1 % 27.1 % 23.5 %

~~Cost of revenue increased for the three and six months ended July 1, 2018, due primarily to revenue growth compared to the prior year periods.~~

Gross margin increased for the three and six months ended July 1, 2018 compared to the prior year periods due primarily to higher revenue and product margin achievement, substantially benefitting from the continued rollout of our Arlo Pro 2 camera. The improved product margin attainment was partially offset by higher channel marketing promotion activities deemed to be a reduction of revenue, which increased disproportionately compared to the prior year periods.

~~Operating Expenses~~

~~Research and Development~~

~~The following table presents research and development expense for the periods indicated:~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Research and development expense $ 13,804
60.3 % $ 8,613
$ 25,829
55.6 % $ 16,597

Research and development expense increased for the three months ended July 1, 2018, compared to the prior year period due to increases of $3.4 million in personnel-related expenses, of which $2.6 million was for employees specifically identifiable to Arlo and $0.8 million was for allocated personnel-related expenses, $1.1 million in corporate IT and facility overhead, and $0.7 million in engineering projects and outside professional services. Research and development expense increased for the six months ended July 1, 2018, compared to the prior year period due to increases of $5.3 million in personnel-related expenses, of which $4.0 million was for employees specifically identifiable to Arlo and $1.3 million was for allocated personnel-related expenses, $2.8 million in corporate IT and facility overhead and $1.2 million in engineering projects and outside professional services. The increased expenditures on personnel-related expense, engineering projects and outside professional services were due to continuous investment in strategic focus areas, principally the expansion of our Arlo product and service offerings and the growth of our cloud platform capabilities.

~~Sales and Marketing~~

~~The following table presents sales and marketing expense for the periods indicated:~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Sales and marketing expense $ 13,068
77.5 % $ 7,363
$ 24,280
85.6 % $ 13,084

Sales and marketing expense increased for the three months ended July 1, 2018, compared to the prior year period, primarily due to an increase in personnel-related expenses of $2.9 million, outside professional services of $1.2 million, marketing expenditures of $0.6 million, IT and facility overhead of $0.6 million, and sales freight out expenses of $0.3 million. Sales and marketing expense increased for the six months ended July 1, 2018, compared to the prior year period, primarily due to an increase in personnel-related expenses of $5.8 million, outside professional services of $2.3 million, marketing expenditures of $1.3 million, IT and facility overhead of $1.1 million, and sales freight out expenses of $0.6 million. The increase in allocated personnel-related expenses and marketing expenditures resulted from the revenue increase described above. The majority of the costs incurred represented allocations from NETGEAR.

~~General and Administrative~~

~~The following table presents general and administrative expense for the periods indicated:~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
General and administrative expense $ 6,318
88.9 % $ 3,344
$ 11,196
83.9 % $ 6,089

General and administrative expense increased for the three months ended July 1, 2018, compared to the prior year period primarily due to higher allocated personnel-related expenditures of $1.7 million, IT and facility overhead of $0.6 million, and legal and professional services of $0.5 million. General and administrative expense increased for the six months ended July 1, 2018, compared to the prior year period primarily due to higher allocated personnel-related expenditures of $3.0 million, IT and facility overhead of $1.0 million, and legal and professional services of $0.9 million.

~~Separation Expense~~

~~The following table presents separation expense for the periods indicated:~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Separation expense $ 11,269
** $ —
$ 17,826
** $ —

**Percentage change not meaningful.

Separation expense consists primarily of charges for third-party advisory, consulting, legal and professional services, IT-related expenses, and other items that are incremental and one-time in nature related to our separation from NETGEAR. We had no separation expense in the prior year periods.

~~Other Income (Expense), Net~~

~~The following table presents other income (expense), net for the periods indicated:~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Other income (expense), net (1,369 ) ** 593
(794 ) ** 933

**Percentage change not meaningful.

Other income (expense), net decreased for the three and six months ended July 1, 2018, compared to the prior year periods due primarily to higher foreign currency transaction losses, mainly as a result of the U.S. dollar strengthening versus transaction currencies.

~~Provision for Income Taxes~~

Three Months Ended Six Months Ended
July 1,
2018 % Change July 2,
2017 July 1,
2018 % Change July 2,
2017
(In thousands, except percentage data)
Provision for income taxes $ 288
110.2 % $ 137
$ 607
70.5 % $ 356
Effective tax rate (1.6 )% (6.8 )% (2.7 )% (20.1 )%

The increase in tax expense for the three and six months ended July 1, 2018 compared to the prior year periods primarily resulted from improved earnings in foreign jurisdictions. Losses incurred predominately in the U.S. continue to be subject to a full valuation allowance. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. We do not anticipate an increase in tax expense from the Tax Act during the current periods due to current year losses and loss carryforwards that are subject to a valuation allowance that are available to offset this income.

~~Liquidity and Capital Resources~~

Historically, our operations have participated in cash management and funding arrangements managed by NETGEAR. Cash flows related to financing activities primarily reflect changes in Net parent investment. Other than those that are in Arlo-designated legal entities, NETGEAR’s cash has not been assigned to us for any of the periods presented because those cash balances are not directly attributable to us. Cash and cash equivalents presented in the condensed combined balance sheets represent amounts pertaining to designated Arlo legal entities only. Our cash and cash equivalents balance ~~was $0.1 million each as of July 1, 2018 and December 31, 2017.~~

Following the separation from NETGEAR, our capital structure and sources of liquidity will change significantly from our historical capital structure. We will no longer participate in cash management and funding arrangements managed by NETGEAR. We expect our primary sources of liquidity to be cash flows generated from operations, together with $70.0 million in cash contributed by NETGEAR prior to the completionoutside of the ~~IPO,~~U.S. is subject to fluctuation based on the settlement of intercompany balances. On October 27, 2021, the Company entered into a Loan and Security Agreement with Bank of America, N.A. for a $40.0 million three-year revolving credit facility. Refer to Note 8. Debt for further information about the ~~net proceeds~~terms and structure of approximately $174.8 million raised from our IPO (after deducting underwriting discounts and commissions and before estimated IPO offering costs of approximately $7.4 million, a portion of which will be paid by NETGEAR). the credit facility.

Based on our current plans, business financing agreement with Bank of America, N.A, and market conditions, we believe that such sources of liquidity will be sufficient to satisfy our anticipated cash requirements for at least the next 12 months. However, in the future, including sooner than may be anticipated, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity or debt ~~financing~~financings or collaborative agreements or from other sources. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity to support our operating expenses and capital requirements or for other purposes, such as acquisitions.

We have no commitments to obtain such additional financing and cannot assure you that additional financing will be available at all or, ~~that,~~ if available, that such financing would be obtainable on terms favorable to us and would not be

dilutive. Our future liquidity and cash requirements will depend on numerous factors, including the introduction of new products, the growth in our service revenue, as well as the ability to increase our gross margin dollars and ~~potential acquisitions of related businesses or technology.~~continue to maintain controls over our operating expenditures.

Cash Flow

The following table presents our cash flows for the periods ~~presented.~~presented:


	Three Months Ended
	April 3, 2022		March 28, 2021
	(In thousands)
Net cash used in operating activities	$	(24,557)	$	(30,168)
Net cash provided by (used in) investing activities	(44,938)		14,197
Net cash provided by (used in) financing activities	(5,272)		1,956
Net cash decrease	$	(74,767)	$	(14,015)

Six Months Ended
July 1,
2018 July 2,
2017
(In thousands)
Net cash used in operating activities $ (2,738 ) $ (15,564 )
Net cash used in investing activities (7,534 ) (1,869 )
Net cash provided by financing activities 10,297
17,254
Net cash increase (decrease) $ 25
$ (179 )

Operating activities

Net cash used in operating activities decreased by ~~$12.8~~$5.6 million for the ~~six~~three months ended ~~July 1, 2018~~April 3, 2022 compared to the prior year period. This decrease comprised a $3.8 million reduction in adjusted net loss reconciled to net cash used in operating activities and a decrease in working capital used in operations of $1.8 million, mainly driven by lower payments to suppliers primarily as a result of lower inventory purchases and an increase in accrued and other liabilities, partially offset by lower collections from customer primarily as a result of a change in customer's payment terms.

Our days sales outstanding (“DSO”) increased to 58 days as of April 3, 2022 compared to 50 days as of December 31, 2021, primarily as a result of changes in customer mix and payment terms. Inventory decreased marginally to $37.0 million as of April 3, 2022 from $38.4 million as of December 31, 2021, as we continue to face COVID-19 related supply chain disruptions. Despite a lower inventory level, our ending inventory turns were 8.7x in the three months ended April 3, 2022 down from 10.5x turns in the three months ended December 31, 2021, primarily as a result of the normal seasonality in our business. Our accounts payable decreased to $68.3 million as of April 3, 2022 from $84.1 million as of December 31, 2021, in line with lower product purchases.

Investing activities

Net cash used in investing activities increased by $59.1 million for the three months ended April 3, 2022 compared to the prior year period, ~~due~~ primarily ~~to lower working capital requirements.~~

~~Our days sales outstanding (“DSO”) decreased to 91 days as of July 1, 2018 as compared to 115 days as of December 31, 2017. Typically, DSO in the fourth quarter is higher~~ due to ~~seasonal payment terms~~purchases of short-term investments.

Financing activities

Net cash used in financing activities was $5.3 million for the three months ended April 3, 2022, representing tax withholdings from restricted stock unit releases of $6.7 million, offset by proceeds from exercises of stock options of $1.4 million. Net cash provided ~~to our larger customers. New to our DSO calculation is~~by financing activities was $2.0 million for the ~~unfavorable impact~~three months ended March 28, 2021, representing proceeds from ESPP contributions and exercises of ~~the adoption~~stock options of ~~ASU 2014-09, “Revenue~~$6.1 million, offset by tax withholdings from ~~Contracts with Customers,”~~restricted stock unit releases of $4.2 million.

Contractual Obligations

Our principal commitments consist of obligations under operating leases for office space, equipment, data center facilities and distribution center facilities, as ~~of January 1, 2018. We calculated a four-day increase in our July 1, 2018 DSO under the new revenue standard compared to the old revenue standard, mainly~~well as ~~a result of changes in the balance sheet presentation of certain reserve balances previously shown net within accounts receivable, which are now presented as liabilities.~~non-cancellable purchase commitments. Refer to Note 3, ~~Revenue Recognition~~, 9. Commitments and Contingencies, in ~~the~~ Notes to Unaudited Condensed ~~Combined~~Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q for the details on adoption impacts. Inventory increased from $83.0 million as of December 31, 2017 to $123.2 million as of July 1, 2018. Ending inventory turns were 2.7 in the three months ended July 1, 2018 down from 4.6 turns in the three months ended December 31, 2017. Our accounts payable increased from $20.7 million as of December 31, 2017 to $25.5 million as of July 1, 2018, primarily as a ~~result of timing of payments.~~

~~Investing activities~~

Net cash used in investing activities increased by $5.7 million for the six months ended July 1, 2018 compared to the prior year period, primarily due to the increased capital expenditures as we implement certain new systems, including infrastructure and an enterprise resource planning system. In the six months ended July 2, 2017, we made a $0.7 million payment in connection with our Placemeter acquisition.

~~Financing activities~~

Net cash provided by financing activities was $10.3 million in the six months ended July 1, 2018 compared to $17.3 million in the prior year period. Net cash provided by financing activities primarily consisted of net investment from NETGEAR, as cash and the financingcomplete discussion of our ~~operations have historically been managed by NETGEAR. These transactions were deemed to be effectively settled for cash at the time the transaction was recorded.~~contractual obligations.

~~Contractual Obligations~~

~~The following table summarizes our non-cancelable operating lease commitments and purchase obligations as of July 1, 2018:~~

Payments due by period
Less Than 1-3 3-5 More Than
Total 1 Year Years Years 5 Years
(In thousands)
Operating leases $ 35,264
$ 1,020
$ 7,558
$ 8,415
$ 18,271
Purchase obligations 46,676
46,676
—
—
—
$ 81,940
$ 47,696
$ 7,558
$ 8,415
$ 18,271

In June, 2018, we entered into several office lease agreements under non-cancelable operating leases with various expiration dates through December 2028. The terms of certain of our facility leases provide for rental payments on a graduated scale. We recognize rent expense on a straight-line basis over the lease period and have accrued for rent expense incurred but not paid. The amounts presented are consistent with contractual terms and are not expected to differ significantly, unless a substantial change in our headcount requires us to exit an office facility early or expand our occupied space.

We enter into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of the orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are not cancelable within 30 days prior to the expected shipment date. As of July 1, 2018, we had $46.7 million in non-cancelable purchase commitments with suppliers, respectively. We expect to sell all products for which we have committed purchases from suppliers.

As of July 1, 2018, we had $1.4 million of total gross unrecognized tax benefits and related interest and penalties. The timing of any payments that could result from these unrecognized tax benefits will depend upon a number of factors. The unrecognized tax benefits have been excluded from the contractual obligations table because reasonable estimates cannot be made of whether, or when, any cash payments for such items might occur. We do not expect to reduce our liabilities for uncertain tax positions in any jurisdiction, where the impact would affect the statement of operations, in the next 12 months.

We do not estimate any long-term liability related to a one-time transaction tax that resulted from the passage of the Tax Act. We had significant net operating losses and credits that were available to shelter a majority of the impact associated with the transition tax.

~~Off-Balance Sheet Arrangements~~

~~As of~~ ~~July 1, 2018, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.~~

Critical Accounting Policies and Estimates

~~Our condensed combined financial statements have been prepared in accordance with~~

For a complete description of what we believe to be the critical accounting ~~principles generally accepted~~policies and estimates used in the ~~United States of America and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The~~ preparation of ~~these condensed combined financial statements requires management~~our Unaudited Condensed Consolidated Financial Statements, refer to ~~make assumptions, judgments and estimates that can have a significant impact~~our Annual Report on Form 10-K for the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. Actual results could differ significantly from these estimates. These estimates may change as new events occur, as additional information is obtained and as our operating environment

changes. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of the board of directors.

year ended December 31, 2021. There have been no material changes to our critical accounting policies and estimates during the three months ended April 3, 2022, other than as ~~compared to the critical accounting policies~~discussed in Note 2. Significant Accounting Policies and ~~estimates described in the Prospectus.~~

Recent Accounting Pronouncements,

~~Refer to Note 2,~~ ~~Summary of Significant Accounting Policies~~, in the Notes to Unaudited Condensed ~~Combined~~Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, ~~for a complete description of recent accounting pronouncements, including~~

Item 3.Quantitative and Qualitative Disclosures About Market Risk

During the ~~expected dates of adoption~~three months ended April 3, 2022, there were no material changes to our market risk disclosures as set forth in Part II Item 7A "Quantitative and ~~estimated effects on financial condition and results of operations, which are hereby incorporated by reference.~~

~~Emerging Growth Company Status~~

As an “emerging growth company,” under the JOBS Act, we are allowed to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless we otherwise irrevocably elect not to avail ourselves of this exemption. While we have not made such an irrevocable election, we have not delayed the adoption of any applicable accounting standards.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

~~Foreign Currency Exchange Rate Risk~~

We invoice some of our international customers in foreign currencies, including the Australian dollar, British pound, Canadian dollar, and Euro. As the customers that are currently invoiced in local currency become a larger percentage of our business, or to the extent we begin to bill additional customers in foreign currencies, the impact of fluctuations in foreign currency exchange rates could have a more significant impact on our results of operations. For those customersQualitative Disclosures About Market Risk" in our ~~international markets that we continue to sell to in U.S. dollars, an increase in~~Annual Report on Form 10-K for the ~~value of the U.S. dollar relative to foreign currencies could make our products more expensive~~year ended December 31, 2021.

Item 4.Controls and therefore reduce the demand for our products. Such a decline in the demand for our products could reduce sales and materially adversely affect our business, results of operations, and financial condition. Certain operating expenses of our foreign operations require payment in local currencies.Procedures

We are exposed to risks associated with foreign exchange rate fluctuations due to our international sales and operating activities. These risks may change over time as our business evolves and could negatively impact our operating results and financial condition. As we grow our operations, our exposure to foreign currency risk could become more significant. As of July 1, 2018, we had not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes. In the third fiscal quarter of 2018, we established a hedge program to hedge foreign currency exchange risks.

As of July 1, 2018, we had net assets in various local currencies. A hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of $2.1 million net loss. Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analysis performed as of July 1, 2018 due to the inherent limitations associated with predicting foreign currency exchange rates and our actual exposures and positions. For the three and six months ended July 1, 2018, 22.8% and 24.0% of our revenue was denominated in a currency other than the U.S. dollar, respectively.


~~Item 4.~~	~~Controls and Procedures~~

Evaluation of Disclosure Controls and Procedures

~~Based on an evaluation under the supervision and~~Our management, with the participation of our ~~management (including our~~ Chief Executive Officer and ~~Chief Financial Officer),~~ our ~~Chief Executive Officer and~~ Chief Financial Officer, have ~~concluded that~~evaluated our disclosure controls and procedures as(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as ~~amended (the “Exchange Act”), were effective~~amended) as of the end of the period covered by this ~~Quarterly Report on Form 10-Q.~~quarterly report. Based on ~~this~~that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are ~~effective to ensure~~met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that ~~information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported~~all control issues, if any, within the time periods specified in the Securities and Exchange Commission rules and forms, and (ii) accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.an organization have been detected.

Changes in Internal Control over Financial Reporting

~~Other than certain controls implemented in connection with adoption of the amended accounting standard for revenue recognition, there have been~~There were no changes in our internal control over financial reporting during the ~~period covered by this Quarterly Report on Form 10-Q~~three months ended April 3, 2022 that have materially affected, or are reasonably likely to materially ~~effect,~~affect, our internal control over financial reporting. ~~It should be noted~~We have not experienced any significant impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the COVID-19 situation to minimize the impact, if any, ~~system of controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the system are met. In addition,~~on the design ~~of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these~~ and ~~other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals in all future circumstances.~~operating effectiveness on our internal controls.

PART II: OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1.Legal Proceedings

The ~~Company is~~information set forth under the heading “Litigation and ~~from time~~Other Legal Matters” in Note 9, Commitments and Contingencies, in Notes to ~~time, may become, involved~~Unaudited Condensed Consolidated Financial Statements in ~~legal proceedings or be subject to claims arising in the ordinary course~~Item 1 of ~~its business. The Company is not presently a party to any legal proceedings that in the opinion~~Part I of its management, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows.


~~Item 1A.~~	~~Risk Factors~~

~~Investing in our common stock involves substantial risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in~~ this Quarterly Report on Form 10-Q, ~~including our financial statements and~~is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see the ~~related notes included elsewhere~~section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, before deciding whether to invest in shares of our common stock. You should consider all of the factors described as well as the other information in the Prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” when evaluating our business. The risk factors set forth below that are marked with an asterisk (*) contain changes to the similarly titled risk factors included in the Prospectus. We describe below what we believe are currently the material risks and uncertainties we face, but they are not the only risks and uncertainties we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose part or all of your investment.10-Q.

~~Risks Related to Our Business~~

*We expect our results of operations to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.Item 1A.Risk Factors

Our results of operations are difficult to predict and may fluctuate substantially from quarter-to-quarter or year-to-year for a variety of reasons, many of which are beyond our control. If our actual results were to fall below our estimates or the expectations of public market analysts or investors, our quarterly and annual results would be negatively impacted and the price of our stock could decline. Other factors that could affect our quarterly and annual operating results include, but are not limited to:

~~changes in the pricing policies of, or the introduction of new products by, us or our competitors;~~

~~introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts;~~

~~slow or negative growth in the connected lifestyle, home electronics, and related technology markets;~~

~~seasonal shifts in end-market demand for our products;~~

~~delays in the introduction of new products by us or market acceptance of these products;~~

~~unanticipated decreases or delays in purchases of our products by our significant retailers, distributors, and other channel partners;~~

~~component supply constraints from our vendors;~~

~~unanticipated increases in costs, including air freight, associated with shipping and delivery of our products;~~

~~the inability to maintain stable operations by our suppliers and other parties with whom we have commercial relationships;~~

~~discovery of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand, or potential liability;~~

~~foreign currency exchange rate fluctuations in the jurisdictions where we transact sales and expenditures in local currency;~~

~~excess levels of inventory and low turns;~~

~~changes in or consolidation of our sales channels and wholesale distributor relationships or failure to manage our sales channel inventory and warehousing requirements;~~

~~delay or failure to fulfill orders for our products on a timely basis;~~

~~delay or failure of our retailers, distributors, and other channel partners to purchase at their historic volumes or at the volumes that they or we forecast;~~

~~changes in tax rates or adverse changes in tax laws that expose us to additional income tax liabilities;~~

changes in U.S. and international tax policy, including changes that adversely affect customs, tax or duty rates (such as the tariffs on products imported from China recently announced and/or proposed by the Trump administration), as well as income tax legislation and regulations that affect the countries where we conduct business;

~~operational disruptions, such as transportation delays or failure of our order processing system, particularly if they occur at the end of a fiscal quarter;~~

~~disruptions or delays related to our financial and enterprise resource planning systems;~~

~~our inability to accurately forecast product demand, resulting in increased inventory exposure;~~

allowance for doubtful accounts exposure with our existing retailers, distributors and other channel partners and new retailers, distributors and other channel partners, particularly as we expand into new international markets;

geopolitical disruption, including sudden changes in immigration policies, leading to disruption in our workforce or delay or even stoppage of our operations in manufacturing, transportation, technical support, and research and development;

~~terms of our contracts with channel partners or suppliers that cause us to incur additional expenses or assume additional liabilities;~~

~~an increase in price protection claims, redemptions of marketing rebates, product warranty and stock rotation returns or allowance for doubtful accounts;~~

~~litigation involving alleged patent infringement;~~

~~epidemic or widespread product failure, or unanticipated safety issues, in one or more of our products;~~

~~failure to effectively manage our third-party customer support partners, which may result in customer complaints and/or harm to the Arlo brand;~~

our inability to monitor and ensure compliance with our code of ethics, our anti-corruption compliance program, and domestic and international anti-corruption laws and regulations, whether in relation to our employees or with our suppliers or retailers, distributors, or other channel partners;

~~labor unrest at facilities managed by our third-party manufacturers;~~

workplace or human rights violations in certain countries in which our third-party manufacturers or suppliers operate, which may affect the Arlo brand and negatively affect our products’ acceptance by consumers;

~~unanticipated shifts or declines in profit by geographical region that would adversely impact our tax rate;~~

~~failure to implement and maintain the appropriate internal controls over financial reporting, which may result in restatements of our financial statements; and~~

~~any changes in accounting rules.~~

~~As a result, period-to-period comparisons of our results of operations may not be meaningful, and you should not rely on them as an indication of our future performance.~~

If we fail to continue to introduce or acquire new products or services that achieve broad market acceptance on a timely basis, or if our products or services are not adopted as expected, we will not be able to compete effectively and we will be unable to increase or maintain revenue and gross margin.

We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire and introduce new products and services that achieve broad market acceptance. Our future success will depend in large part upon our ability to identify demand trends in the connected lifestyle market and quickly develop or acquire, and design, manufacture and sell, products and services that satisfy these demands in a cost-effective manner.

In order to differentiate our products and services from our competitors’ products, we must continue to increase our focus and capital investment in research and development, including software development. We have committed a substantial amount of resources to the manufacture, development and sale of our Arlo Smart services and our wire-free smart Wi-Fi cameras, advanced baby monitors, and smart lights, and to introducing additional and improved models in these lines. In addition, we plan to continue to introduce new categories of smart connected devices to the Arlo platform in the near future. If our existing products and services do not continue, or if our new products or services fail to achieve widespread market acceptance, if existing customers do not subscribe to our paid subscription services such as Arlo Smart, or if we are unsuccessful in capitalizing on opportunities in the connected lifestyle market, as well as in the related market in the small business, ~~segment, our future growth may be slowed and our business,~~reputation, results of operations and financial condition, could be materially adversely affected. Successfully predicting demand trends is difficult, and it is very difficult to predict the effect that introducing a new product or service will have on existing product or service sales. It is possible that Arlo may not be as successful with its new products and services, and as a result our future growth may be slowed and our business, results of operations and financial condition could be materially adversely affected. Also, we may not be able to respond effectively to new product or service announcements by our competitors by quickly introducing competitive products and services.

In addition, we may acquire companies and technologies in the future and, consistent with our vision for Arlo, introduce new product and service lines in the connected lifestyle market. In these circumstances, we may not be able to

successfully manage integration of the new product and service lines with our existing suite of products and services. If we are unable to effectively and successfully further develop these new product and service lines, we may not be able to increase or maintain our sales, and our gross margin may be adversely affected.

We may experience delays and quality issues in releasing new products and services, which may result in lower quarterly revenue than expected. In addition, we may in the future experience product or service introductions that fall short of our projected rates of market adoption. Currently, reviews of our products and services are a significant factor in the success of our new product and service launches. If we are unable to generate a high number of positive reviews or quickly respond to negative reviews, including end-user reviews posted on various prominent online retailers, our ability to sell our products and services will be harmed. Any future delays in product and service development and introduction, or product and service introductions that do not meet broad market acceptance, or unsuccessful launches of new product and service lines could result in:

~~loss of or delay in revenue and loss of market share;~~

~~negative publicity and damage to our reputation and brand;~~

~~a decline in the average selling price of our products and services;~~

~~adverse reactions in our sales channels, such as reduced shelf space, reduced online product visibility, or loss of sales channels; and~~

~~increased levels of product returns.~~

Throughout the past few years, Arlo has significantly increased the rate of new product and service introductions, with the introduction of new lines of Arlo camera products and our smart light products, as well as the introduction of our Arlo Smart services. If we cannot sustain that pace of product and service introductions, either through rapid innovation or acquisition of new products and services or product and service lines, we may not be able to maintain or increase the market share of our products and services or expand further into the connected lifestyle market in accordance with our current plans. In addition, if we are unable to successfully introduce or acquire new products and services with higher gross margin, our revenue and overall gross margin would likely decline.

System security risks, data protection breaches and cyber-attacks could disrupt our products, services, internal operations, or information technology systems, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation, and cause our stock price to decline significantly.

Our products and services may contain unknown security vulnerabilities. For example, the firmware, software, and open source software that we or our manufacturing partners have installed on our products may be susceptible to hacking or misuse. In addition, we offer a comprehensive online cloud management service paired with our end products, including our cameras, baby monitors, and smart lights. If malicious actors compromise this cloud service, or if customer confidential information is accessed without authorization, our business will be harmed. Operating an online cloud service is a relatively new business for us, and we may not have the expertise to properly manage risks related to data security and systems security. We rely on third-party providers for a number of critical aspects of our cloud services and customer support, including web hosting services, billing, and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems. If we or our third-party providers are unable to successfully prevent breaches of security relating to our products, services, or user private information, including user videos and user personal identification information, or if these third-party systems fail for other reasons, our management could need to spend increasing amounts of time and effort in this area. As a result, we could incur substantial expenses, our brand and reputation could suffer and our business, results of operations, and financial condition could be materially adversely affected.

Maintaining the security of our computer information systems and communication systems is a critical issue for us and our customers. Malicious actors may develop and deploy malware that is designed to manipulate our systems, including our internal network, or those of our vendors or customers. Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our information technology systems, our data or our customers’ data. We have established a crisis management plan and business continuity program. While we regularly test the plan and the program, there can be no assurance that the plan and program can withstand an actual or serious disruption in our business, including cyber-attack. While we have established service-level and geographic redundancy for our critical systems, our ability to utilize these redundant systems must be tested regularly, failing over to such systems always carries risk and we cannot be assured that such systems are fully functional. For example, much of our order fulfillment process is automated and the order information is stored on our servers. A significant business interruption could result in losses or damages and harm our business. If our computer systems and servers become unavailable at the end of a fiscal quarter, our ability to recognize revenue may be delayed until we are able to utilize back-up systems and continue to process and ship our orders. This could cause our stock price to decline significantly.

We devote considerable internal and external resources to network security, data encryption, and other security measures to protect our systems, customers, and users, but these security measures cannot provide absolute security. Potential breaches of our security measures and the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential data about us, our employees, or our customers or users, including the potential loss or disclosure of such information or data as a result of employee error or other employee actions, hacking, fraud, social engineering, or other forms of deception could expose us, our customers, or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation, or otherwise materially adversely affect our business, results of operations, and financial condition. In addition, the cost and operational consequences of implementing further data protection measures could be significant.

Interruptions with the cloud-based systems that we use in our operations provided by an affiliate of Amazon.com, Inc. (“Amazon”), which is also one of our primary competitors, may materially adversely affect our business, results of operations, and financial condition.

We host our platform using Amazon Web Services (“AWS”) data centers, a provider of cloud infrastructure services, and may in the future use other third-party cloud-based systems in our operations. All of our solutions currently reside on systems leased and operated by us in these locations. Accordingly, our operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture, features, and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by human error, fire, flood, severe storm, earthquake, or other natural disasters, cyber-attacks, terrorist or other attacks, and other similar events beyond our control could negatively affect our platform. A prolonged AWS service disruption affecting our platform for any of the foregoing reasons would negatively impact our ability to serve our end-users and could damage our reputation with current and potential end-users, expose us to liability, cause us to lose customers, or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use. Further, if we were to make updates to our platforms that were not compatible with the configuration, architecture, features, and interconnection specifications of the third-party platform, our service could be disrupted.

Under the terms of AWS’s agreements with us, it may terminate its agreement by providing us with 30 days’ prior written notice. In addition, Amazon also produces the Amazon Cloud Cam, which competes with our security camera products, and recently acquired two of our competitors, Blink and Ring. Amazon may choose to hamper our competitive efforts, using provision of AWS services as leverage. In the event that our AWS service agreements are terminated, or there is a lapse of service, elimination of AWS services or features that we use, interruption of internet service provider connectivity, or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our solutions for deployment on a different cloud infrastructure service provider, which could materially adversely affect our business, results of operations, and financial condition.

Some of our competitors have substantially greater resources than we do, and to be competitive we may be required to lower our prices or increase our sales and marketing expenses, which could result in reduced margins and loss of market share.

We compete in a rapidly evolving and fiercely competitive market, and we expect competition to continue to be intense, including price competition. Our principal competitors include Amazon (Blink and Ring), Google (Nest), Swann, Night Owl, Foxconn Corporation (Belkin), Samsung, D-Link, and Canary. Other competitors include numerous local vendors such as Netatmo, Logitech, Bosch, Instar, and Uniden. In addition, these local vendors may target markets outside of their local regions and may increasingly compete with us in other regions worldwide. Many of our existing and potential competitors have longer operating histories, greater brand recognition, and substantially greater financial, technical, sales, marketing, and other resources. These competitors may, among other things, undertake more extensive marketing campaigns, adopt more aggressive pricing policies, obtain more favorable pricing from suppliers and manufacturers, and exert more influence on sales channels than we can. In addition, certain competitors may have different business models, such as integrated manufacturing capabilities, that may allow them to achieve cost savings and to compete on the basis of price. Other competitors may have fewer resources, but may be more nimble in developing new or disruptive technology or in entering new markets.

We anticipate that current and potential competitors will also intensify their efforts to penetrate our target markets. For example, price competition is intense in our industry in certain geographical regions and product categories. Many of our competitors price their products significantly below our product costs. Average sales prices have declined in the past and may again decline in the future. These competitors may have more advanced technology, more extensive distribution channels, stronger brand names, greater access to shelf space in retail locations, bigger promotional budgets, and larger retailers, distributors, and other channel partners, and end-user bases than we do.

In addition, many of these competitors leverage a broader product portfolio and offer lower pricing as part of a more comprehensive end-to-end solution. These companies could devote more capital resources to develop, manufacture, and market competing products than we could.

Our competitors may also acquire other companies in the market and leverage combined resources to gain market share. If any of these companies are successful in competing against us, our sales could decline, our margins could be negatively impacted, and we could lose market share, any of which could seriously harm our business, financial condition, and results of operations.

We rely on a limited number of traditional and online retailers and wholesale distributors for a substantial portion of our sales, and our revenue could decline if they refuse to pay our requested prices or reduce their level of purchases or if there is significant consolidation in our sales channels, which results in fewer sales channels for our products.

We sell a substantial portion of our products through traditional and online retailers, including Best Buy Co., Inc. (“Best Buy”), Amazon, Costco Wholesale Corporation (“Costco”) and their respective affiliates. For the year ended December 31, 2017, we derived 28%, 16% and 13% of our revenue from Best Buy, Amazon and Costco and their respective affiliates, respectively. In addition, we sell to wholesale distributors, including Ingram Micro, Inc., D&H Distributing Company, Exertis (UK) Ltd., and Synnex Corporation. We expect that a significant portion of our revenue will continue to come from sales to a small number of such retailers, distributors, and other channel partners. In addition, because our accounts receivable are often concentrated within a small group of retailers, distributors, and other channel partners, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow. We are also exposed to increased credit risk if any one of these limited numbers of retailer and distributor channel partners fails or becomes insolvent. We generally have no minimum purchase commitments or long-term contracts with any of these retailers, distributors and other channel partners. These purchasers could decide at any time to discontinue, decrease, or delay their purchases of our products. If our retailers, distributors, and other channel partners increase the size of their product orders

without sufficient lead-time for us to process the order, our ability to fulfill product orders would be compromised. These channel partners have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, which often results in the allocation of risk to us as the supplier. Accordingly, the prices that they pay for our products are subject to negotiation and could change at any time. We have historically benefitted from NETGEAR’s strong relationships with these retailers, distributors, and other channel partners, and we may not be able to maintain these relationships following our separation from NETGEAR. Our ability to maintain strong relationships with these channel partners is essential to our future performance. If any of our major channel partners reduce their level of purchases or refuse to pay the prices that we set for our products, our revenue and results of operations could be harmed. The traditional retailers that purchase from us have faced increased and significant competition from online retailers. If our key traditional retailers continue to reduce their level of purchases from us, our business, results of operations, and financial condition could be harmed.

Additionally, concentration and consolidation among our channel partner base may allow certain retailers and distributors to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. In addition, if, as a result of increased leverage, channel partner pressures require us to reduce our pricing such that our gross margin is diminished, we could decide not to sell our products to a particular channel partner, which could result in a decrease in our revenue. Consolidation among our channel partner base may also lead to reduced demand for our products, elimination of sales opportunities, replacement of our products with those of our competitors, and cancellations of orders, each of which could materially adversely affect our business, results of operations, and financial condition. If consolidation among the retailers, distributors, or other channel partners who purchase our products becomes more prevalent, our business, results of operations, and financial condition could be materially adversely affected.

In particular, the retail and connected home markets in some countries, including the United States, are dominated by a few large retailers with many stores. These retailers have in the past increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it could increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces its purchases of our devices, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales. Any reduction in sales by our retailers could materially adversely affect our business, results of operations, and financial condition.

Our current and future products may experience quality problems, including defects or errors, from time to time that can result in adverse publicity, product recalls, litigation, regulatory proceedings, and warranty claims resulting in significant direct or indirect costs, decreased revenue, and operating margin, and harm to our brand.

We sell complex products that could contain design and manufacturing defects in their materials, hardware, and firmware. These defects could include defective materials or components that can unexpectedly interfere with the products’ intended operations or cause injuries to users or property damage. Although we extensively and rigorously test new and enhanced products and services before their release, we cannot assure we will be able to detect, prevent, or fix all defects. Failure to detect, prevent, or fix defects, or an increase in defects, could result in a variety of consequences, including a greater number of product returns than expected from users and retailers, increases in warranty costs, regulatory proceedings, product recalls, and litigation, each of which could materially adversely affect our business, results of operations, and financial condition. We generally provide a one-year hardware warranty on all of our products. The occurrence of real or perceived quality problems or material defects in our current and future products could expose us to warranty claims in excess of our current reserves. If we experience greater returns from retailers or users, or greater warranty claims, in excess of our reserves, our business, financial condition, and results of operations could be harmed. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also adversely affect our brand, decrease demand for our products and services, and materially adversely affect our business, results of operations, and financial condition.

In addition, epidemic failure clauses are found in certain of our customer contracts. If invoked, these clauses may entitle the customer to return for replacement or obtain credits for products and inventory, as well as assess liquidated damage penalties and terminate an existing contract and cancel future or then-current purchase orders. In such instances, we may also be obligated to cover significant costs incurred by the customer associated with the consequences of such epidemic failure, including freight and transportation required for product replacement and out-of-pocket costs for truck rolls to end-user sites to collect the defective products. Costs or payments we make in connection with an epidemic failure could materially adversely affect our business, results of operations, and financial condition.

If our products contain defects or errors, or are found to be noncompliant with industry standards, we could experience decreased sales and increased product returns, loss of customers and market share, and increased service, warranty, and insurance costs. In addition, defects in, or misuse of, certain of our products could cause safety concerns, including the risk of property damage or personal injury. If any of these events occurred, our reputation and brand could be damaged, and we could face product liability or other claims regarding our products, resulting in unexpected expenses and adversely impacting our operating results. For instance, if a third party were able to successfully overcome the security measures in our products, such a person or entity could misappropriate end-user data, third-party data stored by our users, and other information, including intellectual property. If that happens, affected end-users or others may file actions against us alleging product liability, tort, or breach of warranty claims.

We depend on large, recurring purchases from certain significant retailers, distributors, and other channel partners, and a loss, cancellation, or delay in purchases by these channel partners could negatively affect our revenue.

The loss of recurring orders from any of our more significant retailers, distributors, and other channel partners could cause our revenue and profitability to suffer. Our ability to attract new retailers, distributors, and other channel partners will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth, and depth of our products. In addition, a change in the mix of our retailers, distributors, and other channel partners, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margin.

Although our financial performance may depend on large, recurring orders from certain retailers, distributors, and other channel partners, we do not generally have binding commitments from them. For example:

~~our channel partner agreements generally do not require minimum purchases;~~

~~our retailers, distributors, and other channel partners can stop purchasing and stop marketing our products at any time; and~~

~~our channel partner agreements generally are not exclusive.~~

Further, our revenue may be impacted by significant one-time purchases that are not contemplated to be repeatable. While such purchases are reflected in our financial statements, we do not rely on and do not forecast for continued significant one-time purchases. As a result, lack of repeatable one-time purchases will adversely affect our revenue.

Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns from, channel partners, or the loss of any significant channel partners, could materially adversely affect our business, results of operations, and financial condition. Although our largest channel partners may vary from period to period, we anticipate that our results of operations for any given period will continue to depend on large orders from a small number of channel partners.

~~The average selling prices of our products typically decrease rapidly over the sales cycle of the product, which may negatively affect our revenue and gross margin.~~

Our products typically experience price erosion, a fairly rapid reduction in the average unit selling prices over their sales cycles. In order to sell products that have a falling average unit selling price and maintain margins at the same time, we need to continually reduce product and manufacturing costs. To manage manufacturing costs, we must partner with our third-party manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully manage the price paid for components used in our products, and we must also successfully manage our freight and inventory costs to reduce overall product costs. We also need to continually introduce new products with higher sales prices and gross margin in order to maintain our overall gross margin. If we are unable to manage the cost of older products or successfully introduce new products with higher gross margin, our revenue and overall gross margin would likely decline.

The reputation of our services may be damaged, and we may face significant direct or indirect costs, decreased revenue, and operating margins if our services contain significant defects or fail to perform as intended.

Our services, including our intelligent cloud and App platform and our Arlo Smart services, are complex, and may not always perform as intended due to outages of our systems or defects affecting our services. Systems outages could be disruptive to our business and damage the reputation of our services and result in potential loss of revenue.

Significant defects affecting our services may be found following the introduction of new software or enhancements to existing software or in software implementations in varied information technology environments. Internal quality assurance testing and end-user testing may reveal service performance issues or desirable feature enhancements that could lead us to reallocate service development resources or postpone the release of new versions of our software. The reallocation of resources or any postponement could cause delays in the development and release of future enhancements to our currently available software, damage the reputation of our services in the marketplace, and result in potential loss of revenue. Although we attempt to resolve all errors that we believe would be considered serious by our partners and customers, the software powering our services is not error-free. Undetected errors or performance problems may be discovered in the future, and known errors that we consider minor may be considered serious by our channel partners and end-users.

~~System disruptions and defects in our services could result in lost revenue, delays in customer deployment, or legal claims and could be detrimental to our reputation.~~

Because we store, process, and use data, some of which contain personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters, which are subject to change.

We are subject to a variety of laws and regulations in the United States and other countries that involve matters central to our business, including with respect to user privacy, rights of publicity, data protection, content, protection of minors, and consumer protection. These laws can be particularly restrictive in countries outside the United States. Both in the United States and abroad, these laws and regulations constantly evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because we store, process, and use data, some of which contain personal information, we are subject to complex and evolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation and could result in investigations, claims, changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, any of which could materially adversely affect our business, results of operations, and financial condition.

Several proposals are pending before federal, state and foreign legislative and regulatory bodies that could significantly affect our business. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by European legislative bodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance. In addition, the EU General Data Protection Regulation 2016/679 (“GDPR”), which came into effect on May 25, 2018, establishes new requirements applicable to the processing of personal data (~~i.e., data which identifies an individual or from which an individual is identifiable), affords new data protection rights to individuals (e.g.~~, the right to erasure of personal data) and imposes penalties for serious data breaches. Individuals also have a right to compensation under GDPR for financial or non-financial losses. GDPR will impose additional responsibility and liability in relation to our processing of personal data. GDPR may require us to change our policies and procedures and, if we are not compliant, could materially adversely affect our business, results of operations, and financial condition.

~~Our stock price may be volatile and your investment in our common stock could suffer a decline in value.~~

There has been significant volatility in the market price and trading volume of securities of technology and other companies, which may be unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our ~~common stock~~.

~~Some specific factors that may have a significant effect on the market price of our common~~ stock, ~~include:~~

~~actual or anticipated fluctuations in our results of operations or our competitors’ operating results;~~

~~actual or anticipated changes in the growth rate of the connected lifestyle market, our growth rates or our competitors’ growth rates;~~

~~conditions in the financial markets in general or changes in general economic conditions;~~

~~changes in governmental regulation, including taxation and tariff policies;~~

~~interest rate or currency exchange rate fluctuations;~~

~~our ability to forecast or report accurate financial results; and~~

~~changes in stock market analyst recommendations regarding our common stock, other comparable companies, or our industry generally.~~

We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs.

Any shortage or delay in the supply of key product components would harm our ability to meet scheduled product deliveries. Many of the components used in our products are specifically designed for use in our products, some of which are obtained from sole source suppliers. These components include lens, lens-sensors, and passive infrared (“PIR”) sensors that have been customized for the Arlo application, as well as custom-made batteries that provide power conservation and safety features. In addition, the components used in our end products have been optimized to extend battery life. Our third-party manufacturers generally purchase these components on our behalf, and we do not have any contractual commitments or guaranteed supply arrangements with our suppliers. If demand for a specific component increases, we may not be able to obtain an adequate number of that component in a timely manner. In addition, if worldwide demand for the components increases significantly, the availability of these components could be limited. Further, our suppliers may experience financial or other difficulties as a result of uncertain and weak worldwide economic conditions. Other factors that may affect our suppliers’ ability or willingness to supply components to us include internal management or reorganizational issues, such as roll-out of new equipment which may delay or disrupt supply of previously

forecasted components, or industry consolidation and divestitures, which may result in changed business and product priorities among certain suppliers. It could be difficult, costly, and time consuming to obtain alternative sources for these components, or to change product designs to make use of alternative components. In addition, difficulties in transitioning from an existing supplier to a new supplier could create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.

We provide our third-party manufacturers with a rolling forecast of demand, which they use to determine our material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms, and demand and supply for a component at a given time. Some of our components have long lead times, such as wireless local area network chipsets, physical layer transceivers, connector jacks, and metal and plastic enclosures. If our forecasts are not timely provided or are less than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner. If our forecasts are too high, our third-party manufacturers will be unable to use the components they have purchased on our behalf. The cost of the components used in our products tends to drop rapidly as volumes increase and the technologies mature. Therefore, if our third-party manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than our competitors due to an oversupply of higher-priced components. Moreover, if they are unable to use components ordered at our direction, we will need to reimburse them for any losses they incur.

If we are unable to obtain a sufficient supply of components, or if we experience any interruption in the supply of components, our product shipments could be reduced or delayed or our cost of obtaining these components may increase. Component shortages and delays affect our ability to meet scheduled product deliveries, damage our brand and reputation in the market, and cause us to lose sales and market share. For example, component shortages and disruptions in supply in the past have limited our ability to supply all the worldwide demand for our products, and our revenue was affected. At times, we have elected to use more expensive transportation methods, such as air freight, to make up for manufacturing delays caused by component shortages, which reduces our margins. In addition, at times sole suppliers of highly specialized components have provided components that were either defective or did not meet the criteria required by our retailers, distributors, or other channel partners, resulting in delays, lost revenue opportunities, and potentially substantial write-offs.

We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption, or quality control problems in their operations, we could lose market share and our brand may suffer.

All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party original design manufacturers (“ODMs”). In most cases, we rely on these manufacturers to procure components and, in some cases, subcontract engineering work. We currently outsource manufacturing to Foxconn Corporation, Sky Light Industrial Ltd., and Delta Networks, Inc. We do not have any long-term contracts with any of these third-party manufacturers, although we have executed product supply agreements with these manufacturers, which typically provide indemnification for intellectual property infringement, epidemic failure clauses, agreed-upon price concessions, and certain product quality requirements. Some of these third-party manufacturers produce products for our competitors. In addition, one of our principal manufacturers, Foxconn Corporation, has entered into a definitive agreement to acquire Belkin International, which includes the WeMo brand of home automation products, which may compete directly with us. Due to changing economic conditions, the viability of some of these third-party manufacturers may be at risk. The loss of the services of any of our primary third-party manufacturers could cause a significant disruption in operations and delays in product shipments. Qualifying a new manufacturer and commencing volume production is expensive and time consuming. Ensuring that a contract manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a contract manufacturer can scale its production of our products at the volumes and in the quality that we require. If a contract manufacturer is unable to do these things, we may have to move production for the products to a new or existing third-party manufacturer, which would take significant effort and our business, results of operations, and financial condition could be materially adversely affected. In addition, as we contemplate moving manufacturing into different jurisdictions, we may be subject to additional significant challenges in ensuring that quality, processes, and costs, among other issues, are consistent with our expectations. For example, while we expect our

manufacturers to be responsible for penalties assessed on us because of excessive failures of the products, there is no assurance that we will be able to collect such reimbursements from these manufacturers, which causes us to take on additional risk for potential failures of our products.

~~Our reliance on third-party manufacturers also exposes us to the following risks over which we have limited control:~~

~~unexpected increases in manufacturing and repair costs;~~

~~inability to control the quality and reliability of finished products;~~

~~inability to control delivery schedules;~~

~~potential liability for expenses incurred by third-party manufacturers in reliance on our forecasts that later prove to be inaccurate;~~

~~potential lack of adequate capacity to manufacture all or a part of the products we require; and~~

~~potential labor unrest affecting the ability of the third-party manufacturers to produce our products.~~

All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. Our third-party manufacturers are primarily responsible for conducting the tests that support our applications for most regulatory approvals for our products. If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to sell our products in certain jurisdictions. As a result, we would be unable to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed, and our reputation and brand would suffer.

Specifically, substantially all of our manufacturing and assembly occurs in the Asia Pacific region, primarily in Vietnam, and any disruptions due to natural disasters, health epidemics, and political, social, and economic instability in the region would affect the ability of our third-party manufacturers to manufacture our products. In particular, in the event the labor market in Vietnam becomes saturated, our third-party manufacturers in Vietnam may increase our costs of production. If these costs increase, it may affect our margins and ability to lower prices for our products to stay competitive. Labor unrest may also affect our third-party manufacturers, as workers may strike and cause production delays. If our third-party manufacturers fail to maintain good relations with their employees or contractors, and production and manufacturing of our products are affected, then we may be subject to shortages of products and the quality of products delivered may be affected. Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we could have no other readily available alternatives for manufacturing and assembling our products, and our business, results of operations, and financial condition could be materially adversely affected.

In the future, we may work with more third-party manufacturers on a contract manufacturing basis, which could result in our exposure to additional risks not inherent in a typical ODM arrangement. Such risks may include our inability to properly source and qualify components for the products, lack of software expertise resulting in increased software defects, and lack of resources to properly monitor the manufacturing process. In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that the products will work according to a product’s specification, including any software specifications. In a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas. If we are unable to properly manage these risks, our products may be more susceptible to defects, and our business, results of operations, and financial condition could be materially adversely affected.

~~We depend substantially on our sales channels, and our failure to maintain and expand our sales channels would result in lower sales and reduced revenue.~~

To maintain and grow our market share, revenue, and brand, we must maintain and expand our sales channels. Our sales channels consist primarily of traditional retailers, online retailers, and wholesale distributors, but also include service providers such as wireless carriers and telecommunications providers. We generally have no minimum purchase commitments or long-term contracts with any of these third parties.

Traditional retailers have limited shelf space and promotional budgets, and competition is intense for these resources. A competitor with more extensive product lines and stronger brand identity may have greater bargaining power with these retailers. Any reduction in available shelf space or increased competition for such shelf space would require us to increase our marketing expenditures simply to maintain current levels of retail shelf space, which would harm our operating margin. Our traditional retail customers have faced increased and significant competition from online retailers. If we cannot effectively manage our business amongst our online customers and traditional retail customers, our business would be harmed. The recent trend in the consolidation of online retailers has resulted in intensified competition for preferred product placement, such as product placement on an online retailer’s internet home page. In addition, our efforts to realign or consolidate our sales channels may cause temporary disruptions in our product sales and revenue, and these efforts may not result in the expected longer-term benefits that prompted them.

In addition, to the extent our retail and distributor channel partners supply products that compete with our own, it is possible that these channel partners may choose not to offer our products to end-users or to offer our products to end-users on less favorable terms, including with respect to product placement. If this were to occur, we may not be able to increase or maintain our sales, and our business, results of operations, and financial condition could be materially adversely affected. For example, Amazon, one of our primary retailers, produces the Amazon Cloud Cam, which competes with our security camera products, and also recently acquired two of our competitors, Blink and Ring. For the year ended December 31, 2017, we derived 16% of our revenue from Amazon and its affiliates.

We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing sales channel, our business, results of operations, and financial condition could be materially adversely affected.

~~If disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our products, and our operating expenses could increase.~~

We are highly dependent upon the transportation systems we use to ship our products, including surface and air freight. Our attempts to closely match our inventory levels to our product demand intensify the need for our transportation systems to function effectively and without delay. On a quarterly basis, our shipping volume also tends to steadily increase as the quarter progresses, which means that any disruption in our transportation network in the latter half of a quarter will likely have a more material effect on our business than at the beginning of a quarter.

The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war or terrorism, natural disasters, and congestion resulting from higher shipping volumes. Labor disputes among freight carriers and at ports of entry are common, particularly in Europe, and we expect labor unrest and its effects on shipping our products to be a continuing challenge for us. A port worker strike, work slow-down, or other transportation disruption in Long Beach, California, where we import our products to fulfill our Americas orders, could significantly disrupt our business. Our international freight is regularly subjected to inspection by governmental entities. If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and result in delayed or lost revenue as well as customer imposed penalties. In addition, if increases in fuel prices occur, our transportation costs would likely increase. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time in the past, we have shipped products using extensive air freight to meet unexpected spikes in demand and shifts in demand between product categories, to bring new product introductions to market quickly and to timely ship products previously ordered. If we rely more heavily upon air freight to deliver our products, our overall shipping costs will increase. A prolonged transportation disruption or a significant increase in the cost of freight could materially adversely affect our business, results of operations, and financial condition.

~~If we lose the services of key personnel, we may not be able to execute our business strategy effectively.~~

Our future success depends in large part upon the continued services of our key technical, engineering, sales, marketing, finance, and senior management personnel. The competition for qualified personnel with significant experience in the design, development, manufacturing, marketing, and sales in the markets in which we operate is intense, both where our U.S. operations are based, including Silicon Valley, and in global markets in which we operate. Our inability to attract qualified personnel, including hardware and software engineers and sales and marketing personnel, could delay the development and introduction of, and harm our ability to sell, our products and services. Changes to U.S. immigration policies that restrict our ability to attract and retain technical personnel may negatively affect our research and development efforts.

We do not maintain any key person life insurance policies. Our business model requires extremely skilled and experienced senior management who are able to withstand the rigorous requirements and expectations of our business. Our success depends on senior management being able to execute at a very high level. The loss of any of our senior management or other key engineering, research, development, sales, or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business strategy and respond to the rapidly changing needs of our business. If we suffer the loss of services of any key executive or key personnel, our business, results of operations, and financial condition could be materially adversely affected. In addition, we may not be able to have the proper personnel in place to effectively execute our long-term business strategy if key personnel retire, resign or are otherwise terminated.

~~If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.~~

We rely on a combination of copyright, trademark, patent, and trade secret laws, nondisclosure agreements with employees, consultants, and suppliers, and other contractual provisions to establish, maintain, and protect our intellectual property and technology. Despite efforts to protect our intellectual property, unauthorized third parties may attempt to design around, copy aspects of our product design or obtain and use technology or other intellectual property associated with our products. Furthermore, our competitors may independently develop similar technology or design around our intellectual property. Our inability to secure and protect our intellectual property rights could materially adversely affect our brand and business, results of operations, and financial condition.

We rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and future technology, our ability to develop, sell, maintain, and support technologically innovative products would be limited.

We rely on third parties to obtain non-exclusive patented hardware and software license rights in technologies that are incorporated into and necessary for the operation and functionality of most of our products. In these cases, because the intellectual property we license is available from third parties, barriers to entry into certain markets may be lower for potential or existing competitors than if we owned exclusive rights to the technology that we license and use. Moreover, if a competitor or potential competitor enters into an exclusive arrangement with any of our key third-party technology providers, or if any of these providers unilaterally decides not to do business with us for any reason, our ability to develop and sell products containing that technology would be severely limited. In addition, certain of Arlo’s firmware and the AI-based algorithms that we use in our Arlo Smart services incorporate open source software, the licenses for which may include customary requirements for, and restrictions on, use of the open source software.

If we are offering products or services that contain third-party technology that we subsequently lose the right to license, then we will not be able to continue to offer or support those products or services. In addition, these licenses may require royalty payments or other consideration to the third-party licensor. Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially acceptable terms, if at all. In addition, if these third-party licensors fail or experience instability, then we may be unable to continue to sell products and services that incorporate the licensed technologies, in addition to being unable to continue to maintain and support these products and services. We do require escrow

arrangements with respect to certain third-party software which entitle us to certain limited rights to the source code, in the event of certain failures by the third party, in order to maintain and support such software. However, there is no guarantee that we would be able to fully understand and use the source code, as we may not have the expertise to do so. We are increasingly exposed to these risks as we continue to develop and market more products containing third-party technology and software. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology, which could be of lower quality or performance standards. The acquisition or development of alternative technology may limit and delay our ability to offer new or competitive products and services and increase our costs of production. As a result, our business, results of operations, and financial condition could be materially adversely affected.

We also utilize third-party software development companies and contractors to develop, customize, maintain, and support software that is incorporated into our products and services. If these companies and contractors fail to timely deliver or continuously maintain and support the software, as we require of them, we may experience delays in releasing new products and services or difficulties with supporting existing products, services, and our users.

~~Our sales and operations in international markets expose us to operational, financial and regulatory risks.~~

International sales comprise a significant amount of our overall revenue. International sales were 25% of overall revenue in fiscal year 2017 and 23% of overall revenue in fiscal year 2016. We continue to be committed to growing our international sales, and while we have committed resources to expanding our international operations and sales channels, these efforts may not be successful. International operations are subject to a number of other risks, including:

~~exchange rate fluctuations;~~

~~political and economic instability, international terrorism, and anti-American sentiment, particularly in emerging markets;~~

~~potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;~~

~~preference for locally branded products, and laws and business practices favoring local competition;~~

~~potential consequences of, and uncertainty related to, the “Brexit” process in the United Kingdom, which could lead to additional expense and complexity in doing business there;~~

~~increased difficulty in managing inventory;~~

~~delayed revenue recognition;~~

~~less effective protection of intellectual property;~~

stringent consumer protection and product compliance regulations, including but not limited to General Data Protection Regulation in the European Union, European competition law, the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign directive that are costly to comply with and may vary from country to country;

~~difficulties and costs of staffing and managing foreign operations;~~

~~business difficulties, including potential bankruptcy or liquidation, of any of our worldwide third-party logistics providers; and~~

~~changes in local tax and customs duty laws or changes in the enforcement, application, or interpretation of such laws.~~

We are also required to comply with local environmental legislation, and those who sell our products rely on this compliance in order to sell our products. If those who sell our products do not agree with our interpretations and requirements of new legislation, they may cease to order our products and our business, results of operations, and financial condition could be materially adversely affected.

The development of our operations and infrastructure in connection with our separation from NETGEAR, and any future expansion of such operations and infrastructure, may not be entirely successful, and may strain our operations and increase our operating expenses.

In connection with our separation from NETGEAR, we have been implementing a new information technology infrastructure for our business, which includes the creation of management information systems and operational and financial controls unique to our business. We may not be able to put in place adequate controls in an efficient and timely manner in connection with our separation from NETGEAR and as our business grows, and our current systems may not be adequate to support our future operations. The difficulties associated with installing and implementing new systems, procedures, and controls may place a significant burden on our management and operational and financial resources. In addition, as we grow internationally, we will have to expand and enhance our communications infrastructure. If we fail to continue to improve our management information systems, procedures, and financial controls, or encounter unexpected difficulties during expansion and reorganization, our business could be harmed.

For example, we are investing significant capital and human resources in the design, development, and enhancement of our financial and enterprise resource planning systems. We will depend on these systems in order to timely and accurately process and report key components of our results of operations, financial condition, and cash flows. If the systems fail to operate appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, our ability to fulfill customer orders, bill, and track our customers, fulfill contractual obligations, accurately report our financials, and otherwise run our business could be adversely affected. Even if we do not encounter these adverse effects, the development and enhancement of systems may be much more costly than we anticipated. If we are unable to continue to develop and enhance our information technology systems as planned, our business, results of operations, and financial condition could be materially adversely affected.

~~Governmental regulations of imports or exports affecting internet security could affect our revenue.~~

Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies could adversely affect our international and domestic sales. The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, particularly encryption technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. In response to terrorist activity, governments could enact additional regulation or restriction on the use, import, or export of encryption technology. This additional regulation of encryption technology could delay or prevent the acceptance and use of encryption products and public networks for secure communications, resulting in decreased demand for our products and services. In addition, some foreign competitors are subject to less stringent controls on exporting their encryption technologies. As a result, they may be able to compete more effectively than we can in the United States and the international internet security market.

We are involved in litigation matters in the ordinary course and may in the future become involved in additional litigation, including litigation regarding intellectual property rights, which could be costly and subject us to significant liability.

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding infringement of patents, trade secrets, and other intellectual property rights. From time to time, third parties have asserted, and may continue to assert, exclusive patent, copyright, trademark, and other intellectual property rights against us, demanding license or royalty payments or seeking payment for damages, injunctive relief, and other available legal remedies through litigation. These also include third-party non-practicing entities who claim to own patents

or other intellectual property that they believe cover our products. If we are unable to resolve these matters or obtain licenses on acceptable or commercially reasonable terms, we could be sued or we may be forced to initiate litigation to protect our rights. The cost of any necessary licenses could materially adversely affect our business, results of operations, and financial condition.

In the event successful claims of infringement are brought by third parties, and we are unable to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to indemnification obligations, be unable to offer competitive products, or be subject to increased expenses. If we do not resolve these claims on a favorable basis, our business, results of operations, and financial condition could be materially adversely affected.

As part of growing our business, we may make acquisitions. If we fail to successfully select, execute, or integrate our acquisitions, then our business, results of operations, and financial condition could be materially adversely affected and our stock price could decline.

From time to time, we may undertake acquisitions to add new product and service lines and technologies, acquire talent, gain new sales channels, or enter into new sales territories. Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business, entering into new territories or markets with which we have limited or no prior experience, establishing or maintaining business relationships with new retailers, distributors, or other channel partners, vendors, and suppliers, and potential post-closing disputes.

We cannot ensure that we will be successful in selecting, executing, and integrating acquisitions. Failure to manage and successfully integrate acquisitions could materially harm our business, financial condition, and results of operations. In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.

~~If we do not effectively manage our sales channel inventory and product mix, we may incur costs associated with excess inventory, or lose sales from having too few products.~~

If we are unable to properly monitor, control, and manage our sales channel inventory and maintain an appropriate level and mix of products with our distributors and within our sales channels, we may incur increased and unexpected costs associated with this inventory. We generally allow distributors and traditional retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, if we reduce the list price of a product, we are often required to issue a credit in an amount equal to the reduction for each of the products held in inventory by our wholesale distributors and retailers. If our wholesale distributors and retailers are unable to sell their inventory in a timely manner, we might lower the price of the products, or these parties may exchange the products for newer products. Also, during the transition from an existing product to a new replacement product, we must accurately predict the demand for the existing and the new product.

We determine production levels based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which makes it difficult to forecast. We have experienced differences between our actual and our forecasted demand in the past and expect differences to arise in the future. If we improperly forecast demand for our products, we could end up with too many products and be unable to sell the excess inventory in a timely manner, if at all, or, alternatively, we could end up with too few products and not be able to satisfy demand. This problem is exacerbated because we attempt to closely match inventory levels with product demand, leaving limited margin for error. If these events occur, we could incur increased expenses associated with writing off excessive or obsolete inventory, lose sales, incur penalties for late delivery, or have to ship products by air freight to meet immediate demand, thereby incurring incremental freight costs above the sea freight costs, a preferred method, and suffering a corresponding decline in gross margin.

*Global economic conditions could materially adversely affect our revenue and results of operations.

~~Our business has been and may continue to~~ be affected by a number of factors, ~~that are beyond our control, such as general geopolitical, economic, and business conditions, conditions~~whether currently known or unknown, including those described in the financial markets, and changes in the overall demand for connected lifestyle products. Our products and services may be considered discretionary items for our consumer and small business end-users. A severe and/or prolonged economic downturn could adversely affect our customers’ financial condition and the levels of business activityPart I, Item 1A of our ~~customers. Weakness in, and uncertainty about, global economic conditions may cause businesses to postpone spending in response to tighter credit, negative financial news and/~~Annual Report Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors.” When any one or ~~declines in income or asset values, which could have a material negative effect on the demand for our products.~~

~~In the recent past, various regions worldwide have experienced slow economic growth. In addition, current economic challenges in China, including any global economic ramifications~~more of these ~~challenges, may continue~~risks materialize from time to put negative pressure on global economic conditions. If conditions in the global economy, including Europe, China, Australia and the United States, or other key vertical or geographic markets deteriorate, such conditions could materially adversely affecttime, our business, results of operations, and financial condition. If we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, which could materially adversely affect our business, results of operations, and financial condition. In addition, the economic problems affecting the financial markets and the uncertainty in global economic conditions resulted in a number of adverse effects, including a low level of liquidity in many financial markets, extreme volatility in credit, equity, currency, and fixed income markets, instability in the stock market, and high unemployment.

For example, the challenges faced by the European Union to stabilize some of its member economies, such as Greece, Portugal, Spain, Hungary, and Italy, have had international implications affecting the stability of global financial markets and hindering economies worldwide. Many member nations in the European Union have been addressing the issues with controversial austerity measures. In addition, the potential consequences of the “Brexit” process in the United Kingdom have led to significant uncertainty in the region. Should the European Union monetary policy measures be insufficient to restore confidence and stability to the financial markets, or should the United Kingdom’s “Brexit” decision lead to additional economic or political instability, the global economy, including the U.S. and European Union economies where we have a significant presence, could be hindered, which could have a material adverse effect on us. There could also be a number of other follow-on effects from these economic developments on our business, including the inability of customers to obtain credit to finance purchases of our products, customer insolvencies, decreased customer confidence to make purchasing decisions, decreased customer demand, and decreased customer ability to pay their trade obligations.

In addition, availability of our products from third-party manufacturers and our ability to distribute our products into non-U.S. jurisdictions may be impacted by factors such as an increase in duties, tariffs, or other restrictions on trade; raw material shortages, work stoppages, strikes and political unrest; economic crises and international disputes or conflicts; changes in leadership and the political climate in countries from which we import products; and failure of the United States to maintain normal trade relations with China and other countries. While China currently enjoys “most favored nation” trading status with the United States, the Trump administration has proposed to revoke that status and has announced higher tariffs, and proposed additional higher tariffs, on products imported from China, which could materially adversely affect our business, results of operations, and financial condition.

~~The success of our business depends on customers’ continued and unimpeded access to our platform on the internet.~~

Our users must have internet access in order to use our platform. Some providers may take measures that affect their customers’ ability to use our platform, such as degrading the quality of the data packets we transmit over their lines, giving those packets lower priority, giving other packets higher priority than ours, blocking our packets entirely, or attempting to charge their customers more for using our platform.

In December 2010, the Federal Communications Commission (the “FCC”), adopted net neutrality rules barring internet providers from blocking or slowing down access to online content, protecting services like ours from such interference. Recently, the FCC voted in favor of repealing the net neutrality rules, and it is currently uncertain how the U.S. Congress will respond to this decision. To the extent network operators attempt to interfere with our services, extract fees from us to deliver our solution, or otherwise engage in discriminatory practices, our business,reputation, results of operations and financial condition, ~~could~~as well as the price of our stock, can be materially and adversely affected. Within such a regulatory environment, we could experience discriminatory or anti-competitive practices that could impede our domestic and international growth, cause us to incur additional expense, or otherwise materially adversely affect our business, results of operations, and financial condition.

*Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.

~~Factors that could materially affect our future effective tax rates include but~~Below are ~~not limited to:~~

~~changes in tax laws or the regulatory environment;~~

~~changes in accounting and tax standards or practices;~~

~~changes in the composition of operating income by tax jurisdiction; and~~

~~our operating results before taxes.~~

We are subject to income taxes in the United States and numerous foreign jurisdictions. Because we do not have a long history of operating as a separate company and we have significant expansion plans, our effective tax rate may fluctuate in the future. Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under GAAP, changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws.

~~On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant~~ changes to the Internal Revenue Code of 1986, as amended (the “Code”). In particular, sweeping changes were made to the U.S. taxation of foreign operations. Changes include, but are not limited to, a U.S. federal corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a quasi-territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. Additionally, new provisions were added to mitigate the potential erosion of the U.S. tax base and to discourage use of low tax jurisdictions to own intellectual property and other valuable intangible assets. While these provisions were intended to prevent specific perceived taxpayer abuse, they may have adverse, unexpected consequences. At this time, Treasury has not yet issued Regulations on how these new rules should be applied and how the relevant calculations are to be prepared. As there exists only limited guidance at this time, significant estimates and judgment are requiredour risk factors included in assessing the consequences. The amounts for adjusting the deferred tax assets and liabilities for the new effective tax rate and the transition tax are provisional based on the guidance provided by the SEC in Staff Accounting Bulletin No. 118 (“SAB 118”), which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. As a result of continued regulations and interpretations of the Tax Act, we are still quantifying the effects of the tax law change. Based on information available, we also reflected a provisional estimate of $2.9 million related to the transitional tax that was fully offset with tax attributes and therefore did not result in an income tax expense. The amounts reported in the audited combined financial statements and accompanying notesour Annual Report From 10-K for the year ended December 31, ~~2017 included~~2021.

Instability in the prospectus filed with the SEC on August 6, 2018 (the “Prospectus”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) are provisional based on the uncertainty discussed above. As we complete our analysis and prepare necessary data, and interpret any additional guidance, we will adjust our calculations and provisional amounts thatgeographies where we have ~~recorded in our tax provision. Any such adjustments may materially impact our provision for income taxes in our financial statements.~~

In addition to the impact of the Tax Act on our federal taxes, the Tax Act may impact our taxation in other jurisdictions, including with respect to state income taxes. State legislatures have not had sufficient time to respond to the

Tax Act. Accordingly, there is uncertainty as to how the laws will apply in the various state jurisdictions. Additionally, other foreign governing bodies may enact changes to their tax laws in reaction to the Tax Act that could result in changes to our global tax position and materially adversely affect our business, results of operations and ~~financial condition.~~

Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with our intercompany charges, cross-jurisdictional transfer pricingpersonnel or ~~other matters and assess additional taxes. If we do not prevail in any such disagreements, our profitability may be affected.~~

We must comply with indirect tax laws in multiple jurisdictions, as well as complex customs duty regimes worldwide. Audits of our compliance with these rules may result in additional liabilities for taxes, duties, interest and penalties related to our international operations which would reduce our profitability.

Our operations are routinely subject to audit by tax authorities in various countries. Many countries have indirect tax systems where the sale and purchase of goods and services are subject to tax based on the transaction value. These taxes are commonly referred to as value-added tax (“VAT”) or goods and services tax (“GST”). In addition, the distribution of our products subjects us to numerous complex customs regulations, which frequently change over time. Failure to comply with these systems and regulations can result in the assessment of additional taxes, duties, interest, and penalties. While we believe we are in compliance with local laws, we cannot assure that tax and customs authorities agree with our reporting positions and upon audit may assess us additional taxes, duties, interest, and penalties.

Additionally, some of our products are subject to U.S. export controls, including the Export Administration Regulations and economic sanctions administered by the Office of Foreign Assets Control. We also incorporate encryption technology into certain of our solutions. These encryption solutions and underlying technology may be exported outside of the United States only with the required export authorizations or exceptions, including by license, a license exception, appropriate classification notification requirement, and encryption authorization.

Furthermore, our activities are subject to U.S. economic sanctions laws and regulations that prohibit the shipment of certain products and services without the required export authorizations, including to countries, governments, and persons targeted by U.S. embargoes or sanctions. Additionally, the Trump administration has been critical of existing trade agreements and may impose more stringent export and import controls. Obtaining the necessary export license or other authorization for a particular sale may be time consuming, and may result in delay or loss of sales opportunities even if the export license ultimately is granted. While we take precautions to prevent our solutions from being exported in violation of these laws, including using authorizations or exceptions for our encryption products and implementing IP address blocking and screenings against U.S. government and international lists of restricted and prohibited persons and countries, we have not been able to guarantee, and cannot guarantee, that the precautions we take will prevent all violations of export control and sanctions laws, including if purchasers of our products bring our products and services into sanctioned countries without our knowledge. Violations of U.S. sanctions or export control laws can result in significant fines or penalties and incarceration could be imposed on employees and managers for criminal violations of these laws.

Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products and services or our end-users’ ability to utilize our solutions in their countries. Changes in our products and services or changes in import and export regulations may create delays in the introduction of our products in international markets. Furthermore, recent actions by the Trump administration announcing increased duties on products imported from China may severely impact the price of our goods imported into the United States in the future, and other countries may follow suit and increase duties on goods produced in China.

~~Adverse action by any government agencies related to indirect tax laws could materially adversely affect our business, results of operations and financial condition.~~

We are subject to, and must remain in compliance with, numerous laws and governmental regulations concerning the manufacturing, use, distribution, and sale of our products, as well as any such future laws and regulations. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations, and requirements, and any associated unanticipated costs, could materially adversely affect our business, results of operations, and financial condition.

~~We manufacture and sell products which contain electronic components, and such components may contain materials that are subject to government regulation in both the locations~~ where we ~~manufacture and assemble our products, as well as the locations where we sell our products. For example, certain regulations limit the use~~derive amounts of lead in electronic components. To our knowledge, we maintain compliance with all applicable current government regulations concerning the materials utilized in our products for all the locations in which we operate. Since we operate on a global basis, this is a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. There are areas where new regulations have been enacted which could increase our cost of the components that we utilize or require us to expend additional resources to ensure compliance. For example, the SEC’s “conflict minerals” rules apply to our business, and we are expending resources to ensure compliance. The implementation of these requirements by government regulators and our partners and/or customers could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of certain components used in our products. In addition, the supply-chain due diligence investigation required by the conflict minerals rules will require expenditures of resources and management attention regardless of the results of the investigation. If there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that regulation could materially adversely affect our business, results of operations, and financial condition.

One area that has a large number of regulations is environmental compliance. Management of environmental pollution and climate change has produced significant legislative and regulatory efforts on a global basis, and we believe this will continue both in scope and in the number of countries participating. These changes could directly increase the cost of energy, which may have an impact on the way we manufacture products or utilize energy to produce our products. In addition, any new regulations or laws in the environmental area might increase the cost of raw materials we use in our products. Environmental regulations require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances, and participate in required recovery and recycling of our products. While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business. If there is a new law or regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, thisrevenue could have a material adverse effect on our business, customers, operations and financial ~~condition,~~results.

Economic, civil, military and ~~results~~political uncertainty exists and may increase in regions where we operate and derive our revenue. Various countries in which we operate are experiencing and may continue to experience military action and civil and political unrest. We have operations in the emerging market economies of ~~operations.~~

~~Our selling~~Eastern Europe, previously including operations in Belarus, utilizing employees and ~~distribution practices are also regulated~~contractors who perform services relating to new product releases. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in ~~large part by U.S. federal~~the region is likely. The impact to Belarus, Russia and ~~state~~Ukraine, as well as ~~foreign antitrust~~actions taken by other countries, including new and ~~competition laws~~stricter export controls and ~~regulations. In general,~~sanctions by Canada, the ~~objective of these laws is to promote and maintain free competition by prohibiting certain forms of conduct that tend to restrict production, raise prices or otherwise control~~United Kingdom, the ~~market for goods or services to~~European Union, the detriment of consumers of those goods and services. Potentially prohibited activities under these laws may include unilateral conduct or conduct undertaken as the result of an agreement with one or more of our suppliers, competitors, or customers. The potential for liability under these laws can be difficult to predict as it often depends on a finding that the challenged conduct resulted in harm to competition, such as higher prices, restricted supply, or a reduction in the quality or variety of products available to consumers. We utilize a number of different distribution channels to deliver our products to customers and end-users and regularly enter into agreements with resellers of our products at various levels in the distribution chain that could be subject to scrutiny under these laws in the event of private litigation or an investigation by a governmental competition authority. In addition, many of our products are sold to consumers via the internet. Many of the competition-related laws that govern these internet sales were adopted prior to the advent of the internet and, as a result, do not contemplate or address the unique issues raised by online sales. New interpretations of existing laws and regulations, whether by courts or by the state, federal, or foreign governmental authorities charged with the enforcement of those laws and regulations, may also impact our business in ways we are currently unable to predict. Any failure on our part or on the part of our employees, agents, distributors, or other business partners to comply with the laws and regulations governing competition can result in negative publicity and diversion of management time and effort and may subject us to significant litigation liabilitiesU.S. and other ~~penalties.~~

~~We are exposed~~countries and organizations against officials, individuals, regions, and industries in Russia, Belarus and Ukraine, and each country’s potential response to ~~the credit risk of some of our customers~~such sanctions, tensions and ~~to credit exposures in certain markets, which~~military actions, could ~~result in material losses.~~

A substantial portion of our sales are on an open credit basis, with typical payment terms of 30 to 60 days in the United States and, because of local customs or conditions, longer in some markets outside the United States. We monitor individual customer financial viability in granting such open credit arrangements, seek to limit such open credit to amounts we believe the customers can pay and maintain reserves we believe are adequate to cover exposure for doubtful accounts.

~~Any bankruptcies or illiquidity among our customer base could harm our business and~~ have a material adverse effect on our ~~financial condition~~product development timelines and ~~results~~increase our research and development expenditure. Material adverse effects from the conflict and enhanced sanctions activity has caused us to transition our operations out of ~~operations. To~~Belarus to other countries. We are actively monitoring the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, our customers’ ability to pay could be adversely impacted, which in turn could materially adversely affect our business, results of operations, and financial condition.

~~If our products are not compatible with some or all leading third-party IoT products and protocols, we could be materially adversely affected.~~

~~A core part~~security of our ~~solution is~~remaining employees and contractors in Eastern Europe and the ~~interoperability~~stability of our ~~platform with third-party IoT products~~infrastructure, including communications and protocols. The Arlo platform seamlessly integrates with third-party IoT products and protocols, such as Amazon Alexa, Apple HomeKit, Apple TV, Google Assistant, IFTTT, Stringify, and Samsung SmartThings. If these third parties were to alter their products, we could be adversely impacted if we fail to timely create compatible versions of our products, and such incompatibility could negatively impact the adoption of our products and solutions. A lack of interoperability may also result in significant redesign costs, and harm relations with our customers. Further, the mere announcement of an incompatibility problem relating to our products could materially adversely affect our business, results of operations, and financial condition.

In addition, to the extent our competitors supply products that compete with our own, it is possible these competitors could design their technologies to be closed or proprietary systems that are incompatible with our products or work less effectively with our products than their own. As a result, end-users may have an incentive to purchase products that are compatible with the products and technologies of our competitors over our products.

~~The marketability of our products may suffer if wireless telecommunications operators do not deliver acceptable wireless services.~~

The success of our business depends, in part, on the capacity, affordability, reliability, and prevalence of wireless data networks provided by wireless telecommunications operators and on which our IoT hardware products and solutions operate. Growth in demand for wireless data access may be limited if, for example, wireless telecommunications operators cease or materially curtail operations, fail to offer services that customers consider valuable at acceptable prices, fail to maintain sufficient capacity to meet demand for wireless data access, delay the expansion of their wireless networks and services, fail to offer and maintain reliable wireless network services, or fail to market their services effectively.

*We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could materially adversely affect our business, results of operations, and financial condition.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our financial condition, results of operations, and cash flows. Although a portion of our international sales are currently invoiced in U.S. dollars, we have implemented and continue to implement for certain countries and customers both invoicing and payment in foreign currencies. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales primarily in Europe and Australia, as well as our global operations, and non-U.S. dollar-denominated operating expenses and certain assets and liabilities. In addition, weaknesses in foreign currencies for U.S. dollar-denominated sales could adversely affect demand for our products.

Conversely, a strengthening in foreign currencies against the U.S. dollar could increase foreign currency-denominated costs. As a result, we may attempt to renegotiate pricing of existing contracts or request payment to be made in U.S. dollars. We cannot be sure that our customers would agree to renegotiate along these lines. This could result in customers eventually terminating contracts with us or in our decision to terminate certain contracts, which would adversely affect our sales.

We established a hedging program after the IPO to hedge our exposure to fluctuations in foreign currency exchange rates as a response to the risk of changes in the value of foreign currency-denominated assets and liabilities. We may enter into foreign currency forward contracts or other instruments. We expect that such foreign currency forward contracts will reduce, but will not eliminate, the impact of currency exchange rate movements. For example, we may not execute forward contracts in all currencies in which we conduct business. In addition, we may hedge to reduce the impact of volatile exchange rates on revenue, gross profit and operating profit for limited periods of time. However, the use of these hedging activities may only offset a portion of the adverse financial effect resulting from unfavorable movements in foreign exchange rates.

~~Risks Related to Our Separation from NETGEAR~~

*The Distribution may not occur, and the Separation may not be successful.

We continue to be controlled by NETGEAR, and NETGEAR has informed us that, at some time in the future, but no earlier than the expiration or earlier termination of the 145-day lock-up period applicable to NETGEAR, it intends to effect the Distribution. However, NETGEAR may abandon or change the structure of the distribution if it determines, in its sole discretion, that the distribution is not in the best interest of NETGEAR or its stockholders.

In addition, the process of becoming a stand-alone public company may distract our management from focusing on our business and strategic priorities. Further, we may not be able to issue debt or equity on terms acceptable to us or at all. Moreover, even with equity compensation tied to our business, we may not be able to attract and retain employees as desired.

~~We also may not fully realize the intended benefits of being a stand-alone public company if any of the risks identified in these “Risk Factors~~,” or other events, were to occur. These intended benefits include improving the strategic and operational flexibility of both companies, increasing the focus of the management teams on their respective business operations, allowing each company to adopt the capital structure, investment policy and dividend policy best suited to its financial profile and business needs, and providing each company with its own equity currency to facilitate acquisitions and to better incentivize management. If we do not realize these intended benefits for any reason, our business may be negatively affected. In addition, the separation could materially adversely affect our business, results of operations, and financial condition.

*As long as NETGEAR controls us, our stockholders’ ability to influence matters requiring stockholder approval will be limited.

NETGEAR owns 62,500,000 shares of our common stock, representing approximately 84.2% of the outstanding shares of our common stock. For so long as NETGEAR beneficially owns shares of our outstanding common stock representing at least a majority of the votes entitled to be cast by the holders of our outstanding common stock, NETGEAR will be able to elect all of the members of our board of directors.

~~NETGEAR’s ability to control our board of directors may make it difficult for us to recruit high-quality independent directors.~~

So long as NETGEAR beneficially owns shares of our outstanding common stock representing at least a majority of the votes entitled to be cast by the holders of our outstanding voting stock, NETGEAR can effectively control and direct our board of directors.

We anticipate that Mr. Lo will continue to serve as the Chairman of the board of directors and Chief Executive Officer of NETGEAR. Further, the interests of NETGEAR and our other stockholders may diverge. Under these circumstances, persons who might otherwise accept our invitation to join our board of directors may decline.

NETGEAR’s interests may conflict with our interests and the interests of our other stockholders. Conflicts of interest between us and NETGEAR could be resolved in a manner unfavorable to us and our other stockholders.

Various conflicts of interest between us and NETGEAR could arise. We anticipate that Mr. Lo will continue to serve as the Chairman of the board of directors and Chief Executive Officer of NETGEAR. Ownership interests of Mr. Lo and NETGEAR in our capital stock and ownership interests of our directors and officers in NETGEAR capital stock, or service by an individual as either a director and/or officer of both companies, could create or appear to create potential conflicts of interest when such individuals are faced with decisions relating to us. These decisions could include:

~~corporate opportunities;~~

the impact that operating or capital decisions (including the incurrence of indebtedness) relating to our business may have on NETGEAR’s consolidated financial statements and/or current or future indebtedness (including related covenants);

~~business combinations involving us;~~

~~our dividend and stock repurchase policies;~~

~~compensation and benefit programs and other human resources policy decisions;~~

~~management stock ownership;~~

~~the intercompany agreements and services between us and NETGEAR, including the agreements relating to our separation from NETGEAR;~~

~~the payment of dividends on our common stock; and~~

~~determinations with respect to our tax returns.~~

Potential conflicts of interest could also arise if we decide to enter into new commercial arrangements with NETGEAR in the future or in connection with NETGEAR’s desire to enter into new commercial arrangements with third parties. Additionally, NETGEAR may be constrained by the terms of agreements relating to its indebtedness from taking actions, or permitting us to take actions, that may be in our best interest.

Our amended and restated certificate of incorporation provides that, except as otherwise agreed to in writing by NETGEAR and us, NETGEAR will have no duty to refrain from engaging in the same or similar business activities or lines of business, doing business with any of our customers, or employing or otherwise engaging or soliciting for employment any of our directors, officers, or employees.

Our amended and restated certificate of incorporation also provides that in the event that a director or officer of the Company who is also a director or officer of NETGEAR acquires knowledge of a potential corporate opportunity that may be a corporate opportunity for both the Company and NETGEAR (excluding any corporate opportunity that was presented or became known to such director or officer solely in his or her capacity as a director or officer of the Company, as reasonably determined by such director or officer, unless the Company notifies such person that the Company does not intend to pursue such opportunity), such director or officer may present such opportunity to the Company or NETGEAR or both, as such director or officer determines in his or her sole discretion, and that by doing so such person will have satisfied

his or her duties to the Company and its stockholders. Our amended and restated certificate of incorporation provides that we renounce any interest in any such opportunity presented to NETGEAR. These provisions create the possibility that a corporate opportunity of the Company may be used for the benefit of NETGEAR. However, the corporate opportunity provisions in our amended and restated certificate of incorporation will cease to apply and will have no further force and effect from and after theinternet availability. To date that both (1) NETGEAR ceases to own shares of our common stock representing at least 50% of the total voting power of our common stock and (2) no person who is a director or officer of the Company is also a director or officer of NETGEAR.

Furthermore, disputes may arise between us and NETGEAR relating to our past and ongoing relationships, and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:

~~tax, employee benefit, indemnification, and other matters arising from the separation;~~

~~the nature, quality, and pricing of services NETGEAR agrees to provide to us; and~~

~~sales and other disposals by NETGEAR of all or a portion of its ownership interest in us.~~

We will have a general policy that all material transactions with a related party, as well as all material transactions in which there is an actual, or in some cases, perceived, conflict of interest, will be subject to prior review and approval by our Audit Committee and its independent members, who will determine whether such transactions or proposals are fair and reasonable to Arlo and its stockholders. In general, potential related-party transactions will be identified by our management and discussed with our Audit Committee at its meetings.

However, we may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated third party. While we are controlled by NETGEAR, we may not have the leverage to negotiate amendments to our various agreements with NETGEAR (if any are required) on terms as favorable to us as those we would negotiate with an unaffiliated third party.

*The terms of the agreements that we entered into with NETGEAR in connection with the Separation may limit our ability to take certain actions, including in the period prior to the Distribution, which may prevent us from pursuing opportunities to raise capital, acquire other businesses, or provide equity incentives to our employees, which could impair our ability to grow.

The terms of the agreements that entered into with NETGEAR in connection with the separation, including the master separation agreement, may limit our ability to take certain actions, which could impair our ability to grow. The master separation agreement provides that, as long as NETGEAR beneficially owns at least 50% of the total voting power of our outstanding capital stock entitled to vote in the election of our board of directors, we will not (without NETGEAR’s prior written consent) take certain actions, such as incurring additional indebtedness and acquiring businesses or assets or disposing of assets in excess of certain amounts. In addition, under current tax law, NETGEAR must retain beneficial ownership of at least 80% of our combined voting power and 80% of each class of nonvoting capital stock, if any is outstanding, until immediately prior to the distribution of our stock then held by NETGEAR to its stockholders in order for such distribution to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes. NETGEAR has informed us that, at some time in the future, but no earlier than the expiration or earlier termination of the 145-day lock-up period applicable to NETGEAR, it intends to effect the Distribution. This may result in NETGEAR not supporting transactions that we wish to pursue that involve issuing shares of our capital stock, including for capital-raising purposes, as consideration for an acquisition or as equity incentives to our employees. To preserve the tax-free treatment of the Separation and Distribution, the master separation agreement includes certain covenants and restrictions to ensure that, until immediately prior to the Distribution, NETGEAR will retain beneficial ownership of at least 80% of our combined voting power and 80% of each class of nonvoting capital stock, if any is outstanding. In addition, to preserve the tax-free treatment of the Separation and Distribution, we have agreed in the tax matters agreement to restrictions, including restrictions that generally would be effective during the two-year period following the Distribution, that could limit our

ability to pursue certain strategic transactions, equity issuances or repurchases or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. See “~~We may not be able to engage in desirable strategic or capital-raising transactions following the Distribution.” Our inability to pursue such transactions could materially adversely affect our business, results of operations and financial condition.~~

*If the Distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, NETGEAR, Arlo and Arlo stockholders could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify NETGEAR for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.

NETGEAR expects to obtain an opinion of counsel regarding qualification of the Distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. The opinion of counsel would be based upon and rely on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings of NETGEAR and us, including those relating to the past and future conduct of NETGEAR and us. If any of these representations, statements or undertakings are, or become, incomplete or inaccurate, or if we or NETGEAR breach any of the respective covenants in any of the separation-related agreements, the opinion of counsel could be invalid and the conclusions reached therein could be jeopardized.

Notwithstanding any opinion of counsel, the Internal Revenue Service (the “IRS”) could determine that the Distribution, together with certain related transactions, should be treated as a taxable transaction if it were to determine that any of the facts, assumptions, representations, statements or undertakings upon which any opinion of counsel was based were false or had been violated, or if it were to disagree with the conclusions in any opinion of counsel. Any opinion of counsel would not be binding on the IRS or the courts, and we cannot assure that the IRS or a court would not assert a contrary position. NETGEAR has not requested, and does not intend to request, a ruling from the IRS with respect to the treatment of the Distribution or certain related transactions for U.S. federal income tax purposes.

If the Distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, NETGEAR would recognize taxable gain as if it had sold our common stock in a taxable sale for its fair market value, and NETGEAR stockholders who receive shares of our common stock in the Distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

We have agreed in the tax matters agreement to indemnify NETGEAR for any taxes (and any related costs and other damages) resulting from the Separation and Distribution, and certain other related transactions, to the extent such amounts were to result from (i) an acquisition after the Distribution of all or a portion of our equity securities, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (ii) other actions or failures to act by us or (iii) any of the representations or undertakings contained in any of the separation-related agreements or in the documents relating to the opinion of counsel being incorrect or violated. Any such indemnity obligations could be material.

*We may not be able to engage in desirable strategic or capital-raising transactions following the Distribution.

Under current law, a distribution that would otherwise qualify as a tax-free transaction, for U.S. federal income tax purposes, under Section 355 of the Code can be rendered taxable to the parent corporation and its stockholders as a result of certain post-distribution acquisitions of shares or assets of the distributed corporation. For example, such a distribution could result in taxable gain to the parent corporation under Section 355(e) of the Code if the distribution were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquired, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in the distributed corporation.

To preserve the tax-free treatment of the Separation and Distribution, and in addition to our expected indemnity obligation described above, we will agree in the tax matters agreement to restrictions that address compliance with Section 355 of the Code (including Section 355(e) of the Code). These restrictions, which generally would be effective during the two-year period following the Distribution, could limit our ability to pursue certain strategic transactions, equity issuances or repurchases or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business.

*If NETGEAR experiences a change in control, our current plans and strategies could be subject to change.

As long as NETGEAR controls us, it will have significant influence over our plans and strategies, including strategies relating to marketing and growth. In the event NETGEAR experiences a change in control, a new NETGEAR owner may attempt to cause us to revise or change our plans and strategies, as well as agreements between NETGEAR and us. A new owner may also have different plans with respect to the contemplated distribution of our common stock to NETGEAR stockholders, including not effecting such a distribution.

*The assets and resources that we acquired from NETGEAR in the Separation may not be sufficient for us to operate as a stand-alone company, and we may experience difficulty in separating our assets and resources from NETGEAR.

~~Because~~ we have not ~~operated as an independent company~~experienced any material interruptions in the past, we will need to acquire assets in addition to those contributed by NETGEAR and its subsidiaries to us and our subsidiaries in connection with the Separation. We may also face difficulty in separating our assets from NETGEAR’s assets and integrating newly acquired assets into our business. Our business, financial condition and results of operations could be harmed if we fail to acquire assets that prove to be important to our operations ~~or if we incur unexpected costs in separating our assets from NETGEAR’s assets or integrating newly acquired assets.~~

*The services that NETGEAR provides to us may not be sufficient to meet our needs, which may result in increased costs and otherwise adversely affect our business.

Pursuant to the transition services agreement, NETGEAR has agreed to continue to provide us with corporate and shared services for a transitional period related to corporate functions, such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, tax, treasury, shared facilities, engineering, operations, customer support, human resources and employee benefits, sales and sales operations, and other services in exchange for the fees specified in the transition services agreement between us and NETGEAR. NETGEAR is not obligated to provide these services in a manner that differs from the nature of the services provided to the Arlo business during the 12-month period prior to the Separation, and thus we may not be able to modify these services in a manner desirable to us as a stand-alone public company. Further, if we no longer receive these services from NETGEAR due to the termination of the transition services agreement or otherwise, we may not be able to perform these services ourselves and/or find appropriate third party arrangements at a reasonable cost (and any such costs may be higher than those charged by NETGEAR).

*Our ability to operate our business effectively may sufferthere, but if we are unable to ~~cost-effectively establish~~effectively replicate the capabilities previously provided by our ~~own administrative and~~Belarusian operations in other ~~support functions in order to operate as a stand-alone company after the expiration of our shared services and other intercompany agreements with NETGEAR.~~

As an operating segment of NETGEAR, we relied on administrative and other resources of NETGEAR, including information technology, accounting, finance, human resources and legal services, to operate our business. In connection with our IPO, we entered into various service agreements to retain the ability for specified periods to use these NETGEAR resources. These services may not be provided at the same level as when we were a business segment within NETGEAR, and we may not be able to obtain the same benefits that we received prior to the IPO. These services may not be sufficient to meet our needs, and after our agreements with NETGEAR expire (which will generally occur within 18 months following the completion of the IPO, which occurred on August 7, 2018), we may not be able to replace these services at all or obtain these services at prices and on terms as favorable as we currently have with NETGEAR. We will

need to create our own administrative and other support systems or contract with third parties to replace NETGEAR’s systems. In addition, we have received informal support from NETGEAR, which may not be addressed in the agreements we have entered into with NETGEAR, and the level of this informal support may diminish as we become a more independent company. Any failure or significant downtime in our own administrative systems or in NETGEAR’s administrative systems during the transitional period could result in unexpected costs, impact our results and/or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis.

*We are a smaller company relative to NETGEAR, which could result in increased costs in our supply chain and in general because of a decrease in our purchasing power. We may also experience decreased revenue due to difficulty maintaining existing customer relationships and obtaining new customers.

Prior to the IPO, we were able to take advantage of NETGEAR’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support, and audit and other professional services. In addition, as a segment of NETGEAR, we were able to leverage NETGEAR’s size and purchasing power to bargain with suppliers of our components and our ODMs. We are a smaller company than NETGEAR, and we cannot assure you that we will have access to financial and other resources comparable to those available to us prior to the IPO. As a stand-alone company, we may be unable to obtain office space, goods, technology, and services in general, as well as components and services that are part of our supply chain, at prices or on terms as favorable as those available to us prior to the IPO, which could increase our costs and reduce our profitability. Our future success depends oncountries, our ability to ~~maintain our current relationships with existing customers, and we may have difficulty attracting~~timely introduce new ~~customers.~~

*NETGEAR has agreed to indemnify us for certain liabilities. However, we cannot assure that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that NETGEAR’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the master separation agreement and certain other agreements with NETGEAR, NETGEAR has agreed to indemnify us for certain liabilities. The master separation agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with usproducts and financial responsibility for the obligations and liabilities of NETGEAR’s business with NETGEAR. Under the intellectual property rights cross-license agreement entered into between us and NETGEAR, each party, in its capacity as a licensee, indemnifies the other party, in its capacity as a licensor, and its directors, officers, agents, successors and subsidiaries against any losses suffered by such indemnified party as a result of the indemnifying party’s practice of the intellectual property licensed to such indemnifying party under the intellectual property rights cross-license agreement. Also, under the tax matters agreement entered into between us and NETGEAR, each party is liable for, and indemnifies the other party and its subsidiaries from and against any liability for, taxes that are allocated to the indemnifying party under the tax matters agreement. In addition, we have agreed in the tax matters agreement that each party will generally be responsible for any taxes and related amounts imposed on us or NETGEAR as a result of the failure of the Distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement. The transition services agreement generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement. Pursuant to the registration rights agreement, we have agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise. NETGEAR and its subsidiaries that hold registrable securities similarly indemnify us but such indemnification will be limited to an amount

~~equal to the net proceeds received by such holder under the sale of registrable securities giving rise to the indemnification obligation.~~

However, third parties could also seek to hold us responsible for any of the liabilities that NETGEAR has agreed to retain, and we cannot assure that an indemnity from NETGEAR will be sufficient to protect us against the full amount of such liabilities, or that NETGEAR will be able to fully satisfy its indemnification obligations in the future. Even if we ultimately succeed in recovering from NETGEAR any amounts for which we are held liable, weresults may be ~~temporarily required to bear these losses. Each of these risks could materially adversely affect our business, results of operations, and financial condition.~~harmed.

Certain contracts used in our business will need to be replaced, or assigned from NETGEAR or its affiliates to Arlo in connection with the Separation, which may require the consent of the counterparty to such an assignment, and failure to obtain such replacement contracts or consents could increase Arlo’s expenses or otherwise adversely affect our results of operations.

Item 6.Exhibits

Our separation from NETGEAR requires us to replace shared contracts and, with respect to certain contracts that are to be assigned from NETGEAR or its affiliates to us or our affiliates, to obtain consents and assignments from third parties. It is possible that, in connection with the replacement or consent process, some parties may seek more favorable contractual terms from Arlo. If we are unable to obtain such replacement contracts or consents, as applicable, we may be unable to obtain some of the benefits, assets and contractual commitments that are intended to be allocated to Arlo as part of the separation. If Arlo is unable to obtain such replacement contracts or consents, the loss of these contracts could increase Arlo’s expenses or otherwise materially adversely affect our business, results of operations and financial condition.

*Some of our directors and executive officers own NETGEAR common stock, restricted shares of NETGEAR common stock or options to acquire NETGEAR common stock and hold positions with NETGEAR, which could cause conflicts of interest, or the appearance of conflicts of interest, that result in our not acting on opportunities we otherwise may have.

Some of our directors and executive officers own NETGEAR common stock, restricted shares of NETGEAR stock or options to purchase NETGEAR common stock. In addition, we anticipate that Mr. Lo will continue to serve as the Chairman of the board of directors and Chief Executive Officer of NETGEAR.

Ownership of NETGEAR common stock, restricted shares of NETGEAR common stock and options to purchase NETGEAR common stock by our directors and executive officers after the offering and the presence of executive officers or directors of NETGEAR on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and NETGEAR that could have different implications for NETGEAR than they do for us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between NETGEAR and us regarding terms of the agreements governing the separation and the relationship between NETGEAR and us thereafter, including the master separation agreement, the employee matters agreement, the tax matters agreement, the intellectual property rights cross-license agreement, the registration rights agreement, or the transition services agreement. Potential conflicts of interest could also arise if we enter into commercial arrangements with NETGEAR in the future. As a result of these actual or apparent conflicts of interest, we may be precluded from pursuing certain growth initiatives.

*We may have received better terms from unaffiliated third parties than the terms we will receive in the agreements that we entered into with NETGEAR in connection with the Separation.

The agreements that we entered into with NETGEAR in connection with the Separation, including the master separation agreement, the transition services agreement, the intellectual property cross-license agreement, the tax matters agreement, the employee matters agreement and the registration rights agreement with respect to NETGEAR’s continuing ownership of our common stock, were prepared in the context of the Separation while we were still a wholly owned subsidiary of NETGEAR. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of NETGEAR. As a result, the terms

~~of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties.~~

~~Risks Related to Ownership of Our Common Stock~~

*The market price of our common stock could be volatile and is influenced by many factors, some of which are beyond our control.

~~The market price of our common stock could be volatile and is influenced by many factors, some of which are beyond our control, including those described above in “Risks Related to Our Business” and the following:~~

~~the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;~~

~~the inability to meet the financial estimates of securities analysts who follow our common stock or changes in earnings estimates by analysts;~~

~~strategic actions by us or our competitors;~~

~~announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;~~

~~our quarterly or annual earnings, or those of other companies in our industry;~~

~~actual or anticipated fluctuations in our operating results and those of our competitors;~~

~~general economic and stock market conditions;~~

~~the public reaction to our press releases, our other public announcements and our filings with the SEC;~~

~~risks related to our business and our industry, including those discussed above;~~

~~changes in conditions or trends in our industry, markets or customers;~~

~~the trading volume of our common stock;~~

~~future sales of our common stock or other securities;~~

~~whether, when, and in what manner NETGEAR completes the Distribution; and~~

~~investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.~~

~~In particular, the realization of any of the risks described in these “Risk Factors~~” could have a material adverse impact on the market price of our common stock in the future and cause the value of your investment to decline. In addition, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

*We may change our dividend policy at any time.

Although we currently intend to retain future earnings to finance the operation and expansion of our business and therefore do not anticipate paying cash dividends on our capital stock in the foreseeable future, our dividend policy may change at any time without notice to our stockholders. The declaration and amount of any future dividends to holders of our common stock will be at the discretion of our board of directors in accordance with applicable law and after taking into account various factors, including our financial condition, results of operations, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, contractual obligations, legal requirements, and other factors that our board of directors deems relevant. As a result, we cannot assure you that we will pay dividends at any rate or at all.

*Future sales, or the perception of future sales, of our common stock, including by NETGEAR, may depress the price of our common stock.

The market price of our common stock could decline significantly as a result of sales or other distributions of a large number of shares of our common stock in the market, including shares that might be offered for sale or distributed by NETGEAR. The perception that these sales might occur could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

We have 74,247,250 shares of common stock outstanding. The 11,747,250 shares of our common stock sold in the IPO are freely tradable in the public market. NETGEAR has registration rights with respect to shares of our common stock held by it. Any shares registered pursuant to the registration rights agreement may be freely tradable in the public market following a 145-day lock-up period applicable to NETGEAR as described below.

In connection with the initial public offering, we, our directors and executive officers and NETGEAR have each entered into a lock-up agreement and thereby is subject to a “lock-up period,” meaning that we, they and their permitted transferees are not permitted to sell any of the shares of our common stock for 145 days, in the case of NETGEAR, and for 180 days, in our case and the case of our directors and executive officers, in each case after the date of the Prospectus, without the prior consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc. on behalf of the underwriters in the IPO. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., on behalf of the underwriters in the IPO may, in their sole discretion and without notice, release all or any portion of the shares of our common stock from the restrictions in any of the lock-up agreements described above.

Also, in the future, we may issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.

*Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

We have historically operated our business as a segment of a public company. As a stand-alone public company, we have additional legal, accounting, insurance, compliance, and other expenses that we have not incurred historically. We are now obligated to file with the SEC annual and quarterly reports and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are also required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. In addition, we are and will continue to become subject to other reporting and corporate governance requirements, including certain requirements of the NYSE, and certain provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.

Sarbanes-Oxley, as well as rules subsequently implemented by the SEC and the NYSE, have imposed increased regulation and disclosure and required enhanced corporate governance practices of public companies. We are committed to

maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased selling and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements and implementing them could materially adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired. If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC and the NYSE. Any such action could harm our reputation and the confidence of investors and customers in us and could materially adversely affect our business and cause our share price to fall.

*Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could materially adversely affect our business, results of operations, financial condition, and stock price.

As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of Sarbanes-Oxley (“Section 404”), which will require annual management assessments of the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K for the year ended December 31, 2019. Upon loss of emerging growth company status, an annual report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting will be required. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. We also expect the regulations under Sarbanes-Oxley to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming, and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over our financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. If either we are unable to conclude that we have effective internal control over our financial reporting or our independent auditors are unable to provide us with an unqualified report as required by Section 404, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our operating results do not meet their expectations, our stock price could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrades our stock or if our operating results do not meet their expectations, our stock price could decline.

~~We could be subject to securities class action litigation.~~

In the past, securities class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in the price of our common stock, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and results of operations and divert management’s attention and resources from our business.

*Your percentage ownership in Arlo may be diluted in the future.

In the future, your percentage ownership in Arlo may be diluted because of equity awards that Arlo may grant to Arlo’s directors, officers, and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions. In addition, following the Distribution, Arlo and NETGEAR employees will hold awards in respect of shares of our common stock as a result of the conversion of their NETGEAR stock awards (in whole or in part) to Arlo stock awards in connection with the Distribution. Such awards will have a dilutive effect on Arlo’s earnings per share, which could adversely affect the market price of Arlo common stock. From time to time, Arlo will issue additional stock-based awards to its employees under Arlo’s employee benefits plans.

In addition, Arlo’s amended and restated certificate of incorporation authorizes Arlo to issue, without the approval of Arlo’s stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Arlo’s common stock respecting dividends and distributions, as Arlo’s board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, Arlo could grant the holders of preferred stock the right to elect some number of Arlo’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that Arlo could assign to holders of preferred stock could affect the residual value of the common stock.

*We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common shares less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including exemption from compliance with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earliest of (1) December 31, 2023, (2) the last day of the fiscal year in which we have total annual revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we become a large accelerated filer, which means that we have been public for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last day of our then most recently completed second fiscal quarter, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.

*We are a “controlled company” within the meaning of the applicable rules of the NYSE and, as a result, we may elect to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies. We do not currently expect or intend to rely on any of these exemptions, but we cannot assure that we will not rely on these exemptions in the future.

NETGEAR owns more than 50% of the total voting power of our outstanding common stock, and we are a “controlled company” under the applicable rules of the NYSE. As a controlled company, we may elect to rely on exemptions from certain of the applicable corporate governance requirements of the NYSE, including the requirements that:

~~a majority of our board of directors consists of independent directors;~~

~~we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and~~

~~we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.~~

As a result, while NETGEAR continues to control a majority of our outstanding common stock, we may elect not to comply with the corporate governance standards requiring (i) a majority of independent directors on the board; (ii) a fully independent compensation committee; and (iii) a fully independent nominating and corporate governance committee. We do not currently expect or intend to rely on any of these exemptions, but we cannot assure that we will not rely on these exemptions in the future. If we make such an election, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. In the event that we cease to be a controlled company within the meaning of the applicable rules of the NYSE, we will be required to comply with these requirements after specified transition periods.

*Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws and of Delaware law may prevent or delay an acquisition of Arlo, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:

~~the inability of our stockholders to call a special meeting;~~

the inability of our stockholders to act without a meeting of stockholders, from and after such time as NETGEAR beneficially owns shares of our common stock representing less than a majority of the voting rights of our common stock;

~~rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;~~

~~the right of our board of directors to issue preferred stock without stockholder approval;~~

the division of our board of directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;

a provision that, from and after such time as NETGEAR beneficially owns shares of our common stock representing less than a majority of the voting rights of our common stock, stockholders may only remove directors with cause while the board of directors is classified; and

~~the ability of our directors, and not stockholders, to fill vacancies on our board of directors.~~

In addition, because we have not elected to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make Arlo immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of Arlo and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

*Our amended and restated certificate of incorporation contains exclusive forum provisions that may discourage lawsuits against us and our directors and officers.

Our amended and restated certificate of incorporation provides that unless the board of directors otherwise determines, the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Arlo, any action asserting a claim of breach of a fiduciary duty owed by any director or officer of Arlo to Arlo or Arlo’s stockholders, any action asserting a claim against Arlo or any director or officer of Arlo arising pursuant to any provision of the DGCL or Arlo’s amended and restated certificate of incorporation or bylaws, or any action asserting a claim against Arlo or any director or officer of Arlo governed by the internal affairs doctrine under Delaware law. Our amended and restated certificate of incorporation further provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. These exclusive forum provisions may limit the ability of Arlo’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Arlo or Arlo’s directors or officers, which may discourage such lawsuits against Arlo and Arlo’s directors and officers. Alternatively, if a court were to find one or more of these exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, Arlo may incur additional costs associated with resolving such matters in other jurisdictions or forums, which could materially and adversely affect Arlo’s business, financial condition, or results of operations.

*Our board of directors has the ability to issue blank check preferred stock, which may discourage or impede acquisition attempts or other transactions.

Our board of directors has the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt. For instance, subject to applicable law, a series of preferred stock may impede a business combination by including class voting rights, which would enable the holder or holders of such series to block a proposed transaction. Our board of directors will make any determination to issue shares of preferred stock on its judgment as to our and our stockholders’ best interests. Our board of directors, in so acting, could issue shares of preferred stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders may believe to be in their best interests or in which stockholders would have received a premium for their stock over the then prevailing market price of the stock.


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~(a)~~ ~~Sales of Unregistered Securities~~

On January 5, 2018, we issued 1,000 shares of common stock to NETGEAR, Inc. in a private placement pursuant to Section 4(a)(2) of the Securities Act for one dollar. On August 2, 2018, in connection with the Separation and prior to the effectiveness of Arlo’s registration statement on Form 8-A, we issued 62,499,000 shares of Arlo common stock to NETGEAR in a private placement pursuant to Section 4(a)(2) of the Securities Act. As of the completion of the IPO, NETGEAR owns 62,500,000 shares of Arlo common stock.

In addition, on August 2, 2018, we granted, pursuant to our 2018 Equity Incentive Plan, stock options to purchase an aggregate of 3,343,500 shares of our common stock to employees with an exercise price equal to our initial public offering price of $16.00 per share and restricted stock units covering an aggregate of 37,500 shares of our common stock to our non-employee directors. These grants were exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act, as they were under a compensatory benefit plan as provided under Rule 701.

~~(b)~~ ~~Use of Proceeds~~

On August 7, 2018, we completed our initial public offering (the “IPO”) in which we issued and sold 11,747,250 shares of common stock (including 1,532,250 shares of common stock pursuant to the underwriters’ option to purchase additional shares, which was exercised in full on August 3, 2018) at a price to the public of $16.00 per share. We received net proceeds of approximately $174.8 million after deducting underwriting discounts and commissions and before estimated offering costs. Estimated offering costs amounted to approximately $7.4 million, a portion of which will be paid by NETGEAR. No offering expenses were paid directly or indirectly to any of our directors, officers, or persons owning ten percent or more of our common stock or to their associates or affiliates.

The offer and sale of all of shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-226088), which was declared effective by the SEC on August 2, 2018. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc, and Guggenheim Securities LLC acted as lead book-running managers for the offering. Raymond James & Associates, Inc., Cowen and Company LLC, and Imperial Capital LLC acted as joint book-running managers for the offering. The offering commenced on August 2, 2018 and did not terminate before all securities registered in the registration statement were sold.

There has been no material change in the planned use of proceeds from the IPO as described in our final prospectus filed with the Securities and Exchange Commission on August 6, 2018, pursuant to Rule 424(b) of the Securities Act of 1933, as amended.

~~(c)~~ ~~Repurchase of Equity Securities by the Company~~

~~None.~~


~~Item 3.~~	~~Defaults Upon Senior Securities~~

~~None.~~


~~Item 4.~~	~~Mine Safety Disclosures~~

~~Not applicable.~~


~~Item 5.~~	~~Other Information~~

~~None.~~


~~Item 6.~~	~~Exhibits~~

Exhibit Index

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

Date

Number

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of Arlo Technologies, Inc.

8-K

8/7/2018

3.1

3.2

Amended and Restated Bylaws of Arlo Technologies, Inc.

8-K

8/7/2018

3.2

4.1

Common Stock Certificate of Arlo Technologies, Inc.

S-1/A

7/23/2018

4.1

10.1*

Form of Service and Cash Balance Performance-Based Restricted Stock Unit Agreement for Executive Officers

10.2*

Form of Service and Stock Market Performance-Based Restricted Stock Unit Agreement for Executive Officers

10.3*

Performance Stock Unit Award under 2018 Equity Incentive Plan

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1#

Section 1350 Certification of Principal Executive Officer

32.2#

Section 1350 Certification of Principal Financial Officer

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

This certification is deemed to accompany this Quarterly Report on Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Indicates management contract or compensatory plan or arrangement.

Incorporated by Reference
Exhibit Number Exhibit Description Form Date Number Filed Herewith
3.1

Amended and Restated Certificate of Incorporation of Arlo Technologies, Inc.
8-K 8/7/2018 3.1
3.2

Amended and Restated Bylaws of Arlo Technologies, Inc.
8-K 8/7/2018 3.2
4.1

Common Stock Certificate of Arlo Technologies, Inc.
S-1/A 7/23/2018 4.1
10.1

Master Separation Agreement, by and between NETGEAR, Inc. and Arlo Technologies, Inc. dated as of August 2, 2018
8-K 8/7/2018 10.1
10.2

Transition Services Agreement, by and between NETGEAR, Inc. and Arlo Technologies, Inc. dated as of August 2, 2018
8-K 8/7/2018 10.2
10.3

Tax Matters Agreement, by and between NETGEAR, Inc. and Arlo Technologies, Inc. dated as of August 2, 2018
8-K 8/7/2018 10.3
10.4

Employee Matters Agreement, by and between NETGEAR, Inc. and Arlo Technologies, Inc. dated as of August 2, 2018
8-K 8/7/2018 10.4
10.5

Intellectual Property Rights Cross-License Agreement, by and between NETGEAR, Inc. and Arlo Technologies, Inc. dated as of August 2, 2018
8-K 8/7/2018 10.5
10.6

Registration Rights Agreement, by and between NETGEAR, Inc. and Arlo Technologies, Inc. dated as of August 2, 2018
8-K 8/7/2018 10.6
10.7

Office Lease, dated as of June 28, 2018, by and between LT Orchard Parkway, LLC and Arlo Technologies, Inc.
S-1 7/6/2018 10.7
10.8 *

Confirmatory Employment Letter with Matthew McRae
8-K 8/7/2018 10.7
10.9 *

Confirmatory Employment Letter with Christine Gorjanc
8-K 8/7/2018 10.8
10.10 *

Confirmatory Employment Letter with Patrick Collins
8-K 8/7/2018 10.9
10.11 *

Confirmatory Employment Letter with Brian Busse
8-K 8/7/2018 10.10
10.12 *

Change in Control and Severance Agreement
8-K 8/7/2018 10.11
10.13 *

2018 Equity Incentive Plan
8-K 8/7/2018 10.12
10.14 *

2018 Employee Stock Purchase Plan
8-K 8/7/2018 10.13
10.15 *

Performance-Based Option Grant Agreement
8-K 8/7/2018 10.14
10.16 *

Indemnification Agreement for directors and executive officers
S-1/A 7/23/2018 10.16
10.17 *

Non-Employee Director Restricted Stock Unit Grant Agreement
X
31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
X
31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
X
32.1#

Section 1350 Certification of Principal Executive Officer
X
32.2#

Section 1350 Certification of Principal Financial Officer
X
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema Document X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB XBRL Taxonomy Extension Label Linkbase Document X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X

* Indicates management contract or compensatory plan or arrangement.
#
This certification is deemed to accompany this Quarterly Report on Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



ARLO TECHNOLOGIES, INC.
Registrant



/s/ MATTHEW MCRAE
Matthew McRae
Chief Executive Officer
(Principal Executive Officer)



/s/ ~~CHRISTINE M. GORJANC~~GORDON MATTINGLY
~~Christine M. Gorjanc~~Gordon Mattingly
Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: ~~August 27, 2018~~

May 11, 2022


Delaware				38-4061754
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification Number)

~~Delaware~~2200 Faraday Ave.,		Suite #150		~~38-4061754~~
~~(State or other Jurisdiction of~~ ~~Incorporation or Organization)~~ Carlsbad,		California		~~(I.R.S. Employer~~ ~~Identification Number)~~ 92008

~~350 East Plumeria Drive~~ ~~San Jose, California 95134~~	~~95134~~
(Address of principal executive offices)			(Zip Code)


	As of
	April 3, 2022		December 31, 2021
	(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	100,975	$	175,749
Short-term investments (amortized cost of $44,612 and $—)	44,566		—
Accounts receivable (net of allowance for credit losses of $339 and $337)	78,054		79,564
Inventories	37,038		38,390

Prepaid expenses and other current assets	9,015		9,919
Total current assets	269,648		303,622
Property and equipment, net	8,522		9,595
Operating lease right-of-use assets, net	13,797		14,814

Goodwill	11,038		11,038
Restricted cash	4,114		4,107
Other non-current assets	4,671		4,314
Total assets	$	311,790	$	347,490
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	68,266	$	84,098
Deferred revenue	16,460		29,442
Accrued liabilities	91,732		97,377
Income tax payable	45		12
Total current liabilities	176,503		210,929
Non-current deferred revenue	915		1,344
Non-current operating lease liabilities	20,308		21,470

Non-current income taxes payable	94		94
Other non-current liabilities	1,966		1,001
Total liabilities	199,786		234,838
Commitments and contingencies (Note 9)	0		0
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: 85,834,841 at April 3, 2022 and 84,453,212 at December 31, 2021	86		84
Additional paid-in capital	409,242		401,367
Accumulated other comprehensive income	(46)		—
Accumulated deficit	(297,278)		(288,799)
Total stockholders’ equity	112,004		112,652
Total liabilities and stockholders’ equity	$	311,790	$	347,490



	As of
	July 1, 2018		December 31, 2017
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	133	$	108
Accounts receivable, net	111,113		157,680
Inventories	123,195		82,952
Prepaid expenses and other current assets	6,573		3,018
Total current assets	241,014		243,758
Property and equipment, net	12,389		3,883
Intangibles, net	3,585		4,348
Goodwill	15,638		15,638
Other non-current assets	3,440		2,193
Total assets	$	276,066	$	269,820
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	25,518	$	20,711
Deferred revenue	25,833		34,072
Accrued liabilities	96,486		76,097
Total current liabilities	147,837		130,880
Non-current deferred revenue	16,556		13,332
Non-current income taxes payable	230		189
Total liabilities	164,623		144,401
Commitments and contingencies (Note 8)
Equity:
Net parent investment	111,443		125,419
Total equity	111,443		125,419
Total liabilities and equity	$	276,066	$	269,820



	Six Months Ended
	July 1, 2018			July 2, 2017
	(In thousands)
Cash flows from operating activities:
Net loss	$	(23,185	)	$	(2,128	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,956			1,905
Stock-based compensation	1,899			1,352
Deferred income taxes	—			(132		)
Changes in assets and liabilities:
Accounts receivable, net	47,395			4,322
Inventories	(40,620		)	(22,610		)
Prepaid expenses and other assets	(4,558		)	461
Accounts payable	4,385			(8,511		)
Deferred revenue	4,553			6,558
Accrued liabilities	5,396			2,731
Income taxes payable	41			488
Net cash used in operating activities	(2,738		)	(15,564		)
Cash flows from investing activities:
Purchases of property and equipment	(7,534		)	(1,132		)
Payments made in connection with business acquisition, net of cash acquired	—			(737		)
Net cash used in investing activities	(7,534		)	(1,869		)
Cash flows from financing activities:
Net investment from parent	10,297			17,254
Net cash provided by financing activities	10,297			17,254
Net increase (decrease) in cash and cash equivalents	25			(179		)
Cash and cash equivalents, at beginning of period	108			220
Cash and cash equivalents, at end of period	$	133		$	41

Non-cash investing activities:
Purchases and transfers of property and equipment	$	2,166		$	360


	Three Months Ended
	April 3, 2022		March 28, 2021
	(In thousands)
Cash flows from operating activities:
Net loss	$	(8,479)	$	(10,719)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	9,589		8,340

Depreciation and amortization	1,302		1,547
Allowance for credit losses and inventory reserves	(135)		(562)
Deferred income taxes	(9)		(130)

Premium amortization (discount accretion) on investments, net	28		(3)

Changes in assets and liabilities:
Accounts receivable, net	1,508		26,522
Inventories	1,490		9,296

Prepaid expenses and other assets	556		361
Accounts payable	(15,676)		(34,647)
Deferred revenue	(13,411)		(8,101)
Accrued and other liabilities	(1,320)		(22,072)

Net cash used in operating activities	(24,557)		(30,168)
Cash flows from investing activities:
Purchases of property and equipment	(298)		(803)

Purchases of short-term investments	(44,640)		—
Proceeds from maturities of short-term investments	—		15,000
Net cash provided by (used in) investing activities	(44,938)		14,197
Cash flows from financing activities:


Proceeds related to employee benefit plans	1,388		6,133
Restricted stock unit withholdings	(6,660)		(4,177)

Net cash provided by (used in) financing activities	(5,272)		1,956
Net decrease in cash and cash equivalents and restricted cash	(74,767)		(14,015)
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	$	105,089	$	176,276

Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities	$	310	$	82


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



PART I: FINANCIAL INFORMATION
				Page No.
Item 1.			Financial Statements	3
			Unaudited Condensed ~~Combined~~Consolidated Balance Sheets	3
			Unaudited Condensed ~~Combined~~Consolidated Statements of Operations	4
			Unaudited Condensed ~~Combined~~Consolidated Statements of Comprehensive Income (Loss)	5
			Unaudited Condensed Consolidated Statements of Stockholders’ Equity	6
			Unaudited Condensed Consolidated Statements of Cash Flows	57
			Notes to Unaudited Condensed ~~Combined~~Consolidated Financial Statements	68
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	3033
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	4344
Item 4.			Controls and Procedures	44

PART II: OTHER INFORMATION

Item 1.			Legal Proceedings	45
Item 1A.			Risk Factors	~~Risk Factors~~	45
Item 2.6.			~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits	8146
~~Item 3.~~	~~Defaults Upon Senior Securities~~	81
~~Item 4.~~	~~Mine Safety Disclosures~~	81
~~Item 5.~~	~~Other Information~~	81
~~Item 6.~~	~~Exhibits~~	82
Signatures				8347


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	(In thousands)
Balance as of December 31, 2021	84,453	$	84	$	401,367	$	—	$	(288,799)	$	112,652
Net loss	—	—		—		—		(8,479)		(8,479)
Stock-based compensation expense	—	—		8,183		—		—		8,183
Settlement of liability classified RSUs	—	—		4,966		—		—		4,966
Issuance of common stock under stock-based compensation plans	2,127	3		1,385		—		—		1,388

Restricted stock unit withholdings	(745)	(1)		(6,659)		—		—		(6,660)
Change in unrealized gains and losses on available-for-sale securities, net of tax	—	—		—		(46)		—		(46)

Balance as of April 3, 2022	85,835	$	86	$	409,242	$	(46)	$	(297,278)	$	112,004

	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	(In thousands)
Balance as of December 31, 2020	79,336	$	79	$	366,455	$	3	$	(232,770)	$	133,767
Net loss	—	—		—		—		(10,719)		(10,719)
Stock-based compensation expense	—	—		4,871		—		—		4,871
Settlement of liability classified RSUs	—	—		6,458		—		—		6,458
Issuance of common stock under stock-based compensation plans	2,133	3		4,433		—		—		4,436
Issuance of common stock under Employee Stock Purchase Plan	353	—		1,697						1,697
Restricted stock unit withholdings	(572)	(1)		(4,176)		—		—		(4,177)
Change in unrealized gains and losses on available-for-sale securities, net of tax	—	—		—		(1)		—		(1)
Change in unrealized gains and losses on derivatives, net of tax	—	—		—		(2)		—		(2)
Balance as of March 28, 2021	81,250	$	81	$	379,738	$	—	$	(243,489)	$	136,330



	As of		Adjustments			As of
	December 31, 2017		Adjustments			January 1, 2018
	(In thousands)
Assets:
Accounts receivable, net	$	157,680	$	827		$	158,507
Inventories	$	82,952	$	(377	)	$	82,575
Other non-current assets	$	2,193	$	244		$	2,437
Liabilities:
Accounts payable	$	20,711	$	(48	)	$	20,663
Deferred revenue	$	34,072	$	(9,326	)	$	24,746
Accrued liabilities	$	76,097	$	13,370		$	89,467
Non-current deferred revenue	$	13,332	$	(241	)	$	13,091
Equity:
Net parent investment	$	125,419	$	(3,061	)	$	122,358



	As reported		Adjustments			Balance without adoption of ASC 606
	(In thousands)
Assets
Accounts receivable, net	$	111,113	$	(4,796	)	$	106,317
Inventories	$	123,195	$	347		$	123,542
Other non-current assets	$	3,440	$	(280	)	$	3,160
Liabilities:
Accounts payable	$	25,518	$	14		$	25,532
Deferred revenue	$	25,833	$	5,536		$	31,369
Accrued liabilities	$	96,486	$	(16,422	)	$	80,064
Non-current deferred revenue	$	16,556	$	689		$	17,245
Equity:
Net parent investment	$	111,443	$	5,454		$	116,897



	1 year		2 years		Greater than 2 years		Total
	(In thousands)
Performance obligations	$	37,738	$	10,194	$	6,691	$	54,623



	Balance Sheet Location	July 1, 2018		January 1, 2018^(*)		$ change			% change
		(In thousands)
Accounts receivable, net	Accounts receivable, net	$	111,113	$	158,507	$	(47,394	)	(29.9	)%
Contract liabilities - current	Deferred revenue	$	25,833	$	24,746	$	1,087		4.4	%
Contract liabilities - non-current	Non-current deferred revenue	$	16,556	$	13,091	$	3,465		26.5	%



Cash and cash equivalents	$	8
Accounts receivable	11
Prepaid expenses and other current assets	130
Property and equipment	83
Intangibles	6,000
Goodwill	3,742
Accounts payable	(40		)
Accrued liabilities	(74		)
Deferred tax liabilities	(308		)
Total purchase price	$	9,552



	As of
	March 28, 2021		December 31, 2020
	(In thousands)
Cash and cash equivalents	$	172,113	$	186,127
Restricted cash	4,163		4,164
Total as presented on the unaudited condensed consolidated statements of cash flows	$	176,276	$	190,291


~~Item 1.~~	~~Financial Statements~~


~~Note 3.~~	~~Revenue Recognition~~


~~Note 4.~~	~~Business Acquisition~~



	As of July 1, 2018							As of December 31, 2017
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	9,800	$	(6,477	)	$	3,323	$	9,800	$	(5,790	)	$	4,010
Customer contracts and relationships	1,400		(1,400		)	—		1,400		(1,400		)	—
Other	800		(538		)	262		800		(462		)	338
Total intangibles, net	$	12,000	$	(8,415	)	$	3,585	$	12,000	$	(7,652	)	$	4,348


	As of April 3, 2022								As of December 31, 2021
	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. treasuries	$	44,612	$	—	$	(46)	$	44,566	$	—	$	—	$	—	$	—



2018 (remaining six months)	$	762
2019	1,517
2020	1,306
Total estimated amortization expense	$	3,585



	As of
	July 1, 2018		December 31, 2017
	(In thousands)
Non-current deferred income taxes	$	1,109	$	865
Other	2,331		1,328
Total other non-current assets	$	3,440	$	2,193


Derivative Assets	Balance Sheet Location	April 3, 2022		December 31, 2021		Balance Sheet Location	April 3, 2022		December 31, 2021
		(In thousands)					(In thousands)
Derivative assets not designated as hedging instruments	Prepaid expenses and other current assets	$	—	$	65	Accrued liabilities	$	37	$	47


December 31, 2021							Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets		Net Amounts Of Assets Presented in the Unaudited Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		Net Amount
	(In thousands)


Wells Fargo Bank	$	65	$	—	$	65	$	(47)	$	—	$	18


As of April 3, 2022							Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Unaudited Condensed Consolidated Balance Sheets		Net Amounts Of Liabilities Presented in the Unaudited Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		Net Amount
	(In thousands)


Wells Fargo Bank	$	37	$	—	$	37	$	—	$	—	$	37


	Three Months Ended March 28, 2021
	Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
	Revenue		Cost of revenue		Research and development		Sales and marketing		General and administrative
	(In thousands)
Statements of operations	$	82,556	$	56,749	$	14,791	$	11,207	$	11,227
Gains (losses) on cash flow hedge	—		—		—		2		—


	Unrealized gains (losses) on available-for-sale securities		Unrealized gains (losses) on derivatives		Estimated tax benefit (provision)		Total
	(In thousands)
Balance as of December 31, 2021	$	—	$	—	$	—	$	—
Other comprehensive income (loss) before reclassifications	(46)		—		—		(46)
Less: Amount reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Net current period other comprehensive income (loss)	(46)		—		—		(46)
Balance as of April 3, 2022	$	(46)	$	—	$	—	$	(46)


~~Note 8.~~	~~Commitments~~	Three Months Ended
		April 3, 2022				March 28, 2021
		Gains (Losses) Recognized in OCI - Effective Portion		Gains (Losses) Reclassified from OCI to Income - Effective Portion		Gains (Losses) Recognized in OCI - Effective Portion		Gains (Losses) Reclassified from OCI to Income - Effective Portion		Affected Line Item in the Statements of Operations
		(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency contracts		$	—	$	—	$	—	$	—	Revenue
Foreign currency contracts		—		—		—		—		Cost of revenue
Foreign currency contracts		—		—		—		—		Research and ~~Contingencies~~development
Foreign currency contracts		—		—		—		2		Sales and marketing
Foreign currency contracts		—		—		—		—		General and administrative
		$	—	$	—	$	—	$	2	Total *


	Operating Lease Payments		Sublease Payments		Net
	(In thousands)
2022 (Remaining nine months)	$	4,362	$	(1,506)	$	2,856
2023	5,563		(1,891)		3,672
2024	4,885		(1,947)		2,938
2025	3,174		(2,006)		1,168
2026	3,267		(2,066)		1,201
Thereafter	8,217		(5,942)		2,275
Total future lease payments	29,468		$	(15,358)	$	14,110
Less: interest (1)	(4,631)
Present value of future minimum lease payments	$	24,837

Accrued liabilities	$	4,529
Non-current operating lease liabilities	20,308
Total lease liabilities	$	24,837


			Number of Shares
			(In thousands)
Shares available for grant as of December 31, 2021			2,509
Additional authorized shares			3,378
Granted			(4,141)
Forfeited / cancelled			472

Shares traded for taxes			745
Shares available for grant as of April 3, 2022			2,963


	Number of shares	Weighted Average Exercise Price Per Share
	(In thousands)	(In dollars)
Outstanding as of December 31, 2021	2,574	$	10.55
Granted	—	$	—
Exercised	(204)	$	6.80

Expired	(173)	$	15.99

Outstanding as of April 3, 2022	2,197	$	10.47
Vested and expected to vest as of April 3, 2022	2,197	$	10.47
Exercisable Options as of April 3, 2022	2,167	$	10.42


	Number of shares	Weighted Average Grant Date Fair Value Per Share
	(In thousands)	(In dollars)
Outstanding as of December 31, 2021	10,080	$	5.73
Granted (1)	3,221	$	7.99
Vested	(1,844)	$	8.75
Forfeited	(299)	$	5.15

Outstanding as of April 3, 2022	11,158	$	5.90



	Three Months Ended					Six Months Ended
	Stock Options			ESPP		Stock Options				ESPP
	July 1, 2018	July 2, 2017		July 1, 2018	July 2, 2017	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Expected life (in years)	NA	4.4		NA	NA	4.4		4.4		0.5		0.5
Risk-free interest rate	NA	1.65	%	NA	NA	2.32	%	1.65	%	1.81	%	0.66	%
Expected volatility	NA	31.6	%	NA	NA	30.9	%	31.6	%	37.1	%	27.6	%
Dividend yield	—	—		—	—	—		—		—		—


	TSR MPSU				CEO MPSU
	Three Months Ended				Three Months Ended
	April 3, 2022		March 28, 2021		April 3, 2022		March 28, 2021
Expected life	4.0		4.0		4.0		NA
Risk-free interest rate	1.49	%	0.33	%	1.54	%	NA
Expected volatility	76.4	%	69.9	%	76.3	%	NA
Dividend yield	—		—		—		NA
Stock Beta	0.42		0.45		NA		NA



	Three Months Ended
	July 1, 2018						July 2, 2017
	Direct		Indirect		Total		Direct		Indirect		Total
	(In thousands)
Cost of revenue	$	54	$	293	$	347	$	25	$	142	$	167
Research and development	750		227		977		607		110		717
Sales and marketing	243		539		782		42		221		263
General and administrative	—		1,146		1,146		—		594		594
Total stock-based compensation	$	1,047	$	2,205	$	3,252	$	674	$	1,067	$	1,741


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~



	Payments due by period
			Less Than		1-3		3-5		More Than
	Total		1 Year		Years		Years		5 Years
	(In thousands)
Operating leases	$	35,264	$	1,020	$	7,558	$	8,415	$	18,271
Purchase obligations	46,676		46,676		—		—		—
	$	81,940	$	47,696	$	7,558	$	8,415	$	18,271