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Arlo Reports Second Quarter 2023 Results

Revenue of $115 million, at the top end of guidance range

ARR ended at $194 million, growing 66% year over year

Free cash flow (FCF) of $12 million with FCF margin of 10% (1)

Service gross profit exceeds non-GAAP operating expenses

GAAP EPS of $(0.08); Record non-GAAP EPS of $0.06

Arlo Technologies, Inc. (NYSE: ARLO), a leading smart home security brand, today reported financial results for the second quarter ended July 2, 2023.

“The continued acceleration of our services business drove outstanding results in Q2 across all of our key metrics. Strong demand, increased subscriptions, higher ARPU, and record gross margin are fueling Arlo’s trajectory of improving performance and profitability," said Matthew McRae, Chief Executive Officer of Arlo Technologies. “Our strategy and excellent execution also produced a significant increase in the long-term value of our subscribers which expands shareholder value.”

Financial and Business Highlights (2)

  • Q2 total revenue of $115.1 million, a decrease of 3.3% year over year.
  • Record Q2 service revenue of $50.3 million, growing 53.5% year over year.
  • Ended the quarter with ARR (3) of $193.6 million, growing 66.1% year over year.
  • Added 245,000 paid accounts (4) in Q2, ending cumulative paid accounts around 2.3 million, growing 54.9% year over year.
  • Record Q2 GAAP services gross margin of 74.6% and non-GAAP services gross margin of 75.2%.
  • GAAP net loss per share of $(0.08); Record non-GAAP earnings per diluted share of $0.06.
  • Ending cash and cash equivalents and short-term investments balance of $123.7 million, up $5.0 million sequentially.

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

July 3,

2022

 

July 2, 2023

 

July 3, 2022

 

 

(In thousands, except percentage and per share data)

Revenue

 

$

115,076

 

 

$

111,004

 

 

$

118,979

 

 

$

226,080

 

 

$

243,730

 

GAAP Gross Margin

 

 

36.4

%

 

 

31.7

%

 

 

28.4

%

 

 

34.1

%

 

 

27.6

%

Non-GAAP Gross Margin (2)

 

 

37.3

%

 

 

32.6

%

 

 

29.5

%

 

 

35.0

%

 

 

28.5

%

GAAP Net Loss per Share

 

$

(0.08

)

 

$

(0.16

)

 

$

(0.13

)

 

$

(0.24

)

 

$

(0.23

)

Non-GAAP Net Income per Diluted Share (2)

 

$

0.06

 

 

$

0.01

 

 

$

0.01

 

 

$

0.07

 

 

$

0.02

 

_________________________

(1)

 

Free cash flow is calculated as net cash provided by (used in) operating activities less capital expenditures. Free cash flow margin is the free cash flow divided by revenue.

(2)

 

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

(3)

 

ARR is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognized from our paid accounts and excludes prepaid service revenue.

(4)

 

The 245,000 new paid accounts in Q2 includes a number of paid accounts in our EMEA region which were managed by Verisure and now onboarded with us. This does not have an impact to our financial statements and key business metrics other than our number of cumulative paid accounts.

Third Quarter 2023 Business Outlook (5)

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

 

 

Three Months Ended October 1, 2023

 

 

Revenue

 

Net Income (Loss)

per Diluted Share

 

 

(In millions, except per share data)

GAAP

 

$122 - $132

 

$(0.07) - $(0.01)

Estimated adjustment for stock-based compensation and other expense

 

 

0.11

Non-GAAP

 

$122 - $132

 

$0.04 - $0.10

_________________________

(5)

 

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

Investor Conference Call / Webcast Details

Arlo will review the second quarter 2023 results and discuss management’s expectations for the third quarter of 2023 today, Thursday, August 10, 2023 at 5:00 p.m. ET (2:00 p.m. PT). The toll-free dial-in number for the live audio call is (888) 660-6387. The international dial-in number for the live audio call is +1 (929) 203-1909. The conference ID for the call is 7749064. A live webcast of the conference call will be available on Arlo’s Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.

About Arlo Technologies, Inc.

Arlo is the award-winning, industry leader that is transforming the way people experience the connected lifestyle. Arlo’s deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. Arlo’s cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. To date, Arlo has launched several categories of award-winning smart connected devices, software and services, including wire-free smart Wi-Fi and LTE-enabled security cameras, audio and video doorbells, a floodlight, home security systems, and the Arlo Apps: Arlo Secure, and Arlo Safe, AI-based subscription services designed to maximize security through personalized notifications and emergency services for quicker help during a crisis.

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

© 2023 Arlo Technologies, Inc., Arlo and the Arlo logo are trademarks and/or registered trademarks of Arlo Technologies, Inc. and/or certain of its affiliates in the United States and/or other countries. Other brand and product names are for identification purposes only and may be trademarks or registered trademarks of their respective holder(s). The information contained herein is subject to change without notice. Arlo shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for Arlo Technologies, Inc.:

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent our expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding our potential future business, operating performance and financial condition, including descriptions of our expected revenue and profitability (and related timing), GAAP and non-GAAP gross margins, operating margins, tax rates, expenses, cash outlook, free cash flow and free cash flow margin; strategic objectives and initiatives; the recurring revenue business model; expectations regarding market expansion and future growth; and others. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for our products may be lower than anticipated, including due to inflation, fluctuating consumer confidence, banking failures and rising interest rates; we may be unsuccessful in developing and expanding our sales and marketing capabilities; we may not be able to increase sales of our paid subscription services; consumers may choose not to adopt our new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; we may be unsuccessful or experience delays in manufacturing and distributing our new and existing products; we may fail to manage costs and cost saving initiatives, including restructuring initiatives, the cost of developing new products and manufacturing and distribution of our existing offerings. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect our business are detailed in our periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Risk Factors” in the most recently filed Annual Report and Quarterly Report filed with the Securities and Exchange Commission (the “SEC”) and subsequent filings with the SEC. Given these circumstances, you should not place undue reliance on these forward-looking statements. We undertake no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

To supplement our unaudited selected financial data presented on a basis consistent with U.S. Generally Accepted Accounting Principles (“GAAP”), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP total operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP other income (expenses), net, non-GAAP provision for income taxes, non-GAAP net income (loss) and non-GAAP net income (loss) per diluted share. These supplemental measures exclude adjustments for stock-based compensation expense, restructuring charges, impairment charges, separation expense, amortization of development of software cost, litigation reserves, net, employee retention credit and the related tax effects. In addition, we use free cash flow as non-GAAP measure when assessing the sources of liquidity, capital resources, and quality of earnings. We believe that free cash flow (usage) is helpful in understanding our capital requirements and provides an additional means to reflect the cash flow trends in our business. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

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

  • the ability to make more meaningful period-to-period comparisons of our on-going operating results;
  • the ability to better identify trends in our underlying business and perform related trend analyses;
  • a better understanding of how management plans and measures our underlying business; and
  • an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

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

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

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

Source: Arlo-F

ARLO TECHNOLOGIES, INC.

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

As of

 

 

July 2,

2023

 

December 31,

2022

 

 

(In thousands, except share and per share data)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

61,951

 

 

$

84,024

 

Short-term investments

 

 

61,724

 

 

 

29,700

 

Accounts receivable, net

 

 

57,327

 

 

 

65,960

 

Inventories

 

 

39,429

 

 

 

46,554

 

Prepaid expenses and other current assets

 

 

12,318

 

 

 

6,544

 

Total current assets

 

 

232,749

 

 

 

232,782

 

Property and equipment, net

 

 

6,421

 

 

 

7,336

 

Operating lease right-of-use assets, net

 

 

11,089

 

 

 

12,809

 

Goodwill

 

 

11,038

 

 

 

11,038

 

Restricted cash

 

 

4,035

 

 

 

4,155

 

Other non-current assets

 

 

3,689

 

 

 

4,081

 

Total assets

 

$

269,021

 

 

$

272,201

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

61,221

 

 

$

52,132

 

Deferred revenue

 

 

17,639

 

 

 

11,291

 

Accrued liabilities

 

 

88,217

 

 

 

98,855

 

Total current liabilities

 

 

167,077

 

 

 

162,278

 

Non-current operating lease liabilities

 

 

17,141

 

 

 

19,279

 

Other non-current liabilities

 

 

3,047

 

 

 

2,949

 

Total liabilities

 

 

187,265

 

 

 

184,506

 

Commitments and contingencies

 

 

 

 

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: 93,653,934 at July 2, 2023 and 88,887,139 at December 31, 2022

 

 

94

 

 

 

89

 

Additional paid-in capital

 

 

448,543

 

 

 

433,138

 

Accumulated other comprehensive income (loss)

 

 

152

 

 

 

(107

)

Accumulated deficit

 

 

(367,033

)

 

 

(345,425

)

Total stockholders’ equity

 

 

81,756

 

 

 

87,695

 

Total liabilities and stockholders’ equity

 

$

269,021

 

 

$

272,201

 

ARLO TECHNOLOGIES, INC.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

July 3,

2022

 

July 2,

2023

 

July 3,

2022

 

 

(In thousands, except percentage and per share data)

Revenue:

 

 

 

 

 

 

 

 

 

 

Products

 

$

64,749

 

 

$

67,060

 

 

$

86,191

 

 

$

131,809

 

 

$

181,016

 

Services

 

 

50,327

 

 

 

43,944

 

 

 

32,788

 

 

 

94,271

 

 

 

62,714

 

Total revenue

 

 

115,076

 

 

 

111,004

 

 

 

118,979

 

 

 

226,080

 

 

 

243,730

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

Products

 

 

60,446

 

 

 

64,041

 

 

 

73,829

 

 

 

124,487

 

 

 

154,606

 

Services

 

 

12,772

 

 

 

11,746

 

 

 

11,410

 

 

 

24,518

 

 

 

21,809

 

Total cost of revenue

 

 

73,218

 

 

 

75,787

 

 

 

85,239

 

 

 

149,005

 

 

 

176,415

 

Gross profit

 

 

41,858

 

 

 

35,217

 

 

 

33,740

 

 

 

77,075

 

 

 

67,315

 

Gross margin

 

 

36.4

%

 

 

31.7

%

 

 

28.4

%

 

 

34.1

%

 

 

27.6

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

17,618

 

 

 

17,750

 

 

 

17,402

 

 

 

35,368

 

 

 

33,781

 

Sales and marketing

 

 

16,921

 

 

 

15,353

 

 

 

14,506

 

 

 

32,274

 

 

 

27,674

 

General and administrative

 

 

15,007

 

 

 

15,622

 

 

 

13,149

 

 

 

30,629

 

 

 

25,770

 

Others

 

 

341

 

 

 

632

 

 

 

25

 

 

 

973

 

 

 

104

 

Total operating expenses

 

 

49,887

 

 

 

49,357

 

 

 

45,082

 

 

 

99,244

 

 

 

87,329

 

Loss from operations

 

 

(8,029

)

 

 

(14,140

)

 

 

(11,342

)

 

 

(22,169

)

 

 

(20,014

)

Operating margin

 

 

(7.0

)%

 

 

(12.7

)%

 

 

(9.5

)%

 

 

(9.8

)%

 

 

(8.2

)%

Interest income, net

 

 

835

 

 

 

726

 

 

 

129

 

 

 

1,561

 

 

 

124

 

Other income (expense), net

 

 

52

 

 

 

(39

)

 

 

(116

)

 

 

13

 

 

 

295

 

Loss before income taxes

 

 

(7,142

)

 

 

(13,453

)

 

 

(11,329

)

 

 

(20,595

)

 

 

(19,595

)

Provision for income taxes

 

 

221

 

 

 

792

 

 

 

228

 

 

 

1,013

 

 

 

441

 

Net loss

 

$

(7,363

)

 

$

(14,245

)

 

$

(11,557

)

 

$

(21,608

)

 

$

(20,036

)

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.08

)

 

$

(0.16

)

 

$

(0.13

)

 

$

(0.24

)

 

$

(0.23

)

Weighted average shares used to compute net loss per share - basic and diluted

 

 

92,337

 

 

 

89,653

 

 

 

86,868

 

 

 

90,984

 

 

 

85,966

 

ARLO TECHNOLOGIES, INC.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six Months Ended

 

 

July 2,

2023

 

July 3,

2022

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(21,608

)

 

$

(20,036

)

Adjustments to reconcile net loss to net cash provided by (used in)

operating activities:

 

 

 

 

Stock-based compensation expense

 

 

27,564

 

 

 

21,834

 

Depreciation and amortization

 

 

2,353

 

 

 

2,523

 

Allowance for credit losses and inventory reserves

 

 

613

 

 

 

(120

)

Deferred income taxes

 

 

243

 

 

 

133

 

Others

 

 

(567

)

 

 

89

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

8,734

 

 

 

5,498

 

Inventories

 

 

6,411

 

 

 

(628

)

Prepaid expenses and other assets

 

 

(5,624

)

 

 

767

 

Accounts payable

 

 

9,836

 

 

 

(6,565

)

Deferred revenue

 

 

6,198

 

 

 

(16,763

)

Accrued and other liabilities

 

 

(11,245

)

 

 

(16,113

)

Net cash provided by (used in) operating activities

 

 

22,908

 

 

 

(29,381

)

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(1,954

)

 

 

(451

)

Purchases of short-term investments

 

 

(61,152

)

 

 

(59,490

)

Proceeds from maturities of short-term investments

 

 

29,956

 

 

 

9,512

 

Net cash used in investing activities

 

 

(33,150

)

 

 

(50,429

)

Cash flows from financing activities:

 

 

 

 

Proceeds related to employee benefit plans

 

 

4,611

 

 

 

3,171

 

Restricted stock unit withholdings

 

 

(16,562

)

 

 

(13,555

)

Net cash used in financing activities

 

 

(11,951

)

 

 

(10,384

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(22,193

)

 

 

(90,194

)

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

 

 

88,179

 

 

 

179,856

 

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

 

$

65,986

 

 

$

89,662

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

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

 

$

433

 

 

$

333

 

ARLO TECHNOLOGIES, INC.

 

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

 

UNAUDITED STATEMENT OF OPERATIONS DATA:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

July 3,

2022

 

July 2,

2023

 

July 3,

2022

 

 

(In thousands, except percentage data)

GAAP gross profit:

 

 

 

 

 

 

 

 

 

 

Products

 

$

4,303

 

 

$

3,019

 

 

$

12,362

 

 

$

7,322

 

 

$

26,410

 

Services

 

 

37,555

 

 

 

32,198

 

 

 

21,378

 

 

 

69,753

 

 

 

40,905

 

Total GAAP gross profit

 

 

41,858

 

 

 

35,217

 

 

 

33,740

 

 

 

77,075

 

 

 

67,315

 

GAAP gross margin:

 

 

 

 

 

 

 

 

 

 

Products

 

 

6.6

%

 

 

4.5

%

 

 

14.3

%

 

 

5.6

%

 

 

14.6

%

Services

 

 

74.6

%

 

 

73.3

%

 

 

65.2

%

 

 

74.0

%

 

 

65.2

%

Total GAAP gross margin

 

 

36.4

%

 

 

31.7

%

 

 

28.4

%

 

 

34.1

%

 

 

27.6

%

Stock-based compensation expense - Products

 

 

848

 

 

 

912

 

 

 

1,148

 

 

 

1,760

 

 

 

2,003

 

Stock-based compensation expense - Services

 

 

119

 

 

 

(51

)

 

 

187

 

 

 

68

 

 

 

242

 

Amortization of development of software cost - Services

 

 

151

 

 

 

151

 

 

 

 

 

 

302

 

 

 

 

Non-GAAP gross profit:

 

 

 

 

 

 

 

 

 

 

Products

 

 

5,151

 

 

 

3,931

 

 

 

13,510

 

 

 

9,082

 

 

 

28,413

 

Services

 

 

37,825

 

 

 

32,298

 

 

 

21,565

 

 

 

70,123

 

 

 

41,147

 

Total Non-GAAP gross profit

 

$

42,976

 

 

$

36,229

 

 

$

35,075

 

 

$

79,205

 

 

$

69,560

 

Non-GAAP gross margin:

 

 

 

 

 

 

 

 

 

 

Products

 

 

8.0

%

 

 

5.9

%

 

 

15.7

%

 

 

6.9

%

 

 

15.7

%

Services

 

 

75.2

%

 

 

73.5

%

 

 

65.8

%

 

 

74.4

%

 

 

65.6

%

Total Non-GAAP gross margin

 

 

37.3

%

 

 

32.6

%

 

 

29.5

%

 

 

35.0

%

 

 

28.5

%

 

 

 

 

 

 

 

 

 

 

 

GAAP research and development

 

$

17,618

 

 

$

17,750

 

 

$

17,402

 

 

$

35,368

 

 

$

33,781

 

Stock-based compensation expense

 

 

(3,311

)

 

 

(3,911

)

 

 

(3,621

)

 

 

(7,222

)

 

 

(5,923

)

Non-GAAP research and development

 

$

14,307

 

 

$

13,839

 

 

$

13,781

 

 

$

28,146

 

 

$

27,858

 

Percentage of revenue

 

 

12.4

%

 

 

12.5

%

 

 

11.6

%

 

 

12.4

%

 

 

11.4

%

 

 

 

 

 

 

 

 

 

 

 

GAAP sales and marketing

 

$

16,921

 

 

$

15,353

 

 

$

14,506

 

 

$

32,274

 

 

$

27,674

 

Stock-based compensation expense

 

 

(1,670

)

 

 

(1,722

)

 

 

(1,790

)

 

 

(3,392

)

 

 

(3,170

)

Non-GAAP sales and marketing

 

$

15,251

 

 

$

13,631

 

 

$

12,716

 

 

$

28,882

 

 

$

24,504

 

Percentage of revenue

 

 

13.3

%

 

 

12.3

%

 

 

10.7

%

 

 

12.8

%

 

 

10.1

%

 

 

 

 

 

 

 

 

 

 

 

GAAP general and administrative

 

$

15,007

 

 

$

15,622

 

 

$

13,149

 

 

$

30,629

 

 

$

25,770

 

Stock-based compensation expense

 

 

(7,025

)

 

 

(8,097

)

 

 

(5,499

)

 

 

(15,122

)

 

 

(10,496

)

Litigation reserves, net

 

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

(112

)

Non-GAAP general and administrative

 

$

7,982

 

 

$

7,525

 

 

$

7,585

 

 

$

15,507

 

 

$

15,162

 

Percentage of revenue

 

 

6.9

%

 

 

6.8

%

 

 

6.4

%

 

 

6.9

%

 

 

6.2

%

ARLO TECHNOLOGIES, INC.

 

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

 

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

July 3,

2022

 

July 2,

2023

 

July 3,

2022

 

 

(In thousands, except percentage data)

GAAP total operating expenses

 

$

49,887

 

 

$

49,357

 

 

$

45,082

 

 

$

99,244

 

 

$

87,329

 

Stock-based compensation expense

 

 

(12,006

)

 

 

(13,730

)

 

 

(10,910

)

 

 

(25,736

)

 

 

(19,589

)

Others

 

 

(341

)

 

 

(632

)

 

 

(90

)

 

 

(973

)

 

 

(216

)

Non-GAAP total operating expenses

 

$

37,540

 

 

$

34,995

 

 

$

34,082

 

 

$

72,535

 

 

$

67,524

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating loss

 

$

(8,029

)

 

$

(14,140

)

 

$

(11,342

)

 

$

(22,169

)

 

$

(20,014

)

GAAP operating margin

 

 

(7.0

)%

 

 

(12.7

)%

 

 

(9.5

)%

 

 

(9.8

)%

 

 

(8.2

)%

Stock-based compensation expense

 

 

12,973

 

 

 

14,591

 

 

 

12,245

 

 

 

27,564

 

 

 

21,834

 

Others

 

 

492

 

 

 

783

 

 

 

90

 

 

 

1,275

 

 

 

216

 

Non-GAAP operating income

 

$

5,436

 

 

$

1,234

 

 

$

993

 

 

$

6,670

 

 

$

2,036

 

Non-GAAP operating margin

 

 

4.7

%

 

 

1.1

%

 

 

0.8

%

 

 

3.0

%

 

 

0.8

%

 

 

 

 

 

 

 

 

 

 

 

GAAP other income (expense), net

 

$

52

 

 

$

(39

)

 

$

(116

)

 

$

13

 

 

$

295

 

Employee retention credit

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

(65

)

Non-GAAP other income (expense), net

 

$

52

 

 

$

(39

)

 

$

(142

)

 

$

13

 

 

$

230

 

 

 

 

 

 

 

 

 

 

 

 

GAAP provision for income taxes

 

$

221

 

 

$

792

 

 

$

228

 

 

$

1,013

 

 

$

441

 

GAAP income tax rate

 

 

(3.1

)%

 

 

(5.9

)%

 

 

(2.0

)%

 

 

(4.9

)%

 

 

(2.3

)%

Non-GAAP provision for income taxes

 

$

221

 

 

$

792

 

 

$

228

 

 

$

1,013

 

 

$

441

 

Non-GAAP income tax rate

 

 

3.5

%

 

 

41.2

%

 

 

23.3

%

 

 

12.3

%

 

 

18.5

%

ARLO TECHNOLOGIES, INC.

 

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

 

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

July 3,

2022

 

July 2,

2023

 

July 3,

2022

 

 

(In thousands, except percentage and per share data)

GAAP net loss

 

$

(7,363

)

 

$

(14,245

)

 

$

(11,557

)

 

$

(21,608

)

 

$

(20,036

)

Stock-based compensation expense

 

 

12,973

 

 

 

14,591

 

 

 

12,245

 

 

 

27,564

 

 

 

21,834

 

Others

 

 

492

 

 

 

783

 

 

 

64

 

 

 

1,275

 

 

 

151

 

Non-GAAP net income

 

$

6,102

 

 

$

1,129

 

 

$

752

 

 

$

7,231

 

 

$

1,949

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss per share - basic and diluted

 

$

(0.08

)

 

$

(0.16

)

 

$

(0.13

)

 

$

(0.24

)

 

$

(0.23

)

Stock-based compensation expense

 

 

0.14

 

 

 

0.17

 

 

 

0.14

 

 

 

0.30

 

 

 

0.25

 

Others

 

 

 

 

 

 

 

 

 

 

 

0.01

 

 

 

 

Non-GAAP net income - diluted

 

$

0.06

 

 

$

0.01

 

 

$

0.01

 

 

$

0.07

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing GAAP net loss - basic

 

 

92,337

 

 

 

89,653

 

 

 

86,868

 

 

 

90,984

 

 

 

85,966

 

Shares used in computing non-GAAP net income - diluted

 

 

99,187

 

 

 

93,236

 

 

 

91,787

 

 

 

96,800

 

 

 

92,687

 

 

 

 

 

 

 

 

 

 

 

 

Free cash flow (usage):

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

12,578

 

 

$

10,329

 

 

$

(4,824

)

 

$

22,908

 

 

$

(29,381

)

Less: Purchases of property and equipment

 

 

(1,031

)

 

 

(923

)

 

 

(153

)

 

 

(1,954

)

 

 

(451

)

Free cash flow (usage) (1)

 

$

11,547

 

 

$

9,406

 

 

$

(4,977

)

 

$

20,954

 

 

$

(29,832

)

Free cash flow (usage) margin (1)

 

 

10.0

%

 

 

8.5

%

 

 

(4.2

)%

 

 

9.3

%

 

 

(25.1

)%

_________________________

(1)

 

Free cash flow (usage) is calculated as net cash provided by (used in) operating activities less capital expenditures. Free cash flow (usage) margin is the free cash flow (usage) divided by revenue.

ARLO TECHNOLOGIES, INC.

 

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

 

 

 

Three Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

December 31,

2022

 

October 2,

2022

 

July 3,

2022

 

 

(In thousands, except headcount and per share data)

Cash, cash equivalents and short-term investments

 

$ 123,675

 

$ 118,673

 

$ 113,724

 

$ 125,272

 

$ 135,258

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

 

$ 1.25

 

$ 1.27

 

$ 1.28

 

$ 1.42

 

$ 1.47

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$ 57,327

 

$ 52,837

 

$ 65,960

 

$ 82,707

 

$ 73,998

Days sales outstanding

 

45

 

44

 

50

 

59

 

57

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

$ 39,429

 

$ 39,922

 

$ 46,554

 

$ 73,243

 

$ 39,208

Inventory turns

 

6.1

 

6.4

 

6.4

 

4.3

 

7.5

 

 

 

 

 

 

 

 

 

 

 

Weeks of channel inventory:

 

 

 

 

 

 

 

 

 

 

U.S. retail channel

 

9.7

 

14.6

 

11.9

 

13.6

 

11.9

U.S. distribution channel

 

9.3

 

17.6

 

14.1

 

5.5

 

7.4

APAC distribution channel

 

7.7

 

5.8

 

4.7

 

9.4

 

9.8

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

(current and non-current)

 

$ 17,702

 

$ 15,289

 

$ 11,503

 

$ 12,242

 

$ 14,022

 

 

 

 

 

 

 

 

 

 

 

Cumulative registered accounts (1)

 

7,860

 

7,510

 

7,220

 

6,930

 

6,640

Cumulative paid accounts (2)

 

2,289

 

2,044

 

1,862

 

1,673

 

1,478

Annual recurring revenue (ARR) (3)

 

$ 193,633

 

$ 182,583

 

$ 137,764

 

$ 125,402

 

$ 116,601

 

 

 

 

 

 

 

 

 

 

 

Headcount

 

345

 

334

 

343

 

360

 

354

Non-GAAP diluted shares

 

99,187

 

93,236

 

88,743

 

88,124

 

91,787

_________________________

(1)

 

We define our registered accounts at the end of a particular period as the number of unique registered accounts on the Arlo platform as of the end of such period. The number of registered accounts does not necessarily reflect the number of end-users on the Arlo platform as one registered account may be used by multiple end-users to monitor the devices attached to that household.

(2)

 

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

(3)

 

ARR represents the amount of paid service revenue that we expect to recur annually and is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognize from our paid accounts and excludes prepaid service revenue. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.

REVENUE BY GEOGRAPHY

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2,

2023

 

April 2,

2023

 

July 3,

2022

 

July 2,

2023

 

July 3,

2022

 

 

(In thousands, except percentage data)

Americas

 

$

78,136

67.9

%

 

$

56,632

51.0

%

 

$

60,345

50.7

%

 

$

134,768

59.6

%

 

$

128,811

52.8

%

EMEA

 

 

30,958

26.9

%

 

 

48,472

43.7

%

 

 

54,483

45.8

%

 

 

79,430

35.1

%

 

 

104,458

42.9

%

APAC

 

 

5,982

5.2

%

 

 

5,900

5.3

%

 

 

4,151

3.5

%

 

 

11,882

5.3

%

 

 

10,461

4.3

%

Total

 

$

115,076

100.0

%

 

$

111,004

100.0

%

 

$

118,979

100.0

%

 

$

226,080

100.0

%

 

$

243,730

100.0

%

 

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