Exceeded High-End of EPS Guidance for the Quarter

Delivered Record GAAP and Non-GAAP Gross Margin

Service Revenue Growth of 54.8% Year Over Year

115.3% Paid Account Growth Year Over Year

Ended Quarter with Cash, Cash Equivalents and Short-term Investments Balance at $177.1 million with No Debt

SAN JOSE, Calif.–(BUSINESS WIRE)–Arlo Technologies, Inc. (NYSE: ARLO), a leading internet-connected security camera brand, today reported financial results for the first quarter ended March 28, 2021.

Financial Highlights (1)

  • Revenue of $82.6 million, an increase of 26.1% year over year.
  • GAAP gross profit of $25.8 million, an increase of 552.8% year over year; non-GAAP gross profit of $26.7 million, an increase of 451.8% year over year.
  • GAAP gross margin of 31.3%; non-GAAP gross margin of 32.3%.
  • GAAP net loss per diluted share of $(0.13); non-GAAP net loss per diluted share of $(0.03).
  • Cash, cash equivalents and short-term investments of $177.1 million and no debt at the end of Q1.

“Clearly, Arlo is not the same company it was a year ago. In 2020 we successfully pivoted to become services-focused to create a more predictable, more profitable business and our strong Q1 results are further proof of our progress. We delivered revenue above the high end of our guidance range and up 26% over last year. With the increasing contribution of our services business, our GAAP and non-GAAP gross margin was up 10% sequentially to reach an all-time record and, coupled with continued operating discipline, we improved our bottom line by more than $24 million from Q1 last year,” said Matthew McRae, Chief Executive Officer of Arlo Technologies. “Our entire product line-up has been refreshed and our market leading innovation is shown in the many accolades and ‘best of’ reviews we receive. With our new business model, a free three-month trial of Arlo Smart, attached to all of our refreshed products, each quarter we set records for new accounts and materially increase the number of subscriber additions. This is producing a fast-growing, high margin revenue stream that we expect to eclipse the $100 million level for the full year. With the team executing well, I am very excited about what Arlo can accomplish in 2021.”

 

Three Months Ended

 

March 28,

2021

 

December 31,

2020

 

March 29,

2020

 

(in thousands, except percentage and per share data)

Revenue

$

82,556

 

 

$

114,836

 

 

$

65,450

 

GAAP Gross Margin

31.3

%

 

21.4

%

 

6.0

%

Non-GAAP Gross Margin (1)

32.3

%

 

22.4

%

 

7.4

%

GAAP Net Income (Loss) per Diluted Share

$

(0.13)

 

 

$

(0.19)

 

 

$

(0.51)

 

Non-GAAP Net Income (Loss) per Diluted Share (1)

$

(0.03)

 

 

$

(0.08)

 

 

$

(0.34)

 

_________________________

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

Financial and Business Highlights

  • Delivered record GAAP and non-GAAP gross margin.
  • Reported highest GAAP and non-GAAP EPS as a public company.
  • Service revenue of $22.8 million for Q1, for growth of 54.8% year over year, the seventh consecutive quarter of record service revenue.
  • Added a record 114,000 paid accounts in Q1, a sequential increase of 44.3% over Q4, and a year over year increase of 356.0%.
  • U.S. News and World Report 360 Reviews awarded the Pro Series the best security camera of 2021 in the home, outdoor, and wireless categories.
  • PC Magazine and Digital Trends each named Pro 4 Series an Editor’s Choice.
  • The Pro 3 Floodlight, Essential Spotlight Camera, and the Essential Wire-Free Video Doorbell were winners of the Red Dot Design Awards.
  • Arlo’s Essential Spotlight Camera was recognized by Pocket-Lint as the best indoor security camera in their Best Buy 2021 Awards.

Second Quarter 2021 Business Outlook (2)

  • Revenue of $80.0 million to $90.0 million.
  • GAAP net loss per diluted share of $(0.33) to $(0.26), and non-GAAP net loss per diluted share of $(0.20) to $(0.13).

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

 

Three Months Ending June 27, 2021

 

Revenue

 

Net Loss per Diluted Share

 

(in millions, except per share data)

GAAP

$80.0 – $90.0

 

$(0.33) – $(0.26)

Estimated adjustments for (2):

 

 

 

Stock-based compensation expense

 

0.13

Tax effects of non-GAAP adjustments

 

Non-GAAP

$80.0 – $90.0

 

$(0.20) – $(0.13)

_________________________

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

Investor Conference Call / Webcast Details

Arlo will review the first quarter of 2021 results and discuss management’s expectations for the second quarter of 2021 today, Wednesday, May 5, 2021 at 5:00 p.m. ET (2:00 p.m. PT). The toll-free dial-in number for the live audio call is (866) 393-4306. The international dial-in number for the live audio call is (734) 385-2616. The conference ID for the call is 3849854. A live webcast of the conference call will be available on Arlo’s Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.

About Arlo Technologies, Inc.

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

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 doesn’t 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.

© 2021 Arlo Technologies, Inc., Arlo and the Arlo logo are trademarks and/or registered trademarks of Arlo Technologies, Inc. and/or certain of its affiliates in the United States and/or other countries. Other brand and product names are for identification purposes only and may be trademarks or registered trademarks of their respective holder(s). The information contained herein is subject to change without notice. Arlo shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

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

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: Arlo’s future operating performance and financial condition, expected revenue, GAAP and non-GAAP gross margins, operating margins, and tax expense; expectations regarding market expansion and future growth; plans to invest in product innovation; Arlo’s future product offerings; and the quote from Arlo’s Chief Executive Officer. These statements are based on management’s current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company’s products may be lower than anticipated; consumers may choose not to adopt the Company’s new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company’s products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may incur additional costs and charges associated with the transactions contemplated by the Verisure partnership; the Company may not receive the minimum commitment amounts from Verisure; the COVID-19 pandemic could have an adverse impact on the Company’s business, operations and the markets and communities in which Arlo and its partners and customers operate; the Company may fail to successfully continue to effect operating expense savings; changes in the level of Arlo’s cash resources and the Company’s planned usage of such resources; changes in the Company’s stock price and developments in the business that could increase the Company’s cash needs; fluctuations in foreign exchange rates; the actions and financial health of the Company’s customers; the anticipated financial capacity under Arlo’s revolving credit line may not be available when expected, or at all; and the Company may not be able to carry out its restructuring plan. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect Arlo and its business are detailed in the Company’s periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Part I – Item 1A. Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 26, 2021 and other periodic filings with the Securities and Exchange Commission. Given these circumstances, you should not place undue reliance on these forward-looking statements. Arlo undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

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

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, 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:

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

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

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

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

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

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

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

Source: Arlo-F

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

As of

 

March 28,
2021

 

December 31,
2020

 

(In thousands, except share and per share data)

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

172,113

 

 

$

186,127

 

Short-term investments (amortized cost of $5,000 and $19,996)

5,000

 

 

19,997

 

Accounts receivable, net (net of allowance for credit losses of $519 and $519)

51,121

 

 

77,643

 

Inventories

55,972

 

 

64,705

 

Prepaid expenses and other current assets

7,705

 

 

8,076

 

Total current assets

291,911

 

 

356,548

 

Property and equipment, net

14,596

 

 

15,821

 

Operating lease right-of-use assets, net

22,950

 

 

23,998

 

Goodwill

11,038

 

 

11,038

 

Restricted cash

4,163

 

 

4,164

 

Other non-current assets

2,536

 

 

2,399

 

Total assets

$

347,194

 

 

$

413,968

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

27,054

 

 

$

62,171

 

Deferred revenue

54,999

 

 

53,142

 

Accrued liabilities

97,154

 

 

121,766

 

Income tax payable

223

 

 

267

 

Total current liabilities

179,430

 

 

237,346

 

Non-current deferred revenue

6,605

 

 

16,563

 

Non-current operating lease liabilities

23,897

 

 

25,029

 

Non-current income taxes payable

104

 

 

104

 

Other non-current liabilities

828

 

 

1,159

 

Total liabilities

210,864

 

 

280,201

 

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: 81,250,176 at March 28, 2021 and 79,336,242 at December 31, 2020

81

 

 

79

 

Additional paid-in capital

379,738

 

 

366,455

 

Accumulated other comprehensive income

 

 

3

 

Accumulated deficit

(243,489

)

 

(232,770

)

Total stockholders’ equity

136,330

 

 

133,767

 

Total liabilities and stockholders’ equity

$

347,194

 

 

$

413,968

 

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Three Months Ended

 

March 28,
2021

 

December 31,
2020

 

March 29,
2020

 

(in thousands, except percentage and per share data)

Revenue:

 

 

 

 

 

Products

$

59,761

 

 

$

93,271

 

 

$

50,723

 

Services

22,795

 

 

21,565

 

 

14,727

 

Total revenue

82,556

 

 

114,836

 

 

65,450

 

Cost of revenue:

 

 

 

 

 

Products

47,157

 

 

81,424

 

 

52,188

 

Services

9,592

 

 

8,874

 

 

9,309

 

Total cost of revenue

56,749

 

 

90,298

 

 

61,497

 

Gross profit

25,807

 

 

24,538

 

 

3,953

 

Gross margin

31.3

%

 

21.4

%

 

6.0

%

Operating expenses:

 

 

 

 

 

Research and development

14,791

 

 

15,266

 

 

15,243

 

Sales and marketing

11,207

 

 

13,593

 

 

11,038

 

General and administrative

11,227

 

 

11,338

 

 

18,784

 

Separation expense

54

 

 

10

 

 

79

 

Gain on sale of business

 

 

 

 

(292

)

Total operating expenses

37,279

 

 

40,207

 

 

44,852

 

Loss from operations

(11,472

)

 

(15,669

)

 

(40,899

)

Operating margin

(13.9

)%

 

(13.6

)%

 

(62.5

)%

Interest income

24

 

 

42

 

 

535

 

Other income (expense), net

909

 

 

599

 

 

1,183

 

Loss before income taxes

(10,539

)

 

(15,028

)

 

(39,181

)

Provision for income taxes

180

 

 

182

 

 

145

 

Net loss

$

(10,719

)

 

$

(15,210

)

 

$

(39,326

)

Net loss per share:

 

 

 

 

 

Basic

$

(0.13

)

 

$

(0.19

)

 

$

(0.51

)

Diluted

$

(0.13

)

 

$

(0.19

)

 

$

(0.51

)

Weighted average shares used to compute net loss per share:

 

 

 

 

 

Basic

80,370

 

 

79,164

 

 

76,560

 

Diluted

80,370

 

 

79,164

 

 

76,560

 

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended

 

March 28,
2021

 

March 29,
2020

 

(In thousands)

Cash flows from operating activities:

 

 

 

Net loss

$

(10,719

)

 

$

(39,326

)

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

 

 

 

Depreciation and amortization

1,547

 

 

2,773

 

Stock-based compensation expense

8,340

 

 

12,773

 

Allowance for credit losses and inventory reserves

(562

)

 

1,709

 

Gain on sale of business

 

 

(292

)

Deferred income taxes

(130

)

 

100

 

Premium amortization (discount accretion) on investments, net

(3

)

 

(5

)

Changes in assets and liabilities:

 

 

 

Accounts receivable, net

26,522

 

 

65,685

 

Inventories

9,296

 

 

6,142

 

Prepaid expenses and other assets

361

 

 

5,273

 

Accounts payable

(34,647

)

 

(71,834

)

Deferred revenue

(8,101

)

 

(6,251

)

Accrued and other liabilities

(22,072

)

 

(25,651

)

Net cash used in operating activities

(30,168

)

 

(48,904

)

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

(803

)

 

(1,111

)

Purchases of short-term investments

 

 

(20,096

)

Maturities of short-term investments

15,000

 

 

10,000

 

Net cash provided by (used in) investing activities

14,197

 

 

(11,207

)

Cash flows from financing activities:

 

 

 

Proceeds related to employee benefit plans

6,133

 

 

1,854

 

Restricted stock unit withholdings

(4,177

)

 

(2,020

)

Net cash provided by (used in) financing activities

1,956

 

 

(166

)

Net decrease in cash and cash equivalents and restricted cash

(14,015

)

 

(60,277

)

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

190,291

 

 

240,819

 

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

$

176,276

 

 

$

180,542

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

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

$

82

 

 

$

323

 

Contacts

Arlo Investor Relations

Erik Bylin

investors@arlo.com
(510) 315-1004

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