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What changed in Arlo Technologies, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Arlo Technologies, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+320 added−309 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-29)

Top changes in Arlo Technologies, Inc.'s 2024 10-K

320 paragraphs added · 309 removed · 244 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

56 edited+8 added−15 removed77 unchanged
Biggest changeWe believe a holistic ESG approach creates competitive advantages over business rivals as our partners, suppliers, and customers increasingly look to build relationships with companies that boast sustainable and adaptable business operations. 12 Table of Contents Environmental We are committed to providing customers with high quality products, conducting operations in a socially responsible, ethical, and sustainable manner to protect the environment and promoting compliance with all relevant regulations, customer specifications, and environmental legislation.
Biggest changeEnvironmental We are committed to providing customers with high quality products, conducting operations in a socially responsible, ethical, and sustainable manner to protect the environment and promoting compliance with all relevant regulations, customer specifications, and environmental legislation. This commitment continues to be a driving force at our company, and a principle that is deeply ingrained in our values.
Nevertheless, the smart security market remains highly competitive, and has a multitude of participants, including: large global technology companies, such as Amazon (Ring and Blink) and Google (Nest); security service vendors, such as ADT; telecom service providers, such as AT&T and Comcast; and other companies, such as TP Link, Eufy and Wyze.
Nevertheless, the smart security market remains highly competitive, and has a multitude of participants, including: large global technology companies, such as Amazon (Ring and Blink) and Google (Nest); security service vendors, such as ADT; telecom service providers, such as AT&T, Verizon and Comcast; and other companies, such as TP Link, Eufy and Wyze.
The system, which is managed through the Arlo Secure App, pairs with Arlo's new 24/7 Professional Monitoring service, granting one-tap access to highly trained Security Experts who monitor and respond to emergency situations.
The system, which is managed through the Arlo Secure App, pairs with Arlo’s 24/7 Professional Monitoring service, granting one-tap access to highly trained Security Experts who monitor and respond to emergency situations.
Arlo Ultra 2 works with Amazon Alexa, Google Assistant, Apple Homekit, and IFTTT for easy interaction, automation and control. Arlo Floodlight Camera , released in the first quarter of 2020, is the first wire-free floodlight camera on the market.
Arlo Ultra 2 works with Amazon Alexa, Google Assistant, and Apple Homekit for easy interaction, automation and control. Arlo Floodlight Camera , released in the first quarter of 2020, is the first wire-free floodlight camera on the market.
That commitment is reflected through various corporate initiatives as well as day-to-day activities, including our adoption of sustainability-focused policies and procedures, our publicly recognized focus on fostering an inclusive workplace, our constant drive toward more efficient use of materials and energy, our careful and active management of our supply chain, our services and products which help reduce carbon footprints and enhance road safety, and our impactful and globally integrated ethics and compliance program.
That commitment is reflected through various corporate initiatives as well as day-to-day activities, including our adoption of sustainability-focused policies and procedures, our publicly recognized and award-winning focus on fostering an inclusive workplace, our constant drive toward more efficient use of materials and energy, our careful and active management of our supply chain, our services and products which help reduce carbon footprints and enhance road safety, and our impactful and globally integrated ethics and compliance program.
If directed by the user, Arlo’s Emergency Response team can also provide critical location information to responders en route to better prepare them, such as gate codes, medical conditions of family members, and pet details. • 2K (Secure plan) and 4K (Secure Plus plan) Cloud-based Video Recording – View 30 days of recordings securely stored on Arlo’s SmartCloud platform, for ultimate peace of mind and protection even if the device is damaged or stolen in a break-in, storm or other physical incident. • Unlimited Cameras – Users can enjoy Arlo Secure service for all cameras in their home with one all-encompassing plan and can add newly purchased Arlo cameras for no additional service charge. • Advanced Object Detectio n – Arlo processes and filters 200 million events each day through advanced object detection backed by visual artificial intelligence, allowing for better recognition of people, packages, vehicles, and animals to add key context to notifications and reduce unwanted alerts. • Smart Interactive Notifications – Users can take quicker action by responding to rich notifications or viewing an animated preview of a notification video through the lock screen on their smartphone. • Smoke and CO Alarm Detection – Users can get notified when the camera hears a smoke or CO alarm triggered. • Cloud-based Activity Zones – Users can reduce unwanted notifications by highlighting specific areas on their property where they want motion to be detected. • Call a Friend – Users can instantly call a friend through the Arlo App from their notification screen with one tap. • 24/7 Priority Support – Users get priority technical support through the in-app Help Center with omnichannel access to phone, chat, Community or self-help articles. • 24/7 Professional Monitoring (Secure Pro plan) – Users have access to Live Security Experts who swiftly assist in an emergency, regardless of whether a user is home or away.
If directed by the user, Arlo’s Emergency Response team can also provide critical location information to responders en route to better prepare them, such as gate codes, medical conditions of family members, and pet details. • 2K and 4K Cloud-based Video Recording – View 30 days of recordings securely stored on Arlo’s SmartCloud platform, for ultimate peace of mind and protection even if the device is damaged or stolen in a break-in, storm or other physical incident. • Unlimited Cameras – Users can enjoy Arlo Secure service for all cameras in their home with one all-encompassing plan and can add newly purchased Arlo cameras for no additional service charge. • Advanced Object Detectio n – Arlo processes and filters approximately 195 million events each day through advanced object detection backed by visual AI, allowing for better recognition of people, packages, vehicles, and animals to add key context to notifications and reduce unwanted alerts. • Smart Interactive Notifications – Users can take quicker action by responding to rich notifications or viewing an animated preview of a notification video through the lock screen on their smartphone. • Smoke and CO Alarm Detection – Users can get notified when the camera hears a smoke or CO alarm triggered. • Cloud-based Activity Zones – Users can reduce unwanted notifications by highlighting specific areas on their property where they want motion to be detected. • Call a Friend – Users can instantly call a friend through the Arlo App from their notification screen with one tap. • 24/7 Priority Support – Users get priority technical support through the in-app Help Center with omnichannel access to phone, chat, Community or self-help articles. • 24/7 Professional Monitoring – Users have access to Live Security Experts who swiftly assist in an emergency, regardless of whether a user is home or away.
As of December 31, 2023, our research and development staff consisted of 148 employees, located in our offices worldwide, and was comprised of front-end and back-end software engineers, radio frequency engineers, electrical engineers, mechanical engineers, system test engineers, computer vision scientists and data analysis engineers, UX and industrial design engineers and mobile app developers.
As of December 31, 2024, our research and development staff consisted of 148 employees, located in our offices worldwide, and was comprised of front-end and back-end software engineers, radio frequency engineers, electrical engineers, mechanical engineers, system test engineers, computer vision scientists and data analysis engineers, UX and industrial design engineers and mobile app developers.
In addition, Arlo’s broad compatibility allows the platform to seamlessly integrate with third-party internet-of-things (“IoT”) products and protocols, such as Amazon Alexa, Apple HomeKit, Apple TV, Google Assistant, IFTTT, Stringify and Samsung SmartThings.
In addition, Arlo’s broad compatibility allows the platform to seamlessly integrate with third-party internet-of-things (“IoT”) products and protocols, such as Amazon Alexa, Apple HomeKit, Apple TV, Google Assistant, and Samsung SmartThings.
All of our employees are required to take and pass yearly training courses on Anti-Bribery and Anti-Corruption to ensure they understand the importance of following local laws and regulations with respect to those topics. In addition, we and our manufacturing partners are committed to meeting ISO standards and maintaining ISO 9001 and/or ISO 14001 certifications.
All of our employees are required to take and pass yearly training courses on Anti-Bribery and Anti-Corruption to ensure they understand the importance of following local laws and regulations with respect to those topics. 13 Table of Contents In addition, we and our manufacturing partners are committed to meeting ISO standards and maintaining ISO 9001 and/or ISO 14001 certifications.
In support of this, we offer a wide variety of benefits for employees around the world and invest in tools and resources that are designed to support our employees’ individual growth and development. 15 Table of Contents Health and Safety We strive to protect the health and safety of our employees.
In support of this, we offer a wide variety of benefits for employees around the world and invest in tools and resources that are designed to support our employees’ individual growth and development. Health and Safety We strive to protect the health and safety of our employees.
Environmental issues such as pollution and climate change have had significant legislative and regulatory efforts on a global basis, and there are expected to be additional changes to the regulations in these areas. These changes could directly increase the cost of energy, which may have an impact on the way we manufacture products.
Environmental issues such as pollution and climate change have had significant legislative and regulatory efforts on a global basis, and there are additional changes to the regulations in these areas in the upcoming years. These changes could directly increase the cost of energy, which may have an impact on the way we manufacture products.
We encourage employees to truly be themselves and thrive in an environment where their voices matter, differences are understood and valued, and where they are supported to express their unique ideas openly. We aim to foster a highly engaged and energized workplace, where everyone is treated with dignity and respect and is excited to achieve more.
We encourage employees to truly be themselves and thrive in an environment where their voices matter, differences are understood and 14 Table of Contents valued, and where they are supported to express their unique ideas openly. We aim to foster a highly engaged and energized workplace, where everyone is treated with dignity and respect and is excited to achieve more.
Additionally, the new 24/7, one-touch Emergency Response is available with the Secure Plus and Safe and Secure Pro plans, enabling Arlo users to directly dispatch first responders during an emergency for quicker action. A trial period of Arlo Secure is provided with various Arlo cameras, home security, and doorbell products.
Additionally, the 24/7, one-touch Emergency Response is available with the Secure Plus and Premium plans, enabling Arlo users to directly dispatch first responders during an emergency for quicker action. A trial period of Arlo Secure is provided with various Arlo cameras, home security, and doorbell products.
Moreover, our focus on building a smart security platform, combined with our leadership in innovation in the consumer network connected camera systems 9 Table of Contents market, has led to the strength of our Arlo brand worldwide.
Moreover, our focus on building a smart security platform, combined with our leadership in innovation in the consumer network connected camera systems market, has led to the strength of our Arlo brand worldwide.
Our website also provides a link to Section 16 filings which are available free of charge on the same day as such filings are made. Information contained on these websites is not a part of this Annual Report on Form 10-K. 16 Table of Contents
Our website also provides a link to Section 16 filings which are available free of charge on the same day as such filings are made. Information contained on or accessible through these websites is not a part of this Annual Report on Form 10-K. 15 Table of Contents
Arlo’s deep expertise in cloud services, cutting-edge AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that is easy to setup and engage with every day.
Arlo’s deep expertise in cloud services, cutting-edge artificial intelligence (“AI”) and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that is easy to setup and engage with every day.
This then translates into our performance management and reward systems. We aim to have the right people in the right roles at the right time to drive our business outcomes, ensuring top diverse talent for our critical roles. We embed Diversity, Equity and Inclusion into our culture strategy.
This then translates into our performance management and compensation and reward systems. We aim to have the right people in the right roles at the right time to drive our business outcomes, ensuring top talent for our critical roles. We embed fairness, equity and inclusion into our culture strategy.
We believe we can play a crucial role in driving positive social change and, in our commitment to the humane treatment of employees globally, we have continued to administer our Conflict Mineral Program.
We believe we can play a crucial role in driving positive social change and, in our commitment to humane treatment globally, we have continued to administer our Conflict Mineral Program.
The contents of our website are not incorporated into this Annual Report. Further, our references to the URLs for these websites are intended to be inactive textual reference only.
The contents of or accessible through our website are not incorporated into this Annual Report. Further, our references to the URLs for these websites are intended to be inactive textual reference only.
This sales channel is and will continue to be the key route-to-market for our current portable LTE-enabled camera and any future cellular-enabled security solutions. Security Solution Providers . We sell our products and services to security solution providers, including Verisure, from which we derived 33.5% of our revenue in 2023. Arlo.com .
This sales channel is and will continue to be the key route-to-market for our current portable LTE-enabled camera and any future cellular-enabled security solutions. Security Solution Providers . We sell our products and services to security solution providers, including Verisure, from which we derived 43.2% of our revenue in 2024. Arlo.com .
Additionally, our engagement with the various stakeholders including ESG rating agencies, have enabled us to expand the scope of analysis in our annual ESG reporting to our external stakeholders. Social We believe in fostering a culture of fairness and inclusion both within our company and throughout our supplier network.
Additionally, our engagement with the various stakeholders including ESG rating agencies, have enabled us to expand the scope of analysis in our annual ESG reporting to our external stakeholders. Social We believe in fostering a culture of fairness and inclusion within our company and with our partners.
We strive to attract and retain exceptionally talented, diverse, and ethical employees, and we are proud of the culture we have built. We continue to shape our desired experience, in line with the promised employee value proposition and desired culture to drive engagement and high performance.
We strive to attract and retain exceptionally talented and ethical employees from all backgrounds, and we are proud of the culture that we have built. We continue to shape our desired experience, in line with the promised employee value proposition and desired culture to drive engagement and high performance.
We also pursue the registration of our domain names and trademarks and service marks in the United States and in certain locations outside the United States. We currently have seven registered trademarks and three pending trademark applications in the United States, as well as 80 registered trademarks and 25 pending trademark applications outside of the United States.
We also pursue the registration of our domain names and trademarks and service marks in the United States and in certain locations outside the United States. We currently have six registered trademarks and six pending trademark applications in the United States, as well as 82 registered trademarks and 25 pending trademark applications outside of the United States.
We believe this focus allows us to compete favorably with companies that have introduced or have announced plans to introduce smart security devices or services.
We believe this focus allows us to compete favorably with 9 Table of Contents companies that have introduced or have announced plans to introduce smart security devices or services.
Company Information We were incorporated in Delaware in January 2018. Our principal executive offices are located at 2200 Faraday Ave., Suite #150, Carlsbad, California 92008, and our telephone number is (408) 890-3900. Our website is http://www.arlo.com.
Company Information We were incorporated in Delaware in January 2018. Our principal executive offices are located at 5770 Fleet Street, Carlsbad, California 92008, and our telephone number is (408) 890-3900. Our website is http://www.arlo.com.
Based on the Supply Agreement with Verisure, a purchase obligation is not deemed to exist until we receive and accept Verisure’s purchase order. As of December 31, 2023, we had a backlog of $52.3 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next twelve months.
Under the Supply Agreement, a purchase obligation is not deemed to exist until we receive and accept Verisure’s purchase order. As of December 31, 2024, we had a backlog of $33.5 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next six months.
As our installed base continues to grow in new geographies, categories and technologies, we will continue to focus on building a scalable support infrastructure that enables our users to engage with us through the channel that is most convenient and efficient for their needs. Arlo Cloud Engineering Operations We currently serve our users from third-party data center hosting facilities.
As our installed base continues to grow in new geographies, categories and technologies, we will continue to focus on building a scalable support infrastructure that enables our users to engage with us through the channel that is most convenient and efficient for their needs.
We are committed to ethical practices in the development and deployment of technology, including responsible data handling, protection of user privacy, and avoidance of harmful applications such as surveillance or discrimination algorithms.
We are committed to ethical practices in the development and deployment of technology, including responsible data handling, protection of user privacy, and avoidance of harmful applications such as surveillance or discrimination algorithms. Data privacy is a point of emphasis within our organization and is critical to our competitive differentiation.
Some of our technology relies upon third-party licensed intellectual property. We currently hold 113 issued United States patents, 59 pending United States patent applications, 51 international patents, including patents issued by China and the EU, 34 pending patent applications outside of the United States.
Some of our technology relies upon third-party licensed intellectual property. 11 Table of Contents We currently hold 135 issued United States patents, 50 pending United States patent applications, 66 international patents, including patents issued by China and the EU, 43 pending patent applications outside of the United States.
Without an effective and efficient management system, we would not be able to optimize the value of the Corporate Social Responsibility Program and fulfill our responsibility as a loyal global citizen.
We believe the customer data belongs to the customer, and we only use that data to improve their safety and security. Without an effective and efficient management system, we would not be able to optimize the value of the Corporate Social Responsibility Program and fulfill our responsibility as a loyal global citizen.
Human Capital Resources Our human capital measures and objectives, which are used to drive our business results focus on our talent and culture as we look to develop the Arlo workforce for the future. We nurture our talent through carefully crafted processes that build effective compensation arrangements and drive culture and purpose at Arlo.
Human Capital Resources The human capital measures and objectives we employ to drive our business results focus primarily on our talent and culture as we look to develop the Arlo workforce for the future. We nurture and develop our talent through carefully crafted processes and development opportunities that drive culture and performance at Arlo.
Since Pro 5S operates on the lowest power band when in sleep mode, users will appreciate significant battery life improvements. Additionally, tri-band connectivity provides longer Wi-Fi range, and mitigates RF interference and active jamming attempts while maximizing picture quality. Pro 5S seamlessly pairs with other SecureLink devices for continuous security and connectivity, even during power and internet outages.
Additionally, tri-band connectivity provides longer Wi-Fi range, and mitigates RF interference and active jamming attempts while maximizing picture quality. Pro 5S seamlessly pairs with other SecureLink devices for continuous security and connectivity, even during power and internet outages.
All of our employees and our ODMs are expected to follow the requirements of the Conflict Minerals Program, improve employee practices, and maintain tight control over supply chain relationships to ensure compliance in accordance with the Organization for Economic Co-operation and Development (“OECD”). In addition, we have a zero tolerance policy for both forced labor and human trafficking.
All of our employees and our Original Design Manufacturers (“ODMs”) are expected to follow the requirements of the Conflict Minerals Program, improve employee practices, and maintain tight control over supply chain relationships to ensure compliance in accordance with the Organization for Economic Co-operation and Development (“OECD”).
Compensation and Benefits We strive to provide our employees with compensation that is market-competitive and internally equitable. We recognize our people are most likely to thrive when they have the resources to meet their needs and the time and support to succeed in their professional and personal lives.
We recognize our people are most likely to thrive when they have the resources to meet their needs and the time and support to succeed in their professional and personal lives.
Intellectual Property Our ability to protect our intellectual property will be an important factor in the success and continued growth of our business. We rely upon a combination of patent, copyright, trade secret, and trademark laws and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights.
We rely upon a combination of patent, copyright, trade secret, and trademark laws and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights.
We believe another measure of success is having a positive impact on community stakeholders. Our leadership team and employees have made the commitment to work closely with local charities in their communities to support philanthropic initiatives, such as fundraising for humanitarian crises and working with young people with autism and other learning difficulties.
Our leadership team and employees have committed to work closely with local charities in their communities to support philanthropic initiatives, such as fundraising for humanitarian crises and working with young people with autism and other learning difficulties. Charitable giving is a core part of our community outreach.
Since we operate on a global basis, this is also a complex process that requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. Environmental, Social, and Governance We believe responsible and sustainable business practices support our long-term success.
Since we operate on a global basis, this is also a complex process that requires continual monitoring of regulations and we have an internal group focused on monitoring our compliance process to ensure that we and our suppliers are in compliance with all existing regulations.
Able to be placed anywhere, from walls to windows and doors, to under sinks and water heaters, the simple-to-install wireless multi-sensor can detect motion, door/window openings and tilt, water leaks, freezing temperatures, lighting changes and T3/T4 smoke/CO alarm audio sirens. 7 Table of Contents Arlo Pro 5S , released in the fourth quarter of 2022, is an all-new Wireless Security Camera with advanced 2K video resolution.
Able to be placed anywhere, from walls to windows and doors, to under sinks and water heaters, the simple-to-install wireless multi-sensor can detect motion, door/window openings and tilt, water leaks, freezing temperatures, lighting changes and T3/T4 smoke/CO alarm audio sirens.
Our services also include certain development services provided to Verisure under a Non-recurring Engineering arrangement, including development of certain custom products specified by Verisure. Products Smart Security Devices Arlo Essential Cameras and Doorbells (2nd Generation) , released in the third quarter of 2023, deliver smart home protection for everyone at an incredible value.
Products Smart Security Devices Arlo Essential Cameras and Doorbells (2nd Generation) , released in the third quarter of 2023, deliver smart home protection for everyone at an incredible value.
Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.
Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31. Intellectual Property Our ability to protect our intellectual property will be an important factor in the success and continued growth of our business.
We believe that we maintain a great working relationship with our employees, as evidenced by our regular employee engagement surveys, and we have not experienced any labor disputes.
We believe that we maintain a great working relationship with our employees, as evidenced by our regular employee engagement surveys, and we have not experienced any labor disputes. We want our employees’ voices to be heard and believe that when our workplace encourages employees to fully participate in an inclusive environment, we can provide high quality outcomes for our customers.
We prioritize open communication and collaboration with our employees and partners to address any concerns related to recruitment, working hours, compensation, discrimination, and the freedom to associate.
We prioritize open communication and collaboration with our employees and partners to address any concerns related to recruitment, working hours, compensation, discrimination, and the freedom to associate. By collaborating closely, we have created a welcoming and respectful work environment at Arlo and beyond, promoting equal and humane treatment within our company as well as at our partners.
We 10 Table of Contents believe this model has enabled us to quickly and efficiently deliver high-quality and innovative products, while enabling us to minimize costs and manage inventory.
We believe this model has enabled us to quickly and efficiently deliver high-quality and innovative products, while enabling us to minimize costs and manage inventory. 10 Table of Contents Our products are manufactured and packaged for retail sale by our manufacturers mostly in Vietnam, Thailand, and Indonesia, and shipped to our logistics hubs located in the United States, Hong Kong, and Australia.
Our products, including Verisure's Arlo branded products, go through rigorous testing and certification processes to achieve regulatory compliance. Ethics are a key element in our Corporate Social Responsibility Program. Our Code of Ethics serves as a foundation of our corporate governance policy and provides guidance on standard business conduct for all of our employees and partners.
Ethics is a key foundational element in our Corporate Social Responsibility Program. Our Code of Ethics is at the core of our corporate governance policy and provides guidance on standard business conduct for all of our employees and partners.
Our environmental programs have received low-risk ratings from prominent ESG ratings agencies, demonstrating our continued efforts to integrate ESG into our business. We strive for continuous improvement by establishing internal targets and timelines to improve our carbon footprint which we expect will help improve our risk ratings even further.
As we continue to further expand our ESG and Sustainability program, we have driven an improvement in our management of our environmental practices. We strive for continuous improvement by establishing internal targets and 12 Table of Contents timelines to improve our carbon footprint which we expect will help improve our risk ratings even further.
Our adoption of environmental, social and governance (“ESG”) practices is based on several principles that help position our business for long-term, sustainable success.
Our adoption of environmental, social and governance (“ESG”) practices is based on several principles that help position our business for long-term, sustainable success. We believe a holistic ESG approach creates competitive advantage over business rivals as our partners, suppliers, and customers increasingly require relationships with companies that boast sustainable and adaptable business operations.
We continue to seek opportunities to ensure we are bringing in diverse viewpoints to the conversation, because we believe those efforts support a long-term and sustainable track record of operational success. We prioritize the well-being of employees by offering comprehensive benefits, promoting work-life balance, providing mental health support, and fostering a culture that values employee health and professional development.
We prioritize the well-being of employees by offering comprehensive benefits, promoting work-life balance, providing mental health support, and fostering a culture that values employee health and professional development. We strive to have a positive impact on the local communities where we have offices.
We host a number of events and days of observance with guest and internal speakers at Arlo. Each Spring, for example, we hold a “Week of Understanding” with speakers on key diversity and inclusion topics.
We connect people from all backgrounds and beliefs and strive for an inclusive and collaborative working environment. We host a number of events and days of observance with guest and internal speakers at Arlo. Each year, we hold a “Month of Understanding” with speakers on a wide variety of topics.
The latest addition to the award-winning Pro series, Pro 5S boasts tri-band connectivity - operating via dual-band Wi-Fi and Arlo SecureLink technology. Pro 5S is backed by the Arlo Secure App which features an all-new, highly intuitive interface that streamlines access to critical tools like Emergency Response.
Arlo Pro 5S , released in the fourth quarter of 2022, is an all-new wireless security camera with advanced 2K video resolution. The latest addition to the award-winning Pro series, Pro 5S boasts tri-band connectivity - operating via dual-band Wi-Fi and Arlo SecureLink technology.
The features of Arlo Secure subscriptions include: 5 Table of Contents • Emergency Response (Secure Plus plan) – With one touch in the Arlo Secure App, users can directly dispatch fire, police, or medical responders to the camera’s location.
Users can train Arlo AI to create personalized, custom detections to protect what matters most and can teach Arlo camera to recognize certain objects or changes in view to trigger custom notifications. • Emergency Response – With one touch in the Arlo Secure App, users can directly dispatch fire, police, or medical responders to the camera’s location.
The floodlight camera also offers three different light patterns – constant, flashing, and pulsating – which users can control manually on-demand or via automation rules. Arlo Accessories Security System Accessories provide added functionality to the Arlo Security System for added peace of mind.
The floodlight camera also offers three different light patterns – constant, flashing, and pulsating – which users can control manually on-demand or via automation rules. In the third quarter of 2024, we also released the all-new wired floodlight camera, which brings crystal clear details with 2K HDR video and a 160-degree field of view.
We are committed to fostering a diverse and inclusive workplace by implementing policies and programs that promote diversity in hiring, provide equal opportunities for career advancement, and create a supportive environment for underrepresented groups.
We are committed to fostering an inclusive workplace by implementing policies, norms, and programs that reflect the voice of all of our employees. We provide equal opportunities for career advancement with access available to all employees. Our work environment is supportive with many well-being initiatives aimed at creating a safe workplace for all.
As of December 31, 2023, we had a total of 363 full-time employees, of which approximately 64% were based in the United States, and approximately 36% were based in other global regions. 14 Table of Contents Diversity, Equity and Inclusion Diversity, Equity and Inclusion initiatives are integrated into every aspect of our people strategy as we plan to increase our organization ’ s diversity.
As of December 31, 2024, we had a total of 360 full-time employees, of which approximately 63% were based in the United States, and approximately 37% were based in other global regions. Compensation and Benefits We strive to provide our employees with compensation that is market-competitive and internally equitable.
As a company, we are deeply committed to protecting and supporting our people, our environment, and our communities.
Environmental, Social, and Governance We believe that responsible and sustainable business practices support our long-term success. As a company, we are deeply committed to protecting all stakeholders including support of our employees, our environment, and our communities.
Our products are manufactured and packaged for retail sale by our manufacturers mostly in Vietnam, Thailand, and Indonesia, and shipped to our logistics hubs located in the United States, Hong Kong, and Australia. Our operations team coordinates with our manufacturers to ensure that the shipment of our products from the manufacturers to these logistics hubs meets customer demand.
Our operations team coordinates with our manufacturers to ensure that the shipment of our products from the manufacturers to these logistics hubs meets customer demand. Arlo Cloud Engineering Operations We currently serve our users from third-party data center hosting facilities.
Agreement with Verisure Verisure is the exclusive distributor of our products in Europe for all retail channels and direct channels in connection with Verisure’s security business. During the five-year period that commenced on January 1, 2020, Verisure has an aggregate purchase commitment of $500.0 million. As of December 31, 2023, $469.8 million of the purchase commitment has been fulfilled.
Agreement with Verisure Verisure is the exclusive distributor of our products in Europe for all retail channels and direct channels in connection with Verisure’s security business. On April 25, 2024, Verisure notified us that it was exercising its right under the Supply Agreement to extend the term for another five years (through November 2029) with no minimum purchase obligations.
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Seasonality Historically, we have generated higher product revenue in the third and fourth quarters of each year compared to the first and second quarters due to seasonal demand from consumer markets, primarily relating to the beginning of the school year and the holiday season.
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The features of Arlo Secure subscriptions include: 5 Table of Contents • AI-powered Recognition and Detection – Leveraging advanced computer vision AI and recognition engines, Arlo Secure 5 provides more meaningful, detailed alerts so users can make informed decisions about their security and safety.
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For example, for the years ended December 31, 2023, 2022 and 2021, our third and 11 Table of Contents fourth quarters collectively represented 54.0%, 50.3% and 58.4%, respectively, of our revenue for such years. Therefore, timely and effective product introductions are critical to our results of operations.
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Pro 5S is backed by the Arlo Secure App which features an all-new, 7 Table of Contents highly intuitive interface that streamlines access to critical tools like Emergency Response. Since Pro 5S operates on the lowest power band when in sleep mode, users will appreciate significant battery life improvements.
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This commitment continues to be a driving force at our company, and a principle that is deeply ingrained in our values. As we continue to further implement our ESG and Sustainability program, we have experienced an improvement in our management of our environmental practices.
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It has an adjustable camera and ultra-bright 2000 lumen articulating floodlights for flexible coverage where it is needed. The wired floodlight works with Amazon Alexa and Google Home for easy interaction, automation, and control. Arlo Accessories Security System Accessories provide added functionality to the Arlo Security System for greater peace of mind.
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By working closely together, we strive to create a welcoming and respectful work environment, both within our organization and beyond, promoting equal and humane treatment both within our company as well as at our suppliers.
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In addition, we have a zero tolerance policy for both forced labor and human trafficking.
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We work with our employees and partners closely to resolve any issues with respect to recruitment, working hours, compensation, discrimination, and freedom of association, hence ensuring a respectable working environment internally and externally.
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We continue to seek opportunities to ensure we are incorporating a wide range of viewpoints to decision making, because we believe those efforts support a long-term and sustainable track record of operational success.
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Our commitment to inclusion and diversity has resulted in a significant increase in the total number of women in our workforce, a sizable uptick in the number of Women in Tech, and a meaningful rise in the number of women in leadership roles.
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We make a purposeful effort to support local small businesses and local suppliers in certain of our purchasing decisions. Governance We are committed to providing customers with high quality products that comply with regulatory laws, directives, standards and industry regulations. Our products, including Verisure's Arlo branded products, go through rigorous testing and certification processes to achieve regulatory compliance.
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Charitable giving is a core part of our community outreach and we expect to continue those efforts. Another action we have undertaken in community empowerment is supporting minority businesses and local suppliers.
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Building a healthy workplace for our employees is key to our culture as we engage all of our employees who together are redefining how people protect and connect with what matters most. We believe in leadership excellence as we connect our group success with individual performance.
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We are committed to supporting marginalized communities, including racial and ethnic minorities, LGBTQ+ individuals, refugees and immigrants, by advocating for their rights and providing resources and support. 13 Table of Contents Governance We are committed to providing customers with high quality products that comply with regulatory laws, directives, standards and industry regulations.
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We aim to connect people from all backgrounds and beliefs and strive for a truly inclusive and collaborative working environment. Arlo has built a healthy and fair workplace in which all of our employees can thrive. We believe that high quality security solutions are developed by inclusive representative teams that are empowered to innovate responsibly.
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It is a key pillar in our employee value proposition in line with our talent philosophy. Other key pillars in our value proposition include providing an inclusive and flexible workplace and providing the right development opportunities. We also believe in leadership excellence as we connect our group success with individual performance.
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We aim to connect people from all backgrounds and beliefs and strive for a truly inclusive and collaborative working environment. We have taken action alongside a group of more than 1,200 businesses in a collective commitment to make progress towards advancing diversity and inclusion in our workplace, communities, and country.
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We value diversity and integrate it into our business by striving to ensure that our company is representative of the customers we serve and that inclusion is at the core of our workplace culture.
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Our Chief Executive Officer signed the CEO Action for Diversity & Inclusion pledge, the largest CEO-driven business commitment to advance diversity and inclusion within the workplace to underscore our commitment.
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By making this pledge, we go beyond accepting diversity and are committed to the following actions: • Continue to cultivate our workplace to support open dialogue on complex, and sometimes difficult conversations about diversity and inclusion. • Make unconscious bias education available to everyone. • Share best known—and unsuccessful—actions. • Create and share strategic inclusion and diversity plans with our board of directors in an effort to prioritize diversity and inclusion and to drive accountability in our organization.
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For the third year running, we are partnering with the GEM Consortium (“GEM”). GEM connects highly qualified students from underrepresented groups to STEM graduate programs with much-needed financial support that is often the deciding factor in pursuing graduate education. We have welcomed a number of GEM interns at Arlo.
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In addition to incorporating inclusion into our performance review process, we are also diversifying interview teams by adding a greater number of employees into the decision-making process. Training on bridging diversity gaps has also been provided to employees to further drive an inclusive culture and build upon employee engagement.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe 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; 51 Table of Contents • the trading volume of our common stock; • future sales of our common stock or other securities; and • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.
Biggest changeThe 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; • changes in stock market analyst recommendations regarding our common stock, other comparable companies, or our industry generally. 48 Table of Contents • 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; • actual or anticipated changes in the growth rate of the smart security market, our growth rate or our competitors’ growth rates; • delays in the introduction of new products by us or market acceptance of these products; • changes in governmental regulation, including taxation and tariff policies; • interest rate or currency exchange rate fluctuations; • any announcements related to, our stock repurchase program; • instances of stockholder activism; • 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; and • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.
We expect our results of operations to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline. 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.
We expect our results of operations to fluctuate on a quarterly and annual basis, which could cause our stock price to decline. 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.
In the event that 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 27 Table of Contents 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 and adversely affect our business, results of operations, and financial condition.
In the event that 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 27 Table of Contents infrastructure service provider, which could materially and adversely affect our business, results of operations, and financial condition.
For example, in May 2023, the Irish Data Protection Commission determined that a major social media company’s use of the standard contractual clauses to transfer personal data from Europe to the United States was insufficient and levied a 1.2 billion Euro fine against the company and prohibited the company from transferring personal data to the United States.
For example, in May 2023, the Irish Data Protection Commission determined that a major social media company’s use of the standard contractual clauses to transfer personal data from Europe to the United States was insufficient and levied a 1.2 billion Euro fine against the social media company and prohibited the social media company from transferring personal data to the United States.
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.
We rely on third parties to obtain exclusive and 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.
The transition services agreement generally provides that the applicable service recipient indemnifies the applicable service 47 Table of Contents 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.
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 47 Table of Contents services agreement.
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; • delays in the introduction of new products by us or market acceptance of these products; • health epidemics and other outbreaks, which could significantly disrupt our operations; • introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts; • competition with greater resources may cause us to lower prices and in turn could result in reduced margins and loss of market share; • epidemic or widespread product failure, or unanticipated safety issues, in one or more of our products; • slow or negative growth in the smart security, home electronics, and related technology markets; • seasonal shifts in end-market demand for our 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; 20 Table of Contents • 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 tariffs on product imports, 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 credit losses 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 credit losses; • litigation involving alleged patent infringement; 21 Table of Contents • 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.
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; • delays in the introduction of new products by us or market acceptance of these products; • health epidemics and other outbreaks, which could significantly disrupt our operations; • introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts; • competition with greater resources may cause us to lower prices and in turn could result in reduced margins and loss of market share; • epidemic or widespread product failure, or unanticipated safety issues, in one or more of our products; • slow or negative growth in the smart security, home electronics, and related technology markets; • seasonal shifts in end-market demand for our 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; 19 Table of Contents • 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 tariffs on product imports, 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 credit losses 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 credit losses; • litigation involving alleged patent infringement; 20 Table of Contents • 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.
International operations are subject to a number of risks, including but not limited to: • 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.
International operations are subject to a number of risks, including but not limited to: • exchange rate fluctuations; 39 Table of Contents • 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.
Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security, including with respect to user privacy, rights of publicity, data protection, content, protection of minors, and consumer protection.
Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security, including with respect to user privacy, rights of publicity, data protection, content, protection of minors, and consumer protection.
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; • 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; 49 Table of Contents • 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 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.
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; • 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 stockholders may only remove directors with cause while the Board of Directors is classified; and 51 Table of Contents • the ability of our directors, and not stockholders, to fill vacancies on our Board of Directors.
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. 17 Table of Contents In addition, sole suppliers of highly specialized components may provide, or have provided components that were either defective or did not meet the criteria required by us or our manufacturers, retailers, distributors, or other channel partners, resulting in delays, lost revenue opportunities, and potentially substantial write-offs.
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. 16 Table of Contents In addition, sole suppliers of highly specialized components may provide, or have provided components that were either defective or did not meet the criteria required by us or our manufacturers, retailers, distributors, or other channel partners, resulting in delays, lost revenue opportunities, and potentially substantial write-offs.
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. 18 Table of Contents 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.
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. 17 Table of Contents 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.
Security incidents and attendant consequences may prevent or cause customers to stop using our products and services, deter new customers from using our products and services, and negatively impact our ability to grow and operate our business.
Security incidents and attendant material consequences may prevent or cause customers to stop using our products and services, deter new customers from using our products and services, and negatively impact our ability to grow and operate our business.
A severe and/or prolonged economic downturn, the ongoing conflict in Ukraine, hostilities in the Middle-East, inflation, supply chain disruptions, rising interest rates, fluctuating consumer confidence, or current financial conditions within the banking industry, including the effects of recent failures of financial institutions, among other things, could adversely affect our customers’ financial condition and their levels of business activity.
A severe and/or prolonged economic downturn, the ongoing conflict in Ukraine, hostilities in the Middle-East, inflation, supply chain disruptions, high interest rates, fluctuating consumer confidence, or current financial conditions within the banking industry, including the effects of recent failures of financial institutions, among other things, could adversely affect our customers’ financial condition and their levels of business activity.
Weakness in, and uncertainty about, global economic conditions may also cause businesses to postpone spending in response to tighter credit, rising interest rates, inflation, lower consumer confidence, negative financial news and/or general declines in income or asset values, which could have a material negative effect on the demand for our products and services.
Weakness in, and uncertainty about, global economic conditions may also cause businesses to postpone spending in response to tighter credit, high interest rates, inflation, lower consumer confidence, negative financial news and/or general declines in income or asset values, which could have a material negative effect on the demand for our products and services.
While we take precautions to prevent our solutions from being exported in violation of these laws, 43 Table of Contents 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.
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.
If we or the third parties on which 34 Table of Contents we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials.
A prolonged transportation disruption or a significant increase in the cost of freight could materially and adversely affect our business, results of operations, and financial condition. 19 Table of Contents If we lose the services of key personnel, we may not be able to execute our business strategy effectively.
A prolonged transportation disruption or a significant increase in the cost of freight could materially and adversely affect our business, results of operations, and financial condition. 18 Table of Contents If we lose the services of key personnel, we may not be able to execute our business strategy effectively.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have 26 Table of Contents experienced a security incident, we may experience adverse consequences such as: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; diversion of management’s attention; monetary fund diversions; interruptions in our operations (including availability of data); negative impacts to our business, results of operations and financial condition; financial loss; and other similar harms.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience material adverse consequences such as: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; diversion of management’s attention; monetary fund diversions; interruptions in our operations (including availability of data); negative impacts to our business, results of operations and financial condition; financial loss; and other similar harms.
For example, the California Consumer Privacy Act of 2018 (“CCPA”) applies to personal information of consumers, business representatives and employees and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights, such as those noted below.
For example, the California Consumer Privacy Act of 2018 (“CCPA”) applies to personal information of consumers, business representatives and employees and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights, such as those noted above.
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 further significant additional costs associated with resolving such matters in other jurisdictions or forums, all of which could materially and adversely affect Arlo’s business, financial condition, or results of operations.
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 further significant additional costs associated with resolving such matters in other 52 Table of Contents jurisdictions or forums, all of which could materially and adversely affect Arlo’s business, financial condition, or results of operations.
Should the European Union monetary policy measures be 36 Table of Contents 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 our business, results of operations, and financial condition.
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 our business, results of operations, and financial condition.
Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations.
Remote work has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations.
In addition, the Credit Agreement includes an uncommitted accordion feature that allows us to from time to time request that the lender increase the aggregate revolving loan commitments by up to an additional $25.0 million in the aggregate, subject to the satisfaction of certain conditions.
In addition, the Credit Agreement includes an uncommitted accordion feature that allows us to from time-to-time request that the lender increase the aggregate revolving loan commitments by up to an additional $30.0 million in the aggregate, subject to the satisfaction of certain conditions.
In addition, we offer a comprehensive online cloud management service, Arlo Secure, paired with our end products, including our cameras, baby monitors, and smart lights and we recently launched our direct to consumer store to sell our products directly to our customers.
In addition, we offer a comprehensive online cloud management service, Arlo Secure, paired with our end products, including our cameras, baby monitors, and smart lights, and in 2021, we launched our direct to consumer store to sell our products directly to our customers.
If we 22 Table of Contents 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.
If we 21 Table of Contents 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.
The inability to raise additional financing may have a material adverse effect on our future performance. 23 Table of Contents 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.
The inability to raise additional financing may have a material adverse effect on our future performance. 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.
Our business model materially depends on our ability to process personal data, so we are particularly exposed to the risks associated with the rapidly changing legal landscape. For example, we may be at heightened risk of regulatory scrutiny, and any changes in the regulatory framework could require us to fundamentally change our business model.
Our business model materially depends on our ability to process personal data, so we are particularly exposed to the risks associated with the rapidly changing legal 34 Table of Contents landscape. For example, we may be at heightened risk of regulatory scrutiny, and any changes in the regulatory framework could require us to fundamentally change our business model.
Any additional governmental regulation of imports or exports or failure to obtain required export approval of our 40 Table of Contents 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.
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.
We have designed the Arlo platform to seamlessly integrate with third-party IoT products and protocols, such as Amazon Alexa, Apple HomeKit, Apple TV, Google Assistant, IFTTT, Stringify, and Samsung SmartThings.
We have designed the Arlo platform to seamlessly integrate with third-party IoT products and protocols, such as Amazon Alexa, Apple HomeKit, Apple TV, Google Assistant, and Samsung SmartThings.
We also expect the regulations under Section 404 of the SOX Act to increase 52 Table of Contents 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 also expect the regulations under Section 404 of the SOX Act 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.
In addition to litigation, regulators, such as the Federal Trade Commission (FTC), have indicated that use of biometric technologies (including facial recognition technologies) may be subject to additional scrutiny. In addition to data privacy and security laws, we may be contractually subject to industry standards adopted by industry groups and may become subject to such obligations in the future.
In addition to litigation, regulators, such as the FTC, have indicated that use of biometric technologies (including facial recognition technologies) may be subject to additional scrutiny. In addition to data privacy and security laws, we may be contractually subject to industry standards adopted by industry groups and may become subject to such obligations in the future.
Under these circumstances, we would be responsible for any shortfall. 45 Table of Contents If our products are not compatible with some or all leading third-party IoT products and protocols, we could be materially and adversely affected. A core part of our solution is the interoperability of our platform with third-party IoT products and protocols.
Under these circumstances, we would be responsible for any shortfall. If our products are not compatible with some or all leading third-party IoT products and protocols, we could be materially and adversely affected. A core part of our solution is the interoperability of our platform with third-party IoT products and protocols.
Risks Related to Our Business 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.
Risks Related to Our Business We obtain several key components from limited or sole source suppliers, and if these suppliers 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.
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.
In the cases of non-exclusive rights, 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.
As a result, our business, results of operations, and financial condition could be materially and adversely affected. 39 Table of Contents 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.
As a result, our business, results of operations, and financial condition could be materially and 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.
In general, 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 the market for goods or services to the detriment of consumers of those goods and services.
In general, the objective of these laws is to promote and maintain free 45 Table of Contents competition by prohibiting certain forms of conduct that tend to restrict production, raise prices or otherwise control the market for goods or services to the detriment of consumers of those goods and services.
We determine production levels based on our forecasts of demand for our products. Actual demand for our 38 Table of Contents 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.
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.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance. We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results.
Our valuation methodology for assessing impairment requires management to 50 Table of Contents make judgments and assumptions based on projections of future operating performance. We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results.
We also use AI/ML technologies in our 33 Table of Contents products and services. The development and use of AI/ML present various privacy and security risks that may impact our business. AI/ML are subject to privacy and data security laws, as well as increasing regulation and scrutiny.
We also use AI/ML technologies in our products and services. The development and use of AI/ML present various privacy and security risks that may impact our business. AI/ML are subject to privacy and data security laws, as well as increasing regulation and scrutiny.
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.
As a result, they may be able to compete more effectively than we can in the United States and the international internet security market. 40 Table of Contents 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 employees and personnel use generative artificial intelligence (“AI”) technologies to perform their work, and the disclosure and use of personal information in generative AI technologies are subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws regulating generative AI.
Our employees and personnel use generative AI technologies to perform their work, and the disclosure and use of personal information in generative AI technologies are subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws regulating generative AI.
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.
Despite efforts to protect our intellectual property, unauthorized third parties may attempt to 38 Table of Contents 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.
We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, we may further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations.
We have no 22 Table of Contents commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, we may further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations.
We take steps to detect and remediate vulnerabilities, but we have not always been able in the past and may not be able in the future to detect and remediate all vulnerabilities in our information technology systems (including our products) because such threats and techniques used to exploit vulnerabilities change frequently and are often sophisticated in nature.
We take steps to detect and remediate vulnerabilities, but we have not always been able in the past and may not be able in the future to detect and remediate all vulnerabilities in our information technology systems (including our products) because such threats and techniques used to 25 Table of Contents exploit vulnerabilities change frequently and are often sophisticated in nature.
International sales comprise a significant amount of our overall revenue. International sales were 39% and 45% of overall revenue for the years ended December 31, 2023 and 2022, respectively. 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 sales comprise a significant amount of our overall revenue. International sales were 50% and 39% of overall revenue for the years ended December 31, 2024 and 2023, respectively. 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.
While, based on our current plans, the Credit 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, we may require additional funds, either through equity or debt financings or collaborative agreements or from other sources.
While, based on our current plans, the Credit Agreement, 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, we may require additional funds, either through equity or debt financings or collaborative agreements or from other sources.
In particular, the European Economic Area (EEA) and the United Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
In particular, the European Economic Area (“EEA”) and the United Kingdom (“UK”) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
Testing and maintaining internal control over financial reporting can divert our management’s attention from other matters that are important to the operation of our business.
Testing and maintaining internal control over financial reporting can divert our management’s attention from other matters that are 53 Table of Contents important to the operation of our business.
We are subject to financial and operating covenants in the Credit Agreement with Bank of America, N.A. and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the Credit Agreement, resulting in our being unable to borrow under the Credit Agreement and materially and adversely impact our liquidity.
We are subject to financial and operating covenants in the Credit Agreement with HSBC and any failure to comply with such covenants, or obtain waivers in the event of non-compliance, could limit our borrowing availability under the Credit Agreement, resulting in our being unable to borrow under the Credit Agreement and materially and adversely impact our liquidity.
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. We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security.
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. We and the third parties with whom we work are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security.
We sell a substantial portion of our products through traditional and online retailers, including Amazon, Best Buy Co., Inc., Walmart, Inc., and Costco Wholesale Corporation; and to security solutions providers, including Verisure and its affiliates. For the year ended December 31, 2023, we derived 33.5% of our revenue from Verisure and its affiliates.
We sell a substantial portion of our products through traditional and online retailers, including Amazon, Best Buy Co., Inc., Walmart, Inc., and Costco Wholesale Corporation; and to security solutions providers, including Verisure and its affiliates. For the year ended December 31, 2024, we derived 43.2% of our revenue from Verisure and its affiliates.
Our use of this technology could result in additional compliance costs, regulatory investigations and actions, and consumer lawsuits. If we are unable to use generative AI, it could make our business less efficient and result in competitive disadvantages. We use AI and machine learning (“ML”) to assist us in making certain decisions, which are regulated by certain privacy laws.
Our use of this technology could result in additional compliance costs, regulatory investigations and actions, and consumer lawsuits. If we are unable to use 33 Table of Contents generative AI, it could make our business less efficient and result in competitive disadvantages. We use AI/ML to assist us in making certain decisions, which are regulated by certain privacy laws.
Failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could materially and adversely affect our business, results of operations, financial condition, and stock price.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the SOX Act could materially and adversely affect our business, results of operations, financial condition, and stock price.
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.
Our traditional retail customers have faced increased and significant competition from online retailers. If 37 Table of Contents we cannot effectively manage our business amongst our online customers and traditional retail customers, our business would be harmed.
Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
Our (or the third parties with whom we work) actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
In the event we are involved in such litigation, regardless of the merits or ultimate results of such litigation, this 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. As part of growing our business, we may make acquisitions.
In the event we are involved in such litigation, regardless of the merits or ultimate results of such litigation, this 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.
Pursuant to the master separation agreement entered into between us and NETGEAR and certain other agreements with NETGEAR, NETGEAR has agreed to indemnify us for certain liabilities.
Pursuant to the master separation agreement entered into between us and NETGEAR and certain other agreements with NETGEAR entered into in connection with our separation from NETGEAR, NETGEAR has agreed to indemnify us for certain liabilities.
We have recorded a net loss of $22.0 million for the year ended December 31, 2023, and we have a history of losses and may continue to incur operating and net losses for the foreseeable future. As of December 31, 2023, our accumulated deficit was $367.5 million.
We have recorded a net loss of $30.5 million for the year ended December 31, 2024, and we have a history of losses and may continue to incur operating and net losses for the foreseeable future. As of December 31, 2024, our accumulated deficit was $398.0 million.
For the years ended December 31, 2023 and 2022, sales and marketing expenses were $66.1 million and $70.1 million, respectively, representing approximately 13% and 14% of our revenue, respectively.
For the years ended December 31, 2024 and 2023, sales and marketing expenses were $73.7 million and $66.1 million, respectively, representing approximately 14% and 13% of our revenue, respectively.
For example, some of our data processing practices have in the past and may in the future be challenged under wiretapping laws, because we obtain consumer information from third parties through various methods, including chatbot and session replay providers, or via third-party marketing pixels. These practices may be subject to increased challenges by class action plaintiffs.
For example, some of our data processing practices have in the past and may in the future be challenged under wiretapping laws, because we obtain consumer information from third parties through various methods, including chatbot and session replay providers, or via third-party marketing pixels.
These developments may result in material impacts to our financial statements. We are subject to income tax examinations by taxing authorities globally. We apply judgment in determining our provision for income taxes and other tax liabilities. While we believe our estimates are reasonably adequate, there are many transactions where the final tax determination is uncertain.
We are subject to income tax examinations by taxing authorities globally. We apply judgment in determining our provision for income taxes and other tax liabilities. While we believe our estimates are reasonably adequate, there are many transactions where the final tax determination is uncertain.
The Credit Agreement contains other customary covenants, including certain restrictions on maintaining a minimum cash balance, achieving certain fixed charge coverage ratio for two consecutive quarters, our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our capital stock, redeem, retire or purchase shares of our capital stock, make investments or pledge or transfer assets, in each case subject to limited exceptions.
The Credit Agreement contains other customary covenants, including certain restrictions on exceeding a certain total net leverage ratio, achieving a certain fixed charge coverage ratio, our ability to incur additional indebtedness, consolidate or merge, enter into acquisitions, pay any dividend or distribution on our capital stock, redeem, retire or purchase shares of our capital stock, make investments or pledge or transfer assets, in each case subject to limited exceptions.
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. As of December 31, 2023, our U.S. federal and state net operating loss carryforwards were approximately $70.5 million and approximately $72.4 million, respectively.
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. As of December 31, 2024, our U.S. federal and state net operating loss carryforwards were approximately $54.3 million and approximately $75.3 million, respectively.
For example, the FTC has required other companies to turn over (or disgorge) valuable insights or trainings generated through the use of AI/ML where they allege the company has violated privacy and consumer protection laws.
For example, the Federal Trade Commission (“FTC”) has required other companies to turn over (or disgorge) valuable insights or trainings generated through the use of AI/ML where they allege such companies have violated privacy and consumer protection laws.
The exercise of these rights may impact our business and ability to provide our products and services. These developments further complicate compliance efforts, and increase legal risk and compliance costs for us, the third parties upon whom we rely. Additionally, under various privacy laws and other obligations, we may be required to obtain certain consents to process personal data.
These developments further complicate compliance efforts, and increase legal risk and compliance costs for us, the third parties upon whom we rely. Additionally, under various privacy laws and other obligations, we may be required to obtain certain consents to process personal data.
Even if we are successful in selling our smart security devices and accessories, if we are unable to maintain or increase sales of Arlo Secure, Arlo Total Security, and Arlo Safe services, our revenue and overall gross margin would likely decline.
Our future success is largely dependent on increasing sales of our paid subscription services. Even if we are successful in selling our smart security devices and accessories, if we are unable to maintain or increase sales of Arlo Secure, Arlo Total Security, and Arlo Safe services, our revenue and overall gross margin would likely decline.
There is no assurance that additional material weaknesses will not occur or that we will be able to remediate such material weaknesses in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the SOX Act.
Although we remediated this material weakness as of December 31, 2024, there is no assurance that additional material weaknesses will not occur or that we will be able to remediate any additional material weaknesses in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the SOX Act.
Under generally accepted accounting principles, we review our intangible assets and long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is 48 Table of Contents required to be tested for impairment at least annually.
GAAP, we review our intangible assets and long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually.
Our inability or failure to obtain consent for these practices could result in adverse consequences. Outside the United States, an increasing number of laws, regulations, and industry standards may govern data privacy and security.
These practices have in the past and may continue to be subject to increased challenges by class action plaintiffs. Our inability or failure to obtain consent for these practices could result in adverse consequences. Outside the United States, an increasing number of laws, regulations, and industry standards may govern data privacy and security.
If we fail to successfully select, execute, or integrate our acquisitions, then our business, results of operations, and financial condition could be materially and adversely affected and our stock price could decline.
If we fail to successfully select, execute, or integrate our acquisitions or adequately address and resolve risk associated with acquisitions or other strategic transactions, then our business, results of operations, and financial condition could be materially and adversely affected and our stock price could decline.
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.
Verisure and our other retailers, distributors and other channel partners 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.
Even though the Supply Agreement provides for minimum purchase commitments, if Verisure fails to pay on a timely basis, or at all, or otherwise does not perform under the Supply Agreement, our cash flow would be reduced. We are also exposed to increased credit risk if Verisure fails or becomes insolvent.
In addition, if Verisure fails to pay us on a timely basis, or at all, or otherwise does not perform under the Supply Agreement, our cash flow would be 23 Table of Contents reduced. We are also exposed to increased credit risk if Verisure fails or becomes insolvent.
On December 31, 2018, NETGEAR completed the Distribution to its stockholders of the 62,500,000 shares of Arlo common stock that it owned. As of December 31, 2023, we have 95,380,281 shares of common stock outstanding. In the future, we may issue our securities in connection with investments or acquisitions.
On December 31, 2018, NETGEAR completed a special stock dividend (the “Distribution”) to its stockholders of the 62,500,000 shares of our common stock that it owned. As of December 31, 2024, we have 100,885,158 shares of common stock outstanding. In the future, we may issue our securities in connection with investments or acquisitions.
If Amazon decided to end our distribution channel relationship or ceased providing cloud storage services to us, our sales and product performance could be harmed, which could seriously harm our business, financial condition, results of operations, and cash flows. Our competitors may also acquire other companies in the market and leverage combined resources to gain market share.
If Amazon decided to end our distribution channel relationship or ceased providing cloud storage services to us, our sales and product performance could be harmed, which could seriously harm our business, financial condition, results of operations, and cash flows.
Refer to Note 7, Revolving Credit Facility in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details on the Credit Agreement.
The proceeds of the borrowings under the Credit Facility may be used for working capital and general corporate purposes. Refer to Note 7, Revolving Credit Facility in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details on the Credit Agreement.
While we may be entitled to damages if our third-party 25 Table of Contents service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
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.
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, or combat fake, AI-generated or bot negative reviews, our ability to sell our products and services will be harmed.
If we identify any additional material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 of the SOX Act in a timely manner or continue to assert that our internal control over financial reporting is ineffective, or if our independent registered public accounting firm continues to express an adverse opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be materially adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
If we identify any additional material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 of the SOX Act in a timely manner, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be materially adversely affected, and we could become subject to investigations by the NYSE, the SEC or other regulatory authorities, which could require additional financial and management resources. 54 Table of Contents Item 1B.
This could result in customers eventually terminating contracts with us or in our decision to terminate certain contracts, which would adversely affect our sales.
This could result in customers eventually terminating contracts with us or in our decision to terminate certain contracts, which would adversely affect our sales. Risks Related to Our Separation from NETGEAR NETGEAR has agreed to indemnify us for certain liabilities.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity risk assessment and management processes are implemented and maintained by certain members of management, including our Chief Information Officer and Senior Vice President, who has 35 years of Application/Systems experience and our Vice President of Cybersecurity, who has 20 years of Cyber/Network experience.
Biggest changeOur cybersecurity risk assessment and management processes are implemented and maintained by certain members of management, including our Chief Technology Officer, who has 30 years of Engineering/Technology/Security experience and our Vice President of Cybersecurity, who has 24 years of Technology/Infrastructure/Security experience and maintains the Certified Information Security Manager and Certified Information Systems Security Professional certifications.
Governance Our Cybersecurity and Privacy Committee, at the direction and on behalf of the Board of Directors, addresses our cybersecurity risk management as part of its general oversight function.
Governance Our Cybersecurity and Privacy Committee, at the direction of and on behalf of the Board of Directors, addresses our cybersecurity risk management as part of its general oversight function.
We use third-party service providers to assist us from time to time to identify, assess, and manage material risks from cybersecurity threats, including, for example, professional services firms (e.g., legal counsel), threat intelligence service providers, cybersecurity consultants, cybersecurity software providers, managed cybersecurity service providers, penetration testing and dark web monitoring services.
We use third-party service providers to assist us to identify, assess, and manage material risks from cybersecurity threats, including, for example, professional services firms (e.g., legal counsel), threat intelligence service providers, cybersecurity consultants, software providers, managed service providers, penetration testing, and dark web monitoring services.
The Chief Information Officer is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into our overall risk management strategy, and communicating key priorities to relevant personnel. The Chief Information Officer and the Director of Privacy are also responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
The Chief Technology Officer is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into our overall risk management strategy, and communicating key priorities to relevant personnel. The Chief Technology Officer and the Director of Privacy are also responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Depending on the nature of the services provided, the sensitivity of the Information Systems and Data at issue, and the identity of the provider, our vendor 54 Table of Contents management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose contractual obligations related to cybersecurity on the provider.
Depending on the nature of the services provided, the sensitivity of the Information Systems and Data at issue, and the identity of the 55 Table of Contents provider, our vendor management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose contractual obligations related to cybersecurity on the provider.
Our Chief Information Officer and Vice President of Cybersecurity work with our incident response team to help us mitigate and remediate cybersecurity incidents of which they are notified. In addition, our incident response vulnerability management processes include reporting to the Cybersecurity and Privacy Committee for certain cybersecurity incidents.
Our Chief Technology Officer and Vice President of Cybersecurity work with our incident response team to help us mitigate and remediate cybersecurity incidents of which they are notified. In addition, our incident response vulnerability management processes include reporting to the Cybersecurity and Privacy Committee for certain cybersecurity incidents.
In doing so, they identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and our risk profile using various methods including, for example automated and manual tools, third party threat assessments and intelligence feeds, subscribing to reports and services that identify cybersecurity threats, analyzing reports of threats and threat actors, conducting scans of the threat environment, evaluating our and the industry’s risk profile, evaluating reported threats, coordinating with law enforcement relating to threats, performing internal and external audits, conducting threat assessments for internal and external threats, conducting vulnerability assessments to identify vulnerabilities, and conducting red/blue team testing and tabletop incident response exercises jointly with external third parties.
In doing so, they identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and our risk profile using various methods including, for example, automated and manual tools, third party threat assessments and intelligence feeds, subscribing to reports and services that identify cybersecurity threats, analyzing reports of threats and threat actors, conducting scans of the threat environment, evaluating our and the industry’s risk profile, evaluating reported threats, performing internal and external audits, conducting assessments for internal and external threats, conducting assessments to identify vulnerabilities, and conducting red/blue team testing and tabletop incident response exercises jointly with external third parties.
Our Chief Information Officer, Vice President of Cybersecurity and Information Security, Engineering, Legal, Risk Management teams, together with our third-party service providers, help identify, assess and manage our cybersecurity threats and risks, including through the use of our cybersecurity risk assessment program.
Our Chief Technology Officer, Vice President of Cybersecurity and Information Security, as well as Engineering, Legal, Risk Management teams, together with our third-party service providers, help identify, assess and manage our cybersecurity threats and risks, including through the use of our cybersecurity risk assessment program.
The Cybersecurity and Privacy Committee receives quarterly reports from the Chief Information Officer concerning our significant cybersecurity threats and risk and the processes we have implemented to address them. The Cybersecurity and Privacy Committee also receives various reports, summaries or presentations related to cybersecurity threats, risk and mitigation. 55 Table of Contents
The Cybersecurity and Privacy Committee receives quarterly reports from the Chief Technology Officer concerning our significant cybersecurity threats and risk and the processes we have implemented to address them. The Cybersecurity and Privacy Committee also receives various reports, summaries or presentations related to cybersecurity threats, risk and mitigation. 56 Table of Contents
For a description of the risks from cybersecurity threats that may materially affect us and how they may do so, see our risk factors under Part 1, Item 1A Risk Factors in this Annual Report on Form 10-K.
For a description of the risks from cybersecurity threats that may materially affect us, see our risk factors under Part 1, Item 1A Risk Factors in this Annual Report on Form 10-K.
The program includes a risk assessment for each vendor, a security questionnaire, a review of the vendor’s written security program, a review of security assessments and reports, audits, vulnerability scans related to the vendor, and security assessment calls with the vendor's security personnel.
The program includes a risk assessment for each vendor, a security questionnaire, a review of the vendor’s written security program, a review of security assessments and reports, audits, security assessment calls with the vendor's security personnel, and the imposition of security-related contractual obligations on vendors.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur sales personnel were based out of local sales offices or a home office in Florida (the United States). In addition, we use third parties to provide warehousing services to us, consisting of facilities in Southern California, Texas, Tennessee, Mexico, Hong Kong, and Australia.
Biggest changeWe also have R&D and operations personnel based in leased offices in Taipei (Taiwan) and some R&D personnel based in leased offices in Richmond (Canada). In addition, we use third parties to provide warehousing services to us, consisting of facilities in Southern California, Texas, Tennessee, Mexico, Hong Kong, and Australia.
Item 2. Properties We are a global company with corporate headquarters located in Carlsbad, California, where we occupy approximately 43,500 square feet of office space pursuant to a lease agreement that expires in November 2024. We also lease approximately 77,800 square feet of office space in San Jose pursuant to a lease agreement that expires in June 2029.
Item 2. Properties We are a global company with corporate headquarters located in Carlsbad, California, where we occupy approximately 36,700 square feet of office space pursuant to a lease agreement that expires in June 2033. We also lease approximately 77,800 square feet of office space in San Jose, California pursuant to a lease agreement that expires in June 2029.
Removed
During fiscal year 2023, our international research and development personnel used leased facilities in Richmond (Canada), Cork (Ireland), and Taipei (Taiwan), international general and administration personnel in Cork (Ireland), and international operations personnel in Taipei (Taiwan). We also maintain our California-based marketing and research and development facilities in Milpitas, Irvine, and Carlsbad in the United States.
Added
Our U.S. principal general and administrative (“G&A”), sales and marketing (“S&M”) and research and development (“R&D”) facilities are currently located in the cities of Milpitas, Irvine, and Carlsbad in California. Our international principal G&A, S&M and R&D facilities are located in leased offices in Cork (Ireland).

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.
Biggest changeItem 3. Legal Proceedings From time to time, we may become involved in disputes, litigation and other legal actions in the ordinary course of business. We are not currently party to any claim or proceedings that, in the opinion of our management, are likely to have a material adverse effect on our financial position.
Removed
Our material legal proceedings are described under the heading “Litigation and Other Legal Matters” in Note 8, Commitments and Contingencies , in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. For additional discussion of certain risks associated with legal proceedings, see Item 1A, Risk Factors.
Added
Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. For additional discussion of certain risks associated with legal proceedings, see Item 1A, Risk Factors.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends We have not historically declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends in the foreseeable future. Securities Authorized for Issuance under Equity Compensation Plans See Item 12 of Part III of this Annual Report on Form 10-K regarding information about securities authorized for issuance under our equity compensation plans.
Biggest changeDividend Policy We have not historically declared or paid cash dividends on our common stock. We do not anticipate paying cash dividends in the foreseeable future. Repurchases of Equity Securities by the Issuer The following table summarizes the share repurchase activity for the quarter ended December 31, 2024.
Recent Sales of Unregistered Securities and Purchases of Equity Securities by the Issuer None. 57 Table of Contents Stock Performance Graph Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed “filed” with the SEC or “soliciting material” under the Exchange Act and shall not be incorporated by reference into any such filings.
Recent Sales of Unregistered Securities None. 58 Table of Contents Stock Performance Graph Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed “filed” with the SEC or “soliciting material” under the Exchange Act and shall not be incorporated by reference into any such filings.
The following graph shows a comparison from December 31, 2019 through December 31, 2023 of cumulative total return for our common stock, the NYSE Composite Index, the Standard and Poor’s 600 Information Technology Index, (“S&P 600 Information Technology Index”), the Standard and Poor’s Small Cap 600 Index (“S&P Small Cap 600 Index”) and the Russell 2000 Index.
The following graph shows a comparison from December 31, 2020 through December 31, 2024 of cumulative total return for our common stock, the NYSE Composite Index, the Standard and Poor’s 600 Information Technology Index, (“S&P 600 Information Technology Index”), the Standard and Poor’s Small Cap 600 Index (“S&P Small Cap 600 Index”) and the Russell 2000 Index.
The graph assumes that $100 was invested in Arlo common stock at the closing price of $4.21 on December 31, 2019 and in the NYSE Composite Index, the S&P 600 Information Technology Index, the S&P Small Cap 600 Index and the Russell 2000 Index on December 31, 2019, and assumes reinvestment of any dividends.
The graph assumes that $100 was invested in Arlo common stock at the closing price of $7.79 on December 31, 2020 and in the NYSE Composite Index, the S&P 600 Information Technology Index, the S&P Small Cap 600 Index and the Russell 2000 Index on December 31, 2020, and assumes reinvestment of any dividends.
Holders of Common Stock On February 23, 2024, there were nine stockholders of record, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”).
Holders of Record On February 25, 2025, there were nine stockholders of record, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”).
Added
Period Total Number of Shares Purchased Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) September 30 - October 27, 2024 — — — — October 28 - December 1, 2024 — — — — December 2 - December 31, 2024 378,745 $11.67 378,745 $45,579,229 Total 378,745 378,745 $45,579,229 _________________________ (1) On September 24, 2024, we announced that our Board of Directors approved a stock repurchase program of up to an aggregate of $50 million of shares of Arlo’s common stock.
Added
The timing and actual number of shares repurchased depend on a variety of factors, including price, general business and market conditions, and other investment opportunities, and shares may be repurchased through open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act.
Added
The stock repurchase program is expected to continue through December 31, 2026 unless extended or shortened by our Board of Directors. (2) Average price paid per share includes commission costs, but excludes the 1% excise tax accrued on our share repurchases as a result of the Inflation Reduction Act of 2022.
Added
Commission costs associated with share repurchases and excise taxes do not reduce the remaining authorized amount under our repurchase programs.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

48 edited+9 added−14 removed28 unchanged
Biggest changeGeneral and Administrative Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) General and administrative expense $ 56,371 0.8 % $ 55,932 General and administrative expense increased $0.4 million for the year ended December 31, 2023 compared to the prior year, primarily due to an increase of $2.2 million in personnel-related expenses mainly from stock-based compensation and merit increases, partially offset by a decrease of $1.8 million in corporate IT and facilities overhead and professional consulting services.
Biggest changeSales and Marketing Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Sales and marketing expense $ 73,723 11.5 % $ 66,141 Sales and marketing expense increased by $7.6 million for the year ended December 31, 2024 compared to the prior year, primarily due to increases of $4.0 million in personnel-related expenses mainly from stock-based compensation and merit increases, $3.1 million in marketing expenditures, $1.5 million in credit card processing fees as a result of increases in paid subscriber accounts, and $0.9 million in professional services as a result of continued investment in improved customer experience, partially offset by a decrease of $1.6 million in freight-out expenses. 66 Table of Contents General and Administrative Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) General and administrative expense $ 72,134 28.0 % $ 56,371 General and administrative expense increased by $15.8 million for the year ended December 31, 2024 compared to the prior year, primarily due to increases of $12.3 million in personnel-related expenses mainly from stock-based compensation as a result of the achievement of certain performance-based equity award targets, $2.0 million in legal and professional services, and $0.8 million in corporate IT and facilities overhead costs.
We also discuss our critical accounting estimates with the Audit Committee of our Board of Directors. Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K describes the significant accounting policies and the effect on our consolidated financial statements.
We also discuss our critical accounting estimates with the Audit Committee of our Board of Directors. Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K describes the significant accounting policies and the effect in our consolidated financial statements.
We expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services. 62 Table of Contents 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 facilities overhead, strategic initiative expense, and other general corporate expense.
We expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services. 62 Table of Contents 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, allocated IT and facilities overhead, strategic initiative expense, and other general corporate expense.
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). Annual Recurring Revenue (“ARR”) . We believe ARR enables measurement of our business initiatives, and serves as an indicator of our future growth.
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). Annual Recurring Revenue . We believe ARR enables measurement of our business initiatives and serves as an indicator of our future growth.
Sales and Marketing Sales and marketing expense consists primarily of personnel expense for sales and marketing staff, technical support expense, advertising, trade shows, media and placement, corporate communications and other marketing expense, product marketing expense, IT and facilities overhead, outbound freight costs, and credit card processing fees.
Sales and Marketing Sales and marketing expense consists primarily of personnel expense for sales and marketing staff, technical support expense, advertising, trade shows, media and placement, corporate communications and other marketing expense, product marketing expense, allocated IT and facilities overhead, outbound freight costs, and credit card processing fees.
We believed that it was more-likely-than-not that the fair value of the reporting unit was greater than the respective carrying value and therefore performing the next step of impairment test for the reporting unit was unnecessary.
We believed that it was more-likely-than-not that the fair value of the reporting unit is greater than the respective carrying value and therefore performing the next step of impairment test for the reporting unit was unnecessary.
We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in channel partnerships and to continue our global expansion.
We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in channel and other strategic partnerships and to continue our global expansion.
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 facilities overhead. Generally, we recognize research and development expenses as they are incurred.
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 allocated IT and facilities overhead. Generally, we recognize research and development expenses as they are incurred.
In the annual assessment, a qualitative assessment was performed in consideration of macroeconomic conditions, industry and market conditions, cost factors, overall company financial performance, and c hanges in our stock price.
In the annual assessment, a qualitative assessment is performed in consideration of macroeconomic conditions, industry and market conditions, cost factors, overall company financial performance, and c hanges in our stock price.
We also expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our products and services. 59 Table of Contents Key Business Metrics In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
We also expect our sales and marketing expenses to increase in the future as we invest in marketing to drive demand for our products and services. 60 Table of Contents Key Business Metrics In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
If such review indicates that the carrying amount of property and equipment and operating lease assets is not recoverable, the carrying amount of such assets is reduced to the fair value. During the year ended December 31, 2023 and 2022, no impairment of long-lived assets has been identified.
If such review indicates that the carrying amount of property and equipment and operating lease assets is not recoverable, the carrying amount of such assets is reduced to the fair value. During the years ended December 31, 2024 and 2023, no impairment of long-lived assets has been identified.
In such cases, we accrue for the amount or, if a range, we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net. Refer to Note 8.
In such cases, we accrue for the amount or, if a range, we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net.
Critical Accounting Estimates We prepare the consolidated financial statements in accordance with U.S. GAAP and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of the consolidated financial statements requires management to make assumptions, judgments and estimates that can have a significant impact on the reported amounts of assets, liabilities, revenue and expenses.
GAAP and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of the consolidated financial statements requires management to make assumptions, judgments and estimates that can have a significant impact on the reported amounts of assets, liabilities, revenue and expenses.
Our estimated allowances for product warranties can vary from actual results, and we may have to record additional contra revenue or cost of revenue, which could materially impact our financial position and results of operations. As of December 31, 2023 and 2022, accrued sales warranty returns amounted to $16.6 million and $17.7 million, respectively.
Our estimated allowances for product warranties can vary from actual results, and we may have to record additional contra revenue, which could materially impact our financial position and results of operations. As of December 31, 2024 and 2023, accrued sales returns amounted to $10.6 million and $16.6 million, respectively.
No goodwill impairment was recognized in the years ended December 31, 2023 and 2022. 70 Table of Contents Recent Accounting Pronouncements For a complete description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, refer to Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. 71 Table of Contents
Recent Accounting Pronouncements For a complete description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, refer to Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. 70 Table of Contents
As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we have increased our subscription rates effective February 3, 2023. Leases and Contractual Commitments Our operating lease obligations mostly include offices, equipment, data centers, and distribution centers. Our contractual commitments are primarily inventory-related purchase obligations with suppliers.
As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we may increase our product and subscription rates in the future. Leases and Contractual Commitments Our operating lease obligations mostly include offices, equipment, data centers, and distribution centers. Our contractual commitments are primarily inventory-related purchase obligations with suppliers.
Since the launch of our first product in December 2014, we have shipped over 32.2 million smart security devices. As of December 31, 2023, the Arlo platform had approximately 8.7 million cumulative registered accounts across more than 100 countries around the world coupled with 2.8 million cumulative paid subscribers and annual recurring revenue of $210.1 million.
Since the launch of our first product in December 2014, we have shipped over 37.4 million smart security devices. As of December 31, 2024, the Arlo platform had approximately 10.8 million cumulative registered accounts across more than 100 countries around the world coupled with 4.6 million cumulative paid subscribers and annual recurring revenue of $257.3 million.
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.
We regularly review our processes for calculating these metrics, and from time to time we may discover a need to make adjustments to better reflect our business or to improve their accuracy. We believe that any such adjustments are immaterial unless otherwise stated.
For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024.
For the years ended December 31, 2023 and 2022, we generated total revenue of $491.2 million and $490.4 million, respectively. Loss from operations was $24.9 million and $56.9 million for the years ended December 31, 2023 and 2022, respectively.
For the years ended December 31, 2024 and 2023, we generated total revenue of $510.9 million and $491.2 million, respectively. Loss from operations was $34.9 million and $24.9 million for the years ended December 31, 2024 and 2023, respectively.
Interest income, net increased for the year ended December 31, 2023, compared to the prior year, primarily due to the increase in our short-term investments as well as a result of higher interest rates.
Interest income, net increased for the year ended December 31, 2024, compared to the prior year, primarily due to the increase in our cash and cash equivalents and short-term investments as well as higher interest rates.
We accrue estimated contra revenue or marketing expense for sales incentives when the related revenue is recognized or ahead of customer or end customer commitment if customary business practice creates an implied expectation that such activities will occur in the future. As of December 31, 2023 and 2022, accrued sales incentives amounted to $28.2 million and $36.3 million, respectively.
We accrue estimated contra revenue or marketing expense for these sales incentives either when the related revenue is recognized or prior to customer commitment if customary business practice creates an implied expectation of future activities. As of December 31, 2024 and 2023, accrued sales incentives amounted to $31.9 million and $28.2 million, respectively.
Commitments and Contingencies in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further information about our operating leases, purchase obligations, and legal contingencies. 68 Table of Contents Cash Flow The following table presents our cash flows for the periods presented.
Refer to Note 8, Commitments and Contingencies in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further information about our operating leases, purchase obligations, and legal contingencies.
Recoverability of these assets is measured by a comparison of the carrying amounts to the anticipated undiscounted value of the assets are expected to generate from the use and eventual disposition.
Recoverability of these assets is measured by a comparison of the carrying amounts to the assets and related cash flows that they are expected to generate from the use and eventual disposition.
Cost of Revenue Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Cost of revenue: Products $ 270,663 (12.3) % $ 308,692 Services 52,950 15.9 % 45,687 Total cost of revenue $ 323,613 (8.7) % $ 354,379 Cost of product revenue decreased for the year ended December 31, 2023 compared to the prior year, primarily due to decreases in product shipments coupled with decreases in freight-in costs due to normalization of the supply chain and utilization of ocean freight, partially offset by increases in inventory reserves. 65 Table of Contents Cost of service revenue increased for the year ended December 31, 2023 compared to the prior year, primarily due to service revenue growth as a result of increases in cumulative paid accounts and rates for our subscription plans, partially offset by cost optimizations.
Cost of Revenue Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Cost of revenue: Products $ 268,769 (0.7) % $ 270,663 Services 54,613 3.1 % 52,950 Total cost of revenue $ 323,382 (0.1) % $ 323,613 Cost of product revenue decreased for the year ended December 31, 2024 compared to the prior year, primarily due to a decline in product shipments coupled with decreases in freight-in costs due to normalization of the supply chain and utilization of ocean freight, partially offset by increases in product warranty and inventory reserves. 65 Table of Contents Cost of service revenue increased for the year ended December 31, 2024 compared to the prior year, primarily due to service revenue growth as a result of the increase in cumulative paid accounts, partially offset by cost optimizations.
Service gross profit increased for the year ended December 31, 2023 compared to the prior year, primarily due to service revenue growth in all regions as a result of increases in cumulative paid accounts and rates for our subscription plans, as well as cost optimizations.
Service gross profit increased for the year ended December 31, 2024 compared to the prior year, primarily due to service revenue growth in all regions as a result of increases in cumulative paid accounts, continued increase in ARPU of retail subscriptions, and cost optimizations.
To the extent that current and anticipated future sources of liquidity are insufficient, we may seek to raise additional funds through public or private equity.
However, in the future we may require or desire additional funds to support our operating expenses and capital requirements. To the extent that current and anticipated future sources of liquidity are insufficient, we may seek to raise additional funds through public or private equity.
Operating Expenses Research and Development Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Research and development expense $ 68,647 6.1 % $ 64,709 Research and development expense increased $3.9 million for the year ended December 31, 2023 compared to the prior year, primarily due to increases of $3.0 million in personnel-related expenses mainly from compensation recorded as a result of an increase in headcount and $2.1 million in outside professional services, partially offset by a decrease of $0.6 million in corporate IT and facilities overhead.
Operating Expenses Research and Development Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Research and development expense $ 73,183 6.6 % $ 68,647 Research and development expense increased by $4.5 million for the year ended December 31, 2024 compared to the prior year, primarily due to an increase of $5.3 million in personnel-related expenses mainly from stock-based compensation and merit increases, partially offset by a decrease of $0.6 million in corporate IT and facilities overhead.
The following table sets forth our consolidated statements of comprehensive loss data: Year Ended December 31, 2023 2022 (In thousands, except percentage data) Revenue: Products $ 289,938 59.0 % $ 353,935 72.2 % Services 201,238 41.0 % 136,479 27.8 % Total revenue 491,176 100.0 % 490,414 100.0 % Cost of revenue: Products 270,663 55.1 % 308,692 63.0 % Services 52,950 10.8 % 45,687 9.3 % Total cost of revenue 323,613 65.9 % 354,379 72.3 % Gross profit 167,563 34.1 % 136,035 27.7 % Operating expenses: Research and development 68,647 14.0 % 64,709 13.2 % Sales and marketing 66,141 13.5 % 70,081 14.3 % General and administrative 56,371 11.5 % 55,932 11.4 % Others 1,307 0.2 % 2,192 0.4 % Total operating expenses 192,466 39.2 % 192,914 39.3 % Loss from operations (24,903) (5.1) % (56,879) (11.6) % Interest income 3,935 0.8 % 926 0.2 % Other income, net 107 0.0 % 302 0.1 % Loss before income taxes (20,861) (4.3) % (55,651) (11.3) % Provision for income taxes 1,175 0.2 % 975 0.2 % Net loss $ (22,036) (4.5) % $ (56,626) (11.5) % 64 Table of Contents Revenue We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer for device sales and device location for service sales.
The following table sets forth our consolidated statements of operations data: Year Ended December 31, 2024 2023 (In thousands, except percentage data) Revenue: Products $ 267,888 52.4 % $ 289,938 59.0 % Services 242,998 47.6 % 201,238 41.0 % Total revenue 510,886 100.0 % 491,176 100.0 % Cost of revenue: Products 268,769 52.6 % 270,663 55.1 % Services 54,613 10.7 % 52,950 10.8 % Total cost of revenue 323,382 63.3 % 323,613 65.9 % Gross profit 187,504 36.7 % 167,563 34.1 % Operating expenses: Research and development 73,183 14.3 % 68,647 14.0 % Sales and marketing 73,723 14.4 % 66,141 13.5 % General and administrative 72,134 14.1 % 56,371 11.5 % Others 3,356 0.7 % 1,307 0.2 % Total operating expenses 222,396 43.5 % 192,466 39.2 % Loss from operations (34,892) (6.8) % (24,903) (5.1) % Interest income 5,584 1.1 % 3,935 0.8 % Other income (expense), net (104) (0.0) % 107 0.0 % Loss before income taxes (29,412) (5.8) % (20,861) (4.3) % Provision for income taxes 1,092 0.2 % 1,175 0.2 % Net loss $ (30,504) (6.0) % $ (22,036) (4.5) % 64 Table of Contents Revenue We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer for device sales and device location for service sales.
Interest Income and Other Income, Net Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Interest income, net $ 3,935 ** $ 926 Other income, net $ 107 ** $ 302 **Percentage change not meaningful.
Interest Income and Other Income (Expense), Net Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Interest income, net $ 5,584 41.9 % $ 3,935 Other income (expense), net $ (104) ** $ 107 **Percentage change not meaningful.
The effective tax rate for the year ended December 31, 2023 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes as it is more likely than not that some or all of our deferred tax assets will not be realized. 67 Table of Contents Liquidity and Capital Resources As of December 31, 2023, our cash and cash equivalents and short-term investments totaled $136.5 million, and we had unused borrowing capacity of $13.9 million based on the terms and conditions of our revolving credit facility.
Provision for Income Taxes Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Provision for income taxes $ 1,092 (7.1) % $ 1,175 Effective tax rate (3.7) % (5.6) % The effective tax rate for the year ended December 31, 2024 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes as it is more likely than not that some or all of our deferred tax assets will not be realized. 67 Table of Contents Liquidity and Capital Resources As of December 31, 2024, our cash and cash equivalents and short-term investments totaled $151.5 million.
Investing activities Net cash used in investing activities increased by $18.9 million for the year ended December 31, 2023 compared to the prior year period, primarily due to increases in net purchases, and maturities of short-term investments and in purchases of property and equipment.
Investing activities Net cash provided by (used in) investing activities increased by $61.5 million for the year ended December 31, 2024 compared to the prior year period, primarily due to higher proceeds from maturities of short-term investments.
We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs. Our paid subscription services relate to sales of subscription plans to our registered accounts.
We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs. Our paid subscription services are billed in advance of the start of the monthly subscription and revenue is recognized ratably over subscription period.
At the time we recognize revenue, we record an estimate of sales warranty returns to reduce revenue in the amount of the expected credit or refund to be provided to our direct customers as a contra revenue, and we record a write-down to reduce the carrying value of such products to net realizable value as cost of revenue.
Our standard warranty obligation to our retailers and wholesale distributors allows for returns of damaged and defective products only. At the time we recognize revenue, we record an estimate of sales returns to reduce revenue in the amount of the expected credit or refund to be provided to our customers as a contra revenue.
This does not have an impact to our financial statements and key business metrics other than our number of cumulative paid accounts. Cumulative Registered 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 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.
Revenue Recognition Revenue from all sales types is recognized at transaction price, the amount we expect to be entitled to in exchange for transferring goods or providing services. Transaction price is calculated as selling price net of variable consideration which may include estimates for sales returns, sales incentives, and price protection related to current period product revenue.
Revenue Recognition Revenue from all sales types is recognized at transaction price, which is the amount we expect to be entitled to in exchange for transferring goods or providing services.
Gross Profit Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Gross profit: Products $ 19,275 (57.4) % $ 45,243 Services 148,288 63.3 % 90,792 Total gross profit $ 167,563 23.2 % $ 136,035 Gross margin: Products 6.6 % 12.8 % Services 73.7 % 66.5 % Total gross margin 34.1 % 27.7 % Product gross profit decreased for the year ended December 31, 2023 compared to the prior year, primarily driven by a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and increased subscriber growth coupled with a shift in product mix driven by the softening consumer demand as a result of current macro-economic factors.
Gross Profit Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Gross profit: Products $ (881) (104.6) % $ 19,275 Services 188,385 27.0 % 148,288 Total gross profit $ 187,504 11.9 % $ 167,563 Gross margin: Products (0.3) % 6.6 % Services 77.5 % 73.7 % Total gross margin 36.7 % 34.1 % Product gross profit decreased for the year ended December 31, 2024 compared to the prior year, primarily driven by a reduction in the ASPs on our products as we increased promotional activities to stimulate household acquisition and subscriber growth coupled with an increase in inventory reserves.
Year Ended December 31, 2023 2022 (In thousands) Net cash provided by (used in) operating activities $ 38,302 $ (45,962) Net cash used in investing activities (50,686) (31,773) Net cash used in financing activities (15,142) (13,942) Net cash decrease $ (27,526) $ (91,677) Operating activities Net cash provided by (used in) operating activities increased by $84.3 million for the year ended December 31, 2023 compared to the prior year period, primarily due to improved profitability driven by growth in paid accounts and increased subscription rates and changes in working capital as a result of lower inventory and trade payable balances and increase in deferred revenue.
Year Ended December 31, 2024 2023 (In thousands) Net cash provided by operating activities $ 51,306 $ 38,302 Net cash provided by (used in) investing activities 10,840 (50,686) Net cash used in financing activities (40,767) (15,142) Net cash increase (decrease) $ 21,379 $ (27,526) Operating activities Net cash provided by operating activities increased by $13.0 million for the year ended December 31, 2024 compared to the prior year period, primarily due to improved profitability coupled with favorable working capital movements as the results of (i) higher accounts receivable collections due to the growth of our sales; (ii) higher accounts payable balances mainly due to timing of the payments; and (iii) increase in deferred revenue due to the growth in our service subscription paid accounts and subscription rates expansion, partially offset by increased inventory purchases.
Others Others include separation expense, which consists primarily of costs of legal and professional services and restructuring charges, which consist of severance costs, office exit expense, and other exit expense associated with the abandonment of certain lease contracts and cancellation of contractual services arrangements with certain suppliers. 63 Table of Contents Results of Operations In this section, we discuss the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Others also include the write-off of deferred financing and separation related expenses, which consist primarily of costs of legal and professional services. 63 Table of Contents Results of Operations In this section, we discuss the results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Americas $ 301,418 10.0 % $ 273,981 Percentage of revenue 61.4 % 55.8 % EMEA $ 164,750 (16.1) % $ 196,465 Percentage of revenue 33.5 % 40.1 % APAC $ 25,008 25.2 % $ 19,968 Percentage of revenue 5.1 % 4.1 % Total revenue $ 491,176 0.2 % $ 490,414 Revenue by classification is as follows: Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Product Revenue $ 289,938 (18.1) % $ 353,935 Service Revenue 201,238 47.4 % 136,479 Total revenue $ 491,176 0.2 % $ 490,414 Product revenue decreased by $64.0 million, or 18.1% for the year ended December 31, 2023 compared to the prior year.
Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Americas $ 266,075 (11.7) % $ 301,418 Percentage of revenue 52.1 % 61.4 % EMEA $ 220,821 34.0 % $ 164,750 Percentage of revenue 43.2 % 33.5 % APAC $ 23,990 (4.1) % $ 25,008 Percentage of revenue 4.7 % 5.1 % Total revenue $ 510,886 4.0 % $ 491,176 Revenue by classification is as follows: Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Product Revenue $ 267,888 (7.6) % $ 289,938 Service Revenue 242,998 20.8 % 201,238 Total revenue $ 510,886 4.0 % $ 491,176 Product revenue decreased by $22.1 million, or 7.6% for the year ended December 31, 2024 compared to the prior year, primarily driven by the decrease in product sales in two geographic regions Americas and APAC.
Service revenue increased in all regions by $64.8 million, or 47.4%, for the year ended December 31, 2023 compared to the prior year, primarily due to a 51.1% increase in cumulative paid accounts and an approximated 30% increase in rates for our subscription plans.
Service revenue increased in all regions by $41.8 million, or 20.8%, for the year ended December 31, 2024 compared to the prior year, primarily due to a 63.5% increase in cumulative paid accounts and the continued increase in average revenue per user (“ARPU”) of retail subscriptions.
Material Cash Requirements We believe that our existing sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months and beyond. However, in the future we may require or desire additional funds to support our operating expenses and capital requirements.
Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand. Material Cash Requirements We believe that our existing sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months and beyond.
As of and for the Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Cumulative registered accounts 8,652 19.8 % 7,220 Cumulative paid accounts (1) 2,813 51.1 % 1,862 Annual recurring revenue $ 210,078 52.5 % $ 137,764 _________________________ (1) The number of cumulative paid accounts as of December 31, 2023 included paid accounts managed by Verisure in our EMEA region which are now onboarded with us.
As of and for the Year Ended December 31, 2024 % Change 2023 (In thousands, except percentage data) Cumulative registered accounts 10,823 25.1 % 8,652 Cumulative paid accounts 4,599 63.5 % 2,813 Annual recurring revenue (“ARR”) $ 257,332 22.5 % $ 210,078 Cumulative Registered Accounts .
Financing activities Net cash used in financing activities slightly increased by $1.2 million for the year ended December 31, 2023 compared to the prior year period, primarily due to an increase in withholding tax from restricted stock unit releases, partially offset by higher proceeds related to employee benefit plans.
Financing activities Net cash used in financing activities increased by $25.6 million for the year ended December 31, 2024 compared to the prior year period, primarily due to an increase in withholding tax from RSU releases and the repurchases of common stock. Critical Accounting Estimates We prepare the consolidated financial statements in accordance with U.S.
The declines were experienced mainly in EMEA and the Americas and were primarily driven by a reduction in the average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and increased subscriber growth, coupled with a shift in product mix, driven by the softening consumer demand as a result of current macro-economic factors and seasonality.
The decline in product sales is driven by a reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth, and the increase in related sales incentives that are deemed to be reductions of revenue.
In determining estimates for sales returns, management analyzes certain factors, including historical sales 69 Table of Contents and returns data, channel inventory levels, current economic trends, and changes in customer demand for our products. Sales incentives and price protection are determined based on a combination of the actual amounts committed and estimated future expenditure based upon historical customary business practice.
Transaction price is calculated as selling price net of variable consideration which may include estimates for sales returns and sales incentives related to current period product revenue. 69 Table of Contents Sales returns are estimated by analyzing certain factors, including historical sales and returns data, channel inventory levels, current economic trends, and changes in customer demand for our products.
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 represents and is defined as the annualized paid service revenue we expect to recognize from subscription contracts, as calculated by taking the average paid service revenue multiplied by the number of subscription accounts at the end of the reporting period.
We have a history of losses and may incur operating and net losses in the future. As of December 31, 2023, our accumulated deficit was $367.5 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.
The proceeds of the borrowings under this credit facility may be used for working capital and general corporate purposes. We have a history of losses and may incur operating and net losses in the future. As of December 31, 2024, our accumulated deficit was $398.0 million.
Removed
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. 60 Table of Contents Impact of Global Geopolitical, Economic and Business Conditions During the year ended December 31, 2023, we remained focused on the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and rising interest rates by preserving our liquidity and managing our cash flow by taking preemptive action to enhance our ability to meet our short-term liquidity needs.
Added
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. 61 Table of Contents Components of Results of Operations Revenue Our gross revenue consists primarily of sales of devices and paid subscription service revenue.
Removed
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, and subleasing or reducing excess office space.
Added
Others Others include restructuring charges, which consist of severance costs, office exit expense, and other exit expense associated with the abandonment of certain lease contracts and cancellation of contractual services arrangements with certain suppliers.
Removed
We continue to monitor the situation and may, as necessary, reduce expenditures further, borrow under our revolving credit facility, or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the United States and global markets resulting from the ongoing conflict in Ukraine, hostilities in the Middle-East, supply chain disruptions, the inflationary macro environment, fluctuating consumer confidence and rising interest rates, current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, and liquidity levels. 61 Table of Contents Components of Results of Operations Revenue Our gross revenue consists primarily of sales of devices, prepaid and paid subscription service revenue.
Added
The decline was partially offset by the increase in product sales in EMEA due to stronger customer demand and the lower sales returns that are deemed to be reductions of revenue.
Removed
Impairment Charges During the second quarter of 2021, we reviewed certain of our right-of-use assets and other lease-related assets for impairment in conjunction with our decision to sublease our office space in San Jose, California. As a result, we recorded an impairment charge for the right-of-use asset and other lease-related assets included in the San Jose office asset group.
Added
Additionally, on November 14, 2024, we entered into the Credit Agreement, which provides for a three-year revolving credit facility of up to $45.0 million that matures on November 14, 2027. As of December 31, 2024, we had unused borrowing capacity of $45.0 million based on the terms and conditions of the Credit Agreement.
Removed
This decline in revenue was partially offset by the revenue generated from the Essential 2 camera portfolio which was launched in the third quarter of 2023.
Added
Stock Repurchase Program Our Board of Directors has authorized a stock repurchase program of up to an aggregate of $50.0 million of shares, which commenced in September 2024 and is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors.
Removed
The product gross profit decrease was partially offset by the decrease in freight-in costs due to normalization of the supply chain and utilization of ocean freight.
Added
In the fourth quarter of fiscal 2024, we repurchased and subsequently retired 378,745 shares of our common stock for an aggregate purchase price of $4.4 million. As of December 31, 2024, $45.6 million remained available and authorized for future repurchases. 68 Table of Contents Cash Flow The following table presents our cash flows for the periods presented.
Removed
Sales and Marketing Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Sales and marketing expense $ 66,141 (5.6) % $ 70,081 Sales and marketing expense decreased $3.9 million for the year ended December 31, 2023 compared to the prior year, primarily due to a decrease of $9.2 million in marketing expenditures as a result of the suspension of our brand 66 Table of Contents awareness advertising campaign, partially offset by increases of $2.1 million in credit card processing fees as a result of increases in Arlo.com store sales and paid subscriber accounts, $2.1 million in customer care services as we continue to invest in improving our customer experience, and $1.8 million in freight-out expenses due to increase in customer shipment volume in Arlo.com store.
Added
Sales incentives are determined based on a combination of the actual amounts committed and estimated future expenditure based upon historical customary business practice. Generally, our direct customers have a right of return for any product within 30 days of purchase for a full refund.
Removed
Provision for Income Taxes Year Ended December 31, 2023 % Change 2022 (In thousands, except percentage data) Provision for income taxes $ 1,175 20.5 % $ 975 Effective tax rate (5.6) % (1.8) % Provision for income taxes was primarily attributable to income taxes on foreign earnings and to a lesser extent U.S. taxable income.
Added
Sales incentives that are mutually agreed with customers are recognized as contra revenue while marketing expenses paid to the third parties are recognized as a marketing expense.
Removed
The increase in provision for income taxes for the year ended December 31, 2023 compared to the prior year was primarily due to (i) the higher U.S. earnings, and (ii) the application of Section 174 of the Internal Revenue Code requiring capitalization of research and experimental expenses.
Added
No goodwill impairment was recognized in the years ended December 31, 2024 and 2023.
Removed
Consistent with the prior year periods, we maintained a valuation allowance against our U.S. federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since it is more likely than not that these deferred tax assets will not be realized.
Removed
Typically, variable consideration does not need to be constrained as estimates are based on predictive historical data or future commitments that we plan and control. However, we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur.
Removed
Our standard warranty obligation to our direct customers generally provides for a right of return of any product for a full refund in the event that such product is found to be damaged or defective.
Removed
Because our products are manufactured by third-party manufacturers, in certain cases we have recourse to the third-party manufacturer for replacement or credit for the defective products. We give consideration to amounts recoverable from our third-party manufacturers in determining our warranty liability.
Removed
We recognize sales incentives offered to customers as a marketing expense if we receive an identifiable benefit in exchange and can reasonably estimate the fair value of the identifiable benefit received; otherwise, it is recognized as a contra revenue. Consequently, we recognize a substantial portion of sales incentives as channel marketing costs accounted as a contra revenue.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed6 unchanged
Biggest changeWe monitor our interest rate and credit risks, including our credit exposure to specific rating categories and to individual issuers. The unrealized loss was immaterial as of December 31, 2023 and there was no impairment charge on our investments for the year ended December 31, 2023.
Biggest changeWe monitor our interest rate and credit risks, including our credit exposure to specific rating categories and to individual issuers. There was no impairment charge on our investments for the year ended December 31, 2024. Foreign Currency Exchange Rate Risk We are exposed to risks associated with foreign exchange rate fluctuations due to our international sales and operating activities.
Such a decline in the demand for our products could reduce sales and materially and adversely affect our business, results of operations, and financial condition. Certain operating expenses of our foreign operations require payment in local currencies. As of December 31, 2023, we had net assets in various local currencies.
Such a decline in the demand for our products could reduce sales and materially and adversely affect our business, results of operations, and financial condition. Certain operating expenses of our foreign operations require payment in local currencies. As of December 31, 2024, we had net assets in various local currencies.
Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analysis performed as of December 31, 2023 due to the inherent limitations associated with predicting foreign currency exchange rates and our actual exposures and positions.
Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analysis performed as of December 31, 2024 due to the inherent limitations associated with predicting foreign currency exchange rates and our actual exposures and positions.
For the years ended December 31, 2023 and 2022, 3% and 3% of our total revenue was denominated in currencies other than the U.S. dollar, respectively. 72 Table of Contents
For the years ended December 31, 2024, 2023, and 2022, no more than 3% of our total revenue was denominated in currencies other than the U.S. dollar. 71 Table of Contents
Foreign Currency Exchange Rate Risk We are exposed to risks associated with foreign exchange rate fluctuations due to our international sales and operating activities. We invoice some of our international customers in foreign currencies, including the Australian dollar and Canadian dollar.
We invoice some of our international customers in foreign currencies, including the Australian dollar and Canadian dollar.

Other ARLO 10-K year-over-year comparisons