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What changed in Arlo Technologies, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Arlo Technologies, Inc.'s 2022 and 2023 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 2023 report.

+360 added−365 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-07)

Top changes in Arlo Technologies, Inc.'s 2023 10-K

360 paragraphs added · 365 removed · 264 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

60 edited+49 added−28 removed39 unchanged
Biggest changeThe Supply Agreement also provides for certain development services to Verisure under the NRE arrangement, including development of certain custom products specified by Verisure. 9 Table of Contents Competition We believe we are well-positioned to compete within the broader connected lifestyle market, both within and beyond the home as we continue to launch new product lines and services within our smart platform.
Biggest changeCompetition We believe we are well-positioned to compete within the broader smart security market, both within and beyond the home as we continue to launch new product lines and services on our highly secure, globally-scaled platform. However, our market is highly competitive and evolving, and we expect competition to increase in the future.
Arlo SmartCloud is a fully managed robust global platform of capabilities built for security, scalability, and reliability that can be deployed as part of advanced subscription services for hardware companies, automotive companies, service providers, insurance companies, home builders, smart communities, smart cities, traditional security companies, and other related verticals.
Arlo SmartCloud is a fully managed robust global platform built for security, scalability, and reliability that can be deployed as part of advanced subscription services for hardware companies, automotive companies, service providers, insurance companies, home builders, smart communities, smart cities, traditional security companies, and other related verticals.
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. 15 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 these websites is not a part of this Annual Report on Form 10-K. 16 Table of Contents
If directed by the user, Arlo’s Emergency Response team can also provide critical location 5 Table of Contents 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 120 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 (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.
The system, which is managed through the redesigned 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 new 24/7 Professional Monitoring service, granting one-tap access to highly trained Security Experts who monitor and respond to emergency situations.
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 camera, home security, and doorbell products.
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.
We deeply 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.
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.
We plan to continue to introduce new smart connected devices to the Arlo platform both in cameras and other categories, increase the number of registered accounts on our platform, keep them highly engaged through our mobile app and generate incremental recurring revenue by offering them paid subscription services.
We plan to continue to introduce new smart security devices to the Arlo platform both in cameras and other categories, increase the number of registered accounts on our platform, keep them highly engaged through our mobile app and generate incremental recurring revenue by offering them paid subscription services.
For more information, see “ Risk Factors-Risks Related to Our Business-If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed .” 12 Table of Contents Environmental Laws Our products and manufacturing processes are subject to numerous governmental regulations, which cover both the use of various materials and environmental concerns.
For more information, see “ Risk Factors-Risks Related to Our Business-If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed .” Environmental Laws Our products and manufacturing processes are subject to numerous governmental regulations, which cover both the use of various materials and environmental concerns.
The latest addition to the award-winning Pro series, Pro 5S boasts tri-band connectivity - operating off dual-band Wi-Fi and Arlo SecureLink technology. Pro 5S is backed by the redesigned Arlo Secure App which features an all-new, highly intuitive interface that streamlines access to critical tools like Emergency Response.
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.
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. 11 Table of Contents 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. Arlo Cloud Engineering Operations We currently serve our users from third-party data center hosting facilities.
We believe that we compete favorably in these areas on the basis of our market position in the U.S. consumer network connected camera systems market, best-in-class technology, direct relationship with users and user engagement, trusted Arlo platform, strong Arlo brand and channel partners and deep strategic partnerships with key suppliers, such as Infineon Technologies AG, OmniVision Technologies Inc. and Qualcomm Incorporated.
We believe that we compete favorably in these areas based on our market position in the U.S. consumer network connected camera systems market, best-in-class technology, direct relationship with users and user engagement, trusted Arlo platform, strong Arlo brand and channel partners and deep strategic partnerships with key suppliers, such as Infineon Technologies AG, OmniVision Technologies Inc., Realtek and Qualcomm Incorporated.
Manufacturing While all of our products are primarily designed in North America, we currently outsource manufacturing to Foxconn Cloud Network Technology Singapore Pte. Ltd., Pegatron Corporation, and Chicony Electronics Co., Ltd., which are all headquartered in Asia.
Manufacturing While all of our products are primarily designed in North America, we currently outsource manufacturing to Foxconn Cloud Network Technology Singapore Pte. Ltd., Alpha Networks Inc., Pegatron Corporation, and Chicony Electronics Co., Ltd., which are all headquartered in Asia.
As we expand our product portfolio, we continue to explore new potential manufacturing partners that may provide us with competitive advantages on technology and cost. Since we outsource our manufacturing, 10 Table of Contents we have the flexibility and ability to adapt to market changes, product supply and component pricing while keeping our costs low.
As we expand our product portfolio, we continue to explore new potential manufacturing partners that may provide us with competitive advantages on technology and cost. Since we outsource our manufacturing, we have the flexibility and ability to adapt to market changes, product supply and component pricing while keeping our costs low.
Services Arlo Secure Arlo Secure is our service plan that provides advanced AI-based detection, DIY home security as well as professional monitoring, and an enhanced Emergency Response capability. The premium services boast support for unlimited household security devices, along with advanced AI object detection, and smarter, more interactive notifications.
Services Arlo Secure Arlo Secure is our subscription service that provides advanced AI-based detection, DIY home security as well as professional monitoring, and an enhanced Emergency Response capability. These premium services boast support for unlimited household security devices, along with advanced AI object detection, and smarter, more interactive notifications.
As of December 31, 2022, our research and development staff consisted of 133 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, 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.
In the third quarter of 2019, we launched our online direct to consumer store to sell our products directly to our customers. We also sell our services, such as Arlo Secure and Arlo Safe, directly to consumers.
In the third quarter of 2019, we launched our online direct to consumer store to sell our products directly to our customers. We also sell our subscription services, such as Arlo Secure, Arlo Total Security, and Arlo Safe, directly to consumers.
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. Arlo Pro 5S , released in the fourth quarter of 2022, is an all-new Pro 5S 2K Security Camera.
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.
For additional information, see “ Risk Factors-Risks Related to Our Business-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 .” Research and Development We are passionate about developing new and innovative products and services that enable the connected lifestyle.
For additional information, see “ Risk Factors-Risks Related to Our Business-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 .” Research and Development We are passionate about developing new and innovative products and services that enhance the smart security experience.
Our operations teams based in the United States, Hong Kong, Taiwan, Vietnam, and Indonesia coordinate with our manufacturers’ engineering, manufacturing and quality control personnel to develop the requisite manufacturing processes, quality checks and testing and general oversight of the manufacturing activities.
Our operations teams based in the United States, Ireland, Taiwan, and Vietnam coordinate with our manufacturers’ engineering, manufacturing and quality control personnel to develop the requisite manufacturing processes, quality checks and testing and general oversight of the manufacturing activities.
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 62 registered trademarks and 43 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 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.
Nevertheless, the connected lifestyle 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 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 and Comcast; and other companies, such as TP Link, Eufy and Wyze.
By making the pledge, we go beyond accepting diversity and 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 as a way to prioritize diversity and inclusion and to drive accountability in our organization.
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.
Diversity and Inclusion Arlo is proud to be an equal opportunity workplace and an affirmative action employer. We always strive to treat all employees and job applicants based on merit, qualifications, personality, and talent, and to draw from a diverse candidate pool as we recruit new talent across all levels.
Arlo is proud to be an equal opportunity workplace. We always strive to treat all employees and job applicants based on merit, qualifications, personality, and talent, and to draw from a diverse candidate pool as we recruit new talent across all levels.
Our research and development team collaborates with our product team to design and build differentiated new products and improve upon our existing products and services. Our goal is to create unique user experiences within the connected lifestyle.
Our research and development team collaborates with our product team to design and build differentiated new products and improve upon our existing products and services. Our goal is to create unique user experiences within the smart security market.
We believe we are well-positioned to extend our current reach to the broader connected lifestyle market both within and beyond the home as we continue to launch new products and services within our connected lifestyle platform.
We believe we are well-positioned to extend our current reach to the broader IoT market both within and beyond the home as we continue to launch new products and services within our smart security platform.
For example, for the years ended December 31, 2022, 2021 and 2020, our third and fourth quarters collectively represented 50.3%, 58.4% and 63.0%, respectively, of our revenue for such years. Therefore, timely and effective product introductions are critical to our results of operations.
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.
The features of Arlo Safe subscriptions include: • One-Touch Emergency Response – Access live safety experts 24/7 to rapidly send fire, police, or medical responders directly to the user’s exact location. • Family Safety – Never miss a moment with the ability to know where opt-in family members have been, see their current location, or send help directly to them in an emergency situation. • Crash Detection and Response – Advanced impact detection can expedite emergency response in the event of a vehicle accident by sharing appropriate location and medical information with first responders. 6 Table of Contents Other services Arlo SmartCloud is a SaaS solution to deliver scalable security cloud services for business.
The features of Arlo Safe subscriptions include: • One-Touch Emergency Response – Access live safety experts 24/7 to rapidly send fire, police, or medical responders directly to the user’s exact location. • Family Safety – Never miss a moment with the ability to know where opt-in family members have been, see their current location, or send help directly to them in an emergency situation. • Crash Detection and Response – Advanced impact detection can expedite emergency response in the event of a vehicle accident by sharing appropriate location and medical information with first responders.
Market Our total addressable market consists of individuals and business owners who use connected devices to enhance their lives and businesses. Outside of the home, we have seen adoption of our cellular-enabled products in a variety of use cases, such as neighborhood watch, construction site monitoring, wildlife and outdoor trail surveillance and event monitoring.
Market Our total addressable market consists of individuals and business owners who use smart security devices to protect their loved ones and property. Outside of the home, we have seen adoption of our cellular-enabled products in a variety of use cases, such as neighborhood watch, construction site monitoring, wildlife and outdoor trail surveillance and event monitoring.
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 connected lifestyle devices. Security Solution Providers . We sell our products and services to security solution providers, including Verisure, from which we derived 40.1% of our revenue in 2022. 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 33.5% of our revenue in 2023. Arlo.com .
In 2020, 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 13 Table of Contents to underscore our commitment.
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.
Some of our technology relies upon third-party licensed intellectual property. We currently hold 106 issued United States patents, 43 pending United States patent applications, 33 international patents, including patents issued by China and the EU, 30 pending patent applications outside of the United States.
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.
Our Software as a Service (“SaaS”) solution includes Arlo Secure, a service plan with coverage for unlimited cameras and an enhanced Emergency Response solution, Arlo Safe, a personal safety app with panic button accessory, and Arlo SmartCloud, a solution that delivers highly efficient and secure cloud services at scale.
Our Software as a Service (“SaaS”) solution includes Arlo Secure, a subscription service with coverage for unlimited cameras and an enhanced Emergency Response solution, Arlo Total Security, a comprehensive subscription service with professional monitoring and security hardware, Arlo Safe, a personal safety service with panic button accessory, as well as Arlo SmartCloud, a solution that delivers highly efficient and secure cloud services at scale.
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 2200 Faraday Ave., Suite #150, Carlsbad, California 92008, and our telephone number is (408) 890-3900. Our website is http://www.arlo.com.
The features of Arlo Secure subscriptions include: • Emergency Response (Secure Plus plan) – With one touch, dispatch fire, police, or medical responders to the camera’s location.
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.
Agreements 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 commencing January 1, 2020, Verisure has an aggregate purchase commitment of $500.0 million.
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.
However, our market is highly competitive and evolving, and we expect competition to increase in the future. We believe the principal competitive factors impacting the market for our products and services include price, service offerings, functionality, brand, technology, design, distribution channels and customer service.
We believe the principal competitive factors impacting the market for our products and services include price, service offerings, functionality, brand, technology, design, distribution channels and customer service.
Further, our references to the URLs for these websites are intended to be inactive textual reference only. 14 Table of Contents Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the SEC.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the SEC.
The floodlight camera also offers three different light patterns – constant, flashing, and pulsating – which users can control manually on-demand or via automation rules.
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.
Our strategic relationships with our manufacturers are an important component of our ability to introduce new products and grow our business. We focus on driving alignment of our product roadmaps with our manufacturers and determining what we can do collectively to reduce costs across the supply chain.
We focus on driving alignment of our product roadmaps with our manufacturers and determining what we can do collectively to reduce costs across the supply chain.
To date, we have launched several categories of award-winning smart connected devices, including wired and wire-free smart Wi-Fi and LTE-enabled cameras, audio and video doorbells, floodlight cameras and home security systems.
To date, we have launched subscription services such as Arlo Secure, Arlo Total Security, and Arlo Safe, and several categories of award-winning smart security devices, including smart Wi-Fi and LTE-enabled cameras, video doorbells, floodlight cameras and home security systems.
To maintain quality standards for our suppliers, we have established our own product quality organization based in Vietnam, Hong Kong, Taiwan, and Indonesia, which is responsible for auditing and inspecting process and product quality on the premises of our manufacturers.
To maintain quality standards for our suppliers, we have established our own product quality organization based in Vietnam and Taiwan, which is responsible for auditing and inspecting process and product quality on the premises of our manufacturers. Our strategic relationships with our manufacturers are an important component of our ability to introduce new products and grow our business.
We work directly with our retail channels on market development activities, such as co-advertising, including digital and traditional media, online promotions and video demonstrations, instant rebate programs, event sponsorship and sales associate training. Our largest retailer is Best Buy and its affiliates. Wholesale Distributors . Our distribution channel supplies our products to retailers, e-commerce resellers, wireless carriers and broadcast channels.
Retailers . We sell to traditional and online retailers, either directly or through wholesale distributors. We work directly with our retail channels on market development activities, such as co-advertising, including digital and traditional media, online promotions and video demonstrations, instant rebate programs, event sponsorship and sales associate training.
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. Culture and Human Capital Resources Our culture, mission and values are a critical part of our success.
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.
These events provide a platform for dialogue and an opportunity for every employee to learn, discuss, and appreciate differences between colleagues as we grow to drive greater inclusion at Arlo and truly reflect the customers we serve. Employee Safety, Health and Well-being We look to safeguard the safety, health and well-being of all of our employees.
These events provide a platform for dialogue and an opportunity for every employee to learn, discuss, and appreciate differences between colleagues as we grow to drive greater inclusion at Arlo and truly reflect the customers we serve. We continually strive to be a deeply inclusive employer with diversity reflected in our teams.
Arlo’s deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day.
Arlo’s 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.
Its comprehensive offering includes computer vision, multi-object detection, audio analysis, security services, scaled storage and numerous ecosystem integrations.
Other Services Arlo SmartCloud is a SaaS solution that delivers scalable security cloud services for business. Its comprehensive offering includes computer vision, multi-object detection, audio analysis, security services, scaled storage and numerous ecosystem integrations.
Arlo Ultra 2 works with Amazon Alexa, Google Assistant, Apple Homekit, and IFTTT for easy interaction, automation and control.
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.
With the Arlo Charging Station, users can charge up to two Arlo Pro, Arlo Pro 2 or Arlo Go batteries with fast-charging technology so there is always a battery ready to go.
Charging Accessories are designed to offer additional convenient ways to keep Arlo wire-free cameras up and running even longer. With the Arlo Charging Station, users can charge up to two batteries with fast-charging technology so there is always a battery ready to go.
Our cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. Since the launch of our first product in December 2014, we have shipped over 27.5 million smart connected devices.
Our highly secure, cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection – all rooted in a commitment to safeguard privacy for our users and their personal data.
Moreover, our focus on building a connected lifestyle 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. We believe this focus allows us to compete favorably with companies that have introduced or have announced plans to introduce devices with connected lifestyle functionalities.
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.
As a result, we have ceased operations of our Hong Kong office during the fourth quarter of 2022. Marketing Our marketing programs are focused on building global brand awareness, increasing product adoption and driving sales. Our marketing efforts target individuals interested in a connected lifestyle.
Marketing Our marketing programs are focused on building global brand awareness, increasing product adoption and driving sales. Our marketing efforts target individuals interested in a smart security solution.
Sales Channels We sell our products through multiple sales channels worldwide, including traditional and online retailers, wholesale distributors, broadcast channels, wireless carriers, security solution providers as well as directly to consumers through our own online store. Retailers . We sell to traditional and online retailers, either directly or through wholesale distributors.
Additional outdoor, tabletop, and other adjustable mounts give users added flexibility to customize their camera position to suit any unique location they need to monitor. 8 Table of Contents Sales Channels We sell our products through multiple sales channels worldwide, including traditional and online retailers, wholesale distributors, broadcast channels, wireless carriers, security solution providers as well as directly to consumers through our own online store.
Our services also include certain development services provided to Verisure Sàrl (“Verisure”) under a Non-recurring Engineering (“NRE”) arrangement, including development of certain custom products specified by Verisure. Products Smart Connected Devices Arlo Home Security System, released in the fourth quarter of 2022, is a first-of-its-kind, all-in-one multi-sensor capable of eight different sensing functions.
Arlo Home Security System , released in the fourth quarter of 2022, is a first-of-its-kind smart security system featuring the Arlo All-in-One Multi-Sensor capable of eight different sensing functions.
The contents of our website are not incorporated into this Annual Report.
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.
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. 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 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.
We strive to attract and retain exceptionally talented, diverse, and ethical employees, and we are proud of the culture we have built. Our talented employees, located throughout the United States, Canada, Asia, Australia, and Europe communicate, connect and work together to deliver a world-class end-to-end connected lifestyle solution.
We believe that great teams make great products and as such, our talented employees, located throughout the United States, Canada, Australia, Taiwan, India, and Ireland, communicate, connect and work together to deliver a world-class end-to-end smart security solution.
Through Emergency Response, live agents can access authorized camera video to verify emergencies, potentially reducing false alarms, expediting response from emergency personnel in a crisis. Arlo Safe In the fourth quarter of 2022, we announced an all-new personal safety app with a panic button accessory featuring one-tap, 24/7 Emergency Response, family safety, automatic crash detection and more.
Through Emergency Response, live agents can access authorized camera video to verify emergencies, potentially reducing false alarms, expediting response from emergency personnel in a crisis. Arlo Total Security Arlo Total Security is a comprehensive subscription service that offers 24/7 professional monitoring and security hardware with affordable monthly pricing and no upfront costs.
We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. As of December 31, 2022, we had a total of 343 full-time employees, of which approximately 68% were based in the United States, and approximately 32% were based in other global regions.
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.
Our culture focuses on connecting our people in an inclusive and flexible workforce, connecting our employees with the right development opportunities, and linking our group success with individual performance. It is founded on an employee value proposition that puts people and teams at the center of our business.
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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Item 1. Business Overview Arlo Technologies, Inc. (“we” or “Arlo”) combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that are transforming the way people experience the connected lifestyle.
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Item 1. Business Overview Arlo Technologies, Inc. (“we” or “Arlo”) is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security services that combine a globally scaled cloud platform, advanced monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem.
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As of December 31, 2022, the Arlo platform had approximately 7.2 million cumulative registered accounts across more than 100 countries around the world, 1.9 million of which were paid services subscribers.
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At the heart of this innovative subscription service is Arlo’s Home Security System, which uses a first-of-its-kind, all-in-one multi-sensor capable of eight different sensing functions.
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Arlo Video Doorbell , released in the fourth quarter of 2019, is designed to capture what traditional video doorbells cannot, and boasts an industry-leading vertical field-of-view, allowing users to get a bigger, more precise picture of their front porch.
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With its all-in-one design, the Arlo multi-sensor can be placed anywhere—from walls to windows and doors, to underneath sinks and water heaters—to detect motion, door/window openings and tilt, water leaks, freezing temperatures, lighting changes and T3/T4 smoke/CO alarm audio sirens.
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The Arlo Video Doorbell captures footage in a square aspect ratio to allow users to fully view packages on the ground, or visitors from head to toe. It also offers features such as HD resolution image quality along with clear, two-way audio for users to simultaneously see and speak to visitors.
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Managed through the Arlo Secure App, the award-winning security system pairs with Arlo's advanced video security cameras, such as the Arlo Pro 5s, to enable video verification by 24/7 Professional Monitoring security experts of an emergency situation – a growing requirement across municipalities to reduce false alarms and unnecessary utilization of emergency services. 6 Table of Contents Arlo Safe Arlo Safe is a personal safety service with a panic button accessory featuring one-tap, 24/7 Emergency Response, family safety, automatic crash detection and more.
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Unlike conventional doorbell cameras, the Arlo Video Doorbell delivers direct-to-mobile video calls and personalized alerts when packages, people, vehicles, or animals are detected, allowing for users to quickly reply or take action provided they are an Arlo Secure subscriber or in a trial period.
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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.
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The Arlo Video Doorbell connects to an existing mechanical or digital chime for simple installation and continuous power. 7 Table of Contents Arlo Floodlight Camera , released in the first quarter of 2020, is the first wire-free floodlight camera on the market.
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The new lineup features the Arlo Essential XL Outdoor Camera with 4X the battery life of the new standard Essential Outdoor Camera, as well as a new Essential Indoor Camera with an automated privacy shield. A new Video Doorbell with head-to-toe 180-degree field of view is also available.
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Arlo Essential , released in the third quarter of 2020, features an integrated, wire-free, extended-life battery that works for up to one year on one charge, an integrated spotlight with color night vision, HD video, two-way audio, motion detection alerts and a built-in siren.
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The all-new second generation Essential cameras and doorbells offer several new advancements, with up to 2K video resolution, providing customers with powerful smart home security solutions at affordable price points. Additionally, each device features USB-C connections for easy re-charging, and a new quick set-up process using Bluetooth for a faster, easier onboarding experience.
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A direct Wi-Fi connection enables the Arlo Essential XL Spotlight camera to function as a stand-alone home security solution without the need for a separate Arlo SmartHub or Base Station. Arlo Essential Video Doorbell , released in the third quarter of 2020, features an easy-to-install, wire-free, battery-powered design.
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The Wire-Free Outdoor Siren extends protection outside of the home with a loud wire-free siren featuring a weather-resistant design, built-in strobe and adjustable volume settings. The Arlo Cellular and Battery Backup module gives the Arlo Security System up to 12 hours of power during outages and stacks discretely beneath the Security System hub for a sleek all-in-on design.
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Arlo’s latest front-entry solution – which joins a robust ecosystem of home security products and services – captures what conventional video doorbells can’t. An industry-leading, 180-degree viewing angle with a square, 1:1 aspect ratio ensures users can see packages on the ground or visitors from head-to-toe on their mobile devices.
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The Arlo Anti-Theft Mount enables users to lock their Arlo camera in place to prevent tampering and theft.
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HD video resolution combined with direct-to-mobile video calls, clear, two-way audio and personalized alerts, allow users to quickly reply to guests or take action. Able to connect directly to Wi-Fi, the latest solution can be powered by its rechargeable battery or be hardwired for continuous charging.
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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 their affiliates. Wholesale Distributors . Our distribution channel supplies our products to retailers, e-commerce resellers, wireless carriers and broadcast channels.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome European regulators have prevented companies from transferring personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations. 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.
Biggest changeAdditionally, companies that transfer personal data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have prevented companies from transferring personal data out of Europe for allegedly violating the GDPR’s cross-border data transfer limitations.
We may publish privacy policies, marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
We publish privacy policies, marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Your percentage ownership in Arlo may be diluted in the future. In the future, your percentage ownership in Arlo may be diluted because of equity awards that Arlo may grant to Arlo’s directors, officers, and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions.
In the future, your percentage ownership in Arlo may be diluted because of equity awards that Arlo may grant to Arlo’s directors, officers, and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions.
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, including the COVID-19 pandemic, 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 connected lifestyle, home electronics, and related technology markets; • seasonal shifts in end-market demand for our products; 20 Table of Contents • unanticipated decreases or delays in purchases of our products by our significant retailers, distributors, and other channel partners; • component supply constraints from our vendors; • unanticipated increases in costs, including air freight, associated with shipping and delivery of our products; • the inability to maintain stable operations by our suppliers and other parties with whom we have commercial relationships; • discovery of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand, or potential liability; • foreign currency exchange rate fluctuations in the jurisdictions where we transact sales and expenditures in local currency; • excess levels of inventory and low turns; • changes in or consolidation of our sales channels and wholesale distributor relationships or failure to manage our sales channel inventory and warehousing requirements; • delay or failure to fulfill orders for our products on a timely basis; • delay or failure of our retailers, distributors, and other channel partners to purchase at their historic volumes or at the volumes that they or we forecast; • changes in tax rates or adverse changes in tax laws that expose us to additional income tax liabilities; • changes in U.S. and international tax policy, including changes that adversely affect customs, tax or duty rates such as 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; 21 Table of Contents • 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; • 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; 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.
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; 39 Table of Contents • 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; • political and economic instability, international terrorism, and anti-American sentiment, particularly in emerging markets; • potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud; • preference for locally branded products, and laws and business practices favoring local competition; • potential consequences of, and uncertainty related to, the “Brexit” process in the United Kingdom, which could lead to additional expense and complexity in doing business there; • increased difficulty in managing inventory; • delayed revenue recognition; • less effective protection of intellectual property; • stringent consumer protection and product compliance regulations, including but not limited to General Data Protection Regulation in the European Union, European competition law, the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign directive, that are costly to comply with and may vary from country to country; • difficulties and costs of staffing and managing foreign operations; • business difficulties, including potential bankruptcy or liquidation, of any of our worldwide third-party logistics providers; and • changes in local tax and customs duty laws or changes in the enforcement, application, or interpretation of such laws.
We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased selling and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities.
We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased selling, general, and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities.
Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such 49 Table of Contents corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.
Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.
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.
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.
While we take precautions to prevent our solutions from being exported in violation of these laws, 42 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, 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.
The market price of our common stock could be volatile and is influenced by many factors, some of which are beyond our control, including those described above in “ Risks Related to Our Business ” and the following: • the failure of securities analysts to cover our common stock or changes in financial estimates by analysts; • the inability to meet the financial estimates of securities analysts who follow our common stock or changes in earnings estimates by analysts; • strategic actions by us or our competitors; • announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments; • our quarterly or annual earnings, or those of other companies in our industry; • actual or anticipated fluctuations in our operating results and those of our competitors; • general economic and stock market conditions; • the public reaction to our press releases, our other public announcements and our filings with the SEC; • risks related to our business and our industry, including those discussed above; • changes in conditions or trends in our industry, markets or customers; • the trading volume of our common stock; • future sales of our common stock or other securities; and • investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.
The market price of our common stock could be volatile and is influenced by many factors, some of which are beyond our control, including those described above in “ Risks Related to Our Business ” and the following: • the failure of securities analysts to cover our common stock or changes in financial estimates by analysts; • the inability to meet the financial estimates of securities analysts who follow our common stock or changes in earnings estimates by analysts; • strategic actions by us or our competitors; • announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments; • our quarterly or annual earnings, or those of other companies in our industry; • actual or anticipated fluctuations in our operating results and those of our competitors; • general economic and stock market conditions; • the public reaction to our press releases, our other public announcements and our filings with the SEC; • risks related to our business and our industry, including those discussed above; • changes in conditions or trends in our industry, markets or customers; 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.
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 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 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.
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 • 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; 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.
Some of our components have long lead times, such as wireless local area network chipsets, physical layer transceivers, connector jacks, and metal and plastic enclosures. If our forecasts are not timely provided or are less than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner or at all.
Some of our components have long lead times, such as wireless local area network chipsets, physical layer transceivers, connector jacks, and metal and plastic enclosures. If our forecasts are not timely provided or are lower than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner or at all.
In December 2010, the Federal Communications Commission (the “FCC”), adopted net neutrality rules barring internet providers from blocking or slowing down access to online content, protecting services like ours from such interference. Recently, the FCC voted in favor of repealing the net neutrality rules, and it is currently uncertain how the U.S. Congress will respond to this decision.
In December 2010, the Federal Communications Commission (the “FCC”), adopted net neutrality rules barring internet providers from blocking or slowing down access to online content, protecting services like ours from such interference. In December 2017, the FCC voted in favor of repealing the net neutrality rules, and it is currently uncertain how the U.S. Congress will respond to this decision.
If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions (such as Europe) at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
As a result of stimulus programs put in place over the past two years, the U.S. and many countries are currently experiencing an inflationary environment. In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which in turn has negatively impacted equity values.
As a result of stimulus programs put in place over the past three years, the U.S. and many countries are currently experiencing an inflationary environment. In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which in turn has negatively impacted equity values.
Amazon is both a competitor and a distribution channel for our products as well as a provider of services to support our cloud-based storage.
Amazon.com is both a competitor and a distribution channel for our products as well as a provider of services to support our cloud-based storage.
Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future. 34 Table of Contents Instability in geographies where we have operations and personnel or where we derive amounts of revenue could have a material adverse effect on our business, customers, operations and financial results.
Such perception could adversely affect the market price for our common stock and our ability to obtain financing in the future. 35 Table of Contents Instability in geographies where we have operations and personnel or where we derive amounts of revenue could have a material adverse effect on our business, customers, operations and financial results.
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.
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.
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 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 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 particular, in the event the labor market in Vietnam becomes saturated, our third-party manufacturers in Vietnam may increase our costs of production. If these costs increase, it may affect our margins and ability to lower prices for our products to stay competitive. Labor unrest may also affect our third-party manufacturers, as workers may strike and cause production delays.
In particular, in the event the labor market in Vietnam becomes saturated, our third-party manufacturers in that region may increase our costs of production. If these costs increase, it may affect our margins and ability to lower prices for our products to stay competitive. Labor unrest may also affect our third-party manufacturers, as workers may strike and cause production delays.
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.
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.
We rely on third-party providers for a number of critical aspects of our cloud services and customer support, including web hosting services, billing, and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems. 26 Table of Contents Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents.
We rely on third-party providers for a number of critical aspects of our cloud services and customer support, including web hosting services, billing, and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems. Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents.
If consolidation among the retailers, distributors, or other channel partners who purchase our products becomes more prevalent, our business, results of operations, and financial condition could be materially and adversely affected. In particular, the retail and connected home markets in some countries, including the United States, are dominated by a few large retailers with many stores.
If consolidation among the retailers, distributors, or other channel partners who purchase our products becomes more prevalent, our business, results of operations, and financial condition could be materially and adversely affected. In particular, the retail and smart security home markets in some countries, including the United States, are dominated by a few large retailers with many stores.
Moreover, if one or more of the analysts who cover us downgrades our stock or if our operating results do not meet their expectations, our stock price could decline. 52 Table of Contents Item 1B. Unresolved Staff Comments None.
Moreover, if one or more of the analysts who cover us downgrades our stock or if our operating results do not meet their expectations, our stock price could decline. 53 Table of Contents Item 1B. Unresolved Staff Comments None.
Pursuant to the registration rights agreement, we have agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each 46 Table of Contents other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise.
Pursuant to the registration rights agreement, we have agreed to indemnify NETGEAR and its subsidiaries that hold registrable securities (and their directors, officers, agents and, if applicable, each other person who controls such holder under Section 15 of the Securities Act) registering shares pursuant to the registration rights agreement against certain losses, expenses and liabilities under the Securities Act, common law or otherwise.
In addition, certain of Arlo’s firmware and the AI-based algorithms that we use in our Arlo Secure services incorporate open source software, the licenses for which may include customary requirements for, and restrictions on, use of the open source software.
In addition, certain of Arlo’s firmware and the AI-based algorithms that we use in our Arlo Secure and Arlo Total Security services incorporate open source software, the licenses for which may include customary requirements for, and restrictions on, use of the open source software.
To successfully evolve our product offerings of smart connected devices to appeal to our consumers, we will be required to predict, understand, and react to the rapidly changing tastes of consumers and provide appealing products in a timely manner.
To successfully evolve our product offerings of smart security devices to appeal to our consumers, we will be required to predict, understand, and react to the rapidly changing tastes of consumers and provide appealing products in a timely manner.
In addition, the challenges faced by the European Union to stabilize some of its member state economies, such as Greece, Portugal, Spain, Hungary, and Italy, have had international implications, affecting the stability of global financial markets and hindering economies worldwide. Many member states in the European Union have been addressing the issues 35 Table of Contents with controversial austerity measures.
In addition, the challenges faced by the European Union to stabilize some of its member state economies, such as Greece, Portugal, Spain, Hungary, and Italy, have had international implications, affecting the stability of global financial markets and hindering economies worldwide. Many member states in the European Union have been addressing the issues with controversial austerity measures.
Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business, entering into new territories or markets with which 40 Table of Contents we have limited or no prior experience, establishing or maintaining business relationships with new retailers, distributors, or other channel partners, vendors, and suppliers, and potential post-closing disputes.
Acquisitions involve numerous risks and challenges, including relating to the successful integration of the acquired business, entering into new territories or markets with which we have limited or no prior experience, establishing or maintaining business relationships with new retailers, distributors, or other channel partners, vendors, and suppliers, and potential post-closing disputes.
We may rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based infrastructure, data center 25 Table of Contents facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions.
We may rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions.
While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be 43 Table of Contents material to our business.
While future changes in 44 Table of Contents regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business.
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.
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.
If, in any period our stock price decreases to the point where the fair value of our assets (as partially indicated by our market capitalization) is less than our book value, this could indicate a potential impairment and we may be required to 47 Table of Contents record an impairment charge in that period.
If, in any period our stock price decreases to the point where the fair value of our assets (as partially indicated by our market capitalization) is less than our book value, this could indicate a potential impairment and we may be required to record an impairment charge in that period.
Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies, systems, and 33 Table of Contents practices and to those of any third parties that process personal data on our behalf. In addition, these obligations may require us to change our business model.
Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. In addition, these obligations may require us to change our business model.
A portion of our global and U.S. sales are comprised of goods assembled and manufactured in our facilities in Taiwan and the People’s Republic of China, and components for a number of our goods are sourced from suppliers in the People’s Republic of China.
A portion of our global and U.S. sales are comprised of goods assembled and manufactured in our facilities in Asia. The components for a number of our goods are sourced from suppliers in the People’s Republic of China.
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.
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.
Section 404, as well as rules subsequently implemented by the SEC and the NYSE, have imposed increased regulation and disclosure and required enhanced corporate governance practices of public companies.
Section 404 of the SOX Act, as well as rules subsequently implemented by the SEC and the NYSE, have imposed increased regulation and disclosure and required enhanced corporate governance practices of public companies.
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.
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.
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.
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.
The transition services agreement generally provides that the applicable service recipient indemnifies the applicable service provider for liabilities that such service provider incurs arising from the provision of services other than liabilities arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement, and that the applicable service provider indemnifies the applicable service recipient for liabilities that such service recipient incurs arising from such service provider’s gross negligence, bad faith or willful misconduct or material breach of the transition services agreement.
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.
If our existing products and services do not continue, or if our new products or services fail, to achieve widespread market acceptance, if existing customers do not subscribe to our paid subscription services such as Arlo Secure, if those services do not achieve widespread market acceptance, or if we are unsuccessful in capitalizing on opportunities in the connected lifestyle market, as well as in the related market in the small business segment, our future growth may be slowed and our business, results of operations, and financial condition could be materially and adversely affected.
If our existing products and services do not continue, or if our new products or services fail, to achieve widespread market acceptance, if existing customers do not subscribe to our paid subscription services such as Arlo Secure or Arlo Total Security, if those services do not achieve widespread market acceptance, or if we are unsuccessful in capitalizing on opportunities in the smart security market, as well as in the related market in the small business segment, our future growth may be slowed and our business, results of operations, and financial condition could be materially and adversely affected.
Changes in how our employees work and access our systems during the current COVID-19 pandemic also could lead to additional opportunities for bad actors to launch cyberattacks or for employees to cause inadvertent security risks or incidents.
Changes in how our employees work and access our systems, as experienced during the COVID-19 pandemic, also could lead to additional opportunities for bad actors to launch cyberattacks or for employees to cause inadvertent security risks or incidents.
If we cannot sustain that pace of product and service introductions, either through rapid innovation or acquisition of new products and services or product and service lines, we may not be able to maintain or increase the market share of our products and services or expand further into the connected lifestyle market in accordance with our current plans.
If we cannot sustain that pace of product and service introductions, either through rapid innovation or acquisition of new products and services or product and service lines, we may not be able to maintain or increase the market share of our products and services or expand further into the smart security market in accordance with our current plans.
Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful or we may suspend or reduce the amount of 31 Table of Contents investment spent on brand promotion and awareness efforts.
Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful or we may suspend or reduce the amount of investment spent on brand promotion and awareness efforts.
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 23 Table of Contents certain selling, general and administrative operations.
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.
Obligations related to data privacy and security are quickly changing, becoming increasingly stringent, and creating regulatory uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.
Obligations related to data privacy and security (and consumers’ data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.
If disruptions in our transportation network occur or our shipping costs substantially increase, including due to the COVID-19 pandemic, we may be unable to sell or timely deliver our products, and our operating expenses could increase. We are highly dependent upon the transportation systems we use to ship our products, including surface, ocean and air freight.
If disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our products, and our operating expenses could increase. We are highly dependent upon the transportation systems we use to ship our products, including surface, ocean and air freight.
We are obligated to file with the SEC annual and quarterly reports and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As a public company, we are obligated to file with the SEC annual and quarterly reports and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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 required to be tested for impairment at least annually.
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.
Our business has been, and may continue to be, affected by a number of factors that are beyond our control, including but not limited to general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for connected lifestyle products.
Our business has been, and may continue to be, affected by a number of factors that are beyond our control, including but not limited to general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for smart security products.
Our future success will depend in large part upon our ability to identify demand trends in the connected lifestyle market and quickly develop or acquire, and design, manufacture and sell, products and services that satisfy these demands in a cost-effective manner.
Our future success will depend in large part upon our ability to identify demand trends in the smart security market and quickly develop or acquire, and design, manufacture and sell, products and services that satisfy these demands in a cost-effective manner.
In addition, we plan to continue to introduce new categories of smart connected devices to the Arlo platform in the near future.
In addition, we plan to continue to introduce new categories of smart security devices to the Arlo platform in the near future.
If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to 17 Table of Contents sell our products in certain jurisdictions.
If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to sell our products in certain jurisdictions.
Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to 38 Table of Contents be licensed to us on commercially acceptable terms, if at all.
Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially acceptable terms, if at all.
We also expect the regulations under Section 404 to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming, and costly.
We 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.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party original design manufacturers (“ODMs”). In most cases, we rely on these manufacturers to procure components and, in some cases, subcontract engineering work. We currently outsource manufacturing to Foxconn Cloud Network Technology Singapore Pte. Ltd., Pegatron Corporation, and Chicony Electronics Co., Ltd..
All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party original design manufacturers (“ODMs”). In most cases, we rely on these manufacturers to procure components and, in some cases, subcontract engineering work. We currently outsource manufacturing to Foxconn Cloud Network Technology Singapore Pte.
If we fail to successfully maintain, promote, and position our brand and protect our reputation, or if we incur significant expenses in this effort, our business, financial condition and operating results may be adversely affected.
If we fail to successfully maintain, promote, and position our 31 Table of Contents brand and protect our reputation, or if we incur significant expenses in this effort, our business, financial condition and operating results may be adversely affected.
We have designed the Arlo platform to seamlessly integrate with third-party IoT products and protocols, such as Amazon 44 Table of Contents 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, IFTTT, Stringify, and Samsung SmartThings.
Some specific factors that may have a significant effect on the market price of our common stock include: • actual or anticipated fluctuations in our results of operations or our competitors’ operating results; • actual or anticipated changes in the growth rate of the connected lifestyle market, our growth rate or our competitors’ growth rates; • delays in the introduction of new products by us or market acceptance of these products; 36 Table of Contents • conditions in the financial markets in general or changes in general economic conditions, including due to the COVID-19 pandemic; • changes in governmental regulation, including taxation and tariff policies; • interest rate or currency exchange rate fluctuations; • our ability to forecast or report accurate financial results; and • changes in stock market analyst recommendations regarding our common stock, other comparable companies, or our industry generally.
Some specific factors that may have a significant effect on the market price of our common stock include: • actual or anticipated fluctuations in our results of operations or our competitors’ operating results; • actual or anticipated changes in the growth rate of the 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; • conditions in the financial markets in general or changes in general economic conditions; • changes in governmental regulation, including taxation and tariff policies; 37 Table of Contents • interest rate or currency exchange rate fluctuations; • our ability to forecast or report accurate financial results; and • changes in stock market analyst recommendations regarding our common stock, other comparable companies, or our industry generally.
If any of these representations, statements or undertakings are, or become, incomplete or inaccurate, or if we or NETGEAR breach any of the respective covenants in any of the separation-related agreements, the opinion of the outside tax counsel could be invalid and the conclusions reached therein could be jeopardized.
If any of these representations, statements or undertakings are, or become, incomplete or inaccurate, or if we or NETGEAR breach any of the respective covenants in any of the separation-related agreements (in connection with our separation from NETGEAR (the “Separation”)), the opinion of the outside tax counsel could be invalid and the conclusions reached therein could be jeopardized.
We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption, or quality control problems in their operations, including due to the COVID-19 pandemic, we could lose or fail to grow our market share and our brand may suffer.
We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption, or quality control problems in their operations, we could lose or fail to grow our market share and our brand may suffer.
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.
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.
Ensuring that a contract manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a contract manufacturer can scale its production of our products at the volumes and in the quality that we require.
Qualifying a new manufacturer and commencing volume production is expensive and time consuming. Ensuring that a contract manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a contract manufacturer can scale its production of our products at the volumes and in the quality that we require.
We are also required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting 51 Table of Contents requirements on a timely basis.
We are also required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis.
In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, loss of sensitive data and income, reputational harm, and diversion of funds.
In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, ability to provide our products or services, loss of sensitive data and income, reputational harm, and diversion of funds.
We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats.
We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through deep fakes, which may be increasingly more difficult to identify as fake, and phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks, credential stuffing attacks, credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, attacks enhanced or facilitated by AI, and other similar threats.
If we are not able to efficiently manufacture new products in quantities sufficient to support wholesale, retail, and e-commerce distribution, especially in light of the ongoing COVID-19 pandemic and its variants, we may not be able to recover our investment in the development of new product and service iterations and product lines, and we would continue to be subject to the risks inherent to having a limited product line.
If we are not able to efficiently manufacture new products in quantities sufficient to support wholesale, retail, and e-commerce distribution, we may not be able to recover our investment in the development of new product and service iterations and product lines, and we would continue to be subject to the risks inherent to having a limited product line.
The U.S. capital markets experienced and continue to experience extreme volatility and disruption following the global outbreak of COVID-19, the Russian invasion of Ukraine, and inflationary pressures.
The U.S. capital markets experienced and continue to experience extreme volatility and disruption following the Russian invasion of Ukraine, and inflationary pressures.
Also, we may not be able to respond effectively to new product or service announcements by our competitors by quickly introducing competitive products and services. 22 Table of Contents In addition, we may acquire companies and technologies in the future and, consistent with our vision for Arlo, introduce new product and service lines in the connected lifestyle market.
Also, we may not be able to respond effectively to new product or service announcements by our competitors by quickly introducing competitive products and services. In addition, we may acquire companies and technologies in the future and, consistent with our vision for Arlo, introduce new product and service lines in the smart security market.
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, 2022, we have 88,887,139 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 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.
In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline. The success of our business depends on customers’ continued and unimpeded access to our platform on the internet. Our users must have internet access in order to use our platform.
In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline. 41 Table of Contents The success of our business depends on customers’ continued and unimpeded access to our platform on the internet.
In addition, we are and will continue to become subject to other reporting and corporate governance requirements, including certain requirements of the New York Stock Exchange ("NYSE"), and certain provisions of the Section 404 and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.
In addition, we are and will continue to become subject to other reporting and corporate governance requirements, including certain requirements of the New York Stock Exchange (“NYSE”), and certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX Act”) and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.
If we do not resolve these claims on a favorable basis, our business, results of operations, and financial condition could be materially and adversely affected. As part of growing our business, we may make acquisitions.
If we do not resolve these claims on a favorable basis, our business, results of operations, and financial condition could be materially and adversely affected.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could materially and adversely affect our business, results of operations, financial condition, and stock price.
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.
We have operations in the emerging market economies of Eastern Europe, previously including operations in Belarus, utilizing employees and contractors who perform services relating to new product releases. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region is likely.
We have operations in the emerging market economies of Eastern Europe, utilizing employees and contractors who perform services relating to new product releases. In late February 2022, Russian military forces launched significant military action against Ukraine. The conflict remains ongoing.
The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, international conflicts, such as the potential escalating conflict between Russia and Ukraine, acts of war or terrorism, natural disasters, and congestion resulting from higher shipping volumes.
The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, international conflicts, such as the ongoing escalating conflict between Russia and Ukraine, hostilities in the Middle-East, attacks on shipping vessels in Red Sea, acts of war or terrorism, natural disasters, and congestion resulting from higher shipping volumes.
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.
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.
Throughout the past few years, Arlo has significantly increased the rate of new product and service introductions, with the introduction of new lines of Arlo cameras, smart lights, and doorbell products, as well as the introduction of our Arlo Secure services and Arlo Home Security System.
Throughout the past few years, Arlo has significantly increased the rate of new product and service introductions, with the introduction of new lines of Arlo camera, home security system, and doorbell products, as well as the introduction of Arlo Secure, Arlo Total Security, and Arlo Safe.
All of our solutions currently reside on systems leased and operated by us in these data center locations. Accordingly, our operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture, features, and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit.
Accordingly, our operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture, features, and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeDuring fiscal 2022, our international sales personnel were based out of local sales offices or home offices in Australia and Canada. Our international operations personnel use leased facilities in Hong Kong. We maintain our marketing and research and development facilities in Milpitas (the United States), Irvine (the United States), Carlsbad (the United States), Richmond (Canada) and Taipei (Taiwan).
Biggest changeDuring 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.
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 2029. 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 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.
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. We also lease office space in Cork, Ireland.
Our 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.
Removed
In November 2022, we announced a restructuring plan to reduce our cost structure to better align the operational needs of the business to current economic conditions while continuing to support our long-term strategy.
Removed
As a result, we have reduced office space in our headquarters located in Carlsbad, California and will not renew the office leases in Australia, Hong Kong and India.
Removed
We believe that the facilities described above are suitable and adequate for our present purposes and that the productive capacity in our facilities is substantially being utilized or we have plans to utilize it.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “ARLO”. Holders of Common Stock On March 3, 2023, we had eight institutional stockholders of record of our common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “ARLO”.
We have never paid dividends on our common stock and have no present plans to do so. The stock price performance shown in the following graph is not intended to forecast or be indicative of possible future stock price performance. 54 Table of Contents
We have never paid dividends on our common stock and have no present plans to do so. The stock price performance shown in the following graph is not intended to forecast or be indicative of possible future stock price performance.
The following graph shows a comparison from December 31, 2018 through December 31, 2022 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, 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 graph assumes that $100 was invested in Arlo common stock at the closing price of $9.98 on December 31, 2018 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, 2018, and assumes reinvestment of any dividends.
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.
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 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.
Removed
Recent Sales of Unregistered Securities and Purchases of Equity Securities by the Issuer None.
Added
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”).
Added
All of the shares of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co. as one stockholder.

Item 7. Management's Discussion & Analysis

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

55 edited+8 added−31 removed27 unchanged
Biggest changeSales and Marketing Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Sales and marketing expense $ 70,081 43.3 % $ 48,909 Sales and marketing expense increased $21.2 million for the year ended December 31, 2022 compared to the prior year, primarily due to increases of $17.5 million in marketing expenses, primarily for the production of creative content and media spend for our brand awareness advertising campaign, $1.6 million in personnel-related expenses mainly from the increase in stock-based compensation, and $1.6 million in credit card processing fees. 62 Table of Contents General and Administrative Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) General and administrative expense $ 55,932 13.0 % $ 49,489 General and administrative expense increased $6.4 million for the year ended December 31, 2022 compared to the prior year, primarily due to an increase of $9.7 million in personnel-related expenses mainly an increase in stock-based compensation, partially offset by decreases of $1.6 million in legal and professional services and $1.4 million in IT and facility overhead.
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.
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. However, in the future we may require or desire additional funds to support our operating expenses and capital requirements.
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.
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, 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 year ended December 31, 2023 and 2022, no impairment of long-lived assets has been identified.
For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, 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, 2021.
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.
As we grow our installed base revenue, 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 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.
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 not merchantable or is found to be damaged or defective.
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.
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 headcount and non-essential spending, subleasing and not renewing excess office space, and deferring hiring.
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.
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, 2022 and 2021, accrued sales warranty returns amounted to $17.7 million and $18.0 million, respectively.
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 goal is to continue to develop innovative, world-class connected lifestyle solutions to expand and further monetize our current and future user and paid account bases.
Our goal is to continue to develop innovative, world-class smart security solutions to expand and further monetize our current and future user and paid account bases.
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 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.
Service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and computing, IT and facilities overhead as well as NRE service costs incurred under NRE arrangements.
Service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel, storage, security and computing, IT and facilities overhead.
We accrue for 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 recorded as a contra revenue. As a consequence, we record a substantial portion of our channel marketing costs as a contra revenue.
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.
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 COVID-19 pandemic, the ongoing conflict in Ukraine, supply chain disruptions, the inflationary macro environment, lower consumer confidence and rising interest rates. 57 Table of Contents Components of Results of Operations Revenue Our gross revenue consists primarily of sales of devices, prepaid and paid subscription service revenue and NRE service revenue.
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.
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.
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.
We have a history of losses and may continue to incur operating and net losses for the foreseeable future. As of December 31, 2022, our accumulated deficit was $345.4 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.
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.
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. 68 Table of Contents
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
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 on our consolidated financial statements.
For the years ended December 31, 2022 and 2021, we generated total revenue of $490.4 million and $435.1 million, respectively. Loss from operations was $56.9 million and $60.1 million for the years ended December 31, 2022 and 2021, respectively.
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.
We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs.
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.
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 expense directly attributable to delivering the Verisure NRE is recognized in cost of service.
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.
We record an estimate of sales incentives as a contra revenue 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, 2022 and 2021, accrued sales incentives amounted to $35.7 million and $31.4 million, respectively.
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.
Operating Expenses Research and Development Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Research and development expense $ 64,709 9.6 % $ 59,063 Research and development expense increased $5.6 million for the year ended December 31, 2022 compared to the prior year, primarily due to increases of $3.6 million in personnel-related expenses mainly increases in headcount and stock-based compensation, and $2.4 million in outside professional services, partially offset by a decrease of $1.2 million in IT and facility overhead and other expenses.
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.
Service gross profit increased for the year ended December 31, 2022 compared to the prior year, primarily due to growth in paid service revenue as a result of the increase in paid accounts and 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.
We have no commitments to obtain such additional financing and cannot provide assurance that additional financing will be available at all or, if available, that such financing would be obtainable on terms favorable to us and would not be dilutive. 65 Table of Contents Cash Flow The following table presents our cash flows for the periods presented.
We have no commitments to obtain such additional financing and cannot provide assurance that additional financing will be available at all or, if available, that such financing would be obtainable on terms favorable to us and would not be dilutive.
Interest and Other Income, Net Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Interest income $ 926 ** $ 11 Other income, net $ 302 (93.7) % $ 4,775 **Percentage change not meaningful.
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.
Investing activities Net cash used in investing activities increased by $49.5 million for the year ended December 31, 2022 compared to the prior year, primarily due to higher net purchases of short-term investments.
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.
Annual Recurring Revenue (“ARR”) . We believe ARR enables measurement of our business initiatives, and serves as an indicator of our future growth. 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.
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.
The following table sets forth our consolidated statements of comprehensive loss data: Year Ended December 31, 2022 2021 (In thousands, except percentage data) Revenue: Products $ 353,935 72.2 % $ 331,620 76.2 % Services 136,479 27.8 % 103,517 23.8 % Total revenue 490,414 100.0 % 435,137 100.0 % Cost of revenue: Products 308,692 63.0 % 285,334 65.6 % Services 45,687 9.3 % 41,768 9.6 % Total cost of revenue 354,379 72.3 % 327,102 75.2 % Gross profit 136,035 27.7 % 108,035 24.8 % Operating expenses: Research and development 64,709 13.2 % 59,063 13.6 % Sales and marketing 70,081 14.3 % 48,909 11.2 % General and administrative 55,932 11.4 % 49,489 11.4 % Restructuring charges 1,805 0.3 % — — % Impairment charges — — % 9,116 2.1 % Others 387 0.1 % 1,596 0.4 % Total operating expenses 192,914 39.3 % 168,173 38.6 % Loss from operations (56,879) (11.6) % (60,138) (13.8) % Interest income 926 0.2 % 11 — % Other income, net 302 0.1 % 4,775 1.1 % Loss before income taxes (55,651) (11.3) % (55,352) (12.7) % Provision for income taxes 975 0.2 % 677 0.2 % Net loss $ (56,626) (11.5) % $ (56,029) (12.9) % 60 Table of Contents Revenue We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geography on the ship-to location of the customer for device sales and device location for service sales.
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.
As of December 31, 2022, the Arlo platform had approximately 7.2 million cumulative registered accounts across more than 100 countries around the world coupled with 1.9 million cumulative paid subscribers and annual recurring revenue of $137.8 million.
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.
Arlo’s deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day.
Arlo’s 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.
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, corporate IT and facilities overhead, strategic initiative expense, and other general corporate expense.
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.
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.
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 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.
Financing activities Net cash used in financing activities increased by $9.0 million for the year ended December 31, 2022 compared to the prior year, primarily due to the increase in withholding tax from restricted stock unit releases and the decrease in proceeds from exercises of stock options.
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.
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.
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.
Cost of Revenue Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Cost of revenue: Products $ 308,692 8.2 % $ 285,334 Services 45,687 9.4 % 41,768 Total cost of revenue $ 354,379 8.3 % $ 327,102 Cost of product revenue increased for the year ended December 31, 2022 compared to the prior year, primarily due to increases in gross shipments, coupled with increases in costs of materials and components of our products, mainly as a result of inflation, offset by a decrease in freight-in costs due to normalization of the supply chain and utilization of ocean freight.
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.
Our cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. Since the launch of our first product in December 2014, we have shipped over 27.5 million smart connected devices.
Our highly secure, cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection – all rooted in a commitment to safeguard privacy for our users and their personal data.
Impact of COVID-19 and Global Geopolitical, Economic and Business Conditions During the year ended December 31, 2022, we remained focused on navigating COVID-19 related challenges, the ongoing conflict in Ukraine, supply chain disruptions, inflation, lower 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.
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.
However, we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur.
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.
We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities. 58 Table of Contents 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.
We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products, and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.
Consistent with the prior year, 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. 64 Table of Contents Liquidity and Capital Resources As of December 31, 2022, our cash and cash equivalent and short-term investments totaled $113.7 million and unused borrowing capacity of $22.2 million based on the terms and conditions of our revolving credit facility.
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.
We evaluate these estimates on an ongoing basis, as new events occur, our operating environment changes, or additional information is obtained, and we make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of our Board of Directors.
We base our estimates on historical experience and other assumptions that we believe are applicable and reasonable under the circumstances. We evaluate these estimates on an ongoing basis, as new events occur, our operating environment changes, or additional information is obtained, and we make changes accordingly.
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. We base our estimates on historical experience and other assumptions that we believe are applicable and reasonable under the circumstances.
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.
A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition. Cost of Revenue Cost of revenue consists of both product costs and service costs.
Our revenue consists of gross revenue, less customer rebates and other channel sales incentives, allowances for estimated sales returns, price protection, and net changes in deferred revenue. A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition.
Our provision for income taxes was primarily attributable to income taxes on foreign earnings and to a lesser extent U.S. taxable income. The increase in provision for income taxes for the year ended December 31, 2022 compared to the prior year was impacted by the application of Section 174 of the U.S.
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.
Restructuring Charges Restructuring charges consist primarily 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.
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.
Interest income increased for the year ended December 31, 2022, compared to the prior year, primarily due to the increase in our short-term investments as well as a result of higher interest rates. 63 Table of Contents Other income, net primarily represents miscellaneous income and expense, which includes reimbursements under the Verisure Transition Service Agreement (“Verisure TSA”) and the Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) for qualified wages.
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.
Service revenue increased by $33.0 million, or 31.8%, for the year ended December 31, 2022 compared to the prior year, primarily driven by a 74.5% increase in paid accounts, partially offset by a decrease in NRE revenue.
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.
Transaction price is calculated as selling price net of variable 66 Table of Contents consideration which may include estimates for sales returns, sales incentives, and price protection related to current period product revenue. In determining estimates for sales returns, management analyzes historical sales and returns data, channel inventory levels, current economic trends, and changes in customer demand for our products.
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.
We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated. 56 Table of Contents As of and for the Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Cumulative registered accounts 7,220 17.8 % 6,131 Cumulative paid accounts 1,862 74.5 % 1,067 Annual recurring revenue $ 137,764 52.9 % $ 90,100 Cumulative Registered Accounts .
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.
Provision for Income Taxes Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Provision for income taxes $ 975 44.0 % $ 677 Effective tax rate (1.8) % (1.2) % Our effective tax rate for the year ended December 31, 2022 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.
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.
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), plus paid service plans of a duration of more than three months bundled with products (such bundles being counted as a paid account after 90 days have elapsed from the date of registration).
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.
Cost of service revenue increased for the year ended December 31, 2022 compared to the prior year, primarily due to the service revenue growth driven by growth of paid subscriber base, offset by cost optimizations. 61 Table of Contents Gross Profit Year Ended December 31, 2022 % Change 2021 (In thousands, except percentage data) Gross profit: Products $ 45,243 (2.3) % $ 46,286 Services 90,792 47.0 % 61,749 Total gross profit $ 136,035 25.9 % $ 108,035 Gross margin: Products 12.8 % 14.0 % Services 66.5 % 59.7 % Total gross margin 27.7 % 24.8 % Product gross profit decreased for the year ended December 31, 2022 compared to the prior year, primarily due to higher product costs and provisions of sales incentives and returns that are accounted for a contra revenue, partially offset by the increase in product shipments.
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.
Year Ended December 31, 2022 2021 (In thousands) Net cash used in operating activities $ (45,962) $ (23,197) Net cash used in investing activities (31,773) 17,732 Net cash used in financing activities (13,942) (4,970) Net cash decrease $ (91,677) $ (10,435) Operating activities Net cash used in operating activities increased by $22.8 million for the year ended December 31, 2022 compared to the prior year.
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, 2022 % Change 2021 (In thousands, except percentage data) Americas $ 273,981 1.0 % $ 271,182 Percentage of revenue 55.8 % 62.3 % EMEA $ 196,465 46.4 % $ 134,232 Percentage of revenue 40.1 % 30.9 % APAC $ 19,968 (32.8) % $ 29,723 Percentage of revenue 4.1 % 6.8 % Total revenue $ 490,414 12.7 % $ 435,137 Revenue increased for the year ended December 31, 2022 compared to the prior year, primarily due to higher service revenue across all geographic regions and product sales mainly an increase in shipment volume.
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.
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Business and Executive Overview Arlo combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that are transforming the way people experience the connected lifestyle.
Added
Business and Executive Overview Arlo is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security services that combine a globally scaled cloud platform, advanced monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem.
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We also expect our sales and marketing expense to increase in the future as we invest in marketing to drive awareness of our brand and drive demand for our products and services..
Added
Cost of Revenue Cost of revenue consists of both product costs and service costs.
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Recurring paid service revenue represents the revenue we recognize from our paid accounts and excludes prepaid service revenue and Non-Recurring Engineering (“NRE”) service revenue from strategic partners. 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.
Added
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.
Removed
Upon device shipment, we attribute a portion of the sales price as prepaid service, deferring this revenue at the outset and subsequently recognizing it ratably over the estimated useful economic life of the device or free trial period, as applicable. Our paid subscription services relate to sales of subscription plans to our registered accounts.
Added
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.
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Our services also include certain development services provided to strategic partners under NRE arrangements. Our revenue consists of gross revenue, less end-user customer rebates and other channel sales incentives, allowances for estimated sales returns, price protection, and net changes in deferred revenue.
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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.
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We expect our sales and marketing expense to increase in the future as we invest in marketing to drive awareness of our brand and drive demand for our products and services.
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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.
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Others Others include separation expense and gain on sale of business. Separation expense consists primarily of costs of legal and professional services for IPO-related litigation associated with our separation from NETGEAR.
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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.
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Gain on sale of business represents the gain on the sale of our commercial operations in Europe. 59 Table of Contents Results of Operations In this section, we discuss the results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
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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.
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Product revenue increased by $22.3 million, or 6.7% for the year ended December 31, 2022 compared to the prior year, primarily driven by an increase in product shipments in EMEA due to stronger customer demand and the full year sale of cameras in the Verisure security channel, partially offset by decreases in product sales in APAC and the Americas and by higher provisions for sales incentives and returns in the Americas that are accounted for a contra revenue.
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Restructuring Charges Year Ended December 31, 2022 % Change 2021 (In thousands) Restructuring charges $ 1,805 ** $ — **Percentage change not meaningful. During the fourth quarter of 2022, we initiated a restructuring plan to reduce our cost structure to better align the operational needs of the business to current economic conditions while continuing to support our long-term strategy.
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This restructuring included the reduction of headcount as well as abandonment of certain lease contracts and cancellation of contractual services arrangements with certain suppliers. Refer to Note 6, Restructuring 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 the restructuring.
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Impairment Charges Year Ended December 31, 2022 % Change 2021 (In thousands) Impairment charges $ — ** $ 9,116 **Percentage change not meaningful. During the second quarter of 2021, we reviewed certain operating lease 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.
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As a result, we recorded an impairment charge of $9.1 million, which included $6.8 million associated with operating lease right-of-use assets and $2.3 million associated with the leasehold improvements and furniture, fixtures and equipment included in the San Jose office asset group.
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Other income, net decreased for the year ended December 31, 2022 compared to the prior year, primarily due to decreases of $2.1 million in ERC under the CARES Act and $2.5 million in Verisure TSA related income.
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Tax Code requiring capitalization of research and experimental expenses.
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This increase is mostly due to an increase in working capital used in operations of $25.7 million. The increase in working capital used in operations was driven by higher inventory purchases as a result of our internal objective to maintain more appropriate inventory levels to support consumer demand and higher payments to our suppliers and vendors.
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Critical Accounting Estimates We prepare the consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFor the years ended December 31, 2022, 2021, and 2020, 3%, 6%, and 10% of our total revenue was denominated in currencies other than the U.S. dollar, respectively. 69 Table of Contents
Biggest changeFor 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
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, 2022, 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, 2023, we had net assets in various local currencies.
We 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, 2022 and there was no impairment charge on our investments for the year ended December 31, 2022.
We 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.
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, 2022 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, 2023 due to the inherent limitations associated with predicting foreign currency exchange rates and our actual exposures and positions.

Other ARLO 10-K year-over-year comparisons