U.S. Markets closed

Arlo Reports Second Quarter 2022 Results

·12 min read

Q2 ARR ended at $117 million, growing 67% year over year

Revenue Growth of 20.7% year over year, exceeding high-end of Guidance for the Quarter

Record GAAP gross profit of $33.7 million, record non-GAAP gross profit of $35.1 million

113% Year over Year growth in Cumulative Paid Accounts, surpassing 1.5 million in July

Delivered GAAP operating loss of $11.3 million, third consecutive quarter of non-GAAP Operating Profit of $1.0 million

CARLSBAD, Calif., August 09, 2022--(BUSINESS WIRE)--Arlo Technologies, Inc. (NYSE: ARLO), a leading smart home security brand, today reported financial results for the second quarter ended July 3, 2022.

Financial Highlights (1)

  • Record revenue for any second fiscal quarter of $119.0 million, an increase of 20.7% year over year.

  • GAAP gross profit of $33.7 million, an increase of 28.9% year over year; non-GAAP gross profit of $35.1 million, an increase of 27.7% year over year and an all-time record for the company.

  • GAAP gross margin of 28.4%; non-GAAP gross margin of 29.5%.

  • GAAP operating loss of $11.3 million, a decrease of $14.5 million year over year; non-GAAP operating profit of $1.0 million, an increase of $5.3 million year over year and the third consecutive quarter of non-GAAP operating profitability.

  • GAAP net loss per diluted share of $(0.13); non-GAAP net income per diluted share of $0.01.

"The strong growth of our service business coupled with solid execution by the Arlo team continues to deliver exceptional results across all metrics. In Q2, revenue reached $119.0 million for 20.7% growth year over year, above the top end of our guidance and a record for the quarter. This growth was driven by highly profitable ARR, which ended Q2 at $117 million. Arlo posted record non-GAAP gross profit and our third consecutive quarter of non-GAAP operating profitability. These exceptional Q2 results underline how the powerful combination of our recurring revenue business model coupled with our successful channel and product diversification are delivering truly transformative results for Arlo," said Matthew McRae, Chief Executive Officer of Arlo Technologies. "Having delivered a record-breaking first half year of non-GAAP operating profit, we are looking forward to deploying the building blocks of our long-range plan in the second half of the year. Firstly, we are excited to commence the roll out of our brand awareness advertising campaign this month, which we will conduct in a targeted manner focused on new household formation to drive incremental subscription revenue. Secondly, we will be expanding our product portfolio with our new personal protection app, Arlo Safe, and our new innovative security system, which will bring full sensor-based security functionality to our ecosystem of smart cameras. We expect both of these will be available before the end of the year and will provide significant opportunities to drive new subscriptions and increase ARPU. Thirdly, we continue to broaden our routes to market and build on the success we are seeing with partners such as Verisure, Calix, Verizon and T-Mobile. We look forward to reporting more to you on the success of these initiatives which we believe will drive incremental long-term growth and profitability."

Three Months Ended

Six Months Ended

July 3, 2022

April 3, 2022

June 27, 2021

July 3, 2022

June 27, 2021

(in thousands, except percentage and per share data)

Revenue

$

118,979

$

124,751

$

98,571

$

243,730

$

181,127

GAAP Gross Margin

28.4

%

26.9

%

26.6

%

27.6

%

28.7

%

Non-GAAP Gross Margin (1)

29.5

%

27.6

%

27.9

%

28.5

%

29.9

%

GAAP Net Loss per Diluted Share

$

(0.13

)

$

(0.10

)

$

(0.28

)

$

(0.23

)

$

(0.42

)

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

$

0.01

$

0.01

$

(0.04

)

$

0.02

$

(0.07

)

_________________________

(1)

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

Financial and Business Highlights

  • Record Q2 service revenue of $32.8 million, for growth of 29.8% year over year.

  • Ended Q2 with ARR of $116.6 million, growing 67.2% year over year. (2)

  • GAAP service gross margin of 65.2%. Non-GAAP service gross margin of 65.8% in Q2 which is a record for Arlo as a standalone company. (1)

  • Added a record 206,000 paid accounts in Q2, a sequential increase of 0.5% over Q1, and a year over year increase of 41.1%.

  • Our Go 2 LTE/Wi-Fi camera won the Editor’s Choice Award at PCMag.

_________________________

(1)

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

(2)

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

Third Quarter 2022 Business Outlook (3)

  • Revenue of $125.0 million to $135.0 million.

  • GAAP net loss per diluted share of $(0.28) to $(0.21), and non-GAAP net loss per diluted share of $(0.17) to $(0.10).

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

Three Months Ending October 2, 2022

Revenue

Net Loss per Diluted Share

(in millions, except per share data)

GAAP

$125.0 - $135.0

$(0.28) - $(0.21)

Estimated adjustments for (3):

Stock-based compensation expense

0.11

Tax effects of non-GAAP adjustments

Non-GAAP

$125.0 - $135.0

$(0.17) - $(0.10)

_________________________

(3)

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

Investor Conference Call / Webcast Details

Arlo will review the second quarter of 2022 results and discuss management’s expectations for the third quarter of 2022 today, Tuesday, August 9, 2022 at 5:00 p.m. ET (2:00 p.m. PT). The toll-free dial-in number for the live audio call is (888) 660-6387. The international dial-in number for the live audio call is +1 (929) 203-1909. The conference ID for the call is 7749064. A live webcast of the conference call will be available on Arlo’s Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.

About Arlo Technologies, Inc.

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

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

© 2022 Arlo Technologies, Inc., Arlo and the Arlo logo are trademarks and/or registered trademarks of Arlo Technologies, Inc. and/or certain of its affiliates in the United States and/or other countries. Other brand and product names are for identification purposes only and may be trademarks or registered trademarks of their respective holder(s). The information contained herein is subject to change without notice. Arlo shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

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

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate," "expect," "believe," "will," "may," "should," "estimate," "project," "outlook," "forecast" or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.’s (the "Company") expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding its potential future business, operating performance and financial condition, including descriptions of its expected revenue, GAAP and non-GAAP gross margins, operating margins, tax rates, expenses, and cash outlook; the deployment of elements of the Company’s long-range plan in the second half of 2022; the commencement of the deployment of the brand awareness advertising campaign and the targeting thereof; the expansion of the Company’s product portfolio with Arlo Safe and the new security system, the timing of availability thereof and the potential to provide opportunities for new subscription and increased ARPU; and the broadening of routes to market and continued relationships with Verisure, Calix, Verizon, and T-Mobile. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: deployment of elements of the Company’s long-range plans may be delayed or may not occur; the deployment of the brand awareness advertising campaign may be delayed or may not occur and the risk that it may not drive incremental paid accounts; the expansion of the Company’s product portfolio with Arlo Safe and the new security system may not materialize; routes to market may not materialize or prove as successful as anticipated; the relationships with Verisure, Calix, Verizon, and T-Mobile may deteriorate; future demand for the Company's products may be lower than anticipated; the Company may be unsuccessful in developing and expanding its sales and marketing capabilities; the COVID-19 pandemic could continue to have an adverse impact on the Company's business, operations and the markets and communities in which the Company and its partners and customers operate; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect the Company and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Risk Factors" in the Company's most recently filed Annual Report and Quarterly Report filed with the Securities and Exchange Commission (the "SEC") and subsequent filings with the SEC. Given these circumstances, you should not place undue reliance on these forward-looking statements. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

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

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

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

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

Separation expense consists of expenses that are related to the separation of our business from NETGEAR. These consist primarily of costs of legal and professional services for IPO-related litigation associated with our separation from NETGEAR. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

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

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

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

Source: Arlo-F

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of

July 3,
2022

December 31,
2021

(In thousands, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents

$

85,537

$

175,749

Short-term investments (amortized cost of $49,901 and $—)

49,721

Accounts receivable, net (net of allowance for credit losses of $405 and $337)

73,998

79,564

Inventories

39,208

38,390

Prepaid expenses and other current assets

8,890

9,919

Total current assets

257,354

303,622

Property and equipment, net

7,478

9,595

Operating lease right-of-use assets, net

15,242

14,814

Goodwill

11,038

11,038

Restricted cash

4,125

4,107

Other non-current assets

4,441

4,314

Total assets

$

299,678

$

347,490

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

77,423

$

84,098

Deferred revenue

13,445

29,442

Accrued liabilities

82,225

97,377

Income tax payable

138

12

Total current liabilities

173,231

210,929

Non-current deferred revenue

577

1,344

Non-current operating lease liabilities

21,469

21,470

Non-current income taxes payable

94

94

Other non-current liabilities

1,906

1,001

Total liabilities

197,277

234,838

Stockholders’ Equity:

Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding

Common stock: : $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 87,529,758 at July 3, 2022 and 84,453,212 at December 31, 2021

88

84

Additional paid-in capital

411,316

401,367

Accumulated other comprehensive income

(168

)

Accumulated deficit

(308,835

)

(288,799

)

Total stockholders’ equity

102,401

112,652

Total liabilities and stockholders’ equity

$

299,678

$

347,490

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

July 3,
2022

April 3,
2022

June 27,
2021

July 3,
2022

June 27,
2021

(in thousands, except percentage and per share data)

Revenue:

Products

$

86,191

$

94,825

$

73,311

$

181,016

$

133,072

Services

32,788

29,926

25,260

62,714

48,055

Total revenue

118,979

124,751

98,571

243,730

181,127

Cost of revenue:

Products

73,829

80,777

62,019

154,606

109,176

Services

11,410

10,399

10,383

21,809

19,975

Total cost of revenue

85,239

91,176

72,402

176,415

129,151

Gross profit

33,740

33,575

26,169

67,315

51,976

Gross margin

28.4

%

26.9

%

26.6

%

27.6

%

28.7

%

Operating expenses:

Research and development

17,402

16,379

16,251

33,781

31,042

Sales and marketing

14,506

13,168

12,459

27,674

23,666

General and administrative

13,149

12,621

13,559

25,770

24,786

Impairment charges

9,116

9,116

Separation expense

25

79

605

104

659

Total operating expenses

45,082

42,247

51,990

87,329

89,269

Loss from operations

(11,342

)

(8,672

)

(25,821

)

(20,014

)

(37,293

)

Operating margin

(9.5

) %

(7.0

) %

(26.2

) %

(8.2

) %

(20.6

) %

Interest income (expense), net

129

(5

)

3

124

27

Other income (expense), net

(116

)

411

2,662

295

3,571

Loss before income taxes

(11,329

)

(8,266

)

(23,156

)

(19,595

)

(33,695

)

Provision for income taxes

228

213

164

441

344

Net loss

$

(11,557

)

$

(8,479

)

$

(23,320

)

$

(20,036

)

$

(34,039

)

Net loss per share:

Basic

$

(0.13

)

$

(0.10

)

$

(0.28

)

$

(0.23

)

$

(0.42

)

Diluted

$

(0.13

)

$

(0.10

)

$

(0.28

)

$

(0.23

)

$

(0.42

)

Weighted average shares used to compute net loss per share:

Basic

86,868

85,222

82,134

85,966

81,275

Diluted

86,868

85,222

82,134

85,966

81,275

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

July 3,
2022

June 27,
2021

(In thousands)

Cash flows from operating activities:

Net loss

$

(20,036

)

$

(34,039

)

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

Stock-based compensation expense

21,834

19,949

Impairment charges

9,116

Depreciation and amortization

2,523

3,169

Allowance for credit losses and inventory reserves

(120

)

(1,085

)

Deferred income taxes

133

(115

)

Premium amortization (discount accretion) on investments, net

89

(3

)

Changes in assets and liabilities:

Accounts receivable, net

5,498

25,736

Inventories

(628

)

22,652

Prepaid expenses and other assets

767

(4,782

)

Accounts payable

(6,565

)

(19,189

)

Deferred revenue

(16,763

)

(18,802

)

Accrued and other liabilities

(16,113

)

(26,073

)

Net cash used in operating activities

(29,381

)

(23,466

)

Cash flows from investing activities:

Purchases of property and equipment

(451

)

(1,066

)

Purchases of short-term investments

(59,490

)

Proceeds from maturities of short-term investments

9,512

20,000

Net cash provided by (used in) investing activities

(50,429

)

18,934

Cash flows from financing activities:

Proceeds related to employee benefit plans

3,171

6,136

Restricted stock unit withholdings

(13,555

)

(9,084

)

Net cash used in financing activities

(10,384

)

(2,948

)

Net decrease in cash and cash equivalents and restricted cash

(90,194

)

(7,480

)

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

179,856

190,291

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

$

89,662

$

182,811

Non-cash investing and financing activities:

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

$

333

$

549

ARLO TECHNOLOGIES, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

UNAUDITED STATEMENT OF OPERATIONS DATA:

Three Months Ended

Six Months Ended

July 3,
2022

April 3,
2022

June 27,
2021

July 3,
2022

June 27,
2021

(in thousands, except percentage data)

GAAP gross profit:

Products

$

12,362

$

14,048

$

11,292

$

26,410

$

23,896

Services

21,378

19,527

14,877

40,905

28,080

Total GAAP gross profit

33,740

33,575

26,169

67,315

51,976

GAAP gross margin:

Products

14.3

%

14.8

%

15.4

%

14.6

%

18.0

%

Services

65.2

%

65.3

%

58.9

%

65.2

%

58.4

%

Total GAAP gross margin

28.4

%

26.9

%

26.6

%

27.6

%

28.7

%

Stock-based compensation expense - Products

1,148

855

1,289

2,003

2,163

Stock-based compensation expense - Services

187

55

242

Non-GAAP gross profit:

Products

13,510

14,903

12,581

28,413

26,059

Services

21,565

19,582

14,877

41,147

28,080

Total Non-GAAP gross profit

$

35,075

$

34,485

$

27,458

...