BusinessWire

Arlo Reports Second Quarter 2020 Results

Exceeded Revenue and EPS Guidance

53% Service Revenue Growth Year over Year

Maintained Cash, Cash Equivalents and Short-term Investments of $205.5 million with No Debt

SAN JOSE, Calif.--(BUSINESS WIRE)--Arlo Technologies, Inc. (NYSE: ARLO), a leading internet-connected security camera brand, today reported financial results for the second quarter ended June 28, 2020.

Financial Highlights (1)

  • Revenue of $66.6 million, a decrease of 20.3% year over year.
  • GAAP gross margin of 8.2%; non-GAAP gross margin of 9.6%.
  • GAAP net loss per diluted share of $(0.38); non-GAAP net loss per diluted share of $(0.31).
  • Cash, cash equivalents and short-term investments of $205.5 million and no debt at the end of Q2.

“I am extraordinarily proud of the team at Arlo for their remarkable execution in outperforming our expectations for the quarter, delivering top and bottom line results above the upper end of our guidance, despite supply and go-to-market challenges,” said Matthew McRae, Chief Executive Officer of Arlo Technologies. “Importantly, our new business model that includes a free 90-day trial of Arlo Smart continues to show very strong conversion rates and once again we set records for registered accounts, paid accounts and service revenue. The launch of the Arlo Essential Spotlight Camera, the latest addition to our award-winning smart home security ecosystem, completes our transition to this new business model and addresses the fastest growing price segment in the market. I believe the second quarter marks an inflection point in our subscription business and expect this momentum to continue.”

 

 

Three Months Ended

 

Six Months Ended

 

 

June 28, 2020

 

March 29, 2020

 

June 30, 2019

 

June 28, 2020

 

June 30, 2019

 

 

(in thousands, except percentage and per share data)

Revenue

 

$

66,632

 

 

$

65,450

 

 

$

83,598

 

 

$

132,082

 

 

$

141,478

 

GAAP Gross Margin

 

8.2

%

 

6.0

%

 

11.5

%

 

7.1

%

 

8.2

%

Non-GAAP Gross Margin

 

9.6

%

 

7.4

%

 

12.5

%

 

8.5

%

 

9.3

%

GAAP Net Income (Loss) per Diluted Share

 

$

(0.38)

 

 

$

(0.51)

 

 

$

(0.45)

 

 

$

(0.89)

 

 

$

(1.01)

 

Non-GAAP Net Income (Loss) per Diluted Share

 

$

(0.31)

 

 

$

(0.34)

 

 

$

(0.36)

 

 

$

(0.64)

 

 

$

(0.83)

 

_________________________

(1)

 

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

Business Highlights

  • Added a record 43,000 paid accounts in Q2, a sequential increase of 72% over Q1.
  • Cash, cash equivalents, and short term investments balance of $205.5 million and no debt at the end of Q2.
  • 59.4% year over year paid account growth in Q2.
  • Service revenue of $17.0 million for Q2, for growth of 52.7% year over year.
  • Announced an agreement with Securitas Security Services USA for integration of Arlo SmartCloud and our award winning cameras into their platform, enabling centralized, remote monitoring of their commercial assets and efficient deployment of their Remote Guarding services for their commercial clients.
  • Launched the all-new Arlo Essential Spotlight Camera, which features high definition video, two-way audio, an integrated spotlight, color night vision, and six months of battery life. The Essential Spotlight Camera can connect directly to a Wi-Fi network without the optional smart hub, providing users greater flexibility, and is also paired with a three month subscription to Arlo Smart.

Third Quarter 2020 Business Outlook (2)

  • Revenue of $85.0 million to $95.0 million.
  • GAAP net loss per diluted share of $(0.41) to $(0.32), and non-GAAP net loss per diluted share of $(0.33) to $(0.24).

Due to the uncertainty presented by the ongoing COVID-19 pandemic Arlo has suspended providing full year guidance.

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

 

 

Three Months Ending September 27, 2020

 

 

Revenue

 

Net Loss per Diluted
Share

 

 

(in millions, except per share data)

GAAP

 

$85.0 - $95.0

 

($0.41) - ($0.32)

Estimated adjustments for (2):

 

 

 

 

Stock-based compensation expense

 

 

0.08

Tax effects of non-GAAP adjustments

 

 

Non-GAAP

 

$85.0 - $95.0

 

($0.33) - ($0.24)

_________________________

(2)

 

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

Investor Conference Call / Webcast Details

Arlo will review the second quarter of 2020 results and discuss management’s expectations for the third quarter of 2020 today, Wednesday, August 5, 2020 at 5:00 p.m. ET (2:00 p.m. PT). The toll free dial-in number for the live audio call is (866) 393-4306. The international dial-in number for the live audio call is (734) 385-2616. The conference ID for the call is 9584805. A live webcast of the conference call will be available on Arlo’s Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.

About Arlo Technologies, Inc.

Arlo (NYSE: ARLO) is the award-winning, industry leader that is transforming the way people experience the connected lifestyle. Arlo’s deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. 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 cameras, video doorbells and floodlight cameras.

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.

© 2020 Arlo Technologies, Inc., Arlo and the Arlo logo are trademarks and/or registered trademarks of Arlo Technologies, Inc. and/or certain of its affiliates in the United States and/or other countries. Other brand and product names are for identification purposes only and may be trademarks or registered trademarks of their respective holder(s). The information contained herein is subject to change without notice. Arlo shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

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

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: Arlo’s future operating performance and financial condition, expected revenue, GAAP and non-GAAP gross margins, operating margins, and tax expense; expectations regarding market expansion and future growth; plans to invest in product innovation; Arlo's future product offerings; and the quote from Arlo's Chief Executive Officer. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may incur additional costs and charges associated with the transactions contemplated by the Verisure partnership; the Company may not receive the minimum commitment amounts from Verisure; the COVID-19 pandemic could have an adverse impact on the Company's business, operations and the markets and communities in which Arlo and its partners and customers operate; the Company may fail to successfully continue to effect operating expense savings; changes in the level of Arlo's cash resources and the Company's planned usage of such resources; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; the actions and financial health of the Company's customers; the anticipated financial capacity under Arlo's revolving credit line may not be available when expected, or at all; and the Company may not be able to carry out its restructuring plan. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect Arlo and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Part II - Item 1A. Risk Factors,” in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020, filed with the Securities and Exchange Commission on May 11, 2020 and other periodic filings with the Securities and Exchange Commission. Given these circumstances, you should not place undue reliance on these forward-looking statements. Arlo undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

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

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

– the ability to make more meaningful period-to-period comparisons of our on-going operating results;

– the ability to better identify trends in our underlying business and perform related trend analyses;

– a better understanding of how management plans and measures our underlying business; and

– an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

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

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

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

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

Activist shareholder response costs primarily consist of legal fees and third-party consulting costs incurred. 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.

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

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

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

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

Source: Arlo-F

ARLO TECHNOLOGIES, INC.

 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

As of

 

 

June 28,
2020

 

December 31,
2019

 

 

(in thousands)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

185,424

 

 

$

236,680

 

Short-term investments

 

20,030

 

 

19,990

 

Accounts receivable, net

 

46,466

 

 

127,317

 

Inventories

 

65,814

 

 

68,624

 

Prepaid expenses and other current assets

 

9,948

 

 

16,958

 

Total current assets

 

327,682

 

 

469,569

 

Property and equipment, net

 

18,210

 

 

21,352

 

Operating lease right-of-use assets, net

 

26,048

 

 

31,300

 

Intangibles, net

 

594

 

 

1,306

 

Goodwill

 

11,038

 

 

11,038

 

Restricted cash

 

4,141

 

 

4,139

 

Other non-current assets

 

2,244

 

 

4,008

 

Total assets

 

$

389,957

 

 

$

542,712

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

52,902

 

 

$

111,650

 

Deferred revenue

 

44,287

 

 

50,362

 

Accrued liabilities

 

99,423

 

 

127,400

 

Income tax payable

 

3,491

 

 

4,489

 

Total current liabilities

 

200,103

 

 

293,901

 

Non-current deferred revenue

 

10,259

 

 

15,736

 

Non-current operating lease liabilities

 

27,026

 

 

29,001

 

Non-current income taxes payable

 

92

 

 

92

 

Other non-current liabilities

 

573

 

 

606

 

Total liabilities

 

238,053

 

 

339,336

 

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: 78,089,035 at June 28, 2020 and 75,785,952 at December 31, 2019

 

78

 

 

76

 

Additional paid-in capital

 

351,913

 

 

334,821

 

Accumulated other comprehensive income

 

14

 

 

(2)

 

Accumulated deficit

 

(200,101)

 

 

(131,519)

 

Total stockholders’ equity

 

151,904

 

 

203,376

 

Total liabilities and stockholders’ equity

 

$

389,957

 

 

$

542,712

 

ARLO TECHNOLOGIES, INC.

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 28,
2020

 

March 29,
2020

 

June 30,
2019

 

June 28,
2020

 

June 30,
2019

 

 

(in thousands, except percentage and per share data)

Revenue:

 

 

 

 

 

 

 

 

 

 

Products

 

$

49,603

 

 

$

50,723

 

 

$

72,445

 

 

$

100,326

 

 

$

119,053

 

Services

 

17,029

 

 

14,727

 

 

11,153

 

 

31,756

 

 

22,425

 

Total revenue

 

66,632

 

 

65,450

 

 

83,598

 

 

132,082

 

 

141,478

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

Products

 

51,186

 

 

52,188

 

 

67,839

 

 

103,374

 

 

118,123

 

Services

 

9,957

 

 

9,309

 

 

6,109

 

 

19,266

 

 

11,760

 

Total cost of revenue

 

61,143

 

 

61,497

 

 

73,948

 

 

122,640

 

 

129,883

 

Gross profit

 

5,489

 

 

3,953

 

 

9,650

 

 

9,442

 

 

11,595

 

Gross margin

 

8.2

%

 

6.0

%

 

11.5

%

 

7.1

%

 

8.2

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Research and development

 

14,192

 

 

15,243

 

 

17,594

 

 

29,435

 

 

35,755

 

Sales and marketing

 

11,713

 

 

11,038

 

 

14,511

 

 

22,751

 

 

28,732

 

General and administrative

 

9,837

 

 

18,784

 

 

10,914

 

 

28,621

 

 

21,450

 

Separation expense

 

82

 

 

79

 

 

717

 

 

161

 

 

1,623

 

Gain on sale of business

 

 

 

(292)

 

 

 

 

(292)

 

 

 

Total operating expenses

 

35,824

 

 

44,852

 

 

43,736

 

 

80,676

 

 

87,560

 

Loss from operations

 

(30,335)

 

 

(40,899)

 

 

(34,086)

 

 

(71,234)

 

 

(75,965)

 

Operating margin

 

(45.5)

%

 

(62.5)

%

 

(40.8)

%

 

(53.9)

%

 

(53.7)

%

Interest income

 

151

 

 

535

 

 

712

 

 

686

 

 

1,574

 

Other income (expense), net

 

1,111

 

 

1,183

 

 

31

 

 

2,294

 

 

(16)

 

Loss before income taxes

 

(29,073)

 

 

(39,181)

 

 

(33,343)

 

 

(68,254)

 

 

(74,407)

 

Provision for income taxes

 

183

 

 

145

 

 

349

 

 

328

 

 

569

 

Net loss

 

$

(29,256)

 

 

$

(39,326)

 

 

$

(33,692)

 

 

$

(68,582)

 

 

$

(74,976)

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.38)

 

 

$

(0.51)

 

 

$

(0.45)

 

 

$

(0.89)

 

 

$

(1.01)

 

Diluted

 

$

(0.38)

 

 

$

(0.51)

 

 

$

(0.45)

 

 

$

(0.89)

 

 

$

(1.01)

 

Weighted average shares used to compute net loss per share:

 

 

 

 

 

 

 

 

 

 

Basic

 

77,885

 

 

76,560

 

 

74,729

 

 

77,229

 

 

74,569

 

Diluted

 

77,885

 

 

76,560

 

 

74,729

 

 

77,229

 

 

74,569

 

ARLO TECHNOLOGIES, INC.

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six Months Ended

 

 

June 28,
2020

 

June 30,
2019

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(68,582)

 

 

$

(74,976)

 

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

 

 

 

 

Depreciation and amortization

 

5,476

 

 

4,980

 

Stock-based compensation expense

 

17,337

 

 

10,042

 

Allowance for (Release of) credit losses and inventory reserves

 

1,182

 

 

(51)

 

Gain on sale of business

 

(292)

 

 

 

Deferred income taxes

 

27

 

 

74

 

Premium amortization / discount accretion on investments, net

 

44

 

 

(274)

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable, net

 

80,650

 

 

85,916

 

Inventories

 

1,827

 

 

28,042

 

Prepaid expenses and other assets

 

8,745

 

 

1,784

 

Accounts payable

 

(58,669)

 

 

(59,865)

 

Deferred revenue

 

(11,553)

 

 

(2,527)

 

Accrued and other liabilities

 

(24,875)

 

 

(47,806)

 

Net cash used in operating activities

 

(48,683)

 

 

(54,661)

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

(1,184)

 

 

(7,116)

 

Purchases of short-term investments

 

(25,094)

 

 

(24,793)

 

Maturities of short-term investments

 

25,000

 

 

30,000

 

Net cash used in investing activities

 

(1,278)

 

 

(1,909)

 

Cash flows from financing activities:

 

 

 

 

Proceeds related to employee benefit plans

 

1,856

 

 

12

 

Restricted stock unit withholdings

 

(3,149)

 

 

(1,682)

 

Net cash used in financing activities

 

(1,293)

 

 

(1,670)

 

Net decrease in cash and cash equivalents and restricted cash

 

(51,254)

 

 

(58,240)

 

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

 

240,819

 

 

155,424

 

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

 

$

189,565

 

 

$

97,184

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

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

 

$

1,523

 

 

$

(2,753)

 

De-recognition of build-to-suit assets and liabilities

 

$

 

 

$

(21,610)

 


Contacts

Arlo Investor Relations
Erik Bylin
investors@arlo.com
(510) 315-1004


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