Company Quick10K Filing
Arlo Technologies
Price3.48 EPS-2
Shares75 P/E-2
MCap262 P/FCF-6
Net Debt-118 EBIT-144
TEV144 TEV/EBIT-1
TTM 2019-09-29, in MM, except price, ratios
10-Q 2021-03-28 Filed 2021-05-06
10-K 2020-12-31 Filed 2021-02-26
10-Q 2020-09-27 Filed 2020-11-05
10-Q 2020-06-28 Filed 2020-08-06
10-Q 2020-03-29 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-29 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-06
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-11-02
S-1 2018-07-06 Public Filing
10-Q 2018-07-01 Filed 2018-08-27
8-K 2021-02-23 Earnings, Exhibits
8-K 2020-11-05
8-K 2020-08-05
8-K 2020-07-01
8-K 2020-05-11
8-K 2020-05-05
8-K 2020-04-23
8-K 2020-02-24
8-K 2019-11-07
8-K 2019-11-04
8-K 2019-08-06
8-K 2019-07-19
8-K 2019-05-13
8-K 2019-05-07
8-K 2019-05-01
8-K 2019-04-30
8-K 2019-04-30
8-K 2019-02-22
8-K 2019-02-05
8-K 2018-12-31
8-K 2018-12-31
8-K 2018-12-03
8-K 2018-10-26
8-K 2018-10-25
8-K 2018-08-02
8-K 2018-08-01

ARLO 10Q Quarterly Report

Part I: Financial Information
Item 1.Financial Statements
Note 1. The Company and Basis of Presentation
Note 2. Significant Accounting Policies and Recent Accounting Pronouncements
Note 3. Deferred Revenue
Note 4. Balance Sheet Components
Note 5. Fair Value Measurements
Note 6. Derivative Financial Instruments
Note 7. Accumulated Other Comprehensive Income (Loss)
Note 8. Debt
Note 9. Commitments and Contingencies
Note 10. Employee Benefit Plans
Note 11. Income Taxes
Note 12. Net Income (Loss) per Share
Note 13. Segment and Geographic Information
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part Ii: Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 6.Exhibits
EX-10.1 arlo-ex101_20210328x10q.htm
EX-31.1 arlo-ex311_20210328x10q.htm
EX-31.2 arlo-ex312_20210328x10q.htm
EX-32.1 arlo-ex321_20210328x10q.htm
EX-32.2 arlo-ex322_20210328x10q.htm

Arlo Technologies Earnings 2021-03-28

Balance SheetIncome StatementCash Flow
0.60.50.40.20.10.02016201720182020
Assets, Equity
0.20.10.10.0-0.0-0.12016201720182020
Rev, G Profit, Net Income
0.30.20.10.1-0.0-0.12016201720182020
Ops, Inv, Fin

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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    

Commission file number: 001-38618
ARLO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter) 
Delaware38-4061754
(State or other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number)
3030 Orchard Parkway
San Jose,California95134
(Address of principal executive offices)(Zip Code)
(408) 890-3900
(Registrant’s telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per shareARLONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer
Accelerated filer
Non-Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  x

1

Table of Contents
The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 81,275,378 as of April 30, 2021.

2

Table of Contents
ARLO TECHNOLOGIES, INC.

TABLE OF CONTENTS
 
Page No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.
3

Table of Contents
PART I: FINANCIAL INFORMATION

Item 1.Financial Statements

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of
March 28,
2021
December 31,
2020
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents$172,113 $186,127 
Short-term investments (amortized cost of $5,000 and $19,996)
5,000 19,997 
Accounts receivable (net of allowance for credit losses of $519 and $519)
51,121 77,643 
Inventories55,972 64,705 
Prepaid expenses and other current assets7,705 8,076 
Total current assets291,911 356,548 
Property and equipment, net14,596 15,821 
Operating lease right-of-use assets, net22,950 23,998 
Goodwill11,038 11,038 
Restricted cash4,163 4,164 
Other non-current assets2,536 2,399 
Total assets$347,194 $413,968 
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$27,054 $62,171 
Deferred revenue54,999 53,142 
Accrued liabilities97,154 121,766 
Income tax payable223 267 
Total current liabilities179,430 237,346 
Non-current deferred revenue6,605 16,563 
Non-current operating lease liabilities23,897 25,029 
Non-current income taxes payable104 104 
Other non-current liabilities828 1,159 
Total liabilities210,864 280,201 
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding
  
Common stock: $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 81,250,176 at March 28, 2021 and 79,336,242 at December 31, 2020
81 79 
Additional paid-in capital379,738 366,455 
Accumulated other comprehensive income  3 
Accumulated deficit(243,489)(232,770)
Total stockholders’ equity136,330 133,767 
Total liabilities and stockholders’ equity$347,194 $413,968 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

Table of Contents
ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
March 28,
2021
March 29,
2020
(In thousands, except per share data)
Revenue:
Products$59,761 $50,723 
Services22,795 14,727 
Total revenue82,556 65,450 
Cost of revenue:
Products47,157 52,188 
Services9,592 9,309 
Total cost of revenue56,749 61,497 
Gross profit25,807 3,953 
Operating expenses:
Research and development14,791 15,243 
Sales and marketing11,207 11,038 
General and administrative11,227 18,784 
Separation expense54 79 
Gain on sale of business (292)
Total operating expenses37,279 44,852 
Loss from operations(11,472)(40,899)
Interest income24 535 
Other income (expense), net909 1,183 
Loss before income taxes(10,539)(39,181)
Provision for income taxes180 145 
Net loss$(10,719)$(39,326)
Net loss per share:
Basic$(0.13)$(0.51)
Diluted$(0.13)$(0.51)
Weighted average shares used to compute net loss per share:
Basic80,370 76,560 
Diluted80,370 76,560 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Three Months Ended
March 28,
2021
March 29,
2020
(In thousands)
Net loss$(10,719)$(39,326)
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on derivative instruments(2)53 
Unrealized gain (loss) on available-for-sale securities(1)66 
Total other comprehensive income (loss), before tax(3)119 
Total other comprehensive income (loss), net of tax(3)119 
Comprehensive loss$(10,722)$(39,207)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock


SharesAmount Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
(In thousands)
Balance as of December 31, 202079,336 $79 $366,455 $3 $(232,770)$133,767 
Net loss— — — — (10,719)(10,719)
Stock-based compensation expense— — 4,871 — — 4,871 
Settlement of liability classified RSUs— — 6,458 — — 6,458 
Issuance of common stock under stock-based compensation plans2,133 3 4,433 — — 4,436 
Issuance of common stock under Employee Stock Purchase Plan353 — 1,697 — — 1,697 
Restricted stock unit withholdings(572)(1)(4,176)— — (4,177)
Change in unrealized gains and losses on available-for-sale securities, net of tax— — — (1)— (1)
Change in unrealized gains and losses on derivatives, net of tax— — — (2)— (2)
Balance as of March 28, 202181,250 $81 $379,738 $ $(243,489)$136,330 
Common Stock


SharesAmount Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
(In thousands)
Balance as of December 31, 201975,786 $76 $334,821 $(2)$(131,519)$203,376 
Net loss— — — — (39,326)(39,326)
Stock-based compensation expense— — 11,985 — — 11,985 
Settlement of liability classified RSUs— — 2,573 — — 2,573 
Issuance of common stock under stock-based compensation plans1,375 1 — — — 1 
Issuance of common stock under Employee Stock Purchase Plan732 1 1,853 — — 1,854 
Restricted stock unit withholdings(532)(1)(2,020)— — (2,021)
Change in unrealized gains and losses on available-for-sale securities, net of tax— — — 66 — 66 
Change in unrealized gains and losses on derivatives, net of tax— — — 53 — 53 
Balance as of March 29, 202077,361 $77 $349,212 $117 $(170,845)$178,561 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended
March 28,
2021
March 29,
2020
(In thousands)
Cash flows from operating activities:
Net loss$(10,719)$(39,326)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,547 2,773 
Premium amortization (discount accretion) on investments, net (3)(5)
Stock-based compensation expense8,340 12,773 
Allowance for credit losses and inventory reserves(562)1,709 
Gain on sale of business (292)
Deferred income taxes(130)100 
Changes in assets and liabilities:
Accounts receivable, net 26,522 65,685 
Inventories9,296 6,142 
Prepaid expenses and other assets 361 5,273 
Accounts payable (34,647)(71,834)
Deferred revenue(8,101)(6,251)
Accrued and other liabilities(22,072)(25,651)
Net cash used in operating activities(30,168)(48,904)
Cash flows from investing activities:
Purchases of property and equipment (803)(1,111)
Purchases of short-term investments (20,096)
Proceeds from maturities of short-term investments15,000 10,000 
Net cash provided by (used in) investing activities14,197 (11,207)
Cash flows from financing activities:
Proceeds related to employee benefit plans6,133 1,854 
Restricted stock unit withholdings(4,177)(2,020)
Net cash provided by (used in) financing activities1,956 (166)
Net decrease in cash and cash equivalents and restricted cash
(14,015)(60,277)
Cash and cash equivalents and restricted cash, at beginning of period
190,291 240,819 
Cash and cash equivalents and restricted cash, at end of period
$176,276 $180,542 
Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities$82 $323 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1.    The Company and Basis of Presentation

The Company

Arlo Technologies, Inc. ("Arlo" or the "Company") combines an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that transform the way people experience the connected lifestyle. The Company's deep expertise in product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience for Arlo users that is easy to setup and interact with every day. The Company's cloud-based platform provides users with visibility, insight and a powerful means to help protect and connect in real-time with the people and things that matter most, from any location with a Wi-Fi or a cellular connection. The Company conducts business across three geographic regions - Americas; Europe, Middle-East and Africa (“EMEA”); and Asia Pacific (“APAC”), and primarily generates revenue by selling devices through retail channels, wholesale distribution, wireless carrier channels, security solution providers, and Arlo's direct to consumer store and paid subscription services.

The Company has dual corporate headquarters located in San Jose, California and Carlsbad, California and also maintains offices to provide sales and customer support at various global locations.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All periods presented have been accounted for in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”).

These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for fair statement of the unaudited condensed consolidated financial statements for interim periods.

Fiscal periods

The Company’s fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.

Use of estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Management bases its estimates on various assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates and operating results for the three months ended March 28, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future period.

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2.    Significant Accounting Policies and Recent Accounting Pronouncements

The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes during the three months ended March 28, 2021.

Recent accounting pronouncements

Emerging Growth Company Status

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless the Company otherwise irrevocably elects not to avail itself of this exemption. The Company did not make such an irrevocable election and has not delayed the adoption of any applicable accounting standards.

Accounting Pronouncements Recently Adopted

There were no accounting pronouncements adopted during the three months ended March 28, 2021.

Accounting Pronouncements Not Yet Effective

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its financial statements and related disclosures.

With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations, or cash flows.

Note 3.    Deferred Revenue

Deferred Revenue

Deferred revenue consists of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Deferred revenue consists of prepaid services and customer billings in advance of revenues being recognized from the Company's subscription contracts. Advance payments include prepayments for products and Non-Recurring Engineering ("NRE") services under the Supply Agreement with Verisure S.à.r.l. (“Verisure”).

Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted and that are scheduled or in the process of being scheduled for shipment.
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 28, 2021:
1 year2 yearsGreater than 2 yearsTotal
(In thousands)
Performance obligations$62,442 $6,066 $673 $69,181 

The performance obligation classified as greater than one year pertains to revenue deferral from prepaid services and Verisure prepayments for products.

For the three months ended March 28, 2021 and March 29, 2020, $17.7 million and $8.6 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $21.9 million and $14.9 million of revenue was recognized for the satisfaction of performance obligations over time, respectively. $10.5 million and $8.7 million of this recognized revenue was included in the contract liability balance at the beginning of the period. There were no significant changes in estimates during the period that would affect the contract balances.

Disaggregation of Revenue

The Company conducts business across three geographic regions: Americas, EMEA, and APAC. Sales and usage-based taxes are excluded from revenue. Refer to Note 13, Segment and Geographic Information, for revenue by geography.

Note 4.    Balance Sheet Components

Cash and Cash Equivalents and Restricted cash

The Company maintains certain cash balances restricted as to withdrawal or use. The restricted cash is comprised primarily of cash used as collateral for a letter of credit associated with the Company’s lease agreement for its headquarters in San Jose, California. The Company deposits restricted cash with high credit quality financial institutions. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown on the statements of cash flows:
As of
March 28,
2021
December 31,
2020
(In thousands)
Cash and cash equivalents$172,113 $186,127 
Restricted cash4,163 4,164 
Total as presented on the unaudited condensed consolidated statements of cash flows$176,276 $190,291 
As of
March 29,
2020
December 31,
2019
(In thousands)
Cash and cash equivalents$176,425 $236,680 
Restricted cash4,117 4,139 
Total as presented on the unaudited condensed consolidated statements of cash flows$180,542 $240,819 
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Available-for-sale short-term investments

As of March 28, 2021As of December 31, 2020
 CostUnrealized GainsUnrealized LossesEstimated Fair ValueCostUnrealized GainsUnrealized LossesEstimated Fair Value
(In thousands)
U.S. treasuries$5,000 $ $ $5,000 $19,996 $1 $ $19,997 

The Company’s short-term investments are classified as available-for-sale and consist of government securities with an original maturity or remaining maturity at the time of purchase of greater than three months and no more than twelve months. Accordingly, none of the available-for-sale securities have unrealized losses greater than twelve months. The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three months ended March 28, 2021.

Accounts receivable, net
As of
March 28,
2021
December 31,
2020
(In thousands)
Gross accounts receivable$51,640 $78,162 
Allowance for credit losses(519)(519)
Total accounts receivable, net$51,121 $77,643 

    The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
Three Months Ended
March 28,
2021
March 29,
2020
(In thousands)
Balance at the beginning of the period$519 $609 
Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings  
Provision for expected credit losses 254 
Amounts recovered due to collection  
Balance at the end of the period$519 $863 

Inventories

Inventories consist of finished goods which are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method as of March 28, 2021.

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and equipment, net

The components of property and equipment are as follows:
As of
March 28,
2021
December 31,
2020
(In thousands)
Machinery and equipment$13,677 $14,397 
Software13,210 13,192 
Computer equipment4,089 4,083 
Furniture and fixtures4,047 4,048 
Leasehold improvements
8,021 8,023 
Total property and equipment, gross43,044 43,743 
Accumulated depreciation and amortization(28,448)(27,922)
Total property and equipment, net$14,596 $15,821 

Depreciation and amortization expense pertaining to property and equipment was $1.5 million and $2.4 million for the three months ended March 28, 2021 and March 29, 2020, respectively.

Goodwill

There was no change in the carrying amount of goodwill during the three months ended March 28, 2021. The goodwill as of December 31, 2020 and March 28, 2021 was $11.0 million.

Goodwill Impairment

The Company performs an annual assessment of goodwill at the reporting unit level on the first day of the fourth fiscal quarter and during interim periods if there are triggering events to reassess goodwill. The Company operates as one operating and reportable segment.

The Company determined that no events occurred or circumstances changed during the three months ended March 28, 2021 that would more likely than not reduce the fair value of the Company below its carrying amount. If there is a significant decline in the Company’s stock price based on market conditions and deterioration of the Company’s business, the Company may have to record a charge to its earnings for the goodwill impairment of up to $11.0 million.

Other non-current assets

As of
March 28,
2021
December 31,
2020
(In thousands)
Non-current deferred income taxes$1,399 $1,269 
Deposits122 122 
Other1,015 1,008 
Total other non-current assets$2,536 $2,399 
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accrued liabilities

As of
March 28,
2021
December 31,
2020
(In thousands)
Sales and marketing$31,552 $38,577 
Sales returns
24,429 37,689 
Accrued employee compensation11,419 15,089 
Current operating lease liabilities 4,391 4,400 
Freight2,602 3,558 
Warranty obligation 1,937 2,451 
Other20,824 20,002 
Total accrued liabilities$97,154 $121,766 

Note 5.    Fair Value Measurements

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of March 28, 2021 and December 31, 2020:

As of March 28, 2021As of December 31, 2020
TotalQuoted market
prices in active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
TotalQuoted market
prices in active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
(In thousands)
Assets:
Cash equivalents: money-market funds (<90 days)
$16,931 $16,931 $ $1,934 $1,934 $ 
Available-for-sale securities: U.S. treasuries (1)
5,000 5,000  19,997 19,997  
Foreign currency forward contracts (2)
61  61 24  24 
Total assets measured at fair value$21,992 $21,931 $61 $21,955 $21,931 $24 
Liabilities:
Foreign currency forward contracts (3)
$ $ $ $199 $ $199 
Total liabilities measured at fair value$ $ $ $199 $ $199 
_________________________
(1)Included in Short-term investments on the Company’s unaudited condensed consolidated balance sheets.
(2)Included in Prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets.
(3)Included in Accrued liabilities on the Company’s unaudited condensed consolidated balance sheets.

The Company’s investments in cash equivalents and available-for-sale securities are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that take into account the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. Additionally, the Company includes an adjustment for non-performance risk in the recognized
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
measure of fair value of derivative instruments. As of March 28, 2021 and December 31, 2020, the adjustment for non-performance risk did not have a material impact on the fair value of the Company’s foreign currency forward contracts. The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities. As of March 28, 2021 and December 31, 2020, the Company has no Level 3 fair value assets or liabilities.

Note 6.    Derivative Financial Instruments

The Company’s subsidiaries have had, and will continue to have material future cash flows, including revenue and expenses, which are denominated in currencies other than the Company’s functional currency. The Company and all its subsidiaries designate the U.S. dollar as the functional currency. Changes in exchange rates between the Company’s functional currency and other currencies in which the Company transacts business will cause fluctuations in cash flow expectations and cash flow realized or settled. Accordingly, the Company uses derivatives to mitigate its business exposure to foreign exchange risk. The Company enters into foreign currency forward contracts in Australian dollars and Canadian dollars to manage its exposure to foreign exchange risk related to expected future cash flows on certain forecasted revenue, costs of revenue, operating expenses and existing assets and liabilities.

The Company’s foreign currency forward contracts do not contain any credit risk-related contingent features. The Company is exposed to credit losses in the event of nonperformance by the counter-parties of its forward contracts. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any one counter-party. In addition, the derivative contracts typically mature in less than six months and the Company continuously evaluates the credit standing of its counter-party financial institutions. The counter-parties to these arrangements are large highly rated financial institutions and the Company does not consider non-performance a material risk.

The Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, materiality, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with the authoritative guidance for derivatives and hedging. The Company records all derivatives on the balance sheets at fair value. Cash flow hedge gains and losses are recorded in other comprehensive income (“OCI”) until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in Other income (expense), net in the unaudited condensed consolidated statements of operations.
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair value of derivative instruments

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of March 28, 2021 and December 31, 2020 are summarized as follows:
Derivative AssetsBalance Sheet
Location
March 28, 2021December 31, 2020Balance Sheet
Location
March 28, 2021December 31, 2020
(In thousands)(In thousands)
Derivative assets not designated as hedging instrumentsPrepaid expenses and other current assets$61 $22 Accrued liabilities$ $199 
Derivative assets designated as hedging instrumentsPrepaid expenses and other current assets 2 Accrued liabilities  
Total$61 $24 $ $199 

Refer to Note 5, Fair Value Measurements, for detailed disclosures regarding fair value measurements in accordance with the authoritative guidance for fair value measurements and disclosures.

Gross amounts offsetting of derivative instruments

The Company has entered into master netting arrangements which allow net settlements under certain conditions. Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the unaudited condensed consolidated balance sheets.

The following tables set forth the offsetting of derivative assets as of March 28, 2021 and December 31, 2020:
As of March 28, 2021Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Gross Amounts of Recognized AssetsGross Amounts Offset in the Unaudited Condensed Consolidated Balance SheetsNet Amounts Of Assets Presented in the Unaudited Condensed Consolidated Balance SheetsFinancial InstrumentsCash Collateral PledgedNet Amount
(In thousands)
Wells Fargo Bank$61 $ $61 $ $ $61 
December 31, 2020Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Gross Amounts of Recognized AssetsGross Amounts Offset in the Unaudited Condensed Consolidated Balance SheetsNet Amounts Of Assets Presented in the Unaudited Condensed Consolidated Balance SheetsFinancial InstrumentsCash Collateral PledgedNet Amount
(In thousands)
Wells Fargo Bank$24 $ $24 $(24)$ $ 


The following table sets forth the offsetting of derivative liabilities as of December 31, 2020:
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2020Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Unaudited Condensed Consolidated Balance SheetsNet Amounts Of Liabilities Presented in the Unaudited Condensed Consolidated Balance SheetsFinancial InstrumentsCash Collateral PledgedNet Amount
(In thousands)
Wells Fargo Bank$199 $ $199 $(24)$ $175 

Cash flow hedges

The Company typically hedges portions of its anticipated foreign currency exposure which generally are less than six months. The Company did not enter into any forward contracts related to its cash flow hedging program for the three months ended March 28, 2021. The effects of the Company's cash flow hedges from the contracts placed in the previous quarter on the unaudited condensed consolidated statements of operations for the three months ended March 28, 2021 are summarized as follows:
Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
RevenueCost of revenueResearch and developmentSales and marketingGeneral and administrative
(In thousands)
Statements of operations$82,556 $56,749 $14,791 $11,207 $11,227 
Gains (losses) on cash flow hedge$ $ $ $2 $ 

The effects of the Company’s cash flow hedges on the unaudited condensed consolidated statements of operations for the three months ended March 29, 2020 are summarized as follows:

Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
RevenueCost of revenueResearch and developmentSales and marketingGeneral and administrative
(In thousands)
Statements of operations$65,450 $61,497 $15,243 $11,038 $18,784 
Gains (losses) on cash flow hedge$(4)$ $ $ $ 

The Company expects to reclassify to earnings all of the amounts recorded in AOCI (as defined below) associated with its cash flow hedges over the next twelve months. For information on the unrealized gains or losses on derivatives reclassified out of AOCI into the unaudited condensed consolidated statements of operations, refer to Note 7, Accumulated Other Comprehensive Income (Loss).

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur within the designated hedge period or if not recognized within 60 days following the end of the hedge period. The Company did not recognize any material net gains or losses related to the loss of hedge designation as there were no discontinued cash flow hedges during the three months ended March 28, 2021 and March 29, 2020.
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Non-designated hedges

The Company adjusts its non-designated hedges monthly and enters into about seven non-designated derivatives per quarter with an average size of $2.6 million. The hedges range typically from one to three months in duration. The effects of the Company’s non-designated hedge included in Other income (expense), net on the unaudited condensed consolidated statements of operations for the three months ended March 28, 2021 and March 29, 2020 were as follows:
Derivatives Not Designated as Hedging InstrumentsLocation of Gains (Losses)
Recognized in Income on Derivative
Three Months Ended
March 28, 2021March 29, 2020
(In thousands)
Foreign currency forward contractsOther income (expense), net$(5)$1,079 

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7.    Accumulated Other Comprehensive Income (Loss)

The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component for the three months ended March 28, 2021 and March 29, 2020.
Unrealized gains (losses) on available-for-sale securitiesUnrealized gains (losses) on derivativesEstimated tax benefit (provision)Total
(In thousands)
Balance as of December 31, 2020$1 $2 $ $3 
Other comprehensive income (loss) before reclassifications(1)  (1)
Less: Amount reclassified from accumulated other comprehensive income (loss) 2  2 
Net current period other comprehensive income (loss)(1)(2) (3)
Balance as of March 28, 2021$ $ $ $ 
Unrealized gains (losses) on available-for-sale securitiesUnrealized gains (losses) on derivativesEstimated tax benefit (provision)Total
(In thousands)
Balance as of December 31, 2019$23 $(25)$ $(2)
Other comprehensive income (loss) before reclassifications66 49  115 
Less: Amount reclassified from accumulated other comprehensive income (loss) (4) (4)
Net current period other comprehensive income (loss)66 53  119 
Balance as of March 29, 2020$89 $28 $ $117 

The following tables provide details about significant amounts reclassified out of each component of AOCI for the three months ended March 28, 2021 and March 29, 2020:
Three Months Ended March 28, 2021Three Months Ended March 29, 2020
Gains (Losses) Recognized in OCI - Effective PortionGains (Losses) Reclassified from OCI to Income - Effective PortionGains (Losses) Recognized in OCI - Effective PortionGains (Losses) Reclassified from OCI to Income - Effective PortionAffected Line Item in the Statements of Operations
(In thousands)
Gains (losses) on cash flow hedge:
Foreign currency contracts$ $ $(4)$(4)Revenue
Foreign currency contracts    Cost of revenue
Foreign currency contracts    Research and development
Foreign currency contracts 2   Sales and marketing
Foreign currency contracts    General and administrative
$ $2 $(4)$(4)Total *
_________________________
* Tax impact to hedging gains and losses from derivative contracts was immaterial. 

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8.    Debt

Revolving Credit Facility

On November 5, 2019, the Company entered into a Business Financing Agreement (the “Credit Agreement”) with Western Alliance Bank, an Arizona corporation, as lender (the “Lender”).

The Credit Agreement provides for a two-year revolving credit facility (the “Credit Facility”) that matures on November 5, 2021 and that may, by its terms, be extended by mutual written agreement between the Company and the Lender. Borrowings under the Credit Facility are limited to the lesser of (x) $40.0 million, and (y) an amount equal to the borrowing base. The borrowing base will be 60% of the Company’s eligible receivables and eligible accounts receivable, less such reserves as the Lender may deem proper and necessary from time to time. The Lender is not required to make any advance under the Credit Facility during the period beginning on January 1st and continuing through June 30th, except for advances made against eligible receivables first invoiced between July 1 and December 31, 2019. The Credit Agreement also includes sublimits for the issuance by the Lender of letters of credit, credit card indebtedness and foreign exchange forward contract. Repayment of the borrowings under the Credit Facility are due upon collection of the eligible receivables. The proceeds of the borrowings under the Credit Facility may be used for working capital and general corporate purposes.

The obligations of the Company under the Credit Agreement are secured by substantially all of the Company’s domestic personal property, excluding intellectual property assets and more than 65% of the shares of voting capital stock of any of the Company’s foreign subsidiaries.

Borrowings under the Credit Agreement generally bear interest at floating rates based upon the prime rate plus two and one-quarter percentage points (2.25%), plus an additional five percentage points (5%) during any period that an event of default has occurred and is continuing. Among other fees, the Company is required to pay an annual facility fee equal to 0.25% of the limit under the Credit Facility due upon entry into the Credit Agreement and on each anniversary thereof. The annual facility fee is capitalized and being amortized as interest expense over a 12-month period. The Company incurred debt issuance costs for the Credit Agreement, which are recorded in prepaid expenses and other current assets in the Company's unaudited condensed consolidated balance sheets and are being amortized as interest expense over the contractual term of the Credit Agreement.