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 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. Disposal of Business
Note 5. Balance Sheet Components
Note 6. Fair Value Measurements
Note 7. Derivative Financial Instruments
Note 8. Accumulated Other Comprehensive Income (Loss)
Note 9. Debt
Note 10. Commitments and Contingencies
Note 11. Employee Benefit Plans
Note 12. Income Taxes
Note 13. Net Income (Loss) per Share
Note 14. 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-31.1 arlo-ex31120200927x10q.htm
EX-31.2 arlo-ex31220200927x10q.htm
EX-32.1 arlo-ex32120200927x10q.htm
EX-32.2 arlo-ex32220200927x10q.htm

Arlo Technologies Earnings 2020-09-27

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 September 27, 2020
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 the definitions 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

The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was 79,037,169 as of October 23, 2020.
1

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.
2

Table of Contents
PART I: FINANCIAL INFORMATION

Item 1.Financial Statements

ARLO TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of
September 27,
2020
December 31,
2019
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents$173,619 $236,680 
Short-term investments (amortized cost of $19,992 and $19,967)
19,992 19,990 
Accounts receivable (net of allowance for credit losses of $509 and $609)
56,431 127,317 
Inventories69,038 68,624 
Prepaid expenses and other current assets10,317 16,958 
Total current assets329,397 469,569 
Property and equipment, net16,832 21,352 
Operating lease right-of-use assets, net25,031 31,300 
Intangibles, net238 1,306 
Goodwill11,038 11,038 
Restricted cash4,147 4,139 
Other non-current assets2,216 4,008 
Total assets$388,899 $542,712 
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$74,727 $111,650 
Deferred revenue30,567 50,362 
Accrued liabilities106,027 127,400 
Income tax payable431 4,489 
Total current liabilities211,752 293,901 
Non-current deferred revenue7,963 15,736 
Non-current operating lease liabilities26,024 29,001 
Non-current income taxes payable92 92 
Other non-current liabilities1,261 606 
Total liabilities247,092 339,336 
Commitments and contingencies (Note 10)
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: 79,026,508 at September 27, 2020 and 75,785,952 at December 31, 2019
79 76 
Additional paid-in capital359,297 334,821 
Accumulated other comprehensive income (9)(2)
Accumulated deficit(217,560)(131,519)
Total stockholders’ equity141,807 203,376 
Total liabilities and stockholders’ equity$388,899 $542,712 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Contents
ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
(In thousands, except per share data)
Revenue:
Products$91,271 $94,306 $191,597 $213,359 
Services18,965 11,810 50,721 34,235 
Total revenue110,236 106,116 242,318 247,594 
Cost of revenue:
Products79,107 88,755 182,481 206,878 
Services9,720 6,858 28,986 18,618 
Total cost of revenue88,827 95,613 211,467 225,496 
Gross profit21,409 10,503 30,851 22,098 
Operating expenses:
Research and development15,436 16,701 44,871 52,456 
Sales and marketing12,720 13,657 35,471 42,389 
General and administrative11,137 11,062 39,758 32,512 
Separation expense77 137 238 1,760 
Gain on sale of business  (292) 
Total operating expenses39,370 41,557 120,046 129,117 
Loss from operations(17,961)(31,054)(89,195)(107,019)
Interest income74 596 760 2,170 
Other income, net543 154 2,837 138 
Loss before income taxes(17,344)(30,304)(85,598)(104,711)
Provision for income taxes115 286 443 855 
Net loss$(17,459)$(30,590)$(86,041)$(105,566)
Net loss per share:
Basic$(0.22)$(0.41)$(1.11)$(1.41)
Diluted$(0.22)$(0.41)$(1.11)$(1.41)
Weighted average shares used to compute net loss per share:
Basic78,662 75,337 77,705 74,831 
Diluted78,662 75,337 77,705 74,831 

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 EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
(In thousands)
Net loss$(17,459)$(30,590)$(86,041)$(105,566)
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on derivative instruments(9)22 16  
Unrealized gain (loss) on available-for-sale securities(14)(27)(23)46 
Total other comprehensive income (loss), before tax(23)(5)(7)46 
Tax benefit (provision) related to derivative instruments    
Total other comprehensive income (loss), net of tax(23)(5)(7)46 
Comprehensive loss$(17,482)$(30,595)$(86,048)$(105,520)

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 June 28, 202078,089 $78 $351,913 $14 $(200,101)$151,904 
Net loss— — — — (17,459)(17,459)
Stock-based compensation expense— — 6,083 — — 6,083 
Settlement of liability classified RSUs— — 1,589 — — 1,589 
Issuance of common stock under stock-based compensation plans859 1 24 — — 25 
Issuance of common stock under Employee Stock Purchase Plan378  1,171 — — 1,171 
Restricted stock unit withholdings(299) (1,483)— — (1,483)
Change in unrealized gains and losses on available-for-sale securities, net of tax— — — (14)— (14)
Change in unrealized gains and losses on derivatives, net of tax— — — (9)— (9)
Balance as of September 27, 202079,027 $79 $359,297 $(9)$(217,560)$141,807 
Common Stock

SharesAmount Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
(In thousands)
Balance as of June 30, 201974,869 $75 $323,648 $51 $(120,544)$203,230 
Net loss— — — — (30,590)(30,590)
Stock-based compensation expense— — 5,219 — — 5,219 
Issuance of common stock under stock-based compensation plans88   — —  
Issuance of common stock under Employee Stock Purchase Plan767 1 1,824 — — 1,825 
Restricted stock unit withholdings(18) (73)— — (73)
Change in unrealized gains and losses on available-for-sale securities, net of tax— — — (27)— (27)
Change in unrealized gains and losses on derivatives, net of tax— — — 22 — 22 
Balance as of September 29, 201975,706 $76 $330,618 $46 $(151,134)$179,606 


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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— — — — (86,041)(86,041)
Stock-based compensation expense— — 21,840 — — 21,840 
Settlement of liability classified RSUs— — 4,219 — — 4,219 
Issuance of common stock under stock-based compensation plans3,384 3 24 — — 27 
Issuance of common stock under Employee Stock Purchase Plan1,110 1 3,024 — — 3,025 
Restricted stock unit withholdings(1,253)(1)(4,631)— — (4,632)
Change in unrealized gains and losses on available-for-sale securities, net of tax— — — (23)— (23)
Change in unrealized gains and losses on derivatives, net of tax— — — 16 — 16 
Balance as of September 27, 202079,027 $79 $359,297 $(9)$(217,560)$141,807 
Common Stock

SharesAmount Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
(In thousands)
Balance as of December 31, 201874,247 $74 $315,277 $ $(45,849)$269,502 
Cumulative-effect adjustment from adoption of ASC 842, net of tax— — — — 281 281 
Net loss— — — — (105,566)(105,566)
Stock-based compensation expense— — 15,261 — — 15,261 
Issuance of common stock under stock-based compensation plans1,041 1 11 — — 12 
Issuance of common stock under Employee Stock Purchase Plan767 1 1,824 — — 1,825 
Restricted stock unit withholdings(349) (1,755)— — (1,755)
Change in unrealized gains and losses on available-for-sale securities, net of tax— — — 46 — 46 
Change in unrealized gains and losses on derivatives, net of tax— — —  —  
Balance as of September 29, 201975,706 $76 $330,618 $46 $(151,134)$179,606 

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
 Nine Months Ended
September 27,
2020
September 29,
2019
(In thousands)
Cash flows from operating activities:
Net loss$(86,041)$(105,566)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization8,024 7,757 
Loss on disposal of fixed assets19  
Premium amortization (discount accretion) on investments, net 60 (391)
Stock-based compensation expense26,338 15,261 
Allowance for (release of) credit losses and inventory reserves1,322 (3,232)
Gain on sale of business(292) 
Deferred income taxes63 (109)
Changes in assets and liabilities:
Accounts receivable, net 70,985 65,920 
Inventories(1,838)54,335 
Prepaid expenses and other assets 8,369 (1,729)
Accounts payable (37,554)(24,381)
Deferred revenue(27,569)(1,996)
Accrued and other liabilities(21,203)(48,584)
Net cash used in operating activities(59,317)(42,715)
Cash flows from investing activities:
Purchases of property and equipment (2,070)(5,023)
Purchases of short-term investments(45,085)(29,768)
Proceeds from maturities of short-term investments45,000 40,000 
Net cash provided by (used in) investing activities(2,155)5,209 
Cash flows from financing activities:
Proceeds related to employee benefit plans3,051 1,837 
Restricted stock unit withholdings(4,632)(1,755)
Net cash provided by (used in) financing activities(1,581)82 
Net decrease in cash and cash equivalents and restricted cash
(63,053)(37,424)
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
$177,766 $118,000 
Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities$1,470 $1,578 
De-recognition of build-to-suit assets and liabilities$ $(21,610)

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 ("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 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 channels, Arlo online 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, 2019. 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.

Reclassification

Certain reclassifications have been made to the prior year’s condensed consolidated statements of cash flows to conform to the current year’s presentation. The reclassifications had no effect on the net cash used (provided by) in operating activities, investing activities or financing activities on the prior year’s statement of cash flows.

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 nine months ended September 27,
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any future period.

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, 2019. There have been no significant changes during the nine months ended September 27, 2020, other than the accounting policies discussed below and the recent accounting pronouncements adopted and discussed below under Accounting Pronouncements Recently Adopted.

Trade accounts receivable

The Company is exposed to credit losses primarily through sales of products and services. The Company's allowance for current estimated credit losses for trade accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.

The Company’s monitoring activities include timely and regular account reconciliations, dispute resolution, payment confirmation, review of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the novel coronavirus ("COVID-19") pandemic and determined that the estimate of credit losses was not significantly impacted. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables.

Recent accounting pronouncements

Emerging Growth Company Status

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act of 2012 (“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

ASU 2016-13 - Measurement of Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses, limited to the amount by which fair value is below amortized cost. The Company adopted Topic 326 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. The cumulative-effect adjustment recorded on January 1, 2020 is immaterial.

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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2022 (or January 1, 2021 should the Company cease to be classified as an EGC), with early adoption permitted. The Company early adopted ASU 2019-12 in the first quarter of 2020. The impact of the adoption of ASU 2019-12 on the Company's financial statements is immaterial.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The accounting standards update 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 may be applied 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”). Refer to Note 4, Disposal of Business, for a complete discussion of Verisure transaction.

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.

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 September 27, 2020:
1 year2 yearsGreater than 2 yearsTotal
(In thousands)
Performance obligations$50,987 $6,766 $1,517 $59,270 

The performance obligation classified as greater than one year pertains to revenue deferral from prepaid services.
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 27, 2020 and September 29, 2019, $33.5 million and $32.6 million of revenue was deferred due to unsatisfied performance obligations, primarily relating to over time service revenue, and $46.9 million and $34.6 million of revenue was recognized for the satisfaction of performance obligations over time, respectively. $21.2 million and $22.1 million of this recognized revenue was included in the contract liability balance at the beginning of the periods. 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 14, Segment and Geographic Information, for revenue by geography.

Note 4.    Disposal of Business

On November 4, 2019, the Company and Verisure concurrently entered into an Asset Purchase Agreement (the “Purchase Agreement”) and Supply Agreement (the “Supply Agreement” and together with the Purchase Agreement, the “Verisure Agreements”). The Verisure Agreements created a strategic partnership that leverages both the Company and Verisure’s capabilities to create incremental scale to address the ever-growing demand for residential and commercial security. The strategic partnership combines the Company’s innovative connected cameras and cloud services platform with Verisure’s professionally monitored security solutions to provide a new level of smart security for European customers. The Purchase Agreement provided that, upon the terms and subject to the conditions set forth in the Purchase Agreement, the Company transferred, sold and assigned to Verisure certain assets (the "Assets") related to the Company’s commercial operations in Europe (the "Business") to Verisure for $50.0 million in cash plus additional cash for certain inventory. The Purchase Agreement contained customary representations and warranties regarding Verisure, the Business and the Assets, indemnification provisions, termination rights and other customary provisions. Further, the Company has agreed not to engage in any business that competes with the Business for a period of three years.

The transaction closed on December 30, 2019 pursuant to which the Company received $52.7 million including working capital adjustments, which resulted in a pretax gain of $54.9 million in the fourth fiscal quarter of 2019. In the first fiscal quarter of 2020, the Company recorded an additional gain of $292 thousand that was recorded in Gain on sale of business in the Company's unaudited condensed consolidated statements of operations as a result of the final working capital adjustment.

The assets and liabilities sold and assigned to Verisure were determined to have met the criteria to be classified as held for sale as of November 4, 2019, the execution date of the Purchase Agreement. The transaction contemplated by the Purchase Agreement did not meet the criteria for discontinued operations as the Company is expected to have continued involvement in Europe through manufacturing and shipping of products to the region through sales to Verisure as part of the Supply Agreement and therefore no significant change in revenue from the region is expected; it was determined the transaction did not represent a strategic shift. The Company also assessed whether a loss needed to be recorded upon initial classification of the assets and liabilities as held for sale to adjust its carrying amount to the fair value less cost to sell. As the carrying amount of the assets and liabilities was lower than fair value less cost to sell, no adjustment was necessary. As of the closing date of December 30, 2019, the Company concluded that no impairment existed for the assets and no adjustment was necessary for the liabilities. Further, the Company reassessed the fair value and cost to sell, and noted that they had not changed since the initial classification of the assets and liabilities as held for sale. Given such, no loss adjustment was necessary.

The Supply Agreement provides that Verisure is the exclusive distributor of the Company's products in Europe for all channels, and will non-exclusively distribute the Company's products through its direct channels globally for an initial term of five years. During the five-year period commencing January 1, 2020, Verisure has an aggregate minimum
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
purchase commitment of $500.0 million, which includes annual minimum commitments. On December 30, 2019, Verisure prepaid the Company $20.0 million for product purchases in fiscal 2020 and will prepay $40.0 million on the first anniversary of the closing of the Purchase Agreement for product purchases in fiscal 2021.

The Supply Agreement also includes certain NRE services to be delivered to Verisure, including developing certain custom products specified by Verisure in exchange for an aggregate of $10.0 million, payable in installments upon meeting certain development milestones. In the second fiscal quarter of 2020, an additional $3.5 million was added to the contract price as a result of a modification to Verisure's specification for the Outdoor Custom Camera. As of September 27, 2020, Verisure has paid $5.0 million for this NRE service. For the three and nine months ended September 27, 2020, the Company recognized service revenue of $2.3 million and $5.5 million, respectively, for this NRE service.

As part of the Purchase Agreement, the Company also entered into a Transition Services Agreement with Verisure (“Verisure TSA”) to assist Verisure with the transition of the Company’s European commercial operations. These transition services primarily include IT support for 12 months, and other services for three to six months, including sales and marketing, operations and supply chain, finance, legal, and human resources which may be extended as mutually agreed upon by the parties. As compensation for these transition services, the Company will be reimbursed by Verisure based on actual direct costs plus allocation of overhead. For the three and nine months ended September 27, 2020, the Company charged Verisure $0.9 million and $3.0 million, respectively, for Verisure TSA services which were recorded as Other income, given such services are not related to the primary business in which the Company operates. The related Verisure TSA expenses in the same amount were recognized as incurred and reported under their natural expense classification.

Note 5.    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 a 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
September 27,
2020
December 31,
2019
(In thousands)
Cash and cash equivalents$173,619 $236,680 
Restricted cash4,147 4,139 
Total as presented on the unaudited condensed consolidated statements of cash flows$177,766 $240,819 

As of
September 29,
2019
December 31,
2018
(In thousands)
Cash and cash equivalents$113,870 $151,290 
Restricted cash4,130 4,134 
Total as presented on the unaudited condensed consolidated statements of cash flows$118,000 $155,424 
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Available-for-sale short-term investments
As of September 27, 2020As of December 31, 2019
 CostUnrealized GainsUnrealized LossesEstimated Fair ValueCostUnrealized GainsUnrealized LossesEstimated Fair Value
(In thousands)
U.S. treasuries$19,992 $ $ $19,992 $19,967 $23 $ $19,990 

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 12 months. Accordingly, none of the available-for-sale securities have unrealized losses greater than 12 months. The Company did not recognize any allowance for credit losses related to available for sale short-term investment for the three and nine months ended September 27, 2020.

Accounts receivable, net
As of
September 27,
2020
December 31,
2019
(In thousands)
Gross accounts receivable$56,940 $127,926 
Allowance for credit losses(509)(609)
Total accounts receivable, net$56,431 $127,317 

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 EndedNine Months Ended
September 27, 2020September 27, 2020
(In thousands)
Balance at the beginning of the period$810 $609 
Provision for (recovery of) expected credit losses(301)(100)
Amounts written off charged against the allowance  
Balance at the end of the period$509 $509 

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 September 27, 2020.

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

The components of property and equipment are as follows:
As of
September 27,
2020
December 31,
2019
(In thousands)
Machinery and equipment$14,699 $13,402 
Software12,657 11,945 
Computer equipment4,094 4,047 
Furniture and fixtures4,045 4,075 
Leasehold improvements
8,023 8,087 
Total property and equipment, gross43,518 41,556 
Accumulated depreciation and amortization(26,686)(20,204)
Total property and equipment, net$16,832 $21,352 

Depreciation and amortization expense pertaining to property and equipment was $2.2 million and $7.0 million for the three and nine months ended September 27, 2020, respectively, and $2.4 million and $6.6 million for the three and nine months ended September 29, 2019, respectively.

Intangibles, net
As of September 27, 2020As of December 31, 2019
 GrossAccumulated AmortizationNetGrossAccumulated AmortizationNet
(In thousands)
Technology$9,800 $(9,571)$229 $9,800 $(8,540)$1,260 
Other500 (491)9 500 (454)46 
Total intangibles, net$10,300 $(10,062)$238 $10,300 $(8,994)$1,306 

As of September 27, 2020, the remaining weighted-average estimated useful life of intangibles was 0.2 years. Amortization of intangibles was $0.4 million and $1.1 million for the three and nine months ended September 27, 2020, respectively, and $0.4 million and $1.2 million for the three and nine months ended September 29, 2019, respectively. There was no impairment recorded for the three and nine months ended September 27, 2020 and September 29, 2019.

As of September 27, 2020, estimated amortization expense related to finite-lived intangibles for the remaining year was $0.2 million.

Goodwill

There was no change in the carrying amount of goodwill during the nine months ended September 27, 2020 and the goodwill as of December 31, 2019 and September 27, 2020 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.

In the first fiscal quarter 2020, the uncertainty brought about by the COVID-19 pandemic adversely impacted the Company's stock price. The resulting impact to the Company’s market capitalization is a qualitative factor to consider when evaluating whether events or changes in circumstances indicate that it is more likely than not that a
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ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
potential goodwill impairment exists. The Company concluded that the decline in the price of its common stock as a result of the COVID-19 impact was an indicator that the Company’s goodwill might be impaired. As a result, in the first fiscal quarter of 2020, the Company performed a quantitative assessment using the discounted cash flow model ("DCF model") as of March 29, 2020. The Company estimated the fair value of the business using the DCF model, as management believes forecasted operating cash flows are the best indicator of current fair value. The assumptions used in the DCF model include weighted-average cost of capital, projected revenue based on projected revenue growth rate, projected operating expenses, income taxes as well as capital expenditures and change in working capital. Estimating the fair value of the business was a subjective process involving the use of estimates and judgments, particularly related to future cash flows, which are inherently uncertain. Based on the results of the quantitative assessment using the DCF model, as of March 29, 2020, the respective fair value was substantially in excess of the carrying amount by $94.1 million, or