Arlo Reports First Quarter 2022 Results

Exceeded $100 million of ARR, ending Q1 at $101 million, growing 74% year over year

Revenue Growth of 51.1% year over year, exceeding high-end of Guidance for the Quarter

Record GAAP gross profit of $33.6 million, record non-GAAP gross profit of $34.5 million

132% Year over Year growth in Cumulative Paid Accounts

Delivered GAAP operating loss of $8.7 million, second consecutive quarter of non-GAAP Operating Profit of $1.0 million

Arlo Technologies, Inc. (NYSE: ARLO), a leading smart home security brand, today reported financial results for the first quarter ended April 3, 2022.

Financial Highlights ⁽¹⁾

• Revenue of $124.8 million, an increase of 51.1% year over year.
• GAAP gross profit of $33.6 million, an increase of 30.1% year over year; non-GAAP gross profit of $34.5 million, an increase of 29.3% year over year and an all-time record for the company.
• GAAP gross margin of 26.9%; non-GAAP gross margin of 27.6%.
• GAAP operating loss of $8.7 million, a decrease of $2.8 million year over year; non-GAAP operating profit of $1.0 million, an increase of $4.1 million year over year and the second consecutive quarter of non-GAAP operating profitability.
• GAAP net loss per diluted share of $(0.10); non-GAAP net income per diluted share of $0.01.

"The strong growth of our service business continues to produce exceptional results across all metrics. In Q1 revenue reached $124.8 million for 51.1% growth year over year and above the top end of our guidance. Fueled by highly profitable ARR that just surpassed $100 million for the first time in Q1, Arlo posted record non-GAAP gross profit and our second consecutive quarter of non-GAAP operating profitability. These exceptional Q1 results underline how the powerful combination of our recurring revenue business model, coupled with our successful channel and product diversification, are delivering truly transformative results for Arlo,” said Matthew McRae, Chief Executive Officer of Arlo Technologies. “Our team continues to execute well on many fronts – from navigating supply chain challenges to bringing innovative, best-in-class products and services to market – and we are excited to continue our innovation and product and service excellence. With a compelling customer lifetime value and industry-leading customer retention as our base, we will look to leverage our strong execution to grow our subscriber base and expand ARPU. This year we will introduce a full security system with a unique all-in-one sensor to augment our security ecosystem and will make investments to generate awareness of our brand, expand our funnel and, thereby, grow our household base. We look forward to reporting more to you on the success of these initiatives which we believe will drive incremental long term growth and profitability."

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Financial and Business Highlights

• Service revenue of $29.9 million for Q1, for growth of 31.3% year over year, the eleventh consecutive quarter of record service revenue.
• Exceeded $100.0 million of ARR for the first time, ending Q1 with ARR of $101.3 million, growing 74.0% year over year. ⁽²⁾
• GAAP service gross margin of 65.3%; non-GAAP service gross margin of 65.4% in Q1 and a record for Arlo as a standalone company. ⁽¹⁾
• Added a record 205,000 paid accounts in Q1, a sequential increase of 7.9% over Q4, and a year over year increase of 79.8%.
• Announced significant expansion of our service and product offerings with Arlo Security Systems and Arlo Safe.
• Our Pro 4 camera won Best Product’s Editor’s Choice and How-to Geek’s Best of 2022 awards, while our customized camera developed with Verisure was recognized with an IF design award.

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Second Quarter 2022 Business Outlook ⁽³⁾

• Revenue of $105.0 million to $115.0 million.
• GAAP net loss per diluted share of $(0.19) to $(0.14), and non-GAAP net loss per diluted share of $(0.08) to $(0.03).

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

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Investor Conference Call / Webcast Details

Arlo will review the first quarter of 2022 results and discuss management’s expectations for the second quarter of 2022 today, Tuesday, May 10, 2022 at 5:00 p.m. ET (2:00 p.m. PT). The toll-free dial-in number for the live audio call is (888) 660-6387. The international dial-in number for the live audio call is +1 (929) 203-1909. The conference ID for the call is 7749064. A live webcast of the conference call will be available on Arlo’s Investor Relations website at https://investor.arlo.com. A replay of the call will be available via the web at https://investor.arlo.com.

About Arlo Technologies, Inc.

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

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

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

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

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words “anticipate,” “expect,” “believe,” “will,” “may,” “should,” “estimate,” “project,” “outlook,” “forecast” or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent Arlo Technologies, Inc.’s (the "Company") expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding its potential future business, operating performance and financial condition, including descriptions of its expected revenue, GAAP and non-GAAP gross margins, operating margins, tax rates, expenses, and cash outlook; the Company's recurring revenue business model and its channel and product diversification; the commercial launch and momentum of new products and services; including a full security system with all-in one sensor; strategic objectives and initiatives, including the Company's collaboration with Verisure; expectations regarding market expansion and future growth; plans to invest in product innovation; the Company's future product offerings; supply chain challenges; the impact of COVID-19 on the Company's business; and quotes from the Company'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; the Company may be unsuccessful in developing and expanding its sales and marketing capabilities; the Company may not be able to increase sales of its paid subscription services; 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 not receive the minimum commitment amounts from Verisure; the COVID-19 pandemic could continue to have an adverse impact on the Company's business, operations and the markets and communities in which the Company and its partners and customers operate; the Company may fail to successfully continue to effect operating expense savings; changes in the level of the Company'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; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect the Company and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Risk Factors” in the Company's most recently filed Annual Report and Quarterly Report filed with the Securities and Exchange Commission (the “SEC”) and subsequent filings with the SEC. Given these circumstances, you should not place undue reliance on these forward-looking statements. The Company undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Non-GAAP Financial Information:

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

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

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

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

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

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

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

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

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

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

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

Source: Arlo-F

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