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 30, 2025
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
| (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 | ||||||||||||
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.
☒ | 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 103,400,957 as of May 2, 2025.
Arlo Technologies, Inc.
Form 10-Q
For the Quarterly Period Ended March 30, 2025
TABLE OF CONTENTS
| Page | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
2
PART I: FINANCIAL INFORMATION
Item 1.Financial Statements
ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
(In thousands, except share and per share data) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Goodwill | |||||||||||
Long-term investment | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 7) | |||||||||||
| Stockholders’ Equity: | |||||||||||
Preferred stock: $ | |||||||||||
Common stock: $ | |||||||||||
| Additional paid-in capital | |||||||||||
Accumulated other comprehensive income | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Revenue: | |||||||||||
| Subscriptions and services | $ | $ | |||||||||
| Products | |||||||||||
| Total revenue | |||||||||||
| Cost of revenue: | |||||||||||
| Subscriptions and services | |||||||||||
| Products | |||||||||||
| Total cost of revenue | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Research and development | |||||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Other operating expense | |||||||||||
| Total operating expenses | |||||||||||
Loss from operations | ( | ( | |||||||||
| Interest income, net | |||||||||||
| Other non-operating expense, net | ( | ( | |||||||||
Loss before income taxes | ( | ( | |||||||||
| Provision for income taxes | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Net loss per share: | |||||||||||
Basic and diluted | $ | ( | $ | ( | |||||||
Weighted average shares used to compute net loss per share: | |||||||||||
Basic and diluted | |||||||||||
Comprehensive loss: | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Other comprehensive loss, net of tax | ( | ( | |||||||||
Total comprehensive loss | $ | ( | $ | ( | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
Total stockholders’ equity, beginning balances | $ | $ | |||||||||
| Common stock: | |||||||||||
| Beginning balances | $ | $ | |||||||||
| Issuance of common stock under stock-based compensation plans | |||||||||||
| Repurchase of common stock | ( | ||||||||||
| Restricted stock unit withholdings | ( | ||||||||||
| Ending balances | $ | $ | |||||||||
| Additional paid-in capital: | |||||||||||
| Beginning balances | $ | $ | |||||||||
| Stock-based compensation expense | |||||||||||
| Settlement of liability classified restricted stock units | |||||||||||
| Issuance of common stock under stock-based compensation plans | |||||||||||
| Repurchase of common stock | ( | ||||||||||
Restricted stock unit withholdings | ( | ||||||||||
| Ending balances | $ | $ | |||||||||
| Accumulated deficit: | |||||||||||
| Beginning balances | $ | ( | $ | ( | |||||||
Net loss | ( | ( | |||||||||
| Ending balances | $ | ( | $ | ( | |||||||
Accumulated other comprehensive income: | |||||||||||
| Beginning balances | $ | $ | |||||||||
Other comprehensive loss, net of tax | ( | ( | |||||||||
| Ending balances | $ | $ | |||||||||
Total stockholders’ equity, ending balances | $ | $ | |||||||||
| Common stock shares: | |||||||||||
| Beginning balances | |||||||||||
| Issuance of common stock under stock-based compensation plans | |||||||||||
| Repurchase of common stock | ( | ||||||||||
| Restricted stock unit withholdings | ( | ||||||||||
| Ending balances | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Stock-based compensation expense | |||||||||||
| Depreciation and amortization | |||||||||||
Allowance for credit losses and non-cash changes to reserves | ( | ||||||||||
| Deferred income taxes | ( | ||||||||||
| Discount accretion on investments and other | ( | ( | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Deferred revenue | |||||||||||
| Accrued and other liabilities | ( | ( | |||||||||
Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchases of short-term investments | ( | ( | |||||||||
Purchase of long-term investment | ( | ||||||||||
| Proceeds from maturities of short-term investments | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds related to employee benefit plans | |||||||||||
| Repurchase of common stock | ( | ||||||||||
| Restricted stock unit withholdings | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
Net increase in cash, cash equivalents, and restricted cash | |||||||||||
Cash, cash equivalents, and restricted cash, at beginning of period | |||||||||||
Cash, cash equivalents, and restricted cash, at end of period | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents, and restricted cash to Unaudited Condensed Consolidated Balance Sheets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Non-cash investing activities: | |||||||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Basis of Presentation
Description of Business
Arlo Technologies, Inc. (“we” or “Arlo”) is transforming the ways in which people can protect everything that matters to them with home, business, and personal security services that combine a globally scaled cloud platform, monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem. Arlo’s experience in cloud services, AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that can be setup by the customers and engaged with every day. Our 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.
We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and primarily generate revenue by selling paid subscription services, as well as devices through retail, wholesale distribution, wireless carrier channels, security solution providers, and Arlo’s direct to consumer store.
Our corporate headquarters is located in Carlsbad, California, with other satellite offices across North America and various other global locations.
Basis of Presentation
We prepare our unaudited condensed consolidated financial statements 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”). The unaudited condensed consolidated financial statements include the accounts of Arlo and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on February 27, 2025. The year-end condensed consolidated 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
Our fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. We report the 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.
7
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
Note 2. Significant Accounting Policies and Recent Accounting Pronouncements
Our significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes to such policies except the one below during the three months ended March 30, 2025.
We invested in a strategic investment, which consists of non-marketable securities in a privately held company in which we do not have a controlling interest or significant influence. We apply the measurement alternative for non-marketable equity securities that do not have readily determinable fair values, measuring them at cost, less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For this investment, we recognize remeasurement adjustments, including upward and downward adjustments, and impairments, if any, in “Other non-operating income (expense), net” on the consolidated statements of comprehensive loss.
Accounting Pronouncements Recently Adopted
There were no accounting pronouncements adopted during the three months ended March 30, 2025.
Accounting Pronouncements Not Yet Effective
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Among the various codification amendments, Topic 470 Debt is applicable to Arlo which requires the disclosure of amounts, terms and weighted-average interest rates of unused lines of credit. The effective date is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirement by that date, with early adoption prohibited. The adoption of this new standard will not have a material impact on our financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which requires on an annual basis to (1) disclose specific categories in the rate reconciliation, (2) provide additional information for reconciling items that meet a quantitative threshold, and (3) income taxes paid disaggregated by jurisdiction. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption
8
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
permitted. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement: Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which improves disclosure requirements and mandates enhanced transparency about the types of expenses in commonly presented expense captions in financial statements. This guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.
Note 3. Revenue
Contract Balances
The following table reflects the changes in contract balances for the three months ended March 30, 2025:
Contract Balances | Balance Sheet Location | March 30, 2025 | December 31, 2024 | $ change | % change | ||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Accounts receivable, net | Accounts receivable, net | $ | $ | $ | ( | ( | % | ||||||||||||||||||||||
| Contract liabilities current | Deferred revenue | $ | $ | $ | % | ||||||||||||||||||||||||
| Contract liabilities non-current | Other non-current liabilities | $ | $ | $ | % | ||||||||||||||||||||||||
Deferred revenue as of March 30, 2025 increased primarily due to increases in subscription and service revenue as a result of changes in consumer subscription plans and a shift to additional annual prepaid subscriptions, as well as increases in cumulative paid accounts and rates of subscriptions. For the three months ended March 30, 2025 and March 31, 2024, $14.6 million and $12.1 million, respectively, of the recognized revenue was included in deferred revenue at the beginning of the periods. There were no significant changes in estimates during the periods that would affect the contract balances.
Remaining Performance Obligations
The total estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied and remaining was $44.6 million as of March 30, 2025 and $29.5 million as of December 31, 2024, substantially related to performance obligations classified as less than one year
On April 25, 2024, Verisure Sàrl (“Verisure”), our largest customer, notified us that it was exercising its right under the Supply Agreement to extend the term for another five years (through November 2029) with no minimum purchase obligations. Under the Supply Agreement, a purchase obligation is not deemed to exist until we receive and accept Verisure’s purchase order. As of March 30, 2025, we had a backlog of $35.5 million which represents performance obligations that will be recognized as revenue once fulfilled, which is expected to occur over the next six months .
Variable Consideration
Revenue from all sales types is recognized at transaction price, the amount we expect to be entitled to in exchange for providing services or transferring goods. Transaction price is calculated as selling price net of variable consideration which includes estimates for sales incentives and sales returns related to current period product revenue. Sales incentives are determined based on a combination of the actual amounts committed and estimated future
9
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expenditure based upon historical customary business practice. Sales returns are estimated by analyzing certain factors, including historical sales and returns data, channel inventory levels, current economic trends, and changes in customer demand for our products. Variable consideration estimates are based on predictive historical data or future commitments that we plan and control. However, we continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur. The following table provides activities related to sales incentives and sales returns that are recognized as contra-revenue.
Sales Incentives | Sales Returns | ||||||||||||||||||||||
| Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | March 30, 2025 | March 31, 2024 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Balance at the beginning of the period | $ | $ | $ | $ | |||||||||||||||||||
Credits issued | ( | ( | ( | ( | |||||||||||||||||||
Additions | |||||||||||||||||||||||
| Balance at the end of the period | $ | $ | $ | $ | |||||||||||||||||||
Disaggregation of Revenue
We disaggregate our revenue into three geographic regions: the Americas, EMEA, and APAC, where we conduct our business. The following table presents revenue disaggregated by geographic region.
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Americas | $ | $ | |||||||||
| EMEA | |||||||||||
| APAC | |||||||||||
| Total | $ | $ | |||||||||
Note 4. Balance Sheet Components
Short-Term Investments
| As of March 30, 2025 | As of December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasuries | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
10
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounts Receivable, Net
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Gross accounts receivable | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Total | $ | $ | |||||||||
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Balance at the beginning of the period | $ | $ | |||||||||
Release of expected credit losses | ( | ( | |||||||||
| Balance at the end of the period | $ | $ | |||||||||
Property and Equipment, Net
The components of property and equipment are as follows:
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Machinery and equipment | $ | $ | |||||||||
| Software | |||||||||||
| Computer equipment | |||||||||||
Leasehold improvements | |||||||||||
| Furniture and fixtures | |||||||||||
| Total property and equipment, gross | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
Total property and equipment, net | $ | $ | |||||||||
Depreciation expense pertaining to property and equipment was $0.8 million and $0.9 million for the three months ended March 30, 2025 and March 31, 2024, respectively.
Goodwill
We have determined that no event occurred or circumstances changed during the three months ended March 30, 2025 that would more likely than not reduce the fair value of goodwill below the carrying amount. There was no accumulated goodwill impairment recognized during the three months ended March 30, 2025.
11
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accrued Liabilities
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
Sales and marketing incentives | $ | $ | |||||||||
Sales returns | |||||||||||
| Compensation | |||||||||||
| Cloud and other costs | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
Note 5. Fair Value Measurements
The following table summarizes assets measured at fair value on a recurring basis:
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
Cash equivalents: money-market funds (<90 days) | $ | $ | |||||||||
Cash equivalents: U.S. Treasuries (<90 days) | |||||||||||
Available-for-sale securities: U.S. Treasuries (1) | |||||||||||
| Total | $ | $ | |||||||||
_________________________
(1)Included in short-term investments in our unaudited condensed consolidated balance sheets.
12
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6. Revolving Credit Facility
On November 14, 2024, we entered into a credit agreement (the “Credit Agreement”) with HSBC Bank USA, National Association, as administrative agent, issuing bank, and lender. The Credit Agreement provides for a three-year revolving credit facility (the “Credit Facility”) of up to $45.0 million that matures on November 14, 2027, which also includes a $10.0 million sublimit for the issuance thereunder of letters of credit. As of March 30, 2025, we had unused borrowing capacity of $45.0 million based on the terms and conditions of the Credit Agreement. In addition, the Credit Agreement includes an uncommitted accordion feature that allows us to, from time to time, request an increase to the aggregate revolving loan commitments by up to an additional $30.0 million in the aggregate, subject to the satisfaction of certain conditions. The proceeds of the borrowings under the Credit Facility may be used for working capital and general corporate purposes.
The obligations under the Credit Agreement are secured by substantially all of our assets, including substantially all of the assets of a material subsidiary, Arlo Technologies International Limited, a limited corporation organized under the laws of Ireland (which is the sole guarantor of the Credit Facility as of the closing of the Credit Facility). Borrowings under the Credit Agreement will bear interest at a floating rate equal to: (i) the term secured overnight financing rate plus the applicable rate of 2.25 % to 2.75 %, or (ii) the base rate plus the applicable rate of 1.25 % to 1.75 % both determined based on a total net leverage ratio. Among other fees, we are required to pay a quarterly unused fee of 0.20 % per annum on the amount by which the lenders’ aggregate commitment under the Credit Facility exceeds the daily revolver usage during such quarter. The Credit Agreement contains events of default, representations and warranties, and affirmative and negative covenants customary for credit facilities of this type. The Credit Agreement also contains financial covenants that require us to (i) maintain a fixed charge coverage ratio of at least 1.50 to 1.00 and (ii) maintain a total net leverage ratio, not to exceed 3.00 to 1.00; both covenants being tested quarterly on a trailing four consecutive fiscal quarter basis.
13
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7. Commitments and Contingencies
Operating Leases
Our operating lease obligations mostly include offices, equipment, and distribution centers, with various expiration dates through June 2033. Certain lease agreements include options to renew or terminate the lease, which are generally not reasonably certain to be exercised and therefore are not factored into our determination of lease payments. The terms of certain leases provide for rental payments on a graduated scale. Gross lease expense was $1.4 million and $1.5 million for the three months ended March 30, 2025 and March 31, 2024, respectively. We recorded sublease income as reduction of lease expense, in the amount of $0.7 million and $0.5 million for the three months ended March 30, 2025 and March 31, 2024, respectively.
Supplemental cash flow information related to operating leases is as follows:
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for lease liabilities | |||||||||||
| Operating leases | $ | $ | |||||||||
Weighted average remaining lease term and weighted average discount rate related to operating leases are as follows:
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
| Weighted average remaining lease term | |||||||||||
| Weighted average discount rate | % | % | |||||||||
14
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The future minimum undiscounted lease payments under operating leases and future non-cancelable rent payments from our subtenants for each of the next five years and thereafter as of March 30, 2025 are as follows:
| Operating Lease Payments | Sublease Payments | Net | |||||||||||||||
| (In thousands) | |||||||||||||||||
| 2025 (Remaining nine months) | $ | $ | ( | $ | |||||||||||||
| 2026 | ( | ||||||||||||||||
| 2027 | ( | ||||||||||||||||
| 2028 | ( | ||||||||||||||||
| 2029 | ( | ||||||||||||||||
| Thereafter | |||||||||||||||||
| Total future lease payments | $ | $ | ( | $ | |||||||||||||
| Less: imputed interest | ( | ||||||||||||||||
| Present value of future minimum lease payments | $ | ||||||||||||||||
| Accrued liabilities | $ | ||||||||||||||||
| Non-current operating lease liabilities | |||||||||||||||||
| Total lease liabilities | $ | ||||||||||||||||
Letters of Credit
In connection with the lease agreement for our office space located in San Jose, California, we executed a letter of credit with the landlord as the beneficiary. As of March 30, 2025, we had $3.6 million of unused letters of credit outstanding, of which $3.1 million pertains to the lease arrangement in San Jose, California.
Purchase Obligations
We have entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50 % of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25 % of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. Orders are non-cancelable within 30 days prior to the expected shipment date. As of March 30, 2025, we had $23.3 million in non-cancelable purchase commitments with suppliers which is expected to be paid over the next twelve months .
As of March 30, 2025, an additional $24.3 million of purchase orders beyond contractual termination periods have been issued to supply chain partners in anticipation of demand requirements. Consequently, we may incur expenses for the materials and components, such as chipsets already purchased by the supplier to fulfill our orders if the purchase order is cancelled. Expenses incurred have historically not been material relative to the original order value.
15
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Litigation and Other Legal Matters
From time to time, we may become involved in disputes, litigation, and other legal actions. In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, we accrue for the amount or, if a range, we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within general and administrative expenses. We monitor developments in these legal matters that could affect the estimate we had previously accrued. We currently believe that there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position within the next 12 months. There are many uncertainties associated with any litigation, and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require us to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust the liability and record additional expenses.
Indemnifications
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, distributors, resellers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with members of our Board of Directors and certain of our executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments we could be required to make under these indemnification agreements is, in many cases, unlimited. As of March 30, 2025 and December 31, 2024, we have not incurred any material costs as a result of such indemnification obligations and we are not currently aware of any indemnification claims.
Note 8. Employee Benefit Plans
We grant options and restricted stock units (“RSUs”) under the 2018 Equity Incentive Plan (the “2018 Plan”), under which awards may be granted to all employees. We also grant performance-based and market-based restricted stock units (“PSUs”) to our executive officers periodically. Award vesting periods for the 2018 Plan are generally to five years . As of March 30, 2025, 4.1 million shares were available for future grants. Options may be granted for periods of up to 10 years or such shorter term as may be provided in the agreement and at prices no less than 100 % of the fair market value of Arlo’s common stock on the date of grant. Options granted under the 2018 Plan generally vest over four years , the first tranche at the end of 12 months and the remaining shares underlying the option vesting monthly over the remaining three years .
On January 24, 2025, we registered an aggregate of up to 5,050,450 shares of common stock on a Registration Statement on Form S-8, including 4,050,450 shares issuable pursuant to the 2018 Plan that were automatically added to the shares authorized for issuance under the 2018 Plan and 1,000,000 shares issuable pursuant to the Employee Stock Purchase Plan (“ESPP”) that were automatically added to the shares authorized for issuance on January 1, 2025, both pursuant to an “evergreen” provision contained in the respective plans.
16
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the available shares for grants as of March 30, 2025:
| Number of Shares | |||||
| (In thousands) | |||||
Shares available for grants as of December 31, 2024 | |||||
| Additional authorized shares | |||||
| Granted | ( | ||||
| Forfeited / cancelled | |||||
Shares available for grants as of March 30, 2025 | |||||
Employee Stock Purchase Plan
We sponsor the ESPP to eligible employees. There were no 3.4 million shares were available for issuance under the ESPP.
Option Activity
We did not grant options during the three months ended March 30, 2025. Stock option activity during the three months ended March 30, 2025 was as follows:
| Number of Shares | Weighted Average Exercise Price Per Share | ||||||||||
| (In thousands) | (In dollars) | ||||||||||
Outstanding as of December 31, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
| Exercised | ( | $ | |||||||||
| Forfeited / cancelled | $ | ||||||||||
| Expired | ( | $ | |||||||||
Outstanding as of March 30, 2025 | $ | ||||||||||
Vested and exercisable as of March 30, 2025 | $ | ||||||||||
RSU Activity
RSU activity, excluding PSU activity, during the three months ended March 30, 2025 was as follows:
| Number of Shares | Weighted Average Grant Date Fair Value Per Share | ||||||||||
| (In thousands) | (In dollars) | ||||||||||
Outstanding as of December 31, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
Outstanding as of March 30, 2025 | $ | ||||||||||
17
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PSU Activity
Our executive officers and other senior employees have been granted performance-based awards with some vesting occurring when performance conditions are met and some vesting occurring at the end of a or five-year period when market conditions are met. The number of units earned and eligible to vest are determined based on the achievement of various performance conditions or market conditions, including the cumulative paid accounts targets, stock price, cash balances at reporting period, and the recipients’ continued services. At the end of each reporting period, we evaluate the probability of achieving the performance and record the related stock-based compensation expense based on the achievement over the service period.
PSU activity during the three months ended March 30, 2025 was as follows:
| Number of Shares | Weighted Average Grant Date Fair Value Per Share | ||||||||||
| (In thousands) | (In dollars) | ||||||||||
Outstanding as of December 31, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
Outstanding as of March 30, 2025 | $ | ||||||||||
Stock-Based Compensation Expense
The following table sets forth the stock-based compensation expense included in our unaudited condensed consolidated statements of comprehensive loss:
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Cost of revenue | $ | $ | |||||||||
| Research and development | |||||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Total | $ | $ | |||||||||
As of March 30, 2025, all outstanding options were fully vested, therefore, there was no unrecognized compensation cost related to stock options. As of March 30, 2025, $74.0 million of unrecognized compensation cost related to unvested RSUs and PSUs is expected to be recognized over a weighted-average period of 1.7 year.
During the three months ended March 30, 2025 and March 31, 2024, we settled executive and employee bonuses by granting and issuing RSUs (non-cash financing activities) that vested immediately amounting to $5.0 million and $6.9 million, respectively.
18
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9. Income Taxes
The provision for income taxes for the three months ended March 30, 2025 was $0.5 million or an effective tax rate of (150.8 )%. The provision for income taxes for the three months ended March 31, 2024 was $0.4 million or an effective tax rate of (4.3 )%. Provision for income taxes increased for the three months ended March 30, 2025, compared to the prior year period, primarily due to the increase in state income taxes that no longer have the net operating losses in the U.S. The lower effective tax rate this quarter is due to the lower loss from operations this quarter compared to the prior year period. Consistent with the prior year periods, we maintained a valuation allowance against our U.S. federal and state deferred tax assets and did not record a tax benefit on these deferred tax assets since it is more likely than not that these deferred tax assets will not be realized. The lower effective tax rate for the three months ended March 30, 2025, compared to the U.S. federal income tax rate, is primarily due to the valuation allowance on our net U.S. deferred tax assets and the impact of a lower tax rate on foreign earnings.
Note 10. Net Loss Per Share
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Numerator: | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
| Denominator: | |||||||||||
Weighted average common shares - basic and diluted | |||||||||||
Basic and diluted net loss per share | $ | ( | $ | ( | |||||||
| Anti-dilutive employee stock-based awards, excluded | |||||||||||
19
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11. Segment and Geographic Information
Segment Information
We operate as one
The CODM is regularly provided with not only the consolidated expenses on the unaudited condensed consolidated statements of comprehensive loss, but also the significant segment expenses and other segment items as below:
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Revenue | $ | $ | |||||||||
| Less: | |||||||||||
| Cost of revenue | |||||||||||
| Operating expenses | |||||||||||
| Personnel-related expense | |||||||||||
| Stock-based compensation | |||||||||||
| Outside professional services | |||||||||||
| Marketing expenditure | |||||||||||
Other segment items (1) | |||||||||||
| Depreciation | |||||||||||
| Interest expense | |||||||||||
| Income taxes expense | |||||||||||
| Segment net loss | $ | ( | $ | ( | |||||||
| Reconciliation of profit or loss: | |||||||||||
| Adjustments and reconciling items | |||||||||||
| Consolidated net loss | $ | ( | $ | ( | |||||||
(1)Other segment items include corporate IT and facility overhead, freight out expense, credit card fees, restructuring charges, separation expense, litigation reserves, interest income, net, foreign currency exchange gain (loss), net and others.
20
ARLO TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic Information for Revenue
Revenue consists of subscription and service revenue and product sales, less allowances for estimated sales returns, price protection, end-user customer rebates, net changes in deferred revenue, and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance. Sales and usage-based taxes are excluded from revenue. For reporting purposes, revenue by geographic area is generally based upon the bill-to location of the customer. The following table presents revenue by geographic area.
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| United States | $ | $ | |||||||||
| Spain | |||||||||||
| Sweden | |||||||||||
| Other countries | |||||||||||
| Total | $ | $ | |||||||||
Geographic Information for Long-Lived Assets
Long-lived assets include property and equipment, net and operating lease right-of-use assets, net. Our long-lived assets are based on the physical location of the assets. The following table presents long-lived assets by geographic area.
| As of | |||||||||||
| March 30, 2025 | December 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
| United States | $ | $ | |||||||||
| Other countries | |||||||||||
| Total | $ | $ | |||||||||
Note 12. Stock Repurchase Program
On September 24, 2024, we announced that our Board of Directors approved a stock repurchase program of up to an aggregate of $50.0 million of shares of Arlo’s common stock through open market purchases in a manner deemed to be in the best interests of our company and stockholders, considering the economic cost and prevailing market conditions, including the relative trading prices and volumes of Arlo’s common stock. The stock repurchase program is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors.
The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities. Shares may be repurchased through open market purchases or privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
During the three months ended March 30, 2025, we repurchased and subsequently retired 1.4 million shares of Arlo common stock for an aggregate amount of $15.2 million. As of March 30, 2025, $30.3 million remained available and authorized for future repurchases.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements, including statements concerning our business and the expected performance characteristics, specifications, reliability, market acceptance, market growth, specific uses, user feedback, and market position of our products and technology. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below.
All forward-looking statements in this document are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us,” the “Company,” and “Arlo” refer to Arlo Technologies, Inc. and our subsidiaries.
Business and Executive Overview
Arlo is transforming the ways in which people can protect everything that matters to them with advanced home, business, and personal security services that combine a globally scaled cloud platform, advanced monitoring and analytics capabilities, and award-winning app-controlled devices to create a personalized security ecosystem. Arlo’s deep expertise in cloud services, cutting-edge AI and computer vision analytics, wireless connectivity and intuitive user experience design delivers seamless, smart home security for Arlo users that is easy to setup and engage with every day. Our highly secure, 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 – all rooted in a commitment to safeguard privacy for our users and their personal data.
Since the launch of our first product in December 2014, we have shipped over 38.5 million smart connected devices. As of March 30, 2025, the Arlo platform had approximately 10.9 million cumulative registered accounts across more than 100 countries around the world coupled with approximately 4.9 million cumulative paid subscribers and annual recurring revenue of $276.4 million.
We conduct business across three geographic regions—(i) the Americas; (ii) Europe, Middle-East and Africa (“EMEA”); and (iii) Asia Pacific (“APAC”)—and we primarily generate revenue by selling paid subscription services, as well as devices through retail, wholesale distribution, wireless carrier channels, security solution providers, and Arlo’s direct to consumer store. For the three months ended March 30, 2025 and March 31, 2024, we generated total revenue of $119.1 million and $124.2 million, respectively, and a loss from operations was $1.5 million and $10.6 million, respectively.
Our goal is to continue to develop innovative, world-class smart security solutions to expand and further monetize our current and future user and paid account bases. We believe that the growth of our business is dependent on many factors, including our ability to innovate and launch successful new products on a timely basis and grow our installed base, to increase subscription-based recurring revenue, to invest in channel and other strategic partnerships and to continue our global expansion. We expect to increase our investment in research and development going forward as we continue to introduce new and innovative products and services to enhance the Arlo platform and compete for engineering talent. We
22
also expect our sales and marketing expenses to increase in the future as we invest in marketing to drive demand for our products and services.
Key Business Metrics
In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. We believe these key business metrics provide useful information by offering the ability to make more meaningful period-to-period comparisons of our on-going operating results and a better understanding of how management plans and measures our underlying business. Our key business metrics may be calculated in a manner different from the same key business metrics used by other companies. We regularly review our processes for calculating these metrics, and from time to time we may discover a need to make adjustments to better reflect our business or to improve their accuracy. We believe that any such adjustments are immaterial unless otherwise stated.
As of | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Cumulative registered accounts | 10,930 | 19.2 | % | 9,173 | |||||||||||||
Cumulative paid accounts | 4,897 | 51.4 | % | 3,235 | |||||||||||||
Annual recurring revenue (“ARR”) | $ | 276,357 | 21.8 | % | $ | 226,968 | |||||||||||
Cumulative Registered Accounts. We believe that our ability to increase our user base is an indicator of our market penetration and growth of our business as we continue to expand and innovate our Arlo platform. We define our registered accounts at the end of a particular period as the number of unique registered accounts on the Arlo platform as of the end of such period. The number of registered accounts does not necessarily reflect the number of end-users on the Arlo platform as one registered account may be used by multiple end-users to monitor the devices attached to that household.
Cumulative Paid Accounts. Paid accounts are defined as any account worldwide where a subscription to a paid service is being collected (either by us or by our customers or channel partners, including Verisure).
Annual Recurring Revenue. We believe ARR enables measurement of our business initiatives and serves as an indicator of our future growth. ARR represents and is defined as the annualized paid subscription and service revenue we expect to recognize from subscription contracts, as calculated by taking the average paid subscription and service revenue multiplied by the number of subscription accounts at the end of the reporting period. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items.
Impact of Global Geopolitical, Economic and Business Conditions
The U.S. government recently implemented new tariff measures and potential additional reciprocal tariffs affecting a broad range of imported materials. We have evaluated the potential impact of these actions on our operations and supply chain and do not expect them to have a material impact on our financial position or results of operations in the near term. However, given the uncertainty surrounding global markets and general global uncertainty as a result of new U.S. tariff policy, we do not have clarity at this point over the potential medium to long term impacts our business may face. The availability of certain goods could be affected if foreign suppliers choose to limit their exposure to U.S. markets in response to unfavorable trade policies, which could negatively impact our suppliers ability to deliver materials or manufacture equipment for us and, therefore, delay or impede our product deliveries. Furthermore, rising inflation, slower economic growth and increases in unemployment that may result from global trade disruptions could further deflate consumer demand and impact the demand for our products.
23
Results of Operations
We operate as one operating and reportable segment. The following table sets forth, for the periods presented, the unaudited condensed consolidated statements of comprehensive loss data, which we derived from the accompanying unaudited condensed consolidated financial statements:
| Three Months Ended | |||||||||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Subscriptions and services | $ | 68,849 | 57.8 | % | $ | 56,707 | 45.7 | % | |||||||||||||||
| Products | 50,217 | 42.2 | % | 67,493 | 54.3 | % | |||||||||||||||||
| Total revenue | 119,066 | 100.0 | % | 124,200 | 100.0 | % | |||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Subscriptions and services | 12,265 | 10.3 | % | 13,596 | 10.9 | % | |||||||||||||||||
| Products | 54,074 | 45.4 | % | 63,224 | 51.0 | % | |||||||||||||||||
| Total cost of revenue | 66,339 | 55.7 | % | 76,820 | 61.9 | % | |||||||||||||||||
| Gross profit | 52,727 | 44.3 | % | 47,380 | 38.1 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 16,165 | 13.6 | % | 20,793 | 16.7 | % | |||||||||||||||||
| Sales and marketing | 20,203 | 17.0 | % | 17,370 | 14.0 | % | |||||||||||||||||
| General and administrative | 17,785 | 14.9 | % | 19,348 | 15.6 | % | |||||||||||||||||
| Other operating expense | 25 | 0.0 | % | 479 | 0.3 | % | |||||||||||||||||
| Total operating expenses | 54,178 | 45.5 | % | 57,990 | 46.6 | % | |||||||||||||||||
| Loss from operations | (1,451) | (1.2) | % | (10,610) | (8.5) | % | |||||||||||||||||
| Interest income, net | 1,316 | 1.1 | % | 1,386 | 1.1 | % | |||||||||||||||||
| Other non-operating expense, net | (198) | (0.2) | % | (25) | — | % | |||||||||||||||||
| Loss before income taxes | (333) | (0.3) | % | (9,249) | (7.4) | % | |||||||||||||||||
| Provision for income taxes | 502 | 0.4 | % | 395 | 0.3 | % | |||||||||||||||||
| Net loss | $ | (835) | (0.7) | % | $ | (9,644) | (7.7) | % | |||||||||||||||
Revenue
Our gross revenue consists primarily of paid subscription and service revenue and sales of devices. Our paid subscription services are billed in advance of the start of the monthly subscription and revenue is recognized ratably over subscription period. We generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs.
Our revenue consists of gross revenue, less customer rebates and other channel sales incentives, allowances for estimated sales returns, price protection, and net changes in deferred revenue. A significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition.
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We conduct business across three geographic regions—(i) the Americas; (ii) EMEA; and (iii) APAC—and generally base revenue by geographic region on the bill-to location of the customer for device location for subscription and service sales and device sales.
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Americas | $ | 70,097 | 22.6 | % | $ | 57,169 | |||||||||||
| Percentage of revenue | 58.9 | % | 46.0 | % | |||||||||||||
| EMEA | 42,895 | (30.1) | % | 61,380 | |||||||||||||
| Percentage of revenue | 36.0 | % | 49.4 | % | |||||||||||||
| APAC | 6,074 | 7.5 | % | 5,651 | |||||||||||||
| Percentage of revenue | 5.1 | % | 4.6 | % | |||||||||||||
| Total revenue | $ | 119,066 | (4.1) | % | $ | 124,200 | |||||||||||
Revenue by classification is as follows:
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Revenue: | |||||||||||||||||
| Subscriptions and services | $ | 68,849 | 21.4 | % | $ | 56,707 | |||||||||||
| Products | 50,217 | (25.6) | % | 67,493 | |||||||||||||
| Total revenue | $ | 119,066 | (4.1) | % | $ | 124,200 | |||||||||||
Subscriptions and services revenue increased by $12.1 million or 21.4%, for the three months ended March 30, 2025 compared to the prior year period, respectively, primarily due to a 51.4% increase in cumulative paid accounts and continued increase in average revenue per user (“ARPU”) of retail and direct paid subscriptions.
Products revenue decreased by $17.3 million or 25.6%, for the three months ended March 30, 2025 compared to the prior year period, respectively, primarily from the decrease in product sales in EMEA due to the seasonally driven reduction in demand from our largest customer and the reduction in average selling prices (“ASPs”) of our products as we increased promotional activities to stimulate household acquisition and subscriber growth. The decrease in products revenue was also due to the higher sales incentives that are deemed to be reductions of revenue which was partially offset by the lower sales returns that are deemed to be reductions of revenue.
Cost of Revenue
Cost of revenue consists of both subscription and service costs and product costs. Subscription and service costs consist of costs attributable to the provision and maintenance of our cloud-based platform, including personnel expense, data storage, security and computing, IT and facilities overhead. Product costs primarily consist of the cost of finished products from our third-party manufacturers and overhead costs, including personnel expense for operation staff, purchasing, product planning, inventory control, warehousing and distribution logistics, third-party software licensing fees, inbound freight, IT and facilities overhead, warranty costs associated with returned goods, write-downs for excess and obsolete inventory and excess components, and royalties to third parties.
Our cost of revenue as a percentage of revenue can vary based upon a number of factors, including those that may affect our revenue set forth above and factors that may affect our cost of revenue, including, without limitation, product mix, sales channel mix, registered accounts’ acceptance of paid subscription service offerings, and changes in our cost of goods sold due to fluctuations in prices paid for components, net of vendor rebates, cloud platform costs, warranty and
25
overhead costs, inbound freight and duty costs, and charges for excess or obsolete inventory. We outsource our manufacturing, warehousing, and distribution logistics. We also outsource certain components of the required infrastructure to support our cloud-based back-end IT infrastructure. We believe this outsourcing strategy allows us to better manage our product costs and subscription and service costs and gross margin and allows us to adapt to changing market dynamics and supply chain constraints.
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Cost of revenue: | |||||||||||||||||
| Subscriptions and services | $ | 12,265 | (9.8) | % | $ | 13,596 | |||||||||||
| Products | 54,074 | (14.5) | % | 63,224 | |||||||||||||
| Total cost of revenue | $ | 66,339 | (13.6) | % | $ | 76,820 | |||||||||||
Subscription and service cost of revenue decreased by 9.8% for the three months ended March 30, 2025, compared to the prior year period, primarily due to cost savings as we optimize our cloud platform to improve customer experience which assists in reduced data storage and cloud costs.
Products cost of revenue decreased by 14.5% for the three months ended March 30, 2025, compared to the prior year period, primarily due to the decrease in product sales partially offset by an increase in product costs as a result of higher inventory valuation adjustments.
Gross Profit
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Gross profit: | |||||||||||||||||
| Subscriptions and services | $ | 56,584 | 31.3 | % | $ | 43,111 | |||||||||||
| Products | (3,857) | (190.3) | % | 4,269 | |||||||||||||
| Total gross profit | $ | 52,727 | 11.3 | % | $ | 47,380 | |||||||||||
| Gross margin percentage: | |||||||||||||||||
| Subscriptions and services | 82.2 | % | 76.0 | % | |||||||||||||
| Products | (7.7) | % | 6.3 | % | |||||||||||||
| Total gross margin | 44.3 | % | 38.1 | % | |||||||||||||
Subscription and service gross profit increased by $13.5 million for the three months ended March 30, 2025, compared to the prior year period, primarily due to subscription and service revenue growth as a result of increases in cumulative paid accounts, continued increase in ARPU of retail subscriptions, and cost optimizations.
Products gross profit decreased by $8.1 million for the three months ended March 30, 2025, compared to the prior year period, primarily driven by a reduction in the ASPs of our products as we increased promotional activities to stimulate household acquisition and subscriber growth and an increase in product costs as a result of higher inventory valuation adjustments.
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Operating Expenses
Research and Development
Research and development expense consists primarily of personnel-related expense, safety, security, regulatory services and testing, other research and development consulting fees, and allocated IT and facilities overhead. Generally, we recognize research and development expenses as they are incurred. We have invested in and expanded our research and development organization to enhance our ability to introduce innovative products and services. We expect research and development expense to increase in absolute dollars as we develop new product and service offerings and compete for engineering talent. We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services, including our hardware devices, cloud-based software, AI-based algorithms, and machine learning capabilities.
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Research and development expense | $ | 16,165 | (22.3) | % | $ | 20,793 | |||||||||||
Research and development expense decreased by $4.6 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to decreases of $2.0 million in professional service and $1.4 million in personnel-related expenses mainly as certain software development costs meet the criteria for capitalization, and $1.2 million in IT and facilities overhead related to allocation associated with corporate infrastructure. The decrease in research and development expense is partially offset by the increase in personnel-related expenses as a result of the headcount increase.
Sales and Marketing
Sales and marketing expense consists primarily of personnel expense for sales and marketing staff, technical support expense, advertising, trade shows, media and placement, corporate communications and other marketing expense, product marketing expense, allocated IT and facilities overhead, outbound freight costs, and credit card processing fees. We expect our sales and marketing expense to increase in the future as we invest in marketing to drive demand for our subscriptions and services and device products.
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Sales and marketing expense | $ | 20,203 | 16.3 | % | $ | 17,370 | |||||||||||
Sales and marketing expense increased by $2.8 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to increases of $1.7 million in credit card and in-app processing fees as a result of increases in paid subscriber accounts and focused efforts to improve our customer’s app experience, $0.8 million in personnel-related expenses mainly from stock-based compensation and merit increases, and $0.6 million in marketing expenditures, partially offset by a decrease of $0.4 million in freight-out expenses.
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General and Administrative
General and administrative expense consists primarily of personnel-related expense for certain executives, finance and accounting, investor relations, human resources, legal, information technology, professional fees, allocated IT and facilities overhead, strategic initiative expense, and other general corporate expense. We expect our general and administrative expense to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of such expense.
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| General and administrative expense | $ | 17,785 | (8.1) | % | $ | 19,348 | |||||||||||
General and administrative expense decreased by $1.6 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to decreases of $1.0 million in personnel-related expenses mainly from stock-based compensation and $0.7 million in legal and professional services.
Other operating expenses
Other operating expenses include restructuring charges, which consist primarily of severance costs, and separation expenses, which consist primarily of costs of legal and professional services.
Interest Income, Net and Other Non-Operating Expense, Net
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
Interest income, net | $ | 1,316 | (5.1) | % | $ | 1,386 | |||||||||||
| Other non-operating expense, net | $ | (198) | ** | $ | (25) | ||||||||||||
**Percentage change not meaningful.
Interest income, net slightly decreased for the three months ended March 30, 2025 compared to the prior year, primarily due to the lower interest rates coupled with the decrease in our cash equivalents and short-term investments as we repurchased our common stock and made an investment in a strategic partner.
Provision for Income Taxes
| Three Months Ended | |||||||||||||||||
| March 30, 2025 | % Change | March 31, 2024 | |||||||||||||||
| (In thousands, except percentage data) | |||||||||||||||||
| Provision for income taxes | $ | 502 | 27.1 | % | $ | 395 | |||||||||||
| Effective tax rate | (150.8) | % | (4.3) | % | |||||||||||||
The effective tax rate for the three months ended March 30, 2025 was lower than the U.S. federal income tax rate due to a lower effective tax rate on foreign earnings and valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes as it is more likely than not that some or all of our deferred tax assets will not be realized.
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Liquidity and Capital Resources
As of March 30, 2025, our cash and cash equivalents and short-term investments totaled $153.1 million and the unused borrowing capacity of $45.0 million based on the terms and conditions of the Credit Agreement. The proceeds of the borrowings under this credit facility may be used for working capital and general corporate purposes.
We have a history of losses and may incur operating and net losses in the future. As of March 30, 2025, our accumulated deficit was $398.8 million. Historically, we have funded our principal business activities through cash flows generated from operations and available cash on hand.
Material Cash Requirements
We believe that our existing sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months and beyond. However, in the future we may require or desire additional funds to support our operating expenses and capital requirements. To the extent that current and anticipated future sources of liquidity are insufficient, we may seek to raise additional funds through public or private equity. We have no commitments to obtain such additional financing and cannot provide assurance that additional financing will be available at all or, if available, that such financing would be obtainable on terms favorable to us and would not be dilutive.
Our future liquidity and cash requirements may vary from those currently planned and will depend on numerous factors, including the introduction of new products, the growth in our subscription and service revenue, the ability to increase our gross margin dollars, as well as cost optimization initiatives and controls over our operating expenditures. As we grow our installed base and related cost structure, there will be a need for additional working capital, hence, we may increase our product and subscription rates in the future.
Leases and Contractual Commitments
Our operating lease obligations mostly include offices, equipment, data centers, and distribution centers. Our contractual commitments are primarily inventory-related purchase obligations with suppliers.
Contingencies
We are involved in disputes, litigation, and other legal actions. We evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. Significant judgment is required to determine both the probability and the estimated amount of loss. In such cases, we accrue for the amount or, if a range, we accrue the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net.
Refer to Note 7. Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report for further information about our operating leases, purchase obligations, and legal contingencies.
Stock Repurchase Program
Our Board of Directors authorized a stock repurchase program of up to an aggregate of $50.0 million of shares, which commenced in September 2024 and is expected to continue through December 31, 2026 unless extended or shortened by the Board of Directors. During the three months ended March 30, 2025, we repurchased and subsequently retired 1.4 million shares of Arlo common stock for an aggregate amount of $15.2 million. As of March 30, 2025, $30.3 million remained available and authorized for future repurchases.
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Cash Flow
| Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (In thousands) | |||||||||||
Net cash provided by operating activities | $ | 30,919 | $ | 19,806 | |||||||
| Net cash used in investing activities | (14,352) | (440) | |||||||||
| Net cash used in financing activities | (14,590) | (13,782) | |||||||||
Net cash increase | $ | 1,977 | $ | 5,584 | |||||||
Operating activities
Net cash provided by operating activities increased by $11.1 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to improved profitability coupled with favorable working capital movements as the results of (i) increase in deferred revenue due to the growth in our subscription paid accounts and rates; and (ii) higher accounts receivable collections due to our continued efforts in collections and effective account management; partially offset by decreased accounts payable balances mainly due to timing of payments.
Investing activities
Net cash used in investing activities increased by $13.9 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to our strategic long-term investment in a privately-held company, partially offset by higher proceeds from maturities of short-term investments.
Financing activities
Net cash used in financing activities increased by $0.8 million for the three months ended March 30, 2025 compared to the prior year period, primarily due to the repurchases of common stock, offset by the decrease in withholding tax from RSU releases as a result of the sell-to-cover method applied to all Arlo employees for their tax withholding effective on January 1, 2025.
Critical Accounting Policies and Estimates
For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to our critical accounting policies and estimates during the three months ended March 30, 2025, other than as discussed in Note 2. Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
During the three months ended March 30, 2025, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on this evaluation, our management, including our CEO and our CFO, has concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
Item 1.Legal Proceedings
From time to time, we may become involved in disputes, litigation and other legal actions in the ordinary course of business. We are not currently party to any claim or proceedings that, in the opinion of our management, are likely to have a material adverse effect on our financial position. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. For additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report.
Item 1A.Risk Factors
Our business, reputation, results of operations and financial condition, as well as the price of our stock, can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors.” Except as set forth below, during the three months ended March 30, 2025, there have been no significant changes to the risk factors under the heading “Risk Factors” described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024.
The current international trade environment and related unfavorable macroeconomic conditions have adversely affected, and may continue to adversely affect, our business.
The recent announcements of substantial new U.S. and international tariffs have created a dynamic and unpredictable trade landscape, which is adversely impacting, and may continue to adversely impact, our business.
Current or future tariffs or other retaliatory trade measures may increase the costs of raw materials or finished goods, which could negatively impact our suppliers’ ability to deliver materials or manufacture equipment for us and, therefore, delay or impede our product deliveries. Tariff-related costs and supply chain disruptions may lead to reputational harm if we are unable to deliver products or services on expected timelines or if any price increases are poorly received by customers or business partners. Furthermore, ongoing uncertainty regarding trade disputes, tariffs and other political tensions between the United States and other countries, particularly in Asia, may also exacerbate unfavorable macroeconomic conditions, which may negatively impact international customer demand for our products or services and may lead to increased preference for local competitors.
While we continue to monitor these developments, the full impact of these risks remains uncertain, and any prolonged economic downturn, escalation in trade tensions or deterioration in international perception of U.S.-based companies could materially and adversely affect our business, results of operations and financial condition. In addition, trade developments have heightened, and may continue to heighten, the risks related to the other risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2024.
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Item 5. Other Information
Trading Arrangements
During the quarter ended March 30, 2025, our directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated
| Type of Trading Arrangement | ||||||||||||||||||||||||||||||||||||||
| Name and Position | Action | Action Date | Rule 10b5-1 (1) | Non-Rule 10b5-1 (2) | Total Shares of Common Stock to be Sold | Expiration Date | ||||||||||||||||||||||||||||||||
| (3) | X | |||||||||||||||||||||||||||||||||||||
(1)Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
(2)“Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act.
(3)Adopted for personal tax planning purposes.
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Item 6.Exhibits
Exhibit Index
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
Exhibit Number | Exhibit Description | Form | Date | Number | Filed Herewith | |||||||||||||||||||||||||||
| 8-K | 8/7/2018 | 3.1 | ||||||||||||||||||||||||||||||
| 8-K | 8/7/2018 | 3.2 | ||||||||||||||||||||||||||||||
| S-1/A | 7/23/2018 | 4.1 | ||||||||||||||||||||||||||||||
| X | ||||||||||||||||||||||||||||||||
| X | ||||||||||||||||||||||||||||||||
32.1# | X | |||||||||||||||||||||||||||||||
32.2# | X | |||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||||||||||||||
| # | This certification is deemed to accompany this Quarterly Report on Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. | |||||||||||||||||||||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ARLO TECHNOLOGIES, INC. | ||
| Registrant | ||
| /s/ MATTHEW MCRAE | ||
| Matthew McRae | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| /s/ KURTIS BINDER | ||
| Kurtis Binder | ||
Chief Financial Officer and Chief Operating Officer | ||
| (Principal Financial and Accounting Officer) | ||
Date: May 8, 2025
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