EX-99.1 2 arloearningsrelease-ex991_.htm EX-99.1 Document

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NEWS RELEASE

Arlo Reports First Quarter 2023 Results

Revenue of $111 million, above the high end of guidance range
Free cash flow (FCF) of $9 million with FCF margin of 8% (1)
Service revenue of $44 million, growing 47% year over year
Service gross margin of 73%
ARR ended at $183 million, growing 80% year over year
2 million in Cumulative Paid Accounts, growing 61% year over year


Carlsbad, California - May 11, 2023 - Arlo Technologies, Inc. (NYSE: ARLO), a leading smart home security brand, today reported financial results for the first quarter ended April 2, 2023.

“Our Q1 results give Arlo a strong start to 2023 and our outlook for the first half remains robust. In the face of an uncertain consumer backdrop, we delivered revenue and earnings above guidance as our pricing strategy began to pay dividends. Fueled by our subscription business that reached record revenue and gross margin, Arlo delivered non-GAAP operating income of $1.2 million and produced free cash flow of $9 million," said Matthew McRae, Chief Executive Officer of Arlo Technologies. “Our recurring services revenue is at the heart of this performance and, with best-in-class products and new offerings like our security system and Arlo Safe, we are poised to continue our strong trajectory.”

Financial and Business Highlights (2)

•Q1 total revenue of $111.0 million, a decrease of 11.0% year over year.
•Record Q1 service revenue of $43.9 million, growing 46.8% year over year.
•Ended the quarter with ARR (3) of $182.6 million, growing 80.2% year over year.
•Added 182,000 paid accounts in Q1, ending cumulative paid accounts over 2.0 million, growing 60.7% year over year.
•GAAP gross profit of $35.2 million with gross margin of 31.7%; non-GAAP gross profit of $36.2 million with gross margin of 32.6%.
•Record Q1 GAAP services gross margin of 73.3%; non-GAAP services gross margin of 73.5%.
•GAAP net loss per share of $(0.16); non-GAAP earnings per diluted share of $0.01.
•Ending cash and cash equivalents and short-term investments balance of $118.7 million, with free cash flow margin of 8.5% in Q1.
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Three Months Ended
April 2,
2023		December 31,
2022		April 3,
2022
(In thousands, except percentage and per share data)
Revenue$111,004 $118,527 $124,751 
GAAP Gross Margin31.7 %27.0 %26.9 %
Non-GAAP Gross Margin (2)
32.6 %28.0 %27.6 %
GAAP Net Loss per Share$(0.16)$(0.25)$(0.10)
Non-GAAP Net Income (Loss) per Diluted (Basic) Share (2)
$0.01 $(0.04)$0.01 
_________________________
(1)    Free cash flow is calculated as net cash provided by (used in) operating activities less capital expenditures. Free cash flow margin is the free cash flow divided by revenue.

(2)    Reconciliation of financial measures computed on a GAAP basis to the most directly comparable financial measures computed on a non-GAAP basis is provided at the end of this press release.

(3)    ARR is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognized from our paid accounts and excludes prepaid service revenue and non-recurring engineering (NRE) service revenue from strategic partners.

Second Quarter 2023 Business Outlook (4)

A reconciliation of our business outlook on a GAAP and non-GAAP basis is provided in the following table:
Three Months Ended July 2, 2023
RevenueNet Income (Loss)
per Diluted Share
(In millions, except per share data)
GAAP
$105 - $115
$(0.15) - $(0.09)
Estimated adjustment for stock-based compensation and other expense—0.16
Non-GAAP
$105 - $115
$0.01 - $0.07
_________________________
(4)    Business outlook does not include estimates for any currently unknown income and expense items which, by their nature, could arise late in a quarter, including: litigation reserves, net; impairment charges; discrete tax benefits or detriments relating to tax windfalls or shortfalls from equity awards; and any additional impacts relating to the implementation of U.S. tax reform. New material income and expense items such as these could have a significant effect on our guidance and future results.

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Investor Conference Call / Webcast Details

Arlo will review the first quarter 2023 results and discuss management’s expectations for the second quarter of 2023 today, Thursday, May 11, 2023 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, software and services, including wire-free smart Wi-Fi and LTE-enabled security cameras, audio and video doorbells, a floodlight, home security systems, and the Arlo Apps: Arlo Secure, and Arlo Safe, AI-based subscription services designed to maximize security through personalized notifications and emergency services for quicker help during a crisis.

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.

© 2023 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.




Contact:

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

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for Arlo Technologies, Inc.:

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 our expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding our potential future business, operating performance and financial condition, including descriptions of our expected revenue and profitability (and related timing), GAAP and non-GAAP gross margins, operating margins, tax rates, expenses, cash outlook, free cash flow and free cash flow margin; the expansion of our product portfolio with Arlo Safe and the Security System; strategic objectives and initiatives; the recurring revenue business model; expectations regarding market expansion and future growth; and others. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: the expansion of our product portfolio with Arlo Safe and the Security System may not materialize; future demand for our products may be lower than anticipated, including due to inflation, lower consumer confidence, banking failures and rising interest rates; we may be unsuccessful in developing and expanding our sales and marketing capabilities; we may not be able to increase sales of our paid subscription services; consumers may choose not to adopt our new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; we may be unsuccessful or experience delays in manufacturing and distributing our new and existing products; we may fail to manage costs and cost saving initiatives, including restructuring initiatives, the cost of developing new products and manufacturing and distribution of our existing offerings. 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 our business are detailed in our 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 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. We undertake 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 stock-based compensation expense, restructuring charges, impairment charges, separation expense, amortization of development of software cost, litigation reserves, net, employee retention credit and the related tax effects. In addition, we use free cash flow as non-GAAP measure when assessing the sources of liquidity, capital resources, and quality of earnings. We believe that free cash flow (usage) is helpful in understanding our capital requirements and provides an additional means to reflect the cash flow trends in our business. 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:
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•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:

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, performance-based stock options, restricted stock units (RSU), 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 non-GAAP items are the result of either unique or unplanned events, including, when applicable: restructuring charges, impairment charges, separation expense, amortization of development of software cost, 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.



Source: Arlo-F

***Financial Tables Attached***
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ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of
April 2,
2023		December 31,
2022
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents$66,970 $84,024 
Short-term investments51,703 29,700 
Accounts receivable, net52,837 65,960 
Inventories39,922 46,554 
Prepaid expenses and other current assets7,415 6,544 
Total current assets218,847 232,782 
Property and equipment, net7,055 7,336 
Operating lease right-of-use assets, net11,985 12,809 
Goodwill11,038 11,038 
Restricted cash4,175 4,155 
Other non-current assets3,983 4,081 
Total assets$257,083 $272,201 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$46,031 $52,132 
Deferred revenue15,175 11,291 
Accrued liabilities88,216 98,855 
Total current liabilities149,422 162,278 
Non-current operating lease liabilities18,168 19,279 
Other non-current liabilities3,242 2,949 
Total liabilities170,832 184,506 
Commitments and contingencies
Stockholders’ Equity:
Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding
— — 
Common stock: $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 90,785,158 at April 2, 2023 and 88,887,139 at December 31, 2022
91 89 
Additional paid-in capital445,809 433,138 
Accumulated other comprehensive income (loss)21 (107)
Accumulated deficit(359,670)(345,425)
Total stockholders’ equity86,251 87,695 
Total liabilities and stockholders’ equity$257,083 $272,201 

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ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended
April 2,
2023		December 31,
2022		April 3,
2022
(In thousands, except percentage and per share data)
Revenue:
Products$67,060 $80,199 $94,825 
Services43,944 38,328 29,926 
Total revenue111,004 118,527 124,751 
Cost of revenue:
Products64,041 74,700 80,777 
Services11,746 11,857 10,399 
Total cost of revenue75,787 86,557 91,176 
Gross profit35,217 31,970 33,575 
Gross margin31.7 %27.0 %26.9 %
Operating expenses:
Research and development17,750 14,457 16,379 
Sales and marketing15,353 20,214 13,168 
General and administrative15,622 17,909 12,621 
Others632 1,815 79 
Total operating expenses49,357 54,395 42,247 
Loss from operations(14,140)(22,425)(8,672)
Operating margin(12.7)%(18.9)%(7.0)%
Interest income (expense), net726 512 (5)
Other income (expense), net(39)(12)411 
Loss before income taxes(13,453)(21,925)(8,266)
Provision for income taxes792 230 213 
Net loss$(14,245)$(22,155)$(8,479)
Net loss per share:
Basic$(0.16)$(0.25)$(0.10)
Diluted$(0.16)$(0.25)$(0.10)
Weighted average shares used to compute net loss per share:
Basic89,653 88,743 85,222 
Diluted89,653 88,743 85,222 

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ARLO TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 Three Months Ended
April 2,
2023		April 3,
2022
(In thousands)
Cash flows from operating activities:
Net loss$(14,245)$(8,479)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Stock-based compensation expense14,591 9,589 
Depreciation and amortization1,149 1,302 
Allowance for credit losses and inventory reserves198 (135)
Deferred income taxes127 (9)
Others(124)28 
Changes in assets and liabilities:
Accounts receivable, net 13,216 1,508 
Inventories6,341 1,490 
Prepaid expenses and other assets (900)556 
Accounts payable (6,093)(15,676)
Deferred revenue3,785 (13,411)
Accrued and other liabilities(7,716)(1,320)
Net cash provided by (used in) operating activities10,329 (24,557)
Cash flows from investing activities:
Purchases of property and equipment (923)(298)
Purchases of short-term investments(36,755)(44,640)
Proceeds from maturities of short-term investments15,006 — 
Net cash used in investing activities(22,672)(44,938)
Cash flows from financing activities:
Proceeds related to employee benefit plans3 1,388 
Restricted stock unit withholdings(4,694)(6,660)
Net cash used in financing activities(4,691)(5,272)
Net decrease in cash, cash equivalents and restricted cash
(17,034)(74,767)
Cash, cash equivalents and restricted cash, at beginning of period88,179 179,856 
Cash, cash equivalents and restricted cash, at end of period$71,145 $105,089 
Non-cash investing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities$894 $310 
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ARLO TECHNOLOGIES, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

UNAUDITED STATEMENT OF OPERATIONS DATA:
Three Months Ended
April 2,
2023		December 31,
2022		April 3,
2022
(In thousands, except percentage data)
GAAP gross profit:
Products$3,019 $5,499 $14,048 
Services32,198 26,471 19,527 
Total GAAP gross profit35,217 31,970 33,575 
GAAP gross margin:
Products4.5 %6.9 %14.8 %
Services73.3 %69.1 %65.3 %
Total GAAP gross margin31.7 %27.0 %26.9 %
Stock-based compensation expense - Products912 1,001 855 
Stock-based compensation expense - Services(51)230 55 
Amortization of development of software cost - Services151 — — 
Non-GAAP gross profit:
Products3,931 6,500 14,903 
Services32,298 26,701 19,582 
Total Non-GAAP gross profit$36,229 $33,201 $34,485 
Non-GAAP gross margin:
Products5.9 %8.1 %15.7 %
Services73.5 %69.7 %65.4 %
Total Non-GAAP gross margin32.6 %28.0 %27.6 %
GAAP research and development$17,750 $14,457 $16,379 
Stock-based compensation expense(3,911)(3,715)(2,302)
Non-GAAP research and development$13,839 $10,742 $14,077 
Percentage of revenue12.5 %9.1 %11.3 %
GAAP sales and marketing$15,353 $20,214 $13,168 
Stock-based compensation expense(1,722)(1,731)(1,380)
Non-GAAP sales and marketing$13,631 $18,483 $11,788 
Percentage of revenue12.3 %15.6 %9.4 %
GAAP general and administrative$15,622 $17,909 $12,621 
Stock-based compensation expense(8,097)(10,012)(4,997)
Litigation reserves, net— (30)(47)
Non-GAAP general and administrative$7,525 $7,867 $7,577 
Percentage of revenue6.8 %6.6 %6.1 %

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ARLO TECHNOLOGIES, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):
Three Months Ended
April 2,
2023		December 31,
2022		April 3,
2022
(In thousands, except percentage data)
GAAP total operating expenses$49,357 $54,395 $42,247 
Stock-based compensation expense(13,730)(15,458)(8,679)
Other(632)(1,845)(126)
Non-GAAP total operating expenses$34,995 $37,092 $33,442 
GAAP operating loss$(14,140)$(22,425)$(8,672)
GAAP operating margin(12.7)%(18.9)%(7.0)%
Stock-based compensation expense14,591 16,689 9,589 
Other783 1,845 126 
Non-GAAP operating income (loss)$1,234 $(3,891)$1,043 
Non-GAAP operating margin1.1 %(3.3)%0.8 %
GAAP other income (expense), net$(39)$(12)$411 
Employee retention credit— — (39)
Non-GAAP other income (expense), net$(39)$(12)$372 
GAAP provision for income taxes$792 $230 $213 
GAAP income tax rate(5.9)%(1.0)%(2.6)%
Non-GAAP provision for income taxes$792 $230 $213 
Non-GAAP income tax rate41.2 %(6.8)%15.1 %


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ARLO TECHNOLOGIES, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

UNAUDITED STATEMENT OF OPERATIONS DATA (CONTINUED):
Three Months Ended
April 2,
2023		December 31,
2022		April 3,
2022
(In thousands, except percentage and per share data)
GAAP net loss$(14,245)$(22,155)$(8,479)
Stock-based compensation expense14,591 16,689 9,589 
Other783 1,845 87 
Non-GAAP net income (loss)$1,129 $(3,621)$1,197 
GAAP net loss per share - basic and diluted$(0.16)$(0.25)$(0.10)
Stock-based compensation expense0.17 0.19 0.11 
Other— 0.02 — 
Non-GAAP net income (loss) - diluted $0.01 $(0.04)$0.01 
Shares used in computing GAAP net loss - basic89,653 88,743 85,222 
Shares used in computing non-GAAP net income (loss) - diluted 93,236 88,743 93,135 
Free cash flow (usage):
Net cash provided by (used in) operating activities$10,329 $(11,181)$(24,557)
Less: Purchases of property and equipment(923)(1,194)(298)
Free cash flow (usage) (1)
$9,406 $(12,375)$(24,855)
Free cash flow (usage) margin (1)
8.5 %(10.4)%(19.9)%
_________________________
(1)    Free cash flow (usage) is calculated as net cash provided by (used in) operating activities less capital expenditures. Free cash flow (usage) margin is the free cash flow (usage) divided by revenue.
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ARLO TECHNOLOGIES, INC.
UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

Three Months Ended
April 2,
2023		December 31,
2022		October 2,
2022		July 3,
2022		April 3,
2022
(In thousands, except headcount and per share data)
Cash, cash equivalents and short-term investments$118,673 $113,724 $125,272 $135,258 $145,541 
Cash, cash equivalents and short-term investments per diluted share$1.27 $1.28 $1.42 $1.47 $1.56 
Accounts receivable, net$52,837 $65,960 $82,707 $73,998 $78,054 
Days sales outstanding44 50 59 57 58 
Inventories$39,922 $46,554 $73,243 $39,208 $37,038 
Inventory turns6.4 6.4 4.3 7.5 8.7 
Weeks of channel inventory:
U.S. retail channel 14.6 11.9 13.6 11.9 15.8 
U.S. distribution channel17.6 14.1 5.5 7.4 10.5 
APAC distribution channel5.8 4.7 9.4 9.8 18.1 
Deferred revenue
(current and non-current)		$15,289 $11,503 $12,242 $14,022 $17,375 
Cumulative registered accounts (1)
7,510 7,220 6,930 6,640 6,389 
Cumulative paid accounts (2)
2,044 1,862 1,673 1,478 1,272 
Annual recurring revenue (ARR) (3)
$182,583 $137,764 $125,402 $116,601 $101,341 
Headcount334 343 360 354 358 
Non-GAAP diluted shares93,236 88,743 88,124 91,787 93,135 
_________________________
(1)    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.

(2)    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).

(3)    ARR represents the amount of paid service revenue that we expect to recur annually and is calculated by taking our recurring paid service revenue for the last calendar month in the fiscal quarter, multiplied by 12 months. Recurring paid service revenue represents the revenue we recognize from our paid accounts and excludes prepaid service revenue, and NRE service revenue from strategic partners. 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.

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REVENUE BY GEOGRAPHY

Three Months Ended
April 2,
2023		December 31,
2022		April 3,
2022
(In thousands, except percentage data)
Americas$56,632 51.0 %$74,131 62.5 %$68,466 54.9 %
EMEA48,472 43.7 %39,464 33.3 %49,975 40.0 %
APAC5,900 5.3 %4,932 4.2 %6,310 5.1 %
Total$111,004 100.0 %$118,527 100.0 %$124,751 100.0 %


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