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Balance Sheet Components | 9 Months Ended
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Sep. 29, 2019
Balance Sheet Related Disclosures [Abstract] |
Balance Sheet Components | Balance Sheet Components Cash and Cash Equivalents and Restricted cash The Company maintains certain cash balances restricted as to withdrawal or use. The restricted cash is comprised primarily of cash used as a collateral for a letter of credit associated with the Company’s lease agreement for its headquarters in San Jose, California. The Company deposits restricted cash with high credit quality financial institutions. The following table totals cash and cash equivalents and restricted cash as reported on the unaudited condensed consolidated balance sheet as of September 29, 2019 and December 31, 2018, and the sum is presented on the unaudited condensed consolidated statements of cash flows:
| As of
| September 29, 2019 |  | December 31, 2018
| (In thousands)
Cash and cash equivalents | $ | 113,870 |  |  | $ | 151,290 |
Restricted cash | 4,130 |  |  | 4,134 |
Total as presented on the unaudited condensed consolidated statements of cash flows | $ | 118,000 |  |  | $ | 155,424 |
Available-for-sale short-term investments
| As of September 29, 2019 |  | As of December 31, 2018
| Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Estimated Fair Value
| (In thousands)
U.S. treasuries | $ | 39,897 |  |  | $ | 44 |  |  | $ | — |  |  | $ | 39,941 |  |  | $ | 49,739 |  |  | $ | 2 |  |  | $ | (4 | ) |  | $ | 49,737 |
The Company’s short-term investments are classified as available-for-sale and consist of government securities with an original maturity or remaining maturity at the time of purchase of greater than three months and no more than twelve months. Accordingly, none of the available-for-sale securities have unrealized losses greater than twelve months. Accounts receivable, net
| As of
| September 29, 2019 |  | December 31, 2018
| (In thousands)
Gross accounts receivable | $ | 100,253 |  |  | $ | 166,172 |
Allowance for doubtful accounts | (555 | ) |  | (127 | )
Total accounts receivable, net | $ | 99,698 |  |  | $ | 166,045 |
Property and equipment, net The components of property and equipment are as follows:
| As of
| September 29, 2019 |  | December 31, 2018
| (In thousands)
Machinery and equipment | $ | 13,289 |  |  | $ | 11,415 |
Software | 11,941 |  |  | 10,624 |
Computer equipment | 4,042 |  |  | 4,342 |
Furniture and fixtures | 3,795 |  |  | 2,698 |
Leasehold improvements | 8,836 |  |  | 3,007 |
Construction in progress (1) | — |  |  | 28,357 |
Total property and equipment, gross | 41,903 |  |  | 60,443 |
Accumulated depreciation and amortization | (17,687 | ) |  | (11,015 | )
Total property and equipment, net | $ | 24,216 |  |  | $ | 49,428 |
_________________________
(1) | The Company had a build-to-suit lease arrangement under its corporate headquarters lease in San Jose, California. Upon the adoption of ASU 2016-02, the Company concluded that it did not have control over the underlying leased asset and de-recognized $21.6 million of Construction of progress. Refer to Note 8, Commitments and Contingencies, for further details.
Depreciation and amortization expense pertaining to property and equipment was $2.4 million and $6.6 million for the three and nine months ended September 29, 2019, respectively, and $1.1 million and $2.3 million for the three and nine months ended September 30, 2018, respectively. Allocated depreciation expense from NETGEAR was $0.5 million and $1.2 million for the three and six months ended July 1, 2018. There was no additional allocation of depreciation expense from NETGEAR for the three months ended September 30, 2018. For the periods prior to the completion of the IPO, the unaudited condensed consolidated statements of operations include both the depreciation expense directly identifiable as Arlo’s and allocated depreciation expense from NETGEAR. Refer to Allocated Expenses from NETGEAR as discussed in Note 1, The Company and Basis of Presentation, for detailed disclosures regarding the methodology used for allocated expenses from NETGEAR. Intangibles, net
| As of September 29, 2019 |  | As of December 31, 2018
| Gross |  | Accumulated Amortization |  | Net |  | Gross |  | Accumulated Amortization |  | Net
| (In thousands)
Technology | $ | 9,800 |  |  | $ | (8,196 | ) |  | $ | 1,604 |  |  | $ | 9,800 |  |  | $ | (7,165 | ) |  | $ | 2,635 |
Other | 500 |  |  | (425 | ) |  | 75 |  |  | 800 |  |  | (612 | ) |  | 188 |
Total intangibles, net | $ | 10,300 |  |  | $ | (8,621 | ) |  | $ | 1,679 |  |  | $ | 10,600 |  |  | $ | (7,777 | ) |  | $ | 2,823 |
As of September 29, 2019, the remaining weighted-average estimated useful life of intangibles was 0.9 years. Amortization of intangibles was $0.4 million and $1.2 million for the three and nine months ended September 29, 2019, respectively, and $0.4 million and $1.2 million for the three and nine months ended September 30, 2018, respectively. As of September 29, 2019, estimated amortization expense related to finite-lived intangibles for the remaining years was as follows (in thousands):
2019 (remaining three months) | $ | 373 |
2020 | 1,306 |
Total estimated amortization expense | $ | 1,679 |
Goodwill There was no change in the carrying amount of goodwill during the nine months ended September 29, 2019 and the goodwill as of December 31, 2018 and September 29, 2019 was as follows (in thousands):
As of December 31, 2018 | $ | 15,638 |
As of September 29, 2019 | $ | 15,638 |
Goodwill Impairment The Company performs an annual assessment of goodwill at the reporting unit level on the first day of the fourth fiscal quarter and during interim periods if there are triggering events to reassess goodwill. The Company’s common stock declined after the Company announced its fourth quarter of fiscal year 2018 earnings release on February 5, 2019. The average closing price per share for the common stock for the eight trading days after such earnings release was $3.71, a 223.3% decrease compared to the average closing price for the fourth quarter of fiscal year 2018. A sustained decline in common stock and the resulting impact to the Company’s market capitalization as well as a downward revision to the Company’s business outlook for fiscal year ending December 31, 2019 are qualitative factors to consider when evaluating whether events or changes in circumstances indicate it is a more likely than not a potential goodwill impairment exists. The Company concluded that the decline in the price of its common stock in February 2019 did represent a sustained decline and therefore was an indicator that the Company’s goodwill might be impaired. As a result, the Company performed a quantitative assessment as of February 7, 2019. The Company operates as one operating and reportable segment. To determine the fair value for the reporting unit, the Company utilized its common stock price and included a market participant acquisition premium (“MPAP”) assumption. A significant decrease in MPAP could result in a significantly lower fair value estimate. The concluded fair value exceeded the Company’s carrying amount by approximately 29.8%. Decreasing the selected MPAP of 25% by 250 basis points would result in the concluded fair value exceeding the carrying amount by approximately 27.2%. As fair value was greater than carrying amount, goodwill was not impaired as of December 31, 2018 using the February 7, 2019 valuation. If there is a further decline in the Company’s stock price based on market conditions and deterioration of the Company’s business, the Company may have to record a charge to its earnings for the goodwill impairment of up to $15.6 million. The Company determined that no events occurred or circumstances changed during the three months ended September 29, 2019 that would more likely than not reduce the fair value of the Company below its carrying amount. Other non-current assets
| As of
| September 29, 2019 |  | December 31, 2018
| (In thousands)
Non-current deferred income taxes | $ | 1,218 |  |  | $ | 1,108 |
Deposits | 3,644 |  |  | 4,084 |
Other | 748 |  |  | 3,257 |
Total other non-current assets | $ | 5,610 |  |  | $ | 8,449 |
Accrued liabilities
| As of
| September 29, 2019 |  | December 31, 2018
| (In thousands)
Sales and marketing | $ | 44,399 |  |  | $ | 75,863 |
Sales returns | 29,351 |  |  | 49,247 |
Accrued employee compensation | 6,707 |  |  | 11,897 |
Current operating lease liabilities | 3,814 |  |  | — |
Warranty obligation | 3,403 |  |  | 3,712 |
Freight | 2,159 |  |  | 3,913 |
Current financing lease obligation | — |  |  | 1,632 |
Other | 20,238 |  |  | 25,772 |
Total accrued liabilities | $ | 110,071 |  |  | $ | 172,036 |

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