Balance Sheet Components

Available-for-sale short-term investments



	As of September 30, 2018
	Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
	(In thousands)
U.S. treasuries	$	39,777	$	—	$	(4	)	$	39,773
Total short-term investments	$	39,777	$	—	$	(4	)	$	39,773

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. As of December 31, 2017, the Company had no short-term investments.

Accounts receivable, net



	As of
	September 30, 2018			December 31, 2017
	(In thousands)
Gross accounts receivable	$	117,119		$	164,157
Allowance for doubtful accounts	—			(207		)
Allowance for sales returns	—		*	(5,868		)
Allowance for price protection	—		*	(402		)
Total allowances	—			(6,477		)
Total accounts receivable, net	$	117,119		$	157,680

_________________________

* Upon adoption of ASC 606, allowances for sales returns and price protection were reclassified to current liabilities as these reserve balances are considered refund liabilities. Refer to Note 3. Revenue Recognition, for additional information on the adoption impact.

Property and equipment, net

The unaudited condensed consolidated balance sheets include the property and equipment specifically identifiable to Arlo’s business. The components of property and equipment are as follows:



	As of
	September 30, 2018			December 31, 2017
	(In thousands)
Machinery and equipment	$	9,879		$	6,067
Computer equipment	4,245			50
Software	9,499			180
Leasehold improvements	2,590			530
Furniture and fixtures	1,043			443
Construction in progress⁽¹⁾	21,858			—
Total property and equipment, gross	49,114			7,270
Accumulated depreciation and amortization	(9,504		)	(3,387		)
Total property and equipment, net	$	39,610		$	3,883

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⁽¹⁾	The Company has a build-to-suit lease arrangement under its headquarters lease in San Jose, California. Refer to Note 11, Commitments and Contingencies, for details of this lease. The construction is expected to be completed in January 2019.

Depreciation and amortization expense pertaining to property and equipment was $1.1 million and $2.3 million for the three and nine months ended September 30, 2018 and $0.5 million and $1.3 million for the three and nine months ended October 1, 2017, respectively. During the fiscal 2018, prior to the completion of the IPO, allocated depreciation expense from NETGEAR was $1.2 million. Allocated depreciation expense from NETGEAR was $0.5 million and $1.4 million for the three and nine months ended October 1, 2017, respectively. The unaudited condensed consolidated statements of operations include both the depreciation expense directly identifiable as Arlo’s and allocated depreciation expense from NETGEAR for the periods presented prior to the completion of the IPO. Refer to Note 1, The Company and Basis of Presentation, for detailed disclosures regarding the methodology used for corporate expense allocation.

Intangibles, net



	As of September 30, 2018							As of December 31, 2017
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(In thousands)
Technology	$	9,800	$	(6,821	)	$	2,979	$	9,800	$	(5,790	)	$	4,010
Trademarks and trade names	1,400		(1,400		)	—		1,400		(1,400		)	—
Other	800		(575		)	225		800		(462		)	338
Total intangibles, net	$	12,000	$	(8,796	)	$	3,204	$	12,000	$	(7,652	)	$	4,348

As of September 30, 2018, the remaining weighted-average estimated useful life of intangibles was two years.

Amortization of intangibles was $0.4 million and $1.2 million for the three and nine months ended September 30, 2018 and $0.4 million and $1.6 million for the three and nine months ended October 1, 2017.

As of September 30, 2018, estimated amortization expense related to finite-lived intangibles for the remaining years was as follows (in thousands):



2018 (remaining three months)	$	381
2019	1,517
2020	1,306
Total estimated amortization expense	$	3,204

Goodwill

In the year ended December 31, 2016, the Company acquired Placemeter. Refer to Note 4, Business Acquisition, for detailed disclosures. There was no change in the carrying amount of goodwill during the nine months ended September 30, 2018 and the goodwill as of December 31, 2017 and September 30, 2018 was as follows (in thousands):



As of December 31, 2017	$	15,638
As of September 30, 2018	$	15,638

Other non-current assets



	As of
	September 30, 2018		December 31, 2017
	(In thousands)
Non-current deferred income taxes	$	438	$	865
Deposits	6,000		—
Other	3,760		1,328
Total other non-current assets	$	10,198	$	2,193

Accrued liabilities



	As of
	September 30, 2018		December 31, 2017
	(In thousands)
Sales and marketing	$	36,142	31,613
Sales returns⁽¹⁾	33,304		—
Warranty obligation ⁽¹⁾	3,618		31,756
Accrued employee compensation	7,969		3,184
Freight	2,023		3,862
Current financing lease obligation⁽²⁾	917		—
Other	20,546		5,682
Total accrued liabilities	$	104,519	$	76,097

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⁽¹⁾	Upon adoption of ASC 606 on January 1, 2018, warranty reserve balances totaling $28.7 million were reclassified to sales returns as these liabilities are payable to the Company’s customers and settled in cash or by credit on account. Under ASC 606, these amounts are to be accounted for as sales with right of return.

⁽²⁾

The Company has a build-to-suit lease arrangement under its headquarters lease in San Jose, California. $20.6 million was included in Non-current financing lease obligation on the Company’s unaudited condensed consolidated financial statements as of September 30, 2018. Refer to Note 11, Commitments and Contingencies, for details of this lease. The construction is expected to be completed in January 2019.