Arlo Technologies, Inc.ARLO
Arlo Technologies, Inc. Income Taxes Disclosure
Income Taxes
_______________________
Income (loss) before provision for income taxes consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| United States (“U.S.”) | $ | 7,611 | $ | (35,254) | $ | (26,266) | |||||||||||
| International | 8,056 | 5,842 | 5,405 | ||||||||||||||
| Total | $ | 15,667 | $ | (29,412) | $ | (20,861) | |||||||||||
Provision for income taxes consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current: | |||||||||||||||||
U.S. federal | $ | (46) | $ | 89 | $ | 88 | |||||||||||
| State | 342 | 297 | 273 | ||||||||||||||
| Foreign | 604 | 794 | 697 | ||||||||||||||
| 900 | 1,180 | 1,058 | |||||||||||||||
| Deferred: | |||||||||||||||||
U.S. federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | (159) | (88) | 117 | ||||||||||||||
| (159) | (88) | 117 | |||||||||||||||
| Total | $ | 741 | $ | 1,092 | $ | 1,175 | |||||||||||
Income taxes paid (net of refunds) are as following:
| Year Ended December 31, 2025 | |||||
| (In thousands) | |||||
| U.S. federal | $ | 73 | |||
| U.S. state and local | |||||
| Florida | 75 | ||||
| Texas | 59 | ||||
Other U.S. States (1) | 300 | ||||
| Foreign | |||||
| Ireland | 350 | ||||
| Australia | 289 | ||||
Other Foreign Jurisdictions (1) | 73 | ||||
| Total | $ | 1,219 | |||
(1) No other individual U.S. states or foreign jurisdiction accounted for 5% or greater of the total income taxes paid for the periods presented.
Beginning in 2025 annual reporting, we adopted ASU 2023-09 prospectively. See Note 2 — Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:
Year Ended December 31, 2025 | ||||||||
| (In thousands, except percentage) | ||||||||
| U.S. federal statutory tax rate | $ | 3,290 | 21.0 | % | ||||
State and local income taxes, net of federal income tax effect (1) | 270 | 1.7 | % | |||||
| Foreign tax effects | ||||||||
| Ireland | ||||||||
| Statutory tax rate difference between Ireland and U.S. | (523) | (3.3) | % | |||||
| Research and development tax credits | (432) | (2.8) | % | |||||
| Other | (120) | (0.8) | % | |||||
| Other foreign jurisdictions | (171) | (1.1) | % | |||||
| Effect of cross-border tax laws | ||||||||
| Subpart F inclusion | 202 | 1.3 | % | |||||
| Tax credits | ||||||||
| Research and development tax credits | (2,671) | (17.1) | % | |||||
| Change in valuation allowance | (2,575) | (16.4) | % | |||||
| Non-taxable or non-deductible items | ||||||||
| Stock based compensation | 3,362 | 21.5 | % | |||||
| Other | 131 | 0.8 | % | |||||
| Changes in unrecognized tax benefits | (22) | (0.1) | % | |||||
| Effective income tax rate | $ | 741 | 4.7 | % | ||||
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(1) State income taxes attributable to Florida and Texas represent a majority of our state income tax expense, collectively accounting for more than 50% of the state income tax impact.
The statutory rate used in the effective tax rate reconciliation is the U.S. federal corporate income tax rate of 21%, as we are domiciled in the United States. In 2025, the effective tax rate differed from the statutory rate primarily due to lower effective tax rate on foreign earnings, valuation allowance on our net U.S. deferred tax assets and certain foreign tax attributes and research and development tax credit generated during the year.
A reconciliation of the U.S. federal statutory income tax rates to our effective tax rate for the years ended December 31, 2024 and 2023 is as follows:
Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
(In percentage) | |||||||||||
| Tax benefit at U.S. federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| State tax benefit, net of federal benefit | (0.8) | % | (1.0) | % | |||||||
| Impact of international operations | 3.4 | % | 3.1 | % | |||||||
Foreign-derived intangible income deduction | 1.0 | % | 1.8 | % | |||||||
| Stock-based compensation | (12.8) | % | (22.5) | % | |||||||
| U.S. federal tax credits | 8.8 | % | 13.8 | % | |||||||
| Change in valuation allowance | (28.0) | % | (21.7) | % | |||||||
| Non-deductible transaction costs | (0.5) | % | (0.6) | % | |||||||
| Others | 4.2 | % | 0.5 | % | |||||||
| Effective income tax rate | (3.7) | % | (5.6) | % | |||||||
The significant components of net deferred tax assets consisted of the following:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred Tax Assets: | |||||||||||
| Capitalized research and development expenses | $ | 46,757 | $ | 57,475 | |||||||
| Tax credit carryforwards | 25,291 | 20,090 | |||||||||
| Net operating loss carryforwards | 22,008 | 15,678 | |||||||||
| Accruals and allowances | 11,204 | 10,730 | |||||||||
| Stock-based compensation | 5,774 | 4,174 | |||||||||
| Operating lease liabilities | 2,079 | 5,543 | |||||||||
| Depreciation and amortization | 1,423 | 4,212 | |||||||||
| Deferred revenue | 134 | 80 | |||||||||
| Total deferred tax assets | 114,670 | 117,982 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Operating lease right-of-use assets | (2,203) | (3,758) | |||||||||
| Total deferred tax liabilities | (2,203) | (3,758) | |||||||||
| Valuation Allowance | (110,966) | (112,939) | |||||||||
| Net deferred tax assets | $ | 1,501 | $ | 1,285 | |||||||
Changes in valuation allowance for deferred tax assets were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance at the beginning of the period | $ | 112,939 | $ | 101,977 | $ | 93,869 | |||||||||||
Additions (1) | 8,139 | 14,745 | 13,892 | ||||||||||||||
Deductions (2) | (10,112) | (3,783) | (5,784) | ||||||||||||||
| Balance at the end of the period | $ | 110,966 | $ | 112,939 | $ | 101,977 | |||||||||||
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(1) Additions are primarily attributable to increases in tax attribute carryforwards, including net operating losses and research and development tax credits.
(2) Deductions primarily relate to amortization of previously capitalized research and development costs.
Based on a review of all available evidence as of December 31, 2025, we concluded that it was more likely than not that a valuation allowance was required against our U.S. deferred tax assets and, as a result, we are maintaining the full valuation allowance. However, as we continue to generate income, we are approaching the point at which the accumulated rolling 36-month pre-tax income turns positive—a key piece of objectively verifiable evidence supporting the realizability of deferred tax assets. There is a reasonable possibility that within the next several quarters, sufficient positive evidence will become available to reach a conclusion that all or a significant portion of the valuation allowance against our U.S. net deferred tax assets would no longer be required.
As of December 31, 2025, net operating loss carryforwards consisted of the following:
| Amount | Beginning Year of Expiration | |||||||||||||
| (In thousands) | ||||||||||||||
U.S. federal (1) | $ | 6,831 | 2031 | |||||||||||
U.S. federal (2)(3) | 77,017 | Indefinite | ||||||||||||
| California | 38,178 | 2039 | ||||||||||||
| Other states | 41,344 | 2026 | ||||||||||||
_________________________
(1)All net operating losses are subject to annual usage limitations under Internal Revenue Code (“IRC”) Section 382.
(2)All net operating losses may be subject to annual limitation under IRC Section 382 in the event of an ownership change.
(3)All net operating losses are subject to an annual utilization limitation of 80% of taxable income in a year when the losses are utilized.
As of December 31, 2025, tax credit carryforwards consisted of the following:
| Amount | Beginning Year of Expiration | |||||||||||||
| (In thousands) | ||||||||||||||
U.S. federal | $ | 14,707 | 2039 | |||||||||||
| California | 13,779 | Indefinite | ||||||||||||
| Foreign | 3,943 | 2045 | ||||||||||||
As of December 31, 2025, we expect to indefinitely reinvest the earnings of certain foreign subsidiaries. Accordingly, withholding taxes and state income taxes that would otherwise be incurred upon the repatriation of such earnings have not been considered in our liquidity or cash flow expectations.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance at the beginning of the period | $ | 4,483 | $ | 3,554 | $ | 2,763 | |||||||||||
| Additions based on tax positions related to the current year | 591 | 928 | 679 | ||||||||||||||
| Additions (reduction) for tax positions taken during a prior year | (231) | 35 | 133 | ||||||||||||||
| Reductions as a result of a lapse of the applicable statute of limitations | (26) | (34) | (21) | ||||||||||||||
| Balance at the end of the period | $ | 4,817 | $ | 4,483 | $ | 3,554 | |||||||||||
The total amount of unrecognized tax benefits, including immaterial interest and penalties, was $4.8 million and $4.5 million as of December 31, 2025 and 2024, respectively. We recognize interest and penalties accrued related to unrecognized tax benefits as part of the provision for income taxes. We are subject to income tax examinations in the U.S. federal jurisdiction and various state and foreign jurisdictions. Tax years of 2021 through 2025 remain open to the examination. It is not reasonably possible that the amount of unrecognized tax benefits will change materially within the next twelve months.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Mar 2, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 22, 2019 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.