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What changed in Cricut, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Cricut, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+421 added−409 removedSource: 10-K (2024-03-06) vs 10-K (2023-03-13)

Top changes in Cricut, Inc.'s 2023 10-K

421 paragraphs added · 409 removed · 369 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

92 edited+5 added−13 removed102 unchanged
Biggest changeMany of our products are sold through traditional brick-and-mortar retail partners, varying in size, including on their websites, as follows: • Specialized Craft Retailers. We sell to specialized arts and crafts supply retailers with large regional or national presence, such as Hobby Lobby, HSN, Jo-Ann, and Michaels. • National Retailers.
Biggest changeWe continue to grow our revenues within our international markets and in 2022 16.1%, and in 2023 20.3% of our overall revenue came from our international business. Many of our products are sold through traditional brick-and-mortar retail partners, varying in size, including on their websites, as follows: • Specialized Craft Retailers.
Cricut materials give users peace of mind with a brand they trust for durability, selection, and compliance. We sell a wide range of project materials including vinyl, iron-on vinyl, deluxe paper, and Infusible Ink (cuttable sublimation).
Cricut materials give users peace of mind with a brand they trust for durability, selection, and compliance. We sell a wide range of project materials including vinyl, iron-on vinyl, deluxe paper, and Infusible Ink (cuttable sublimation ink).
As of December 31, 2022 we did not have any customers that represented 10% or more of our consolidated revenue. We also currently offer our products through our website at cricut.com, which can be purchased directly by users in the United States, Canada, the United Kingdom, Ireland, France, and Germany.
As of December 31, 2022 and December 31, 2023 we did not have any customers that represented 10% or more of our consolidated revenue. We also currently offer our products through our website at cricut.com, which can be purchased directly by users in the United States, Canada, the United Kingdom, Ireland, France, and Germany.
Certain highly specialized components and raw materials, such as electronic components, microchips and certain alloys that are critical to the performance of our connected machines, are sourced from very limited component suppliers. These components have unique performance 13 profiles, and, as a result, it is not commercially practical to support multiple sources for these components for our products.
Certain highly specialized components and raw materials, such as electronic components, microchips and certain alloys that are critical to the performance of our connected machines, are sourced from very limited component suppliers. These components have unique performance profiles, and, as a result, it is not commercially practical to support multiple sources for these components for our products.
We offer over 3,000 total SKUs within our Cricut extensions, accessories, and materials, ranging in price from a $0.99 a la carte image in Design Space to the $999.00 Cricut Autopress. How We Go to Market Many of our users hear about our products through word-of-mouth.
We offer over 3,000 total SKUs within our Cricut extensions, accessories, and materials, ranging in price from a $0.99 a la carte image in Design Space to the $999.00 for Cricut Autopress. How We Go to Market Many of our users hear about our products through word-of-mouth.
While assorted machine tools are required to create these decorative effects, our connected machines also have the capability to automatically detect whether the proper tool is installed to safeguard proper operation and help our users achieve their desired effect. • Cloud-Based Architecture Which Allows for Simplicity, Scalability and Security.
While assorted machine tools are required to create these decorative effects, our connected machines also have the capability to automatically detect 9 whether the proper tool is installed to safeguard proper operation and help our users achieve their desired effect. • Cloud-Based Architecture Which Allows for Simplicity, Scalability and Security.
It is therefore likely that we will need to comply with these local regulations in addition to the GDPR. Local supervisory authorities can impose fines for non-compliance and have the power to carry out audits, 15 require companies to cease or change processing, request information and obtain access to premises.
It is therefore likely that we will need to comply with these local regulations in addition to the GDPR. Local supervisory authorities can impose fines for non-compliance and have the power to carry out audits, require companies to cease or change processing, request information and obtain access to premises.
As we 6 launch new software and products, and as our community continues to grow and share on our platform and elsewhere online, can continually refresh this relationship and expand the versatility of our platform. Our large and loyal community of users engage with Cricut and each other both in Design Space, our design software, and through social media.
As we launch new software and products, and as our community continues to grow and share on our platform and elsewhere online, can continually refresh this relationship and expand the versatility of our platform. Our large and loyal community of users engage with Cricut and each other both in Design Space and through social media.
This line of heat presses replaces traditional irons and heat transfer tools with products that deliver consistent, even, and precise control. Our line of lighting products, which includes Cricut Bright in table and floor lamp options, and the popular Cricut BrightPad and BrightPad Go, illuminate surfaces and surroundings for easier crafting and creating.
This line of heat presses replaces traditional irons and heat transfer tools 7 with products that deliver consistent, even, and precise control. Our line of lighting products, which includes Cricut Bright in table and floor lamp options, and the popular Cricut BrightPad and BrightPad Go, illuminate surfaces and surroundings for easier crafting and creating.
Our connected machines are durable, built to last and designed with this level of extensibility to quickly enable new uses as they are designed and brought to market. 10 • Optimized Accessories and Materials. While our connected machines work with a wide variety of accessories and materials regardless of brand, using Cricut-branded products brings added benefits.
Our connected machines are durable, built to last and designed with this level of extensibility to quickly enable new uses as they are designed and brought to market. • Optimized Accessories and Materials. While our connected machines work with a wide variety of accessories and materials regardless of brand, using Cricut-branded products brings added benefits.
The integrated structure of our hardware and software products allows us to continue releasing new connected products with uses that seamlessly integrate with our existing ecosystem, allowing us to grow the lifetime value of our consumer base. Connected Machines Our connected machine portfolio currently includes Cricut Joy, the Cricut Explore family, and the Cricut Maker family.
The integrated structure of our hardware and software allows us to continue releasing new connected products with uses that seamlessly integrate with our existing ecosystem, allowing us to grow the lifetime value of our consumer base. Connected Machines Our connected machine portfolio currently includes the Cricut Joy family, the Cricut Explore family, and the Cricut Maker family, and Cricut Venture.
Every project is an opportunity to start a conversation and we often see our users inspire, teach, and create together. Users are passionate about sharing Cricut tips, tricks, and personal stories and this engagement carries over into social media and into everyday life.
Every project is an opportunity to start a conversation and we often see our users inspire, teach, and create together. Users are passionate about sharing Cricut tips, tricks, and 4 personal stories and this engagement carries over into social media and into everyday life.
Our employees strive to support this mission by providing an innovative creativity platform that includes software, machines, materials, and tools to our users. Much of our team are makers and crafters and are engaged with our end-users. We celebrate seeing the creativity and kindness that our end users create with the tools we provide.
Our employees strive to support this mission by providing an innovative creativity platform that includes software, machines, materials, and tools to our users. Much of our team are makers and crafters themselves and are engaged with our end-users. We celebrate seeing the creativity and kindness that our end users create with the tools we provide.
We believe we compete favorably across these factors, and we have developed a business model that is difficult to replicate. For additional information, see the section titled “Risk Factors—Risks Related to Our Industry and Business.” 12 Intellectual Property We believe that our intellectual property rights are valuable and important to our business.
We believe we compete favorably across these factors, and we have developed a business model that is difficult to replicate. For additional information, see the section titled “Risk Factors—Risks Related to Our Industry and Business.” Intellectual Property We believe that our intellectual property rights are valuable and important to our business.
Design Apps and Subscriptions Users leverage our connected machines and design apps to bring their ideas to life. After downloading our app and creating a profile, users access a select number of free images, fonts, and ready-to-make projects, or can upload their own designs to begin making.
Design App and Subscriptions Users leverage our connected machines and design app to bring their ideas to life. After downloading our app and creating a profile, users access a select number of free images, fonts, and ready-to-make projects, or can upload their own designs to begin making.
We intend to continue to invest resources to build our brand and community, including employing digital advertising and content marketing. Our marketing efforts prioritize the customer journey to ensure that when consumers interact with the Cricut brand, we’re creating positive experiences that people will remember.
We intend to continue to invest resources to build our brand and community, including employing digital advertising, brand partnerships, and content marketing. Our marketing efforts prioritize the customer journey to ensure that when consumers interact with the Cricut brand, we’re creating positive experiences that people will remember.
Significant time and resources also go towards training our Cricut community management and Member Care teams to address issues relating to our products and services to reduce negative impacts on our users’ experience. Research and Development Our research and development efforts focus on enabling our users to express their creativity.
Significant time and resources also go towards training our Cricut community management and Member Care teams to address issues relating to our products and services to reduce negative impacts on our users’ experience. Research and Development 14 Our research and development efforts focus on enabling our users to express their creativity.
As we diversify our content categories and further expand internationally, we will continue to develop localized and meaningful content shaped to meet the language, needs and preferences of our growing global user base. As our user base expands, demand for content is higher than ever.
As we diversify our content categories and further expand internationally, we will continue to 10 develop localized and meaningful content shaped to meet the language, needs and preferences of our growing global user base. As our user base expands, demand for content is higher than ever.
We also have an international sales and marketing force in the United Kingdom, Australia, across Western Europe, South Africa, Middle East, Singapore, Mexico, and Brazil, to drive sales and whose reach spans into many jurisdictions across the globe.
We also have an international sales and marketing force in the United Kingdom, Australia, across Western Europe, South Africa, Middle East, Singapore, Mexico, and Brazil, to drive sales and whose reach 13 spans into many jurisdictions across the globe.
Our loyal community of millions of users — empowered 14 with a platform designed for sharing — are our best and most effective marketing tools, helping to generate robust word-of-mouth referrals, which have been significant drivers of our growth.
Our loyal community of millions of users — empowered with a platform designed for sharing — are our best and most effective marketing tools, helping to generate robust word-of-mouth referrals, which have been significant drivers of our growth.
Users can also purchase subscriptions to Cricut Access and Cricut Access Premium through our website or through Cricut’s design apps on Android and iOS devices. Additionally, users can make in-app purchases of images, fonts and projects à la carte on our platform and through our design apps.
Users can also purchase subscriptions to Cricut Access and Cricut Access Premium through our website or through Cricut’s design app on Android and iOS devices. Additionally, users can make in-app purchases of images, fonts and projects à la carte on our platform and through our design app.
In addition, as we continue to expand internationally, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as laws in the United States.
In addition, as we continue to expand internationally, the 12 laws of certain foreign countries may not protect our intellectual property rights to the same extent as laws in the United States.
We began our international expansion by launching in Australia, Canada, France, Germany and the United Kingdom, and subsequently launched in Latin America, Western Europe, and more recently most of Asia (including India, Japan, and South Korea). We have also localized our design apps in each of the most commonly spoken languages in the countries we have entered.
We began our international expansion by launching in Australia, Canada, France, Germany and the United Kingdom, and subsequently launched in Latin America, Western Europe, and more recently most of Asia (including India, Japan, and South Korea). We have also localized our design app in each of the most commonly spoken languages in the countries we have entered.
The broad range of accessories and materials in the Cricut ecosystem also help bring designs to life, from companion products like heat presses to handheld tools, paper, and vinyl. These products work seamlessly and easily with our connected machines, which helps build brand loyalty among our userbase.
The broad range of accessories and materials in the Cricut ecosystem also help bring designs to life, from heat presses and handheld crafting tools to materials like paper and vinyl. These products work seamlessly and easily with our connected machines, which helps build brand loyalty among our userbase.
Employee Well-Being. Employee incentives and benefits include medical, life, disability, vision, and dental insurance coverage, 401(k) retirement plans with company matching contributions, and paid time off. We emphasize “acting like an owner” and in support of the mantra have awarded equity to much of the team.
Employee incentives and benefits include medical, life, disability, vision, and dental insurance coverage, 401(k) retirement plans with company matching contributions, and paid time off. We emphasize “acting like an owner” and in support of the mantra have awarded equity to much of the team.
Our mission is rooted in our passion for design, and this passion comes to life in the beautiful products we build and experiences we create. We take great pride in marrying design and functionality for each SKU – from our connected machines and design apps to content to accessories and materials.
Our mission is rooted in our passion for design, and this passion comes to life in the beautiful products we build and experiences we create. We take great pride in marrying design and functionality for each SKU – from our connected machines and design app to content to accessories and materials.
Our platform accompanies a user from an idea to a finished project, with Cricut providing the connected machines, design apps, digital content, accessories, and materials to make this a seamless journey. Users’ engagement with our platform typically begins with a project idea.
Our platform accompanies a user from an idea to a finished project, with Cricut providing the connected machines, design app, digital content, accessories, and materials to make this a seamless journey. Users’ engagement with our platform typically begins with a project idea.
These teaching and inspiration moments enhance our monetization opportunities, as they lead to the creation of projects, which often lead users to purchase images, fonts, accessories, and materials. Our Software Our cloud-based software integrates our connected machines and design apps, allowing our users to create and share seamlessly from anywhere, at any time, across desktops or mobile devices.
These teaching and inspiration moments enhance our monetization opportunities, as they lead to the creation of projects, which often lead users to purchase images, fonts, accessories, and materials. Our Software Our cloud-based software integrates with our connected machines, allowing our users to create and share seamlessly from anywhere, at any time, across desktops or mobile devices.
In our design apps, users can browse and search among a wide range of images, fonts, and projects published by Cricut, by artists enrolled in our Contributing Artists Program, or made and shared by other users on our platform.
In our design app, users can browse and search among a wide range of images, fonts, and projects published by Cricut, by artists enrolled in our Contributing Artists Program, or made and shared by other users on our platform.
This adds a larger, broader audience to Cricut’s own social audience of more than six million followers. The social conversation that this audience generates includes millions of posts tagging Cricut and related hashtags, billions of video views, and many third-party, independently-run Cricut-related groups across social platforms.
This 6 adds a larger, broader audience to Cricut’s own social audience of more than 6.9 million followers. The social conversation that this audience generates includes millions of posts tagging Cricut and related hashtags, billions of video views, and many third-party, independently run Cricut-related groups across social platforms.
We also sell to a network of distributors in over 50 countries who resell our products primarily to international brick-and-mortar and online retail partners and on a limited basis to U.S. brick-and-mortar and online retail partners. In 2021, 50%, and in 2022, 59% of our revenue was generated through online channels, respectively.
We also sell to a network of distributors in over 50 countries who resell our products primarily to international brick-and-mortar and online retail partners and on a limited basis to U.S. brick-and-mortar and online retail partners. In 2022, 59%, and in 2023, 62% of our revenue was generated through online channels, respectively.
Available as a monthly or annual subscription, Cricut Access subscribers enjoy a greater and ever-growing selection of more than 300,000 images, hundreds of fonts, and thousands of ready-to-make projects in our design library, as well as other members-only special features, like Monogram Maker. Subscribers also receive discounts to cricut.com and priority support.
Available as a monthly or annual subscription, Cricut Access subscribers enjoy a greater and ever-growing selection of more than 750 thousand images, hundreds of fonts, and thousands of ready-to-make projects in our design library, as well as other members-only special features, like Monogram Maker. Subscribers also receive discounts to cricut.com and priority support.
We believe the diversity of background and thought that this growth has infused into our 11 company is a great strength and will continue to be as we continue to grow and expand around the world. We consider our relations with employees to be good. None are covered by collective bargaining agreements or are represented by a labor union.
We believe the diversity of background and thought that this growth has infused into our company is a great strength and will continue to be as we continue to grow and expand around the world. We consider our relations with employees to be good. None are covered by collective bargaining agreements or are represented by a labor union. Employee Well-Being.
There are more than six million Cricut followers and hundreds of independently run Cricut groups across social media. Users often self-organize, host independent events, and meet up in person across the globe. Our internal consumer research shows us that our members crave community over competition.
Globally, there are more than 6.9 million Cricut followers and hundreds of independently run Cricut groups across social media. Users often self-organize, host independent events, and meet up in person across the globe. Our internal consumer research shows us that our members crave community over competition.
The Cricut User Journey Creative individuals come to Cricut and become engaged users who can express themselves both individually and as part of a large and passionate community. As of December 31, 2022, 93% of our users identify as women. Many users also earn income through products they create on Cricut.
The Cricut User Journey Creative individuals come to Cricut and become engaged users who can express themselves both individually and as part of a large and passionate community. As of December 31, 2023, 92% of our users identify as women. Many users also earn income through products they create on Cricut.
With 86% of our users creating products for their friends and family, word-of-mouth marketing continues to be one of the most efficient and effective ways we attract new users. In 2022, over 40% of new users first heard about Cricut through friends and family. We also use digital and social media marketing to attract users.
With 86% of our users creating products for their friends and family, word-of-mouth marketing continues to be one of the most efficient and effective ways we attract new users. In 2023, over 38% of new users first heard about Cricut through friends and family. We also use digital and social media marketing to attract users.
Finally, users can share their finished projects with the platform community, inspiring others and starting the process over again. As of December 31, 2022, 51% of our users created on their connected machines in the last 90 days. We Build Beautiful, Inspiring and Easy-to-Use Products.
Finally, users can share their finished projects with the platform community, inspiring others and starting the process over again. As of December 31, 2023, 44% of our users created on their connected machines in the last 90 days. We Build Beautiful, Inspiring and Easy-to-Use Products.
Creating projects often drives repeat purchases of accessories and materials for years after a user first buys a connected machine, demonstrating a growing customer lifetime value through ongoing engagement with our platform. 4 Many of our users share a love of our brand, products, and mission, which fosters a loyal community of users who are deeply engaged with Cricut and each other.
Creating projects drives repeat purchases of accessories and materials for years after a user first buys a connected machine, demonstrating a growing customer lifetime value through ongoing engagement with our platform. Many of our users share a love of our brand, products, and mission, fostering a loyal community of users who are deeply engaged with Cricut and each other.
Our platform is primarily built and maintained in-house by a team of professionals across design, product management and engineering disciplines. As of December 31, 2022, we had over 250 employees in our research and development organization.
Our platform is primarily built and maintained in-house by a team of professionals across design, product management and engineering disciplines. As of December 31, 2023, we had over 263 employees in our research and development organization.
With 86% of our users, as of December 31, 2022, creating projects for their friends and family, word-of-mouth marketing continues to be paramount to our operational success. Crafting inspires feelings of accomplishment in our users, which promotes repeat use of our products and reengagement in our platform and community.
With 86% of our users, as of December 31, 2023, creating projects for their friends and family, word-of-mouth marketing continues to be paramount to our operational success. Crafting inspires feelings of accomplishment in our users, which promotes repeat use of our products and re-engagement in our platform and community.
As of December 31, 2022, we had nearly 7.9 million users, implying approximately 6% penetration of our SAM in all markets. We estimate that there are over 163 million potential creatives in the United States and Canada and over 109 million potential creatives in our primary international target markets.
As of December 31, 2023, we had over 8.9 million users, implying approximately 7% penetration of our SAM in all markets. We estimate that there are over 163 million potential creatives in the United States and Canada and over 109 million potential creatives in our primary international target markets.
The revenue generated from the sales of our connected machines, subscriptions, accessories, and materials comes from a robust mix of brick-and-mortar and online retail, including direct-to-consumer on cricut.com, and partners like Amazon, Michaels, Jo-Ann, Target, and Walmart. We are a profitable business.
The revenue generated from the sales of our connected machines, subscriptions, accessories, and materials comes from a robust mix of brick-and-mortar and online retail, including direct-to-consumer on cricut.com, and partners like Amazon, Best Buy, Costco, Hobby Lobby, HSN, Jo-Ann, Michaels, Target, and Walmart. We are a profitable business.
Additionally, Cricut provides opportunities for employees to privately support its members and select community organizations that are aligned to our mission to help people lead creative lives. While support is primarily provided in the form of product donations, it also includes employees’ time in providing crafted projects. Employee Safety.
Additionally, Cricut provides opportunities for employees to privately support its members and select community organizations that are aligned to our mission to help people lead creative lives. While support is primarily provided in the form of product donations, it also includes employees’ time in providing crafted projects. The health and wellness of our employees and members remains a priority.
Cricut Access is $9.99 billed monthly or $95.88 billed annually. Cricut Access Premium, which includes all of the benefits of Cricut Access, includes additional discounts and 7 preferred shipping for an annual cost of $119.88. As of December 31, 2022, we had 2.6 million Cricut Access subscribers, representing approximately 33% of our total users.
Cricut Access is $9.99 billed monthly or $95.88 billed annually. Cricut Access Premium, which includes all the benefits of Cricut Access, includes additional discounts and preferred shipping for an annual cost of $119.88. As of December 31, 2023, we had nearly 2.8 million Cricut Access subscribers, representing approximately 31% of our total users.
The goods that users produce or customize using our platform fall into multiple large market categories, some of which may overlap, including, but not limited to, cards, stationery, seasonal decor, wedding-related services, organization, and custom gifts.
The goods that users produce or customize using our platform fall into multiple large market categories, some of which may overlap, including, but not limited to, cards, seasonal décor, pop culture, wedding-related services, organization, and custom gifts.
As of December 31, 2022, we have a total of 16 registered trademarks in the United States and 65 registered trademarks in non-U.S. jurisdictions. We also have registered domain names for websites that we use in our business, such as cricut.com and other variations.
As of December 31, 2023, we have a total of 17 registered trademarks in the United States and 75 registered trademarks in non-U.S. jurisdictions. We also have registered domain names for websites that we use in our business, such as cricut.com and other variations.
According to in-house research conducted in 2022: • 54% of new users bought their Cricut machine specifically to make a broad range of projects • 25% of users make projects to sell • 83% of users say crafting with Cricut inspires feelings of accomplishment • 86% of users made projects for other people rather than themselves • 56% of users bought their machine to make personalized gifts A user’s journey evolves after their first purchase.
According to in-house research conducted in 2023: • 38% of new users bought their Cricut machine specifically to make a broad range of projects • 33% of new users make projects to sell • 82% of users say crafting with Cricut inspires feelings of accomplishment • 86% of users made projects for other people rather than themselves • 56% of users bought their machine to make personalized gifts A user’s journey evolves after their first purchase.
For the years ended December 31, 2020, 2021 and 2022, we generated: • Total revenue of $959.0 million, $1,306.2 million and $886.3 million, respectively, representing 97%, 36% and (32)% year-over-year growth, respectively • Net income of $154.6 million, $140.5 million and $60.7 million, respectively, representing 294%, (9)% and (57)% year-over-year growth, respectively Our Industry We both influence and benefit from powerful secular tailwinds: • Personalization is a Global Mega Trend.
For the years ended December 31, 2021, 2022 and 2023, we generated: • Total revenue of $1,306.2 million, $886.3 million and $765.1 million, respectively, representing 36%, (32)% and (14)% year-over-year growth, respectively • Net income of $140.5 million, $60.7 million and $53.6 million, respectively, representing (9)%, (57)% and (12)% year-over-year growth, respectively Our Industry We both influence and benefit from powerful secular tailwinds: • Personalization is a Global Mega Trend.
These journeys typically begin with the purchase of a machine and expand across our family of products as users harness the power of our platform. Our users demonstrate continued engagement with our platform over time, which results in purchases of subscriptions, accessories, and materials long after they first purchase a connected machine.
These journeys typically begin with an idea of something to make, leading to the purchase of a machine and expands across our family of products as users harness the power of our platform. Our users demonstrate continued engagement with our platform over time, which results in purchases of subscriptions, accessories, and materials long after they first purchase a connected machine.
We sell our connected machines, accessories, and materials through our brick-and-mortar and online retail partners, as well as through our website at cricut.com. Our partners include Amazon, Hobby Lobby, HSN, Jo-Ann, Michaels, Target, Walmart and many others. We also sell our products, including subscriptions to Cricut Access, on cricut.com.
We sell our connected machines, accessories, and materials globally through our brick-and-mortar and online retail partners, as well as through our website at cricut.com. Our partners include major retailers such as Amazon, Best Buy, Costco, Hobby Lobby, HSN, Jo-Ann, Michaels, Target, and Walmart, along with many others. We also sell our products, including subscriptions to Cricut Access, on cricut.com.
This ecosystem was designed and built for scalability and seamless integration, allowing us to both introduce new products as well as continuously update the functionality and features of existing physical and digital products. This makes our platform broadly extensible and empowers our users to unlock ever-expanding creative potential.
We designed and built our ecosystem of connected cutting machines, accessories, and materials for scalability and seamless integration, allowing us to both introduce new products as well as continuously update the functionality and features of existing physical and digital products. This makes Cricut broadly extensible and empowers our users to unlock ever-expanding creative potential.
These machines are available at a variety of price points: • Cricut Joy for personalization, organization, and customization, $179.00 MSRP • Cricut Explore family for cutting, writing and scoring, $249.00 - $319.00 MSRP • Cricut Maker family for cutting, writing, scoring and adding decorative effects to a wider range of materials, $399.00 - $429.00 MSRP Cricut often becomes a huge part of our users’ creative lives, serving as the foundation for their journey of creativity.
These machines are available at a variety of price points: • Cricut Joy family for personalization, organization, and customization, $149.00-$199.00 MSRP • Cricut Explore family for cutting, writing and scoring, $249.00 - $319.00 MSRP • Cricut Maker family for cutting, writing, scoring and adding decorative effects to a wider range of materials, $399.00 - $429.00 MSRP • Cricut Venture for cutting, writing, and scoring large-format projects at professional speeds, $999.00 MRSP Cricut often becomes a huge part of users’ creative lives, serving as the foundation for their journey of creativity.
In 2022, 41% of our revenue was generated through brick-and-mortar sales and 59% was generated through online channels. Our Competitive Strengths Our competitive strengths include: Our Vertically Integrated Platform Encourages Continual Engagement.
In 2023, 38% of our revenue was generated through brick-and-mortar sales and 62% was generated through online channels. Our Competitive Strengths Our competitive strengths include: Our Vertically Integrated Platform Encourages Continual Engagement.
Additionally, in November 2020, California passed the California Privacy Rights Act, or CPRA, which amended and significantly modified the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in efforts to comply.
Additionally, in November 2020, California passed the California Privacy Rights Act, or CPRA, which amended and significantly modified the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in efforts to comply. Similar legislative developments in other states have been enacted or proposed.
Our SAM consists of the portion of individuals surveyed who said they have made at least one creative project in categories addressed by our current products in the last 12 months, whom we call “active creatives.” Our TAM includes the individuals in our SAM as well as the portion of individuals surveyed who said they like, buy, used to make or are interested in creating personalized, handmade or custom items, whom we call “potential creatives” but who have not made at least one creative project in categories addressed by our current products in the last 12 months.
To calculate our SAM and TAM, we extrapolate these survey results across the general population ages 18 and older in each region. 5 Our SAM consists of the portion of individuals surveyed who said they have made at least one creative project in categories addressed by our current products each month in the last 12 months, whom we call “active creatives.” Our TAM includes the individuals in our SAM as well as the portion of individuals surveyed who said they like, buy, used to make or are interested in creating personalized, handmade or custom items, whom we call “potential creatives” but who have not made at least one creative project in categories addressed by our current products in the last 12 months.
We expect significant competition to continue, both from current competitors as well as new entrants into the market, some of which may become significant competitors in the future. The accessories and materials DIY market is highly competitive with few barriers to entry. We face heightened competition in providing accessories and materials that we sell for use with our connected machines.
We expect significant competition to continue, both from current competitors as well as new entrants into the market, some of which may become significant competitors in the future. 11 The accessories and materials DIY market is highly competitive with few barriers to entry.
We commissioned a study from YouGov America in September 2020 across multiple countries. The sample size of those surveyed in each region included over 1,000 individuals ages 18 and older. To calculate our SAM and TAM, we extrapolate these survey results across the general population ages 18 and older in each region.
We commissioned a study from YouGov America in September 2020 across multiple countries. The sample size of those surveyed in each region included over 1,000 individuals ages 18 and older.
This presents us with a large untapped market opportunity in addition to our current user base. 5 We quantify our market opportunity in terms of SAM, which includes active Makers who we address with our current products and price points, and TAM, which includes potential creatives who we believe we can reach over the long term with products that address new use cases, greater accessibility, and a broader set of price points.
We quantify our market opportunity in terms of target audience profile, which includes active Makers with relevant behavioral attributes who we address with our current products and price points, and our SAM and TAM, which includes potential creatives who we believe we can reach over the long term with products that address new use cases, greater accessibility, and a broader set of price points.
Cricut Access Premium includes all of the benefits of the standard version of Cricut Access, as well as additional discounts and preferred shipp ing services. As of December 31, 2022, we had 2.6 million paid subscribers, representing approximately 33% of our total users.
The premium version includes all of the benefits of the basic Cricut Access subscription, as well as additional discounts and preferred shipping services. As of December 31, 2023, we had nearly 2.8 million paid subscribers, representing approximately 31% of our total users.
Cricut Access is a subscription for special design features and capabilities as well as a growing library of more than 300,000 images, thousands of ready-to-make projects, and hundreds of fonts. Cricut Access also includes other member benefits, such as discounts and priority support.
A standard and premium version of our subscription service, Cricut Access, enables use of special design features and expanded app capabilities as well as a growing library of more than 750 thousand images, thousands of ready-to-make projects, and hundreds of fonts. Cricut Access also includes other member benefits, such as discounts and priority support.
When users design with our products, they feel creative and self-accomplished. When they personalize an object or make something for someone as a gift, they feel good about themselves. Our products make people feel accomplished and confident – powerful emotions that help create a relationship and love between our brand and our users.
When they personalize an object or make something for someone as a gift, they feel good about themselves. Our products make people feel accomplished and confident – powerful emotions that help create a relationship and love between our brand and our users. Crafting allows people to create their own gifts or to earn income selling handmade goods.
The information contained on the websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.
Our Company periodically provides certain information for investors on its corporate website, www.cricut.com, and its investor relations website, investor.cricut.com. The information contained on the websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.
We primarily use one contract manufacturer, Xiamen Intretech, Inc., or Intretech, with operations in Malaysia and China, to produce our connected machines, which are built based on our quality and performance standards and specifications. We are increasing use of another contract manufacturer, also with operations in Malaysia.
We primarily use two contract manufacturers, with operations in Malaysia and China, to produce our connected machines, which are built based on our quality and performance standards and specifications.
We drive consumers to our website and platform primarily through word-of-mouth marketing channels and the use of low-cost marketing channels like social media. We believe our omni-channel strategy enables us to target a diverse consumer base. Marketing Cricut marketing efforts keenly focus on building product awareness, driving conversion, and engaging the community to attract new users and retain existing users.
We drive consumers to our website and platform primarily through word-of-mouth marketing channels and the use of low-cost marketing channels like social media. We believe our omni-channel strategy enables us to target a diverse consumer base.
The health and wellness of our employees and members remains a priority. We continue to monitor and abide by local safety guidelines applicable to each Cricut facility. The majority of Cricut employees operate on a hybrid model, working in-office 2+ days per week and working virtually the remainder of the week.
We continue to monitor and abide by local safety guidelines applicable to each Cricut facility. The majority of Cricut employees operate on a hybrid model, working in-office 3+ days per week and working virtually the remainder of the week. Policies and practices are in place to ensure adherence to occupational safety within each office.
Further, some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of operating our products and services and other aspects of our business.
Federal privacy legislation also has been proposed. These developments create the potential for a patchwork of overlapping but different laws. 15 Further, some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of operating our products and services and other aspects of our business.
These patents are intended to protect our proprietary inventions that are relevant to our business. We continually review our development efforts to assess the existence and patentability of new intellectual property.
We also had 53 pending patent applications in the United States and 185 pending patent applications in non-U.S. jurisdictions. These issued patents and pending patent applications are intended to protect our proprietary inventions that are relevant to our business. We continually review our development efforts to assess the existence and patentability of new intellectual property.
Policies and practices are in place to ensure adherence to occupational and COVID-19 safety within each office. Competition We compete in several market segments with our business. We experience competition in connected machines; for example, Brother, Graphtec, Loklik, Silhouette America, and Siser sell cutting machines.
Competition We compete in several market segments with our business. We experience competition in connected machines; for example, Brother, Graphtec, Loklik, Silhouette America, and Siser sell cutting machines.
We believe that reducing the barriers to entry for both active and potential creatives can help us both further penetrate our SAM and continue to expand and penetrate a portion of our TAM. Launch New Products in New Categories. New products help us extend our impact with new and existing users.
We believe that reducing the barriers to entry for both active and potential creatives can help us both further penetrate our SAM and continue to expand and penetrate a portion of our TAM. Expand Internationally. We believe there is a significant opportunity for Cricut to grow internationally.
As the number of our users grow, so does the number of projects made and shared physically or digitally. This engagement generates even more shared projects and word-of-mouth that in turn helps to grow our community. We Have a Positive Impact on Our Users, in Good Times and in Bad.
This engagement generates even more shared projects and word-of-mouth that in turn helps to grow our community. 8 We Have a Positive Impact on Our Users, in Good Times and in Bad. When users design with our products, they feel creative and self-accomplished.
Each of Jo-Ann, Michaels, and Walmart represented 10% or more of our consolidated revenue in the year ended December 31, 2020, and Amazon, Michaels, and Walmart represented 10% or more of our consolidated revenue in the year ended December 31, 2021.
We sell to a network of smaller, independent retailers in targeted locations or in specialty markets. Each of Jo-Ann, Michaels, and Walmart represented 10% or more of our consolidated revenue in the year ended December 31, 2021.
We also hold long lead-time electronic component inventories in contracted warehouses in Asia as a mitigation measure against shortages. We generally do not have long-term contractual agreements with these component suppliers.
Our contract manufacturers then procure these components from our suppliers within the lead times provided by our finished goods purchase orders based on component allocations that we control. We also hold long lead-time electronic component inventories in contracted warehouses in Asia as a mitigation measure against shortages. We generally do not have long-term contractual agreements with these component suppliers.
Item 1. Business Overview At Cricut, our mission is to help people lead creative lives. Our creativity platform enables our engaged and loyal community of nearly 7.9 million users, as of December 31, 2022, to turn ideas into professional-looking handmade goods.
Item 1. Business Overview At Cricut, our mission is to help people lead creative lives. Our creativity platform enables our engaged and loyal community of over 8.9 million users, as of December 31, 2023, to turn ideas into “I Did It’s” — DIY goods from custom greeting cards, and apparel to on-demand gifts and large-scale decor.
Our ability to launch new services and new products will allow us to diversify our channels and bring on new brick-and-mortar and online retail partners. 9 Technology and Content Our core technology and content that support our platform are critical competitive advantages and are purpose-built to leverage the tools and capabilities of our connected machines.
We expect to leverage a combination of brick-and-mortar and online retail partners to go to market internationally. Technology and Content Our core technology and content that support our platform are critical competitive advantages and are purpose-built to leverage the tools and capabilities of our connected machines.
Such reports and other information filed by the Company with the SEC are available free of charge at investor.cricut.com/financial-information/sec-filings when such reports are available on the SEC’s website. Our Company periodically provides certain information for investors on its corporate website, www.cricut.com, and its investor relations website, investor.cricut.com.
Such reports and other information filed by the Company with the SEC are available free of charge at investor.cricut.com/financial-information/sec-filings when such reports are available on the SEC’s website. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
As of December 31, 2022, we had over 775 employees of which 158 lived outside of the United States. Before the pandemic, we had employees in 11 states and 8 countries. As of December 31, 2022, we had employees in 36 states and 22 countries.
As of December 31, 2023, we had over 690 employees of which 152 lived outside of the United States. As of December 31, 2023, we had employees in 33 states and 23 countries.
We compete against well-established, well-known companies, many of which are also our retail partners, including Hobby Lobby, HSN, Jo-Ann, Michaels, Amazon, and Walmart. Many of these companies have substantial market share, diversified product lines, well-established supply and distribution systems, strong brand recognition and significant financial, marketing, research and development and other resources.
Many of these companies have substantial market share, diversified product lines, well-established supply and distribution systems, strong brand recognition and significant financial, marketing, research and development and other resources. These channel partners often have their own brands of products that we compete against, particularly in accessories and materials.
We also updated and expanded the library with editable images and Monogram Maker, which empower users to personalize their projects more easily. • Unified Integration Between Hardware, Software and Content. Our design, engineering, product, and content teams work hand-in-hand to bring our products to life, from conception and validation to implementation.
We also continue to update and expand the library with editable images and new features that enable a more efficient design process, such as Multi-Warp and Create Sticker. • Unified Integration Between Hardware, Software and Content. Our design, engineering, product, and content teams work hand-in-hand to bring our products to life, from conception and validation to implementation.
In addition, we offer a wider selection of images, fonts, and projects for purchase à la carte, including licensed content from our partners, such as well-known characters, designs, and other trademarks from a variety of brands. We also provide a standard and premium version of our subscription service, Cricut Access.
Users can take advantage of a select number of free images, fonts, and projects, design within the app, or upload pre-made designs. In addition, we offer a wider selection of images, fonts, and projects for purchase à la carte, including licensed content such as well-known characters, designs, and other trademarks from a variety of partner brands.
Our software and apps are built and continually maintained using the industry’s latest technology like Swift for iOS, Kotlin for Android, and Electron Framework for Mac and Windows.
Our software and apps are built and continually maintained using the industry’s latest technology like Swift for iOS, Kotlin for Android, and Electron Framework for Mac and Windows. We benefit from and leverage the AWS security frameworks to help secure our users’ information, creative projects, and account. • Cut Smart Technology, Adaptive Tool System and QuickSwap Housings.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a controlled company, we are exempt under the Exchange’s standards from the obligation to comply with certain corporate governance requirements, including the requirements: • that a majority of our board of directors consists of independent directors; • that we have a nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and • that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. 55 Table of Contents As a result of relying on the controlled company exemptions, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our stockholders do not have the same protections afforded to stockholders of other companies that are required to comply with all of the independence rules of the Exchange.
Biggest changeAs a result of relying on the controlled company exemptions, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our stockholders do not have the same protections afforded to stockholders of other companies that are required to comply with all of the independence rules of the Exchange.
The New Credit Agreement and related loan documents contain covenants that limit our discretion with respect to certain business matters, including incurring additional debt, granting liens on our assets, acquiring assets, disposing of assets, making investments, declaring dividends, entering into related-party transactions and engaging in new types of business.
The Credit Agreement and related loan documents contain covenants that limit our discretion with respect to certain business matters, including incurring additional debt, granting liens on our assets, acquiring assets, disposing of assets, making investments, declaring dividends, entering into related-party transactions and engaging in new types of business.
If any of our representations or warranties in the New Credit Agreement or the related loan documents are not true and correct in all material respects as of the date of a proposed credit extension, or if other conditions precedent are not satisfied, we may not be able to request new loans or other credit accommodations under the New Credit Agreement, which could have a material adverse impact on our business, results of operation, financial condition and cash flows.
If any of our representations or warranties in the Credit Agreement or the related loan documents are not true and correct in all material respects as of the date of a proposed credit extension, or if other conditions precedent are not satisfied, we may not be able to request new loans or other credit accommodations under the Credit Agreement, which could have a material adverse impact on our business, results of operation, financial condition and cash flows.
We believe that we must continue to upgrade and expand our current third-party contract manufacturer production capability to meet our projected revenue targets and quality control requirements. Operational difficulties, 36 Table of Contents such as a significant interruption in the operations of or equipment breakdowns in production facilities operated by third parties, could delay production or shipment of our products.
We believe that we must continue to upgrade and expand our current third-party contract manufacturer production capability to meet our projected revenue targets and quality control requirements. Operational difficulties, such as a significant interruption in the operations of or equipment breakdowns in production facilities operated by 36 Table of Contents third parties, could delay production or shipment of our products.
If we or our contract manufacturers lose access to components or accessories and materials from a particular supplier or experience a significant disruption in the supply of products and components from a current supplier, we may be unable to locate alternative suppliers of comparable quality on terms that are acceptable to us, or at all, which may undermine our ability to deliver our 37 Table of Contents products to brick-and-mortar and online retail partners or users in a timely manner and our business could be materially and adversely affected.
If we or our contract manufacturers lose access to components or accessories and materials from a particular supplier or experience a significant disruption in the supply of products and components from a current supplier, we may be unable to locate alternative suppliers of comparable quality on terms that are acceptable to us, or at all, which may undermine our ability to deliver our products to brick-and-mortar and online retail partners or users in a timely manner and our business could be 37 Table of Contents materially and adversely affected.
In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon (i) the date following the Effectiveness Date on which the number of shares of our capital stock, including Class A common stock and Class B common stock, and any shares of capital stock underlying any securities, including restricted stock units, options or other convertible instruments, held by “Petrus Affiliates,” as defined in our amended and restated certificate of incorporation, and their permitted entities is less than 50% of the number of shares of Class B common stock held by Petrus Affiliates and 53 Table of Contents their permitted entities as of 11:59 p.m.
In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon (i) the date following the Effectiveness Date on which 53 Table of Contents the number of shares of our capital stock, including Class A common stock and Class B common stock, and any shares of capital stock underlying any securities, including restricted stock units, options or other convertible instruments, held by “Petrus Affiliates,” as defined in our amended and restated certificate of incorporation, and their permitted entities is less than 50% of the number of shares of Class B common stock held by Petrus Affiliates and their permitted entities as of 11:59 p.m.
Our charter documents also contain other provisions that could have an anti-takeover effect, such as: • subject to the rights of the holders of preferred stock, permitting the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • prohibiting cumulative voting for directors; • requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws; 56 Table of Contents • authorizing the issuance of undesignated preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminating the ability of stockholders to call special meetings of stockholders; • prohibiting stockholder action by written consent prior to the Final Conversion Date unless the action is first recommended or approved by the board, and prohibiting stockholder action by written consent from and after the Final Conversion Date, which requires stockholder actions to be taken at a meeting of our stockholders; • certain litigation against us can only be brought in Delaware; and • our dual class common stock structure as described above.
Our charter documents also contain other provisions that could have an anti-takeover effect, such as: 56 Table of Contents • subject to the rights of the holders of preferred stock, permitting the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • prohibiting cumulative voting for directors; • requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorizing the issuance of undesignated preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminating the ability of stockholders to call special meetings of stockholders; • prohibiting stockholder action by written consent prior to the Final Conversion Date unless the action is first recommended or approved by the board, and prohibiting stockholder action by written consent from and after the Final Conversion Date, which requires stockholder actions to be taken at a meeting of our stockholders; • certain litigation against us can only be brought in Delaware; and • our dual class common stock structure as described above.
A security breach, cyberattack or other event that causes the loss or public disclosure of, or unauthorized access by third parties to, sensitive information stored by us or our brick-and-mortar and online retail partners, or the perception that any of these have occurred, could have serious negative consequences for our business, including loss of information, indemnity obligations, claims, regulatory investigations, fines, penalties and damages, reduced demand for our products and services, an unwillingness of our users to use our products or services, harm to our reputation and brand, and time consuming and expensive litigation, any of which could adversely affect our financial results.
A cyberattack, security breach or incident or other event that causes the loss or public disclosure of, or unauthorized access by third parties to, sensitive information stored by us or our brick-and-mortar and online retail partners, or the perception that any of these have occurred, could have serious negative consequences for our business, including loss of information, indemnity obligations, claims, regulatory investigations, fines, penalties and damages, reduced demand for our products and services, an unwillingness of our users to use our products or services, harm to our reputation and brand, and time consuming and expensive litigation, any of which could adversely affect our financial results.
The New Credit Agreement and related loan documents could have important consequences to us, including the following: • limitations on our ability to make acquisitions or declare dividends on our capital stock; • impaired ability to obtained additional financing for acquisitions, dividends, capital expenditures, working capital or general corporate purposes; • reduced funds available for our operations and other purposes, as a portion of our cash flow from operations may be dedicated to the payment of principal and interest on, and fees with respect to, our indebtedness; • exposure to the risk of increasing interest rates as certain borrowings are, and will continue to be, at variable rates of interest.
The Credit Agreement and related loan documents could have important consequences to us, including the following: • limitations on our ability to make acquisitions or declare dividends on our capital stock; • impaired ability to obtained additional financing for acquisitions, dividends, capital expenditures, working capital or general corporate purposes; • reduced funds available for our operations and other purposes, as a portion of our cash flow from operations may be dedicated to the payment of principal and interest on, and fees with respect to, our indebtedness; • exposure to the risk of increasing interest rates as certain borrowings are, and will continue to be, at variable rates of interest.
Generally, under our New Credit Agreement, we cannot pay dividends on our capital stock unless both (a) no default or event of default has occurred and is continuing and (b) our Leverage ratio (as defined therein) will not exceed 2.50 to 1.00, determined on a pro forma basis as of the most recently completed fiscal quarter for which we have delivered financial statements to the administrative agent and giving effect to any indebtedness incurred in connection therewith.
Generally, under our Credit Agreement, we cannot pay dividends on our capital stock unless both (a) no default or event of default has occurred and is continuing and (b) our Leverage ratio (as defined therein) will not exceed 2.50 to 1.00, determined on a pro forma basis as of the most recently completed fiscal quarter for which we have delivered financial statements to the administrative agent and giving effect to any indebtedness incurred in connection therewith.
Our financial condition, results of operations and operating metrics in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including those discussed in this Risk Factors section and: • the continued market acceptance, and the growth, of the personal craft market; • our ability to attract and engage our users, leading to increased sales to them; • our development and improvement of the quality of our user experience, including enhancement of existing products, creation of new products, technology and features and licensing of new content; • the continued development and upgrading of our proprietary software; • the timing and success of new products, features and content introductions by us or our competitors or any other change in the competitive landscape of the markets in which we operate; • pricing pressure as a result of inflationary pressures, competition or otherwise; • the impact of price increases on our retail partners or consumers generally; • cost increases, delays or disruptions in our supply chain; • errors in our forecasting of the demand for our products, which could lead to lower revenue, increased costs or both; • increases in marketing, sales and other operating expenses; • seasonal fluctuations in subscriptions, engagement by users and purchases of accessories and materials; • the mix of our products sales from period to period; • our ability to maintain gross margins and operating margins, including as a result of higher fixed costs, warehousing or operations expense, or price competitiveness, in one or more product categories, which we are experiencing and may experience again in the future; • system failures or breaches of security or privacy; • adverse litigation judgments, settlements or other litigation-related costs; • changes in the legislative or regulatory environment, including with respect to privacy, data protection and security, consumer product safety and advertising or enforcement by government regulators, including fines, orders or consent decrees; 25 Table of Contents • fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; • changes in our effective tax rate; • changes in accounting standards, policies, guidance, interpretations or principles; and • changes in business or macroeconomic conditions, including the impact of the COVID-19 pandemic, lower consumer confidence, recessionary conditions, inflationary pressures, increased unemployment rates or stagnant or declining wages.
Our financial condition, results of operations and operating metrics in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including those discussed in this Risk Factors section and: • the continued market acceptance, and the growth, of the personal craft market; • our ability to attract and engage our users, leading to increased sales to them; • our development and improvement of the quality of our user experience, including enhancement of existing products, creation of new products, technology and features and licensing of new content; • the continued development and upgrading of our proprietary software; • the timing and success of new products, features and content introductions by us or our competitors or any other change in the competitive landscape of the markets in which we operate; • pricing pressure as a result of inflationary pressures, competition or otherwise; • the impact of price increases on our retail partners or consumers generally; • cost increases, delays or disruptions in our supply chain; • errors in our forecasting of the demand for our products, which could lead to lower revenue, increased costs or both; • increases in marketing, sales and other operating expenses; • seasonal fluctuations in subscriptions, engagement by users and purchases of accessories and materials; • the mix of our products sales from period to period; • our ability to maintain gross margins and operating margins, including as a result of higher fixed costs, warehousing or operations expense, or price competitiveness, in one or more product categories, which we are experiencing and may experience again in the future; • system failures or breaches of security or privacy; • adverse litigation judgments, settlements or other litigation-related costs; • changes in the legislative or regulatory environment, including with respect to privacy, data protection and security, consumer product safety and advertising or enforcement by government regulators, including fines, orders or consent decrees; • fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; • changes in our effective tax rate; • changes in accounting standards, policies, guidance, interpretations or principles; and • changes in business or macroeconomic conditions, including the impact of the COVID-19 pandemic, lower consumer confidence, recessionary conditions, inflationary pressures, increased unemployment rates or stagnant or declining wages.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and stockholders’ equity/deficit and the amount of revenue and expenses that are not readily apparent from other sources.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and stockholders’ equity/deficit and the amount of revenue and expenses that are not readily apparent from other sources.
A “change in control”, as defined in the New Credit Agreement, includes, among other events, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), other than Permitted Holders (as defined therein), of equity interests representing more than 35% of the aggregate ordinary voting power represented by our issued and outstanding equity interests.
A “change in control”, as defined in the Credit Agreement, includes, among other events, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), other than Permitted Holders (as defined therein), of equity interests representing more than 35% of the aggregate ordinary voting power represented by our issued and outstanding equity interests.
There can be no assurance that we would have sufficient resources available to satisfy all of our obligations under the New Credit Agreement and related loan documents in the event of a change in control. If we were unable to satisfy these obligations, it could have a material adverse impact on our business and the holders of our capital stock.
There can be no assurance that we would have sufficient resources available to satisfy all of our obligations under the Credit Agreement and related loan documents in the event of a change in control. If we were unable to satisfy these obligations, it could have a material adverse impact on our business and the holders of our capital stock.
While we provide security and privacy training to attempt to protect against these risks, the techniques used to obtain unauthorized access to systems and data change frequently and may be difficult to detect, so we may not be able to anticipate and prevent these intrusions or other security breaches, to identify them promptly or to mitigate them when they occur.
While we provide security and privacy training to attempt to protect against these risks, the techniques used to obtain unauthorized access to systems and data change frequently and may be difficult to detect, so we may not be able to anticipate and prevent these intrusions or other security breaches or incidents, to identify them promptly or to mitigate them when they occur.
Within our accessories and materials, our SKUs range in price from $0.99 to $999.00. Demand for our products can be sensitive to price, especially in times of slow or uncertain economic growth and consumer economic conservatism. To the degree we implement price increases, we could see further impact on consumer behavior and demand.
Within our extensions, accessories and materials, our SKUs range in price from $0.99 to $999.00. Demand for our products can be sensitive to price, especially in times of slow or uncertain economic growth and consumer economic conservatism. To the degree we implement price increases, we could see further impact on consumer behavior and demand.
As we grow our business, we expect our revenue growth rates to decline compared to prior years due to a number of reasons, including more challenging comparisons to prior periods as our revenue grows, slowing demand for our products and subscriptions, increasing competition, a decrease in the growth of our overall market and our failure to capitalize on growth opportunities.
As we grow our business, we expect our revenue growth rates to decline compared to prior years due to a number of reasons, including more challenging comparisons to prior periods, slowing demand for our products and subscriptions, increasing competition, a decrease in the growth of our overall market and our failure to capitalize on growth opportunities.
This legislation and other proposed laws at the state and federal level in the United States, could create the potential for a patchwork of overlapping but different laws, result in further uncertainty, require us to incur additional costs and expenses in an effort to comply or require changes in business practices and policies.
This legislation and other proposed laws at the state and federal level in the United States create the potential for a patchwork of overlapping but different laws, result in further uncertainty, require us to incur additional costs and expenses in an effort to comply or require changes in business practices and policies.
For example, we saw significant growth in sales during the COVID-19 pandemic in 2020 and 2021 but saw a reduction in sales in 2022. There can be no assurance that sales will return to 2020 and 2021 levels in the future or that we will be able to continue to significantly grow our revenue in a post-COVID-19 environment.
For example, we saw significant growth in sales during the COVID-19 pandemic in 2020 and 2021 but saw a reduction in sales in 2022 and 2023. There can be no assurance that sales will return to 2020 and 2021 levels in the future or that we will be able to continue to significantly grow our revenue in a post-COVID-19 environment.
Pursuant to the New Credit Agreement and related loan documents, we granted a security interest in substantially all of our assets. If we default on our obligations thereunder, the secured parties may be able to foreclosure upon their security interests and otherwise be entitled to obtain or control those assets.
Pursuant to the Credit Agreement and related loan documents, we granted a security interest in substantially all of our assets. If we default on our obligations thereunder, the secured parties may be able to foreclosure upon their security interests and otherwise be entitled to obtain or control those assets.
We may not be able to satisfy our debt obligations upon the occurrence of a change in control under the New Credit Agreement Upon the occurrence of a change in control as defined in the New Credit Agreement, the lenders will have the right to terminate their commitments to lend under the New Credit Agreement and to declare all outstanding obligations under the New Credit Agreement and related loan documents due and payable.
We may not be able to satisfy our debt obligations upon the occurrence of a change in control under the Credit Agreement Upon the occurrence of a change in control as defined in the Credit Agreement, the lenders will have the right to terminate their commitments to lend under the Credit Agreement and to declare all outstanding obligations under the Credit Agreement and related loan documents due and payable.
As is the case generally with contract manufacturers, Intretech may be vulnerable to capacity constraints and reduced component availability, and our control over delivery schedules, manufacturing yields and costs, particularly when components are in short supply or when we introduce new products or features, is limited.
As is the case generally with contract manufacturers, our contract manufacturers may be vulnerable to capacity constraints and reduced component availability, and our control over delivery schedules, manufacturing yields and costs, particularly when components are in short supply or when we introduce new products or features, is limited.
We have the option to increase the lender commitments by up to $150.0 million(for maximum aggregate lender commitments of up to $450.0 million), subject to the satisfaction of certain conditions under the New Credit Agreement, including obtaining the consent of the administrative agent and each lender being added or increasing its commitment.
We have the option to increase the lender commitments by up to $150.0 million(for maximum aggregate lender commitments of up to $450.0 million), subject to the satisfaction of certain conditions under the Credit Agreement, including obtaining the consent of the administrative agent and each lender being added or increasing its commitment.
We have been, and may in the future be, subject to compromises and other security breaches impacting such data. There can be no assurance that any efforts we make to prevent against such breaches will prevent breakdowns in our systems or security breaches that could adversely affect our business.
We have been, and may in the future be, subject to compromises and other security breaches or incidents impacting such data. There can be no assurance that any efforts we make to prevent against such breaches will prevent breakdowns in our systems or security breaches or incidents that could adversely affect our business.
There are significant risks and costs inherent in doing business in international target markets, including: • difficulty establishing and managing international operations and the increased travel, infrastructure, including establishment of local delivery service and Cricut Member Care operations, and legal compliance costs associated with locations in different countries or regions; 47 Table of Contents • difficulty accessing and maintaining operations with international brick-and-mortar and online retail partners and distribution channels that may be small, fragmented or complex; • the need to vary pricing and margins to effectively compete in international target markets; • the need to adapt, translate and localize products for specific countries, comply with country-specific product safety and liability laws, as well as obtaining rights to third-party intellectual property used in each country; • increased competition from local providers of competing or imitation products; • the ability to protect and enforce intellectual property rights abroad; • the need to offer content and customer support in various languages; • difficulties in understanding and complying with local laws, regulations and customs in other jurisdictions; • compliance with anti-bribery laws, such as the U.S.
There are significant risks and costs inherent in doing business in international target markets, including: • difficulty establishing and managing international operations and the increased travel, infrastructure, including establishment of local delivery service and Cricut Member Care operations, and legal compliance costs associated with locations in different countries or regions; • difficulty accessing and maintaining operations with international brick-and-mortar and online retail partners and distribution channels that may be small, fragmented or complex; • the need to vary pricing and margins to effectively compete in international target markets; • the need to adapt, translate and localize products for specific countries, comply with country-specific product safety and liability laws, as well as obtaining rights to third-party intellectual property used in each country; • increased competition from local providers of competing or imitation products; • the ability to protect and enforce intellectual property rights abroad; • the need to offer content and customer support in various languages; • difficulties in understanding and complying with local laws, regulations and customs in other jurisdictions; • compliance with anti-bribery laws, such as the U.S.
There are a number of factors that could impact our number of users and our ability to increase sales to users, including: • a decline in the public’s interest in or discretionary time available for do-it-yourself, or DIY, crafting activities; • pricing, perceived value and ease of use of our connected machines and accessories and materials as well as our subscriptions; • our ability to satisfy demand for and deliver quality products and value for subscriptions; • sales of competitive products; • our failure to broaden our demographic appeal; • our ability to continue to improve the user experience in each aspect of our business and successfully educate our users about our products; • our failure to capitalize on growth opportunities; • our inability to meet the challenges resulting from fast-paced changes in technology; 17 Table of Contents • the failure of our connected machines to communicate or sync properly with Cricut-authorized design apps, including our Design Space apps, or other third-party applications such as Android, iOS and Windows; • unsatisfactory experiences with our products, including with respect to the use, purchasing or delivery of our products or with Cricut Member Care, including public disclosure of those experiences through social media or other communications from our community; • changes to our product offerings; • our failure to increase our international presence, including the failure to translate and localize our digital content and subscriptions, or the failure to further expand internationally; • decreased word-of-mouth referrals from our community or failed marketing efforts; and • deteriorating general economic conditions, inflationary pressures affecting the pricing of our products or otherwise, or changes in consumer spending preferences or buying trends, each of which we currently are experiencing.
There are a number of factors that could impact our number of users and our ability to increase sales to users, including: • a decline in the public’s interest in or discretionary time and money available for do-it-yourself, or DIY, crafting activities; • pricing, perceived value and ease of use of our connected machines and accessories and materials as well as our subscriptions; • our ability to satisfy demand for and deliver quality products and value for subscriptions; • sales of competitive products; • our failure to broaden our demographic appeal; • our ability to continue to improve the user experience in each aspect of our business and successfully educate our users about our products; • our failure to capitalize on growth opportunities; • our inability to meet the challenges resulting from fast-paced changes in technology; • the failure of our connected machines to communicate or sync properly with Cricut-authorized design apps, including our Design Space apps, or other third-party applications such as Android, iOS and Windows; • unsatisfactory experiences with our products, including with respect to the use, purchasing or delivery of our products or with Cricut Member Care, including public disclosure of those experiences through social media or other communications from our community; • changes to our product offerings; • our failure to increase our international presence, including the failure to translate and localize our digital content and subscriptions, or the failure to further expand internationally; • decreased word-of-mouth referrals from our community or failed marketing efforts; and • deteriorating general economic conditions, inflationary pressures affecting the pricing of our products or otherwise, or changes in consumer spending preferences or buying trends, each of which we currently are experiencing.
In addition, security breaches from errors, malfeasance or misconduct by employees, contractors or others with access to our systems may pose a risk that sensitive data, including personal data and personal information, may be exposed to unauthorized persons or to the public and may compromise our security systems.
In addition, security breaches or incidents from errors, malfeasance or misconduct by employees, contractors or others with access to our systems may pose a risk that sensitive data, including personal data and personal information, may be exposed to unauthorized persons or to the public and may compromise our security systems.
Additionally, from time to time in the future we may need to refinance obligations outstanding under the New Credit Agreement and related loan documents. At the time we must refinance, the market for our debt, or our financial condition or asset valuations, may not be favorable.
Additionally, from time to time in the future we may need to refinance obligations outstanding under the Credit Agreement and related loan documents. At the time we must refinance, the market for our debt, or our financial condition or asset valuations, may not be favorable.
We cannot be certain that any limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or cyberattack.
We cannot be certain that any limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a cyberattack, security breach or incident.
A breach of any of these covenants could result in a default under the New Credit Agreement, which could result in the termination of the lenders’ commitments to make loans thereunder and the acceleration of our payment obligations under the New Credit Agreement and related loan documents.
A breach of any of these covenants could result in a default under the Credit Agreement, which could result in the termination of the lenders’ commitments to make loans thereunder and the acceleration of our payment obligations under the Credit Agreement and related loan documents.
As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with the New Credit Agreement and related loan documents.
As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with the Credit Agreement and related loan documents.
If we do not allocate and effectively manage the resources necessary to build, sustain and secure necessary information technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of brick-and-mortar and online retail partners or users, business disruptions or the loss of or unauthorized access to personal information or personal data or loss or damage to intellectual property through a security breach or cyberattack.
If we do not allocate and effectively manage the resources necessary to build, sustain and secure necessary information technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of brick-and-mortar and online retail partners or users, business disruptions or the loss of or unauthorized access to personal information or personal data or loss or damage to intellectual property through a cyberattack or other security breach or incident.
While supply chain conditions have improved during 2022, if our supply chain faces challenges again, it could continue to put pressure on margins. 38 Table of Contents The failure of our third-party logistics partners to adequately and effectively staff could adversely affect our brick-and-mortar and online retail partner and user experience and results of operations.
While supply chain conditions have improved during 2023, if our supply chain faces challenges again, it could continue to put pressure on margins. 38 Table of Contents The failure of our third-party logistics partners to adequately and effectively staff could adversely affect our brick-and-mortar and online retail partner and user experience and results of operations.
We are subject to a variety of laws and regulations in the United States and around the world, including those relating to traditional businesses, such as employment laws and taxation, as well as laws and regulations focused on e-commerce and online marketplaces, such as online payments, privacy, anti-spam, data security and protection, online platform liability, intellectual property and consumer protection, the ability to collect and/or share necessary information that allows us to conduct business on the Internet, marketing communications and 57 Table of Contents advertising, content protection, electronic contracts or gift cards.
We are subject to a variety of laws and regulations in the United States and around the world, including those relating to traditional businesses, such as employment laws and taxation, as well as laws and regulations focused on e-commerce and online marketplaces, such as online payments, privacy, anti-spam, data security and protection, online platform liability, intellectual property and consumer protection, the ability to collect and/or share necessary information that allows us to conduct business on the Internet, marketing communications and advertising, content protection, electronic contracts or gift cards.
We had in 2020, 2021 and 2022, and may continue to have in the future, low gross margins in the early stages of our relationships with certain brick-and-mortar and online retail partners, particularly international brick-and-mortar and online retail partners that often require significant ramp-up periods, which has and may in the future adversely affect our total revenue.
We had in 2021, 2022 and 2023, and may continue to have in the future, low gross margins in the early stages of our relationships with certain brick-and-mortar and online retail partners, particularly international brick-and-mortar and online retail partners that often require significant ramp-up periods, which has and may in the future adversely affect our total revenue.
The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • overall performance of the equity markets and the performance of technology companies in particular; • variations in our results of operations, cash flows and other financial metrics and non-financial metrics and how those results compare to analyst expectations; • changes in the financial projections or business guidance we may provide to the public, or our failure to meet these projections; • failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • recruitment or departure of key personnel; • the economy as a whole and market conditions in our industry; • negative publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products or services that gain market acceptance; • rumors and market speculation involving us or other companies in our industry; • announcements by us or our competitors of new products, accessories, features and content, significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • actual or perceived privacy or data security incidents; 54 Table of Contents • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • lawsuits threatened or filed against us, litigation involving our industry, or both; • developments or disputes concerning our or other parties’ products, services or intellectual property rights; • the inclusion or exclusion of our Class A common stock from any trading indices, such as the S&P 500 Index; • other events or factors, including those resulting from war, including the current conflict between Russia and Ukraine, incidents of terrorism, man-made or natural disasters, pandemics or responses to these events; • the effects of our stock repurchase program; • the size of our public float; and • purchases or sales of shares of our Class A common stock by us or our stockholders or public announcements of such activities.
The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • overall performance of the equity markets and the performance of technology companies in particular; • variations in our results of operations, cash flows and other financial metrics and non-financial metrics and how those results compare to analyst expectations; • changes in the financial projections or business guidance we may provide to the public, or our failure to meet these projections; • failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; • recruitment or departure of key personnel; • the economy as a whole and market conditions in our industry; • negative publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products or services that gain market acceptance; • rumors and market speculation involving us or other companies in our industry; 54 Table of Contents • announcements by us or our competitors of new products, accessories, features and content, significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • actual or perceived privacy or data security incidents; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • lawsuits threatened or filed against us, litigation involving our industry, or both; • developments or disputes concerning our or other parties’ products, services or intellectual property rights; • the inclusion or exclusion of our Class A common stock from any trading indices; • other events or factors, including those resulting from war, including the current conflicts between Russia and Ukraine and between Israel and Hamas, incidents of terrorism, man-made or natural disasters, pandemics or responses to these events; • the effects of our stock repurchase program; • the size of our public float; and • purchases or sales of shares of our Class A common stock by us or our stockholders or public announcements of such activities.
The occurrence of any material defects in our connected machines or certain other products, or the flow-down obligations for brick-and-mortar and online retail partner and distributor returns, could result in an increase in product returns or make us liable for damages and warranty claims and/or returns in excess of our current reserves, which could result in an adverse effect on our business prospects, liquidity, financial condition and cash flows if warranty claims were to materially exceed anticipated levels.
The occurrence of 30 Table of Contents any material defects in our connected machines or certain other products, or the flow-down obligations for brick-and-mortar and online retail partner and distributor returns, could result in an increase in product returns or make us liable for damages and warranty claims and/or returns in excess of our current reserves, which could result in an adverse effect on our business prospects, liquidity, financial condition and cash flows if warranty claims were to materially exceed anticipated levels.
In August 2022, we entered into a credit agreement (the “New Credit Agreement”), with JPMorgan Chase Bank, N.A, as administrative agent, and the lenders party thereto, providing for a five-year senior secured revolving credit facility with aggregate lender commitments of $300.0 million.
In August 2022, we entered into a credit agreement (the “Credit Agreement”), with JPMorgan Chase Bank, N.A, as administrative agent, and the lenders party thereto, providing for a five-year senior secured revolving credit facility with aggregate lender commitments of $300.0 million.
Our directors, executive officers and holders of 5% or more of our common stock hold approximately 86% of the total voting power of our common stock and are able to exert significant control over us, which will limit your ability to influence the outcome of important transactions, including a change of control.
Our directors, executive officers and holders of 5% or more of our common stock hold approximately 91% of the total voting power of our common stock and are able to exert significant control over us, which will limit your ability to influence the outcome of important transactions, including a change of control.
While supply chain conditions have improved during 2022, if our supply chain faces challenges again, it could continue to put pressure on margins. We depend on sales to brick-and-mortar and online retail partners, including a limited number of sophisticated key brick-and-mortar and online retail partners.
While supply chain conditions have improved during 2023, if our supply chain faces challenges again, it could continue to put pressure on margins. We depend on sales to brick-and-mortar and online retail partners, including a limited number of sophisticated key brick-and-mortar and online retail partners.
Any adverse change in Intretech’s or our other contract manufacturers’ financial or business conditions could disrupt our ability to supply our products to our brick-and-mortar and online retail partners, distributors and online sales channels, and could negatively impact our ability to meet our forecasted consumer demand and to timely launch new products or features .
Any adverse change in our contract manufacturers’ financial or business conditions could disrupt our ability to supply our products to our brick-and-mortar and online retail partners, distributors and online sales channels, and could negatively impact our ability to meet our forecasted consumer demand and to timely launch new products or features .
If we are unable to manage our growth and the complexity of our business effectively, our brand, company culture and financial performance may suffer. We have grown rapidly in recent years and have limited operating experience at our current size.
We have grown rapidly in recent years and have limited operating experience at our current scale of operations. If we are unable to manage our growth and the complexity of our business effectively, our brand, company culture and financial performance may suffer. We have grown rapidly in recent years and have limited operating experience at our current size.
The CCPA also provides for civil penalties for violations (up to $7,500 per violation), as well as a private right of action for certain data breaches that may increase data breach litigation. Additionally, a new privacy law, the CPRA, was approved by California voters in November 2020, which went into effect January 1, 44 Table of Contents 2023.
The CCPA also provides for civil penalties for violations (up to $7,500 per violation), as well as a private right of action for certain data breaches that may increase data breach litigation. Additionally, a new privacy law, the CPRA, was approved by California voters in November 2020, which went into effect January 1, 2023.
Our third-party manufacturers, including Intretech, are largely based in Malaysia and China. As a result, our manufacturing, and therefore our business, financial condition and results of operations may be adversely affected by social, political, regulatory and economic developments in Malaysia and China.
Our third-party manufacturers are largely based in Malaysia and China. As a result, our manufacturing, and therefore our business, financial condition and results of operations may be adversely affected by social, political, regulatory and economic developments in Malaysia and China.
If our data management systems do not effectively and securely collect, store, process and report relevant data and information for the operation of our business, whether due to equipment malfunction or constraints, software defects or deficiencies, bugs, vulnerabilities, computer viruses, malware, ransomware, phishing attacks, 45 Table of Contents distributed denial-of-service attacks, security breaches, cyberattacks, catastrophic events or human error or malfeasance, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially.
If our data management systems do not effectively and securely collect, store, process and report relevant data and information for the operation of our business, whether due to equipment malfunction or constraints, software defects or deficiencies, bugs, vulnerabilities, computer viruses, malware, ransomware, phishing attacks, distributed denial-of-service attacks, security breaches or incidents, cyberattacks, catastrophic events or human error or malfeasance, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially.
As a result of these factors, our rate of adding new users is declining in comparison to the last two years and, in the short term, the number of paid subscribers could remain flat or decline, and we cannot be sure that we will be successful in attracting and engaging with users, or increasing sales to our users, at levels that will be adequate to maintain or grow our business.
As a result of these factors, our rate of adding new users is declining in comparison to recent years and, in the short term, the number of paid subscribers could remain flat or decline, and we cannot be sure that we will be successful in attracting and engaging with users, or increasing sales to our users, at levels that will be adequate to maintain or grow our business.
The principal factors and uncertainties that make investing in our Class A common stock risky include, among others: • risks regarding our ability to attract and engage with our users, including anticipating their product preferences; • competitive risks in each of our three segments: Connected Machines, Subscriptions and Accessories and Materials; • supply chain, manufacturing, distribution and fulfillment risks, including our being primarily dependent on a single manufacturer and on limited sources of supply for components, accessories and materials, as well as our ability to forecast demand and manage our inventory; • international risks, including regulation, tariffs that have materially increased our costs and the potential for further trade barriers; • sales and marketing risks, including our dependence on sales to brick-and-mortar and online retail partners and our need to continue to grow online sales; • risks relating to the complexity of our business, which includes connected machines, custom tools, hundreds of materials, design apps, e-commerce software, subscriptions, content, international production, direct sales, and retail distribution, particularly for a company of our relative size; • risks related to product quality, safety and warranty claims and returns; • risks related to protection of our intellectual property, as well as to cybersecurity and potential data breaches; • risks related to general socio-economic and political conditions as well as consumer confidence; and • risks related to our dependence on our Chief Executive Officer.
The principal factors and uncertainties that make investing in our Class A common stock risky include, among others: • risks regarding our ability to attract and engage with our users, including anticipating their product preferences; • competitive risks in each of our three segments: Connected Machines, Subscriptions and Accessories and Materials; • supply chain, manufacturing, distribution and fulfillment risks, including our being primarily dependent on two contract manufacturers and on limited sources of supply for components, accessories and materials, as well as our ability to forecast demand and manage our inventory; • international risks, including regulation, tariffs that have materially increased our costs and the potential for further trade barriers; • sales and marketing risks, including our dependence on sales to brick-and-mortar and online retail partners and our need to continue to grow online sales; • risks relating to the complexity of our business, which includes connected machines, custom tools, hundreds of materials, design apps, e-commerce software, subscriptions, content, international production, direct sales, and retail distribution, particularly for a company of our relative size; 16 Table of Contents • risks related to product quality, safety and warranty claims and returns; • risks related to protection of our intellectual property, as well as to cybersecurity and potential data breaches; • risks related to general socio-economic and political conditions as well as consumer confidence; and • risks related to our dependence on our Chief Executive Officer.
We also expect to incur significant costs in an effort to detect and prevent security breaches and cyberattacks, and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach or cyberattack.
We also expect to incur significant costs in an effort to detect and prevent cyberattacks and security breaches and incidents, and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived cyberattack or security breach or incident.
These challenges, and others concerning the use of licensed content with our products, may subject us to significant liability for copyright infringement, breach of contract or other claims. For additional information, see the section titled “Business—Legal Proceedings.” Legislation regarding copyright protection or content review could impose complex and costly constraints on our business model.
These challenges, and others concerning the use of licensed content with our products, may subject us to significant liability for copyright infringement, breach of contract or other claims. For additional information, see the section titled “Legal Proceedings.” Legislation regarding copyright protection or content review could impose complex and costly constraints on our business model.
While we have policies, procedures and training to foster compliance with these laws, we cannot assure you that our employees or third-party business partners or intermediaries, contractors, representatives and agents will not take actions in violation of our policies or applicable law for which we may ultimately be held responsible.
While we have policies, procedures and training to foster compliance with these laws, we cannot assure you that our employees or third-party business partners or intermediaries, contractors, representatives and 49 Table of Contents agents will not take actions in violation of our policies or applicable law for which we may ultimately be held responsible.
If we fail to meet such expectations, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits. Our future growth depends in part on further penetrating our SAM and TAM and we may not be successful in doing so.
If we fail to meet such expectations, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits. 25 Table of Contents Our future growth depends in part on further penetrating our SAM and TAM and we may not be successful in doing so.
A number of states have enacted or are considering legislation or executive actions that would regulate the conduct of broadband providers. Democratic control of the Executive Branch, Congress and the FCC following the 2020 elections may increase the likelihood of legislative or FCC action to reverse the 2018 order or adopt new 30 Table of Contents national network neutrality rules.
A number of states have enacted or are considering legislation or executive actions that would regulate the conduct of broadband providers. Democratic control of the Executive Branch, Congress and the FCC following the 2020 elections may increase the likelihood of legislative or FCC action to reverse the 2018 order or adopt new national network neutrality rules.
Changes related to Brexit could subject us to heightened risks in that region, including disruptions to trade and free movement of goods, services and people to and from the United Kingdom, disruptions to the workforce of our business partners, increased foreign exchange volatility with respect to the British pound and additional legal, political and economic uncertainty.
Changes related to Brexit could subject us to heightened risks in that region, including disruptions to trade and free movement of goods, services and people to and from the United Kingdom, disruptions to the workforce of our business partners, increased foreign exchange volatility with respect to the British pound and 48 Table of Contents additional legal, political and economic uncertainty.
Any failure to, or market perception that we do 29 Table of Contents not, maintain high-quality support, including through social media or other communications from our community, could harm our reputation, our ability to attract new users, the engagement of our existing users with our platform and our business, results of operations and financial condition.
Any failure to, or market perception that we do not, maintain high-quality support, including through social media or other communications from our community, could harm our reputation, our ability to attract new users, the engagement of our existing users with our platform and our business, results of operations and financial condition.
Finally, any future changes to our subscription model could make our subscriptions less attractive to 21 Table of Contents users or reduce our margins on subscriptions, which could negatively affect our future revenue and results of operations. We operate in a highly competitive market and we may be unable to compete successfully against existing and future competitors.
Finally, any future changes to our subscription model could make our subscriptions less attractive to users or reduce our margins on subscriptions, which could negatively affect our future revenue and results of operations. We operate in a highly competitive market and we may be unable to compete successfully against existing and future competitors.
We rely on, and expect to continue to rely on, a combination of trademark, trade dress, domain name, copyright, trade secret and patent laws, as well as confidentiality and license agreements with our employees, contractors, consultants and third parties with whom we have relationships, to establish and protect our brand and other intellectual property rights.
We rely on, and expect to continue to rely on, a combination of trademark, 50 Table of Contents trade dress, domain name, copyright, trade secret and patent laws, as well as confidentiality and license agreements with our employees, contractors, consultants and third parties with whom we have relationships, to establish and protect our brand and other intellectual property rights.
Our sensitivity to economic cycles and any related fluctuation in consumer demand for our products and subscriptions could adversely affect our business, financial condition and results of operations. Our potential indebtedness could materially adversely affect our financial health, limit our ability to finance future acquisitions and capital expenditures and prevent us from fulfilling our financial obligations.
Our sensitivity to economic 32 Table of Contents cycles and any related fluctuation in consumer demand for our products and subscriptions could adversely affect our business, financial condition and results of operations. Our potential indebtedness could materially adversely affect our financial health, limit our ability to finance future acquisitions and capital expenditures and prevent us from fulfilling our financial obligations.
Our efforts to increase our sales of accessories and materials may not have the desired effect. Because we derive a significant portion of our revenue from the sales of accessories and materials, the material decline in such sales is having and could continue to have a pronounced impact on our future revenue and results of operations.
Our efforts to increase our sales of accessories and materials may not have the desired effect. Because we derive a significant portion of our revenue 21 Table of Contents from the sales of accessories and materials, the material decline in such sales is having and could continue to have a pronounced impact on our future revenue and results of operations.
In addition, we must rely on Intretech to manufacture our connected machines and other accessories and materials to our quality and performance standards and specifications. Delays, component shortages and other manufacturing and supply problems could impair the distribution of our connected machines and ultimately our brand, or could negatively affect our gross margins.
In addition, we must rely on our contract manufacturers to manufacture our connected machines and other accessories and materials to our quality and performance standards and specifications. Delays, component shortages and other manufacturing and supply problems could impair the distribution of our connected machines and ultimately our brand, or could negatively affect our gross margins.
These factors could also make it more difficult for us to attract and retain qualified members of our board of directors and qualified executive officers. 60 Table of Contents If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
These factors could also make it more difficult for us to attract and retain qualified members of our board of directors and qualified executive officers. If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
We may be required to take additional steps to legitimize any impacted personal data transfers and may be subject to increased costs of compliance and limitations on our vendors, contractors, consultants and us. On June 4, 2021, the European Commission published new SCCs.
We may be required to take additional steps to legitimize any impacted personal data transfers and may be subject to increased costs of compliance and limitations on our vendors, contractors, consultants and us. On June 4, 2021, the European 43 Table of Contents Commission published new SCCs.
Further, during the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as negative, the market price of our Class A common stock may decline.
Further, 51 Table of Contents during the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as negative, the market price of our Class A common stock may decline.
Compliance may therefore cause us to encounter increased costs which could substantially harm our business and results of operations. 52 Table of Contents Some of our products contain open source software, which may pose particular risks to our proprietary software, technologies, products and services in a manner that could harm our business.
Compliance may therefore cause us to encounter increased costs which could substantially harm our business and results of operations. Some of our products contain open source software, which may pose particular risks to our proprietary software, technologies, products and services in a manner that could harm our business.
For example, a significant natural disaster, such as a pandemic, earthquake, fire or flood, could adversely affect our business, financial condition and results of operations, and our insurance coverage may be insufficient to compensate us for losses that may occur.
For example, a significant natural disaster, such as a pandemic, earthquake, fire or flood, could adversely affect our business, financial condition and results of operations, and our 59 Table of Contents insurance coverage may be insufficient to compensate us for losses that may occur.
Amazon Web Services may also take actions beyond our control that could seriously harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to terminate our contractual relationship altogether or altering how we are able to process data in a way that is unfavorable or costly to us.
Amazon Web Services may also take actions beyond our control that 28 Table of Contents could seriously harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to terminate our contractual relationship altogether or altering how we are able to process data in a way that is unfavorable or costly to us.
We may not be successful in developing relationships with key participants with original equipment manufacturing or mobile industry or in developing software that operate effectively with these technologies, systems, networks or standards. For example, mobile network operators or operating system providers could block or place onerous restrictions on the ability to download and use our software.
We may not be successful in developing relationships with key participants with original equipment manufacturing or mobile industry or in developing software that operate effectively with these technologies, 29 Table of Contents systems, networks or standards. For example, mobile network operators or operating system providers could block or place onerous restrictions on the ability to download and use our software.
As we have grown, we have sought to obtain and protect our intellectual property rights in an increasing number of countries, a 50 Table of Contents process that can be expensive and may not always be successful. For example, the U.S.
As we have grown, we have sought to obtain and protect our intellectual property rights in an increasing number of countries, a process that can be expensive and may not always be successful. For example, the U.S.
Our rate of adding new users declined in comparison to the last two years and, in the short term, the number of paid subscribers could remain flat or decline. If we are unable to anticipate user preferences and successfully develop and introduce new, innovative and updated products in a timely manner, our business may be adversely affected.
Our rate of adding new users has declined in comparison to recent years and, in the short term, the number of paid subscribers could remain flat or decline. If we are unable to anticipate user preferences and successfully develop and introduce new, innovative and updated products in a timely manner, our business may be adversely affected.
In some cases, particularly in the case of brick-and-mortar and online retail partners and distributors operating outside of the United States, our available remedies may not be adequate to protect us against the effect 22 Table of Contents of such copycat products.
In some cases, particularly in the case of brick-and-mortar and online retail partners and distributors operating outside of the United States, our available remedies may not be adequate to protect us against the effect of such copycat products.
Our management team may not successfully or efficiently manage our continued transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors.
Our management team may not successfully or efficiently manage our continued transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and 34 Table of Contents the continuous scrutiny of securities analysts and investors.
The CJEU’s decision, the revised SCCs, regulatory guidance and opinions and other developments relating to cross-border data transfer may 43 Table of Contents require us to implement additional contractual and technical safeguards for any personal data transferred out of the EEA and Switzerland.
The CJEU’s decision, the revised SCCs, regulatory guidance and opinions and other developments relating to cross-border data transfer may require us to implement additional contractual and technical safeguards for any personal data transferred out of the EEA and Switzerland.
Other states have also enacted or proposed similar data privacy laws.
Numerous other states have also enacted or proposed similar data privacy laws.
In addition, the lenders’ obligations to make loans or other credit accommodations under the New Credit Agreement is subject to the satisfaction of certain conditions precedent including, for example, that our representations and warranties therein and the related loan documents are true and correct in all material respects 33 Table of Contents as of the date of the proposed credit extension.
In addition, the lenders’ obligations to make loans or other credit accommodations under the Credit Agreement is subject to the satisfaction of certain conditions precedent including, for example, that our representations and warranties therein and the related loan documents are true and correct in all material respects as of the date of the proposed credit extension.
If we are unable to maintain or increase our subscriptions, or if existing users do not renew their subscriptions, our future revenue and results of operations could be harmed. As of December 31, 2022, approximately 33% of our users were Paid Subscribers.
If we are unable to maintain or increase our subscriptions, or if existing users do not renew their subscriptions, our future revenue and results of operations could be harmed. As of December 31, 2023, approximately 31% of our users were Paid Subscribers.
We currently receive and distribute merchandise through six third-party logistics partners, two of which are located in the United States and one of which is located in each of Australia, China, Europe, and Singapore. The majority of our products are received and distributed through one of our third-party logistics partners in California.
We currently receive and distribute merchandise through five third-party logistics partners, one of which is located in each of the United States, Australia, China, Europe, and Singapore. The majority of our products are received and distributed through one of our third-party logistics partners in California.
If, in the future, we have material weaknesses or deficiencies in our internal control over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. Effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud.
If, in the future, 60 Table of Contents we have material weaknesses or deficiencies in our internal control over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. Effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud.
Moreover, because certain of our key distributors may have dominant positions in their markets, such key distributors may not be easy to replace and the loss of a key distributor could also impact our relationships with 27 Table of Contents certain retailers.
Moreover, because certain of our key distributors may have dominant positions in their markets, such key distributors may not be easy to replace and the loss of a key distributor could also impact our relationships with certain retailers.
The agreements with our top vendors in 2020, 2021 and 2022, including Intretech, each have an initial term of five years from 2018 and automatically renew for subsequent periods of one year unless either party provides notice of non-renewal at least 60 days prior to the expiration of the initial term.
The agreements with our top vendors in 2021, 2022 and 2023, each have an initial term of five years from 2018 and automatically renew for subsequent periods of one year unless either party provides notice of non-renewal at least 60 days prior to the expiration of the initial term.
It is possible that financing to replace or renew our debt may be unfavorable, which would adversely affect our financial condition and results of operations. In certain cases, we may turn to equity or other alternative financing. Our debt under the New Credit Agreement is subject to variable rates of interest.
It is possible that financing to replace or renew our debt may be 33 Table of Contents unfavorable, which would adversely affect our financial condition and results of operations. In certain cases, we may turn to equity or other alternative financing. Our debt under the Credit Agreement is subject to variable rates of interest.
In addition to warranties supplied by us, our brick-and-mortar and online retail partners may offer the option for users to purchase third-party extended warranty and services contracts in some markets, which creates an ongoing performance obligation for such third parties beyond our warranty period.
In addition to warranties supplied by us, including the extended warranty option we recently introduced, our brick-and-mortar and online retail partners may offer the option for users to purchase third-party extended warranty and services contracts in some markets, which creates an ongoing performance obligation for such third parties beyond our warranty period.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are, from time to time, subject to legal proceedings and claims arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our business, results of operations, financial condition or cash flows. 61 Table of Contents Litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability and validity of third-party proprietary rights, to establish our proprietary rights, or to address royalty payments we make.
Biggest changeWe are, from time to time, subject to legal proceedings and claims, as well as regulatory disputes, audits, government inquiries and other proceedings, arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our business, results of operations, financial condition or cash flows.
Added
Litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability and validity of third-party proprietary rights, to establish our proprietary rights, or to address royalty payments we make.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−2 removed3 unchanged
Biggest changeThe share repurchase program may be suspended or discontinued at any time and does not have a predetermined expiration date. 62 Table of Contents Dividend Policy On December 21, 2022, we declared a $0.35 per share special dividend payable February 15, 2023, for stockholders of record on February 1, 2023; however, we have not adopted a dividend policy and may not pay any other dividends in the foreseeable future.
Biggest changeDividend Policy On December 21, 2022, we declared a $0.35 per share special dividend payable February 15, 2023, for stockholders of record on February 1, 2023, and on May 18, 2023, we declared a $1.00 per share special dividend payable on July 17, 2023 to shareholders of record on July 3, 2023; however, we have not adopted a dividend policy and do not expect to pay any regular dividends in the future.
The following graph compares (i) the cumulative total stockholder return on our Class A common stock from March 25, 2021 (the date our Class A common stock commenced trading on the Nasdaq) through December 31, 2022 with (ii) the cumulative total return of the Nasdaq Composite Index and the S&P Mid Cap 400 Index over the same period, assuming the investment of $100 in our Class A common stock and in each index on March 25, 2021 and the reinvestment of dividends.
The following graph compares (i) the cumulative total stockholder return on our Class A common stock from March 25, 2021 (the date our Class A common stock commenced trading on the Nasdaq) through December 31, 2023 with (ii) the cumulative total return of the Nasdaq Composite Index and the S&P Mid Cap 400 Index over the same period, assuming the investment of $100 in our Class A common stock and in each index on March 25, 2021 and the reinvestment of dividends.
The graph uses the closing market price on March 25, 2021 of $17.80 per share as the initial value of our Class A common stock. The comparisons are based on historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. Unregistered Sales of Equity Securities None.
The graph uses the closing market price on March 25, 2021 of $17.80 per share as the initial value of our Class A common stock. The comparisons are based on historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. Unregistered Sales of Equity Securities None. Item 6. [ Reserved ]
Prior to that date, there was no public trading market for our Class A common stock. There is no public trading market for our Class B common stock. Holders of Record As of March 7, 2023, we had 305 holders of record of our Class A and Class B common stock.
Prior to that date, there was no public trading market for our Class A common stock. There is no public trading market for our Class B common stock. Holders of Record 63 Table of Contents As of March 1, 2024, we had 257 holders of record of our Class A and Class B common stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information regarding share repurchases made by Cricut during the three months ended December 31, 2022: Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) October 1, 2022 through October 31, 2022 8,836 $8.94 8,836 $40,002 November 1, 2022 through November 30, 2022 339,793 $8.36 339,793 $37,163 December 1, 2022 through December 31, 2022 621,991 $9.12 621,991 $31,491 Total 970,620 $8.85 970,620 $31,491 (1) On August 9, 2022, we announced that our Board of Directors had approved a common stock repurchase program under which we may purchase shares of our outstanding Class A common stock up to an aggregate transactional value of $50 million, depending on our continuing analysis of market, financial, and other factors.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information regarding share repurchases made by Cricut during the three months ended December 31, 2023: Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) October 1, 2023 through October 31, 2023 821,252 $8.42 821,252 $20,026 November 1, 2023 through November 30, 2023 381,715 $7.55 381,715 $17,146 December 1, 2023 through December 31, 2023 856,399 $6.93 856,399 $11,211 Total 2,059,366 $7.64 2,059,366 $11,211 (1) On August 9, 2022, we announced that our Board of Directors had approved a common stock repurchase program under which we may purchase shares of our outstanding Class A common stock up to an aggregate transactional value of $50 million, depending on our continuing analysis of market, financial, and other factors.
Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act.
Our ability to pay cash dividends on our capital stock may also be limited by the terms of our Credit Agreement and the terms of any future debt or preferred securities or future indebtedness. 64 Table of Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act.
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Our ability to pay cash dividends on our capital stock may also be limited by the terms of our Credit Agreement and the terms of any future debt or preferred securities or future indebtedness.
Added
The share repurchase program may be suspended or discontinued at any time and does not have a predetermined expiration date.
Removed
Item 6. [ Reserved ] 63 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

86 edited+19 added−12 removed64 unchanged
Biggest changeResults of Operations The following table is presented in thousands: Year Ended December 31, 2022 2021 2020 (in thousands) Revenue: Connected machines $ 252,563 $ 548,205 $ 416,714 Subscriptions 272,344 205,858 111,337 Accessories and materials 361,389 552,164 430,979 Total revenue 886,296 1,306,227 959,030 Cost of revenue: Connected machines (1) 244,260 484,025 351,898 Subscriptions (1) 26,375 21,961 13,125 Accessories and materials (1) 265,768 342,791 261,633 Total cost of revenue 536,403 848,777 626,656 Gross profit 349,893 457,450 332,374 Operating expenses: Research and development (1) 76,914 79,814 38,930 Sales and marketing (1) 130,379 133,963 63,329 General and administrative (1) 62,647 51,268 29,602 Total operating expenses 269,940 265,045 131,861 Income from operations 79,953 192,405 200,513 Other income (expense), net 2,028 (32) (1,320) Income before provision for income taxes 81,981 192,373 199,193 Provision for income taxes 21,315 51,900 44,615 Net income $ 60,666 $ 140,473 $ 154,578 71 Table of Contents (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Cost of revenue Connected machines $ 288 $ 34 $ 7 Subscriptions 443 219 31 Accessories and materials 199 — — Total cost of revenue 930 253 38 Research and development 17,713 15,782 3,332 Sales and marketing 12,603 13,814 4,794 General and administrative 9,875 8,225 1,320 Total stock-based compensation expense $ 41,121 $ 38,074 $ 9,484 Comparison of the years ended December 31, 2022 and 2021 Revenue Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) Revenue: Connected machines $ 252,563 $ (295,642) (54) % $ 548,205 $ 131,491 32 % $ 416,714 Subscriptions 272,344 66,486 32 % 205,858 94,521 85 % 111,337 Accessories and materials 361,389 (190,775) (35) % 552,164 121,185 28 % 430,979 Total revenue $ 886,296 $ (419,931) (32) % $ 1,306,227 $ 347,197 36 % $ 959,030 Connected Machines revenue decreased by $295.6 million, or 54%, to $252.6 million for the year ended December 31, 2022 from $548.2 million for the year ended December 31, 2021.
Biggest changeThe only jurisdiction where the top-up tax would be applicable is Switzerland and the estimated tax is not expected to be material. 73 Table of Contents Results of Operations The following table is presented in thousands: Year Ended December 31, 2023 2022 2021 (in thousands) Revenue: Connected machines $ 198,312 $ 252,563 $ 548,205 Subscriptions 303,989 272,344 205,858 Accessories and materials 262,846 361,389 552,164 Total revenue 765,147 886,296 1,306,227 Cost of revenue: Connected machines (1) 172,571 244,260 484,025 Subscriptions (1) 32,346 26,375 21,961 Accessories and materials (1) 216,937 265,768 342,791 Total cost of revenue 421,854 536,403 848,777 Gross profit 343,293 349,893 457,450 Operating expenses: Research and development (1) 65,048 76,914 79,814 Sales and marketing (1) 123,169 130,379 133,963 General and administrative (1) 85,091 62,647 51,268 Total operating expenses 273,308 269,940 265,045 Income from operations 69,985 79,953 192,405 Other income (expense): Interest income 7,976 1,809 181 Interest expense (323) (289) (298) Other income (expense) 2,145 508 85 Other income (expense), net 9,798 2,028 (32) Income before provision for income taxes 79,783 81,981 192,373 Provision for income taxes 26,147 21,315 51,900 Net income $ 53,636 $ 60,666 $ 140,473 (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue Connected machines $ 700 $ 288 $ 34 Subscriptions 926 443 219 Accessories and materials 805 199 — Total cost of revenue 2,431 930 253 Research and development 18,169 17,713 15,782 Sales and marketing 12,740 12,603 13,814 General and administrative 13,986 9,875 8,225 Total stock-based compensation expense $ 47,326 $ 41,121 $ 38,074 74 Table of Contents Comparison of the years ended December 31, 2023 and 2022 Revenue Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (in thousands) Revenue: Connected machines $ 198,312 $ (54,251) (21) % $ 252,563 $ (295,642) (54) % $ 548,205 Subscriptions 303,989 31,645 12 % 272,344 66,486 32 % 205,858 Accessories and materials 262,846 (98,543) (27) % 361,389 (190,775) (35) % 552,164 Total revenue $ 765,147 $ (121,149) (14) % $ 886,296 $ (419,931) (32) % $ 1,306,227 Connected Machines revenue decreased by $54.3 million, or 21%, to $198.3 million for the year ended December 31, 2023 from $252.6 million for the year ended December 31, 2022.
We grow with our users as they continue to create on their connected machines, subscribe to Cricut Access and Cricut Access Premium and purchase à la carte items and our accessories and materials repeatedly. The table below is a summary of our Users, Paid Subscribers, Subscription ARPU and Accessories and Materials ARPU since Q1 2020.
We grow with our users as they continue to create on their connected machines, subscribe to Cricut Access and Cricut Access Premium and purchase à la carte items and our accessories and materials repeatedly. The table below is a summary of our Users, Paid Subscribers, Subscription ARPU and Accessories and Materials ARPU since Q1 2021.
We expect our cost of revenue related to Connected Machines as a percentage of revenue to fluctuate in the near term as we continue selling though end of life machines, address global supply chain challenges and continue to invest in the growth of our business and decrease over the long term as we drive greater scale and efficiency in our business.
We expect our cost of revenue related to Connected Machines as a percentage of revenue to fluctuate in the near term as we continue selling through end of life machines, address global supply chain challenges and continue to invest in the growth of our business and decrease over the long term as we drive greater scale and efficiency in our business.
We identify our reportable segments based on the information used by management to monitor performance and make operating decisions. See Note 18 to our audited consolidated financial statements included elsewhere in this filing for additional information regarding our reportable segments.
We identify our reportable segments based on the information used by management to monitor performance and make operating decisions. See Note 19 to our audited consolidated financial statements included elsewhere in this filing for additional information regarding our reportable segments.
The recognition of stock-based compensation for awards with performance based vesting conditions, including our performance-based restricted stock units (“PRSU”) awards, is dependent on whether it is probable that the performance based vesting conditions will be met. As of December 31, 2022, we determined it is not probable that the performance conditions will be met.
The recognition of stock-based compensation for awards with performance based vesting conditions, including our performance-based restricted stock units (“PRSU”) awards, is dependent on whether it is probable that the performance based vesting conditions will be met. As of December 31, 2023, we determined it is not probable that the performance conditions will be met.
Factors Affecting Our Performance Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: 66 Table of Contents Attracting New Users and Driving Connected Machine Sales Our growth depends in part on our ability to drive continued growth in users and connected machine sales.
Factors Affecting Our Performance Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Attracting New Users and Driving Connected Machine Sales Our growth depends in part on our ability to drive continued growth in users and connected machine sales.
Seasonality Historically, we have experienced the highest revenue levels in the fourth quarter of the year, coinciding with the holiday shopping season in the United States. For example, in 2020, 2021 and 2022, our fourth quarter represented 39%, 30% and 32% of total revenue for the year, respectively.
Seasonality Historically, we have experienced the highest revenue levels in the fourth quarter of the year, coinciding with the holiday shopping season in the United States. For example, in 2021, 2022 and 2023, our fourth quarter represented 30%, 32% and 30% of total revenue for the year, respectively.
Our nearly 7.9 million users represent approximately 6% of our total SAM which includes the United States, Canada, and our four leading international markets of Australia, France, Germany and the United Kingdom. We have been able to efficiently acquire new users and drive sales of our products because of the powerful network effects of our community.
Our over 8.9 million users represent approximately 7% of our total SAM which includes the United States, Canada, and our four leading international markets of Australia, France, Germany and the United Kingdom. We have been able to efficiently acquire new users and drive sales of our products because of the powerful network effects of our community.
Overview of Our Business and History At Cricut, our mission is to help people lead creative lives. We have designed and built a creativity platform that enables our engaged and loyal community of nearly 7.9 million users to turn ideas into professional-looking handmade goods.
Overview of Our Business and History At Cricut, our mission is to help people lead creative lives. We have designed and built a creativity platform that enables our engaged and loyal community of over 8.9 million users to turn ideas into professional-looking handmade goods.
While we expect to continue or increase our investments on these items in the future, we cannot be certain they will result in the growth of our number of users or increase engagement with existing users.
While we 69 Table of Contents expect to continue or increase our investments on these items in the future, we cannot be certain they will result in the growth of our number of users or increase engagement with existing users.
Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in the sections titled “Risk Factors” and “Note Regarding Forward-Looking Statements.” A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K filed on March 9, 2022, which is hereby incorporated by reference herein.
Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in the sections titled “Risk Factors” and “Note Regarding Forward-Looking Statements.” A discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in “Management’s Discussion and Analysis of 65 Table of Contents Financial Condition and Results of Operations” in our annual report on Form 10-K filed on March 13, 2023, which is hereby incorporated by reference herein.
Our Business Model Our business model thrives because our products unlock creativity, which then in turn drives the engagement of our users. Our nearly 7.9 million users’ journeys typically begin with the purchase of a connected machine and expand across our family of products as users harness the power of our platform.
Our Business Model Our business model thrives because our products unlock creativity, which then in turn drives the engagement of our users. Our over 8.9 million users’ journeys typically begin with the purchase of a connected machine and expand across our family of products as users harness the power of our platform.
By subscribing to our offerings, users have access to a curated and growing design library of over 300,000 images, thousands of ready-to-make projects and hundreds of fonts. We believe that the number of Paid Subscribers is an indicator of the depth of our users’ engagement.
By subscribing to our offerings, users have access to a curated and growing design library of over 750 thousand images, thousands of ready-to-make projects and hundreds of fonts. We believe that the number of Paid Subscribers is an indicator of the depth of our users’ engagement.
Accessories and Materials revenue is recognized for sales of such items, net of sales discounts, incentives and returns and includes amounts allocated to the material right for discounts on materials and accessories available only to paid subscribers.
Accessories and Materials 71 Table of Contents revenue is recognized for sales of such items, net of sales discounts, incentives and returns and includes amounts allocated to the material right for discounts on materials and accessories available only to paid subscribers.
We believe our balances of cash and cash equivalents, which totaled $224.9 million as of December 31, 2022, along with forecasted cash expected to be generated by ongoing operations and $300.0 million in available borrowings on our credit facility (see Note 9) will be sufficient to satisfy our cash requirements over the next 12 months and beyond.
We believe our balances of cash and cash equivalents, which totaled $142.2 million as of December 31, 2023, along with forecasted cash expected to be generated by ongoing operations and $300.0 million in available borrowings on our credit facility (see Note 9) will be sufficient to satisfy our cash requirements over the next 12 months and beyond.
Leases As of December 31, 2022, we had fixed lease payment obligations of $20.5 million, with $6.0 million payable within 12 months primarily for corporate and other office space. See Note 14 of the notes to our consolidated financial statements for additional information.
Leases As of December 31, 2023, we had fixed lease payment obligations of $14.8 million, with $5.6 million payable within 12 months primarily for corporate and other office space. See Note 14 of the notes to our consolidated financial statements for additional information.
Our investments to date have been critical to our success and have allowed us to reach nearly 7.9 million users as of December 31, 2022 and launch more than 6,000 SKUs since the launch of our first connected machine. We will continue to prioritize our investments in technology innovation including software and hardware development, content and accessories and materials.
Our investments to date have been critical to our success and have allowed us to reach over 8.9 million users as of December 31, 2023 and launch more than 6,000 SKUs since the launch of our first connected machine. We will continue to prioritize our investments in technology innovation including software and hardware development, content and accessories and materials.
Revenue Connected Machines We generate Connected Machines revenue from sales of our portfolio of connected machines, currently consisting of machines in three product families, Cricut Maker, which includes Maker and Maker 3, Cricut Explore, which includes Explore Air 2 and Explore 3, and Cricut Joy, net of sales discounts, incentives and returns.
Revenue Connected Machines We generate Connected Machines revenue from sales of our portfolio of connected machines, currently consisting of machines in four product families, Cricut Maker, which includes Maker and Maker 3, Cricut Explore, which includes Explore Air 2 and Explore 3, Cricut Joy, which includes Joy and Joy Xtra, and Cricut Venture, net of sales discounts, incentives and returns.
To date, word-of-mouth referrals, as well as effective use of low-cost marketing channels like social media, have driven our success. In 2022, over 40% of new users first heard about Cricut through friends and family. Sales and marketing expenses represented 7%, 10% and 15% of revenue in 2020, 2021 and 2022, respectively.
To date, word-of-mouth referrals, as well as effective use of low-cost marketing channels like social media, have driven our success. In 2023, over 38% of new users first heard about Cricut through friends and family. Sales and marketing expenses represented 10%, 15% and 16% of revenue in 2021, 2022 and 2023, respectively.
Our promotional discounting activity is higher in the fourth quarter as well, which negatively impacts gross margin during this period. For example, gross margin in the fourth quarter of 2022 was 30%, compared to gross margin of 39% for all of 2022. Additionally, sales of accessories and materials typically rise and fall with seasonal holiday crafting periods.
Our promotional discounting activity is higher in the fourth quarter as well, which negatively impacts gross margin during this period. For example, gross margin in the fourth quarter of 2023 was 42%, compared to gross margin of 45% for all of 2023. Additionally, sales of accessories and materials typically rise and fall with seasonal holiday crafting periods.
Cricut Access Premium includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping and is billed annually for $119.88 per year. As of December 31, 2022, we had 2.6 million Paid Subscribers to Cricut Access and Cricut Access Premium.
Cricut Access Premium includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping and is billed annually for $119.88 per year. As of December 31, 2023, we had nearly 2.8 million Paid Subscribers to Cricut Access and Cricut Access Premium.
See the section titled “—Key Business Metrics” for the definition of Paid Subscribers and for information regarding that metric over the last three years. As of December 31, 2022, we had 2.6 million Paid Subscribers, representing 28% year-over-year growth. As of December 31, 2022, approximately 33% of our users were also Paid Subscribers.
See the section titled “—Key Business Metrics” for the definition of Paid Subscribers and for information regarding that metric over the last three years. As of December 31, 2023, we had nearly 2.8 million Paid Subscribers, representing 6% year-over-year growth. As of December 31, 2023, approximately 31% of our users were also Paid Subscribers.
Our partners include Amazon, Hobby Lobby, HSN, Jo-Ann, 64 Table of Contents Michaels, Target, Walmart and many others. We also sell our products, including subscriptions to Cricut Access and Cricut Access Premium, on cricut.com. In 2020, 2021, and 2022, 52%, 50%, and 41% of our revenue was generated through brick-and-mortar sales, respectively.
Our partners include Amazon, Hobby Lobby, HSN, Jo-Ann, Michaels, Target, Walmart and many others. We also sell our products, including subscriptions to Cricut Access and Cricut Access Premium, on cricut.com. In 2021, 2022, and 2023, 50%, 41%, and 38% of our revenue was generated through brick-and-mortar sales, respectively.
In 2022, we generated, on average, approximately $89 combined from subscriptions and accessories and materials per user. Our users purchase subscriptions and accessories and materials, our higher gross margin categories, long after they first purchase a connected machine.
In 2023, we generated, on average, approximately $67.33 combined from subscriptions and accessories and materials per user. Our users purchase subscriptions and accessories and materials, our higher gross margin categories, long after they first purchase a connected machine.
See the section titled “—Key Business Metrics” for the definition of Percentage of Users Creating in Trailing 90 Days and for information regarding that metric over the last three years. As of December 31, 2022, 51% of our nearly 7.9 million users created on their connected machines in the last 90 days.
See the section titled “—Key Business Metrics” for the definition of Percentage of Users Creating in Trailing 90 Days and for information regarding that metric over the last three years. As of December 31, 2023, 44% of our over 8.9 million users created on their connected machines in the last 90 days.
As of December 31, 2020, 2021 and 2022, we had 4.3 million, 6.4 million and 7.9 million users, respectively, representing 71%, 48% and 23% year-over-year growth, respectively. See the section titled “—Key Business Metrics” for the definition of users.
As of December 31, 2021, 2022 and 2023, we had 6.4 million, 7.9 million and 8.9 million users, respectively, representing 48%, 23% and 13% year-over-year growth, respectively. See the section titled “—Key Business Metrics” for the definition of users.
Inventory and Supply Chain We utilize third-party contract manufacturers to source components and finished goods and third-party logistics companies to warehouse and distribute our products . As of December 31, 2022, we had component purchase obligations of $30.3 million , with $24.2 million payable within 12 months in addition to ongoing inventory purchases of finished goods from our contract manufacturers.
Inventory and Supply Chain We utilize third-party contract manufacturers to source components and finished goods and third-party logistics companies to warehouse and distribute our products . As of December 31, 2023, we had component purchase obligations of $19.2 million , with $17.5 million payable within 12 months in addition to ongoing inventory purchases of finished goods from our contract manufacturers.
We expect our cost of revenue related to Accessories and Materials as a percentage of revenue to fluctuate in the near term as we address global supply chain challenges and continue to invest in the growth of our business and decrease over the long term as we drive greater scale and efficiency in our business.
We expect our cost of revenue related to Accessories and Materials as a percentage of revenue to fluctuate in the near term and long term as we address global supply chain challenges and continue to invest in the growth of our business.
Our connected machines are designed for a wide range of uses and are available at a variety of price points (MSRP by machine family as of December 31, 2022): • Cricut Joy for personalization, organization, and customization, $179.00 MSRP • Cricut Explore family for cutting, writing and scoring, $249.00 - $319.00 MSRP • Cricut Maker family for cutting, writing, scoring and adding decorative effects to a wider range of materials, $399.00 - $429.00 MSRP Our software integrates our connected machines and design apps, allowing our users to create and share seamlessly.
Our connected machines are designed for a wide range of uses and are available at a variety of price points (MSRP by machine family as of December 31, 2023): • Cricut Joy family for personalization, organization, and customization, $149.00 - $199.00 MSRP • Cricut Explore family for cutting, writing and scoring, $249.00 - $319.00 MSRP • Cricut Maker family for cutting, writing, scoring and adding decorative effects to a wider range of materials, $399.00 - $429.00 MSRP • Cricut Venture for cutting, writing, and scoring large-format projects at professional speeds, $999.00 MSRP Our software integrates our connected machines and design apps, allowing our users to create and share seamlessly.
Unrecognized stock-based compensation associated with unvested PRSU awards was $146.8 million as of December 31, 2022.
Unrecognized stock-based compensation associated with unvested PRSU awards was $157.8 million as of December 31, 2023.
The incurrence of debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.
The incurrence of debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our 77 Table of Contents operations. There can be no assurances that we will be able to raise additional capital.
We define Accessories and Materials ARPU as Accessories and Materials revenue divided by average users in a period. Accessories and Materials ARPU fluctuates seasonally as well as over time as we introduce new accessories and materials at various price points and as the volume and mix of accessories and materials purchased changes.
Connected Machine revenue fluctuates as we introduce new connected machines at various price points and as the mix of connected machines purchased changes. We define Accessories and Materials ARPU as Accessories and Materials revenue divided by average users in a period.
We expect our general and administrative expenses as a percentage of revenue to increase in the near term as we expand our operations, invest in systems enhancements, and incur expenses required of a public company. Longer term, we expect general and administrative expense to return to our long-term expected range of 3-4% as a percentage of revenue.
We expect our general and administrative expenses as a percentage of revenue to increase in the near term as we expand our operations, invest in systems enhancements, and incur expenses required of a public company.
Our users are engaged when they create with connected machines, design apps and accessories and materials. It is therefore important that users find our products intuitive and easy to use. As users create on their connected machines, they are more likely to purchase subscriptions and accessories and materials. Historically we find that our users continue to be engaged over time.
Our users are engaged when they create with 68 Table of Contents connected machines, design apps and accessories and materials. It is therefore important that users find our products intuitive and easy to use. As users create on their connected machines, they are more likely to purchase subscriptions and accessories and materials.
For the years ended December 31, 2020, 2021 and 2022, we generated: • Total revenue of $959.0 million, $1,306.2 million and $886.3 million, respectively, representing 97%, 36% and (32)% year-over-year growth, respectively • Net income of $154.6 million, $140.5 million and $60.7 million, respectively, representing 294%, (9)% and (57)% year-over-year growth, respectively On March 29, 2021, we completed an initial public offering (“IPO”), in which we sold 13,250,000 shares of Class A common stock, and the selling stockholders sold an additional 2,064,903 shares of Class A common stock at a price to the public of $20.00 per share.
In 2021, 2022, and 2023, 50%, 59%, and 62% of our revenue was generated through online channels, respectively. 66 Table of Contents For the years ended December 31, 2021, 2022 and 2023, we generated: • Total revenue of $1,306.2 million, $886.3 million and $765.1 million, respectively, representing 36%, (32)% and (14)% year-over-year growth, respectively • Net income of $140.5 million, $60.7 million and $53.6 million, respectively, representing (9)%, (57)% and (12)% year-over-year growth, respectively On March 29, 2021, we completed an initial public offering (“IPO”), in which we sold 13,250,000 shares of Class A common stock, and the selling stockholders sold an additional 2,064,903 shares of Class A common stock at a price to the public of $20.00 per share.
Stock Repurchase Program On July 19, 2022 , our Board of Directors authorized a share repurchase program to repurchase up to $50 million of its outstanding Class A common stock. 75 Table of Contents During the twelve months ended December 31, 2022, we repurchased and retired 2,349,581 shares of our Class A common stock for $18.5 million under this authorization.
Stock Repurchase Program On July 19, 2022 , our Board of Directors authorized a share repurchase program to repurchase up to $50 million of its outstanding Class A common stock. During the twelve months ended December 31, 2023, we repurchased and retired 2,548,893 shares of our Class A common stock for $20.3 million under this program.
In limited cases where the customer rebate is specifically for co-operative marketing or advertising campaigns, we classify these expenditures as selling and marketing expenses only if they meet the criteria of being a distinct good or service, are distinct within the context of the contract and the fair value is readily estimable.
The remaining portion of this liability is based on contractual amounts and does not require estimation. 79 Table of Contents In limited cases where the customer rebate is specifically for co-operative marketing or advertising campaigns, we classify these expenditures as selling and marketing expenses only if they meet the criteria of being a distinct good or service, are distinct within the context of the contract and the fair value is readily estimable.
Sales and Marketing Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) Sales and marketing $ 130,379 $ (3,584) (3) % $ 133,963 $ 70,634 112 % $ 63,329 As a percentage of total revenue 15 % 10 % 7% Sales and marketing expenses decreased by $3.6 million, or 3%, to $130.4 million for the year ended December 31, 2022 from $134.0 million for the year ended December 31, 2021.
Sales and Marketing Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (dollars in thousands) Sales and marketing $ 123,169 $ (7,210) (6) % $ 130,379 $ (3,584) (3) % $ 133,963 As a percentage of total revenue 16 % 15 % 10% Sales and marketing expenses decreased by $7.2 million, or 6%, to $123.2 million for the year ended December 31, 2023 from $130.4 million for the year ended December 31, 2022.
Investing Activities The change in net cash flows from investing activities for the year ended December 31, 2022 compared to year ended December 31, 2021 was due to investments in marketable securities.
Investing Activities The change in net cash flows from investing activities for the year ended December 31, 2023 compared to year ended December 31, 2022 was primarily due to fewer purchases of marketable securities during 2023.
Subscriptions revenue increased by $66.5 million, or 32%, to $272.3 million for the year ended December 31, 2022 from $205.9 million for the year ended December 31, 2021. The increase was primarily driven by growth of 28% in the number of Paid Subscribers from 2.0 million as of December 31, 2021 to 2.6 million as of December 31, 2022.
Subscriptions revenue increased by $31.6 million, or 12%, to $304.0 million for the year ended December 31, 2023 from $272.3 million for the year ended December 31, 2022. The increase was primarily driven by growth of 6% in the number of Paid Subscribers from 2.6 million as of December 31, 2022 to nearly 2.8 million as of December 31, 2023.
We expect our cost of revenue related to Subscriptions as a percentage of revenue to fluctuate in the near term as we expand our content offerings, including localized content for international target markets, and decrease over time as we drive greater scale and efficiency in our business.
We expect our cost of revenue related to Subscriptions as a percentage of revenue to fluctuate in the near term and long term as we expand our content and software feature offerings, including localized content for international target markets.
Managing our Supply Chain We rely on third-party suppliers, contract manufacturers and third-party logistics partners to produce and distribute our products. Our ability to grow depends largely on the ability of these third-party companies to scale with us, provide high quality services and deliver components and finished products on time and at reasonable costs.
Our ability to grow depends largely on the ability of these third-party companies to scale with us, provide high quality services and deliver components and finished products on time and at reasonable costs. We primarily rely on two contract manufacturers to build the majority of our connected machines.
This represents an effective tax rate of 26.0% and 27.0% for the years ended December 31, 2022 and 2021, respectively. The decrease in the tax rate is due mainly to an increase in tax credits specifically related to Research and Development.
This represents an effective tax rate of 32.8% and 26.0% for the years ended December 31, 2023 and 2022, respectively. The increase in the tax rate is due mainly to a decrease in tax credits specifically related to Research and Development and an increase in uncertain tax positions related to prior years foreign-derived intangible income.
The decrease was primarily due to a $7.4 million decrease in product development expenses for future products, partially offset by increases in personnel-related expenses and stock-based compensation expense.
The decrease was primarily due to a $9.4 million decrease in product development expense for future products and a $3.5 million decrease in personnel-related expense, partially offset by increases in professional services expense.
Year Ended December 31, 2022 2021 2020 Users (in thousands) 7,893 6,409 4,323 Percentage of Users Creating in Trailing 90 Days 51 % 60 % 65 % Paid Subscribers (in thousands) 2,609 2,037 1,303 Year Ended December 31, 2022 2021 2020 Subscription ARPU $ 38.09 $ 38.37 $ 32.52 Accessories and Materials ARPU $ 50.54 $ 102.91 $ 125.88 68 Table of Contents Users We define a User as a registered user of at least one registered connected machine as of the end of a period.
Year Ended December 31, 2023 2022 2021 Users (in thousands) 8,944 7,893 6,409 Percentage of Users Creating in Trailing 90 Days 44 % 51 % 60 % Number of Users Creating in Trailing 90 Days 3,932 4,050 3,828 Paid Subscribers (in thousands) 2,770 2,609 2,037 Year Ended December 31, 2023 2022 2021 Subscription ARPU $ 36.11 $ 38.09 $ 38.37 Accessories and Materials ARPU $ 31.22 $ 50.54 $ 102.91 Users We define a User as a registered user of at least one registered connected machine as of the end of a period.
User engagement has been relatively consistent over time, demonstrating how our platform becomes a regular part of the creative lives of our users. 65 Table of Contents The table below shows the Percentage of Users Creating in Trailing 90 Days for the periods indicated. 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Users (in Thousands) 2,803 3,274 3,681 4,323 4,939 5,373 5,732 6,409 6,904 7,192 7,457 7,893 Percentage of Users Creating in Trailing 90 Days 60% 63% 63% 65% 62% 59% 56% 60% 54% 51% 48% 51% Many of our users choose to pay for our subscription offerings which include a subscription to images, fonts and projects as well as other member benefits, including exclusive software features and functionality, discounts, priority Cricut Member Care, and, in the case of Cricut Access Premium, preferred shipping.
The table below shows the Percentage of Users Creating in Trailing 90 Days for the periods indicated. 2021 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Users (in Thousands) 4,939 5,373 5,732 6,409 6,904 7,192 7,457 7,893 8,239 8,446 8,639 8,944 Percentage of Users Creating in Trailing 90 Days 62% 59% 56% 60% 54% 51% 48% 51% 45% 43% 42% 44% Many of our users choose to pay for our subscription offerings which include a subscription to images, fonts and projects as well as other member benefits, including exclusive software features and functionality, discounts, 67 Table of Contents priority Cricut Member Care, and, in the case of Cricut Access Premium, preferred shipping.
Percentage of Users Creating in Trailing 90 Days We define the Percentage of Users Creating in Trailing 90 Days as the percentage of users who have used a connected machine for any activity, such as cutting, writing or any other activity enabled by our connected machines, in the past 90 days.
We compensate for these limitations by also reviewing other metrics that capture portions of this information, including the metrics below. 70 Table of Contents Percentage of Users Creating in Trailing 90 Days We define the Percentage of Users Creating in Trailing 90 Days as the percentage of users who have used a connected machine for any activity, such as cutting, writing or any other activity enabled by our connected machines, in the past 90 days.
As part of the dividend, and pursuant to the underlying award agreements, holders of restricted stock units (“RSUs”) will receive a dividend equivalent of $0.35 per RSU in the form of additional RSUs.
As part of the dividend, and pursuant to the underlying award agreements, holders of RSU and PRSUs will receive a dividend equivalent of $0.35 per unit in the form of additional RSUs or PRSUs subject to the same vesting conditions as the original awards.
The increase was primarily due to a $3.1 million increase in personnel-related expenses, a $2.6 million impairment of unused equipment (see Note 2), and increases in stock-based compensation, software subscriptions, and professional services.
The increase was primarily due to a $13.0 million impairment of unused equipment, software, and inventory (see Note 2), a $4.1 million increase in stock-based compensation, a $2.4 million increase in professional services expense, a $1.7 million increase in bad debt expense, and a $1.7 million increase in software subscriptions expense.
Dividends On December 21, 2022, we declared a special dividend of $0.35 per share payable on February 15, 2023 to shareholder of record as of February 1, 2023.
On December 21, 2022, the Company declared a special dividend of $0.35 per share on its Class A and Class B common stock, payable on February 15, 2023 to shareholders of record as of February 1, 2023.
Other Income (Expense), Net Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) Other income (expense), net $ 2,028 $ 2,060 (6,438) % $ (32) $ 1,288 (98) % $ (1,320) Other income (expense), net changed by $2.1 million, or 6,438%, to income of $2.0 million for the year ended December 31, 2022 from a net expense of $32.0 thousand for the year ended December 31, 2021.
Other Income (Expense) Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (dollars in thousands) Other income (expense) $ 9,798 $ 7,770 383 % $ 2,028 $ 2,060 (6438) % $ (32) Other income (expense) increased by $7.8 million, or 383%, to a net income of $9.8 million for the year ended December 31, 2023 from a net income of $2.0 million for the year ended December 31, 2022.
Longer term, we expect research and development expense to return to our long-term expected range of 7-8% as a percentage of revenue. 70 Table of Contents Sales and Marketing Sales and marketing expenses consist primarily of the advertising and marketing of our products, third-party payment processing fees, personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense, as well as sales incentives, professional services, promotional items, and allocated overhead costs.
Sales and Marketing Sales and marketing expenses consist primarily of the advertising and marketing of our products, third-party payment processing fees, personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense, as well as customer rebates, professional services, promotional items, and allocated overhead costs.
We have a strong focus on the unit economics of each of our products and consistency in how we operate the business.
We expect net income margin to fluctuate as a percentage of revenue in the near term and long term. We have a strong focus on the unit economics of each of our products and consistency in how we operate the business.
During the past three fiscal years, we have not made any material changes to the accounting methodologies used to assess the areas discussed below, unless noted otherwise.
During the past three fiscal years, we have not made any material changes to the accounting methodologies used to assess the areas discussed below, unless noted otherwise. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below.
For example, this metric does not capture whether a User is active in using a connected machine and does not indicate whether a User is purchasing subscriptions or accessories and materials. We compensate for these limitations by also reviewing other metrics that capture portions of this information, including the metrics below.
For example, this metric does not capture whether a User is active in using a connected machine and does not indicate whether a User is purchasing subscriptions or accessories and materials.
We have been net income profitable every year since 2017. See the section titled “—Key Business Metrics” for information regarding our net income and net income margin over the last three years. We expect net income margin to fluctuate as a percentage of revenue in the near term and long term.
Balancing Operating Discipline and Investment for Growth We seek to balance investments for long-term growth with operating discipline and the profitability of our business. We have been net income profitable every year since 2017. See the section titled “Key Business Metrics” for information regarding our net income and net income margin over the last three years.
As of December 31, 2022, 74% of our nearly 7.9 million users created on their connected machines in the last 365 days. This durable relationship is motivated by new software and products that we launch to expand the capabilities of existing connected machines as well as through the inspiration derived from our large and passionate community.
This durable relationship is motivated by new software and products that we launch to expand the capabilities of existing connected machines as well as through the inspiration derived from our large and passionate community. If our users engage with their connected machines less over time, the overall growth in our business may slow.
In 2022, the gross margin of our subscriptions and accessories and materials categories was 90% and 26%, respectively, compared to 3% for our connected machines category. 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Users (in Thousands) 2,803 3,274 3,681 4,323 4,939 5,373 5,732 6,409 6,904 7,192 7,457 7,893 Paid Subscribers (in Thousands) 740 996 1,164 1,303 1,614 1,765 1,814 2,037 2,311 2,367 2,438 2,609 Subscription ARPU $7.20 $7.91 $8.97 $9.23 $9.96 $9.83 $9.60 $9.18 $9.73 $9.59 $9.40 $9.26 Accessories and Materials ARPU $25.40 $32.23 $29.41 $40.76 $29.45 $26.67 $18.79 $28.66 $17.67 $11.45 $7.61 $13.99 The number of Paid Subscribers for the third quarter of 2022 has been updated since previous filings to reflect an immaterial correction.
In 2023, the gross margin of our subscriptions and accessories and materials categories was 89% and 17%, respectively, compared to 13% for our connected machines category. 2021 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Users (in Thousands) 4,939 5,373 5,732 6,409 6,904 7,192 7,457 7,893 8,239 8,446 8,639 8,944 Paid Subscribers (in Thousands) 1,614 1,765 1,814 2,037 2,311 2,367 2,438 2,609 2,715 2,722 2,699 2,770 Subscription ARPU $9.96 $9.83 $9.60 $9.18 $9.73 $9.59 $9.40 $9.26 $9.31 $9.13 $8.93 $8.70 Accessories and Materials ARPU $29.45 $26.67 $18.79 $28.66 $17.67 $11.45 $7.61 $13.99 $8.93 $7.71 $5.75 $8.80 We review Subscription ARPU and Accessories and Materials ARPU as an indicator of the monetization of the journey of our users.
We have not recorded a valuation allowance against our deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will be realized.
Provision for Income Taxes Provision for income taxes consists of income taxes in the United States and certain state and foreign jurisdictions in which we conduct business. We have not recorded a valuation allowance against our deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will be realized.
Gross margin decreased primarily due to higher promotions, handling and inventoriable costs, and freight cost as a percentage of revenue. 73 Table of Contents Operating Expenses Research and Development Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) Research and development $ 76,914 $ (2,900) (4) % $ 79,814 $ 40,884 105 % $ 38,930 As a percentage of total revenue 9 % 6 % 4 % Research and development expenses decreased by $2.9 million, or 4%, to $76.9 million for the year ended December 31, 2022 from $79.8 million for the year ended December 31, 2021.
Operating Expenses Research and Development Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (dollars in thousands) Research and development $ 65,048 $ (11,866) (15) % $ 76,914 $ (2,900) (4) % $ 79,814 As a percentage of total revenue 9 % 9 % 6 % Research and development expenses decreased by $11.9 million, or 15%, to $65.0 million for the year ended December 31, 2023 from $76.9 million for the year ended December 31, 2022.
General and Administrative Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) General and administrative $ 62,647 $ 11,379 22 % $ 51,268 $ 21,666 73 % $ 29,602 As a percentage of total revenue 7 % 4 % 3% General and administrative expenses increased by $11.4 million, or 22%, to $62.6 million for the year ended December 31, 2022 from $51.3 million for the year ended December 31, 2021.
The decrease was primarily due to a $2.6 million decrease in advertising and other marketing expense, a $1.7 million decrease in personnel-related expense, a $1.3 million decrease in professional services expense, and a $1.1 million decrease in software subscriptions expense. 76 Table of Contents General and Administrative Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (dollars in thousands) General and administrative $ 85,091 $ 22,444 36 % $ 62,647 $ 11,379 22 % $ 51,268 As a percentage of total revenue 11 % 7 % 4% General and administrative expenses increased by $22.4 million, or 36%, to $85.1 million for the year ended December 31, 2023 from $62.6 million for the year ended December 31, 2022.
Sales incentives are considered to be variable consideration, which we estimate using the expected value method or most likely amount, based upon the nature of the incentive. Sales are reduced by the cost of these promotional and rebate programs and we record a related customer rebate liability in our consolidated balance sheets at the date of the transaction.
Sales are reduced by the cost of these promotional and rebate programs and we record a related customer rebate liability in our consolidated balance sheets at the date of the transaction.
While management believes estimated amounts are reasonable, actual results may vary from our estimates due to uncertainty regarding forecasted volume, product damage claims, or qualifying activities by our customers.
While management believes estimated amounts are reasonable, actual results may vary from our estimates due to uncertainty regarding forecasted volume, product damage claims, or qualifying activities by our customers. Inventories Inventories consist of finished goods and raw materials, which we purchase from contract manufacturers. We value our inventory at the lower of average cost or net realizable value.
Accessories and Materials cost of revenue decreased by $77.0 million, or 22%, to $265.8 million for the year ended December 31, 2022 from $342.8 million for the year ended December 31, 2021. The decrease was primarily driven by a decline in unit sales of Accessories and Materials during the period, particularly for units of Project Materials, EasyPress, and Mug Press.
Accessories and Materials revenue decreased by $98.5 million, or 27%, to $262.8 million for the year ended December 31, 2023 from $361.4 million for the year ended December 31, 2022. The decrease was primarily driven by a decline in unit sales of project materials and extensions products.
Financing Activities The change in net cash flows from financing activities for the year ended December 31, 2022 compared to year ended December 31, 2021 was primarily due to proceeds of $262.0 million received from our IPO during 2021 partially offset by repurchases of common stock during 2022.
Financing Activities The change in net cash flows from financing activities for the year ended December 31, 2023 compared to year ended December 31, 2022 was primarily due to the payment of special dividends during 2023.
Subscriptions cost of revenue increased by $4.4 million, or 20%, to $26.4 million for the year ended December 31, 2022 from $22.0 million for the year ended December 31, 2021. The increase was primarily driven by an increase in amortization of capitalized software development costs.
The increase was primarily driven by an increase in amortization of capitalized software development costs and increased external digital content costs. Gross margin for Subscriptions decreased to 89% for the year ended December 31, 2023 from 90% for the year ended December 31, 2022.
These cash increases were partially offset by a larger decrease in payable balances with inventory vendors in 2022 compared to 2021, due to repayment of 2021 payable balances with inventory vendors.
In addition, we experienced a smaller decrease in payable balances with inventory vendors in 2023 compared to 2022, due to fewer purchases in 2023. These increases were partially offset by a reduction in cash received from accounts receivable in 2023 compared to 2022.
Improving our software, expanding the capabilities of our connected machines and subscriptions and releasing new accessories and materials will require continued investment and expenses.
Improving our software, expanding the capabilities of our connected machines and subscriptions and releasing new accessories and materials will require continued investment and expenses. As a result, our reported capital expenditures and research and development expenses should be viewed in tandem to understand our investments in innovation.
To continue to grow, we must employ the right personnel to execute our product roadmap and effectively work with third-party suppliers and manufacturers. If we fail to expand our products or maintain high quality standards in our products, our brand, business and results of operations will be adversely affected.
If we fail to expand our products or maintain high quality standards in our products, our brand, business and results of operations will be adversely affected. Managing our Supply Chain We rely on third-party suppliers, contract manufacturers and third-party logistics partners to produce and distribute our products.
We expect our research and development expenses to fluctuate in the near term as we refine our product roadmaps.
We expect our research and development expenses to fluctuate in the near term as we refine our product roadmaps. We produced gross savings in research and development of approximately $4.6 million during 2023 as a result of the January 2023 restructuring plan.
The decrease was partially offset by increased revenue from Autopress and Hat Press which launched in 2022. 72 Table of Contents Cost of Revenue, Gross Profit and Gross Margin Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) Cost of Revenue: Connected machines $ 244,260 $ (239,765) (50) % $ 484,025 $ 132,127 38 % $ 351,898 Subscriptions 26,375 4,414 20 % 21,961 8,836 67 % 13,125 Accessories and materials 265,768 (77,023) (22) % 342,791 81,158 31 % 261,633 Total cost revenue $ 536,403 $ (312,374) (37) % $ 848,777 $ 222,121 35 % $ 626,656 Gross Profit: Connected machines $ 8,303 $ (55,877) (87) % $ 64,180 $ (636) (1) % $ 64,816 Subscriptions 245,969 62,072 34 % 183,897 85,685 87 % 98,212 Accessories and materials 95,621 (113,752) (54) % 209,373 40,027 24 % 169,346 Total gross profit $ 349,893 $ (107,557) (24) % $ 457,450 $ 125,076 38 % $ 332,374 Gross Margin Connected machines 3 % 12 % 16 % Subscriptions 90 % 89 % 88 % Accessories and materials 26 % 38 % 39 % Connected Machines cost of revenue decreased by $239.8 million, or 50%, to $244.3 million for the year ended December 31, 2022 from $484.0 million for the year ended December 31, 2021.
Cost of Revenue, Gross Profit and Gross Margin Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (dollars in thousands) Cost of Revenue: Connected machines $ 172,571 $ (71,689) (29) % $ 244,260 $ (239,765) (50) % $ 484,025 Subscriptions 32,346 5,971 23 % 26,375 4,414 20 % 21,961 Accessories and materials 216,937 (48,831) (18) % 265,768 (77,023) (22) % 342,791 Total cost revenue $ 421,854 $ (114,549) (21) % $ 536,403 $ (312,374) (37) % $ 848,777 Gross Profit: Connected machines $ 25,741 $ 17,438 210 % $ 8,303 $ (55,877) (87) % $ 64,180 Subscriptions 271,643 25,674 10 % 245,969 62,072 34 % 183,897 Accessories and materials 45,909 (49,712) (52) % 95,621 (113,752) (54) % 209,373 Total gross profit $ 343,293 $ (6,600) (2) % $ 349,893 $ (107,557) (24) % $ 457,450 Gross Margin Connected machines 13 % 3 % 12 % Subscriptions 89 % 90 % 89 % Accessories and materials 17 % 26 % 38 % Connected Machines cost of revenue decreased by $71.7 million, or 29%, to $172.6 million for the year ended December 31, 2023 from $244.3 million for the year ended December 31, 2022.
Connected Machines revenue is recognized at the point in time when control is transferred, which is either upon shipment or delivery to the customer in accordance with the terms of each customer contract. 69 Table of Contents Subscriptions We generate Subscriptions revenue primarily from sales of subscriptions to Cricut Access and Cricut Access Premium and a minimal amount of revenue allocated to the unspecified future upgrades and enhancements related to the essential software and access to our cloud-based services.
Subscriptions We generate Subscriptions revenue primarily from sales of subscriptions to Cricut Access and Cricut Access Premium and a minimal amount of revenue allocated to the unspecified future upgrades and enhancements related to the essential software and access to our cloud-based services.
In 2022, we experienced a deceleration of sales post-Q1 due to the global economic slowdown which drove a deviation from our typically expected seasonality. As the impact of the pandemic and global economy challenges on behaviors abate, we expect to return to a more normal seasonality pattern.
The yearly seasonality patterns experienced in 2021, 2022, and 2023 are not representative of our typical historical patterns due to the unique aspects of the pandemic and condition of the global economy. As the impact of the pandemic and global economy challenges on behaviors abate, we expect to return to a more normal seasonality pattern.
We expect this metric to continue to fluctuate both seasonally and over time from shifts in volume and mix.
Accessories and Materials ARPU fluctuates seasonally as well as over time as we introduce new accessories and materials at various price points and as the volume and mix of accessories and materials purchased changes. We expect this metric to continue to fluctuate both seasonally and over time from shifts in volume and mix.
We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below. 76 Table of Contents Customer rebates We recognize revenue at the net sales price, which includes certain estimates for variable consideration related to customer rebates with our key brick-and-mortar and online retail partners.
Customer rebates We recognize revenue at the net sales price, which includes certain estimates for variable consideration related to customer rebates with our key brick-and-mortar and online retail partners. These promotional programs are designed to enhance the sale of our products and consist of incentives to our customers.
We expect our sales and marketing expenses as a percentage of revenue to fluctuate in the near term. Longer term, we expect sales and marketing expense to return to our long-term expected range of 8-10% as a percentage of revenue.
We expect our sales and marketing expenses as a percentage of revenue to fluctuate in the near term. We produced gross savings in sales and marketing of approximately $1.1 million during 2023 as a result of the January 2023 restructuring plan.
If our users engage with their connected machines less over time, the overall growth in our business may slow. Scaling our Hardware and Software Product Offerings We have historically enjoyed strong demand for our products, both physical and digital, driving methodical growth.
Scaling our Hardware and Software Product Offerings We have historically enjoyed strong demand for our products, both physical and digital, driving methodical growth. Our growth depends in part on our ability to design and introduce new products and enhance existing products that meet the preferences of our users.
The change was primarily due to interest and other income from marketable securities we invested in during 2022. 74 Table of Contents Provision for Income Taxes Years Ended December 31, Change Change 2022 $ % 2021 $ % 2020 (dollars in thousands) Provision for income taxes $ 21,315 $ (30,585) (59) % $ 51,900 $ 7,285 16 % $ 44,615 Provision for income taxes decreased by $30.6 million, or 59%, to $21.3 million for the year ended December 31, 2022 from $51.9 million for the year ended December 31, 2021.
Provision for Income Taxes Years Ended December 31, Change Change 2023 $ % 2022 $ % 2021 (dollars in thousands) Provision for income taxes $ 26,147 $ 4,832 23 % $ 21,315 $ (30,585) (59) % $ 51,900 Provision for income taxes increased by $4.8 million, or 23%, to $26.1 million for the year ended December 31, 2023 from $21.3 million for the year ended December 31, 2022.
While we are working to diversify our supply chain, some of our third-party suppliers and manufacturers are sole-source suppliers, including one manufacturer for the majority of our connected machines. Our concentration of suppliers could lead to supply shortages, long lead times for components and supply changes. Much of our supply chain originates in Malaysia and China.
For a limited number of our products, which collectively constitute a small portion of our revenue, a particular contract manufacturer is the sole source of the finished product. Our concentration of suppliers could lead to supply shortages, long lead times for components and supply changes. Much of our supply chain originates in Malaysia and China.
Our growth depends in part on our ability to design and introduce new products and enhance existing products that meet the preferences of our users. We must also carefully manage any changes to our product offerings so that we do not harm our brand or our relationships with our users.
We must also carefully manage any changes to our product offerings so that we do not harm our brand or our relationships with our users. To continue to grow, we must employ the right personnel to execute our product roadmap and effectively work with third-party suppliers and manufacturers.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Qualitative and Quantitative Disclosures About Market Risk Interest Rate Risk We were primarily exposed to changes in interest rates with respect to our cost of borrowing under our New Credit Agreement. We monitor our cost of borrowing, taking into account our funding requirements and our 77 Table of Contents expectations for interest rates in the future.
Biggest changeItem 7A. Qualitative and Quantitative Disclosures About Market Risk Interest Rate Risk We were primarily exposed to changes in interest rates with respect to our cost of borrowing under our Credit Agreement. We monitor our cost of borrowing, taking into account our funding requirements and our expectations for interest rates in the future.
As the impact of foreign currency exchange rates was not material to results of operations during 2020, 2021 and 2022, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.
As the impact of foreign currency exchange rates was not material to results of operations during 2021, 2022 and 2023, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.
To date, we have not been exposed, nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
To date, we have not been exposed, nor do we anticipate being exposed to material 80 Table of Contents risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

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