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New words:
ASC, ASU, categorize, commenced, factor, FASB, Florida, flux, incident, Indiana, installed, Iowa, library, Montana, Oregon, realigned, realignment, recast, reconciliation, reevaluated, retrospective, retrospectively, SDK, Tennessee, Topic, upfront
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aggregated, assessing, attributed, authorization, bad, caselaw, consisting, count, Creating, deducting, discrete, earliest, enabled, external, interplay, IPO, Kimball, Mug, organized, pertaining, recordkeeping, reviewing, rework, role, scrutiny, sellable, serving, Shill, tasked, Trailing, twelve, undergoing, underwriting
Financial report summary
?Competition
EtsyRisks
- If we are not able to attract and engage with our users, our business and rate of growth could be adversely affected.
- Our revenue growth rate and financial performance have fluctuated in recent periods and may not be indicative of our future performance, and we expect our revenue growth rate to decline compared to prior years.
- 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.
- We derive a significant portion of our revenue from sales of products, particularly our connected machines, and a decline in sales of our connected machines would adversely affect our future revenue and results of operations.
- Our results of operations could be adversely affected if we are unable to accurately forecast consumer demand for our products or adequately manage our inventory, the manufacturing capacity of our contract manufacturers or their component supply.
- 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. The loss or substantial decline in volume of sales to any of our key brick-and-mortar and online retail partners could adversely affect our financial performance.
- Our long-term growth is dependent upon our ability to increase online sales through the websites of our brick-and-mortar and online retail partners as well as through our own website. If we do not effectively grow our online channels while reducing our reliance on our other sales channels, our business, financial condition, results of operations and profitability could be harmed.
- 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.
- We operate in a highly competitive market and we may be unable to compete successfully against existing and future competitors.
- Sales of copycat products or unauthorized “gray market” products by brick-and-mortar and online retail partners or distributors could adversely affect our authorized distribution channels and harm our reputation, business and results of operations.
- Competitive pricing pressures, including with respect to our platform services, products, and shipping, may harm our business and results of operations.
- If we are not able to accurately estimate variable consideration from customer rebates each quarter, it could affect revenue in future periods.
- 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.
- Our business is affected by seasonality.
- Our quarterly results of operations and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.
- Our future growth depends in part on further penetrating our SAM and TAM and we may not be successful in doing so.
- Our focus on delivering a high-quality product, which may not maximize short-term financial results, may yield results that conflict with the market’s expectations and could result in our stock price being negatively affected.
- Any failure to successfully implement new technology or upgrade our information technology systems, or any major disruption or failure of our information technology systems or websites, could adversely affect our business and operations.
- Our sales to brick-and-mortar and online retail partners can be subject to lower gross margins, heightened product or packaging requirements or long ramp up times.
- We rely on a limited number of distributors to generate a portion of our sales, particularly in our international target markets. The loss of, or a substantial decline in, volume of sales from any of our key distributors could adversely affect our financial performance.
- Our future success depends on the continuing efforts of our key employees and our ability to attract and retain highly skilled personnel and senior management.
- Our success depends on our ability to maintain the value and reputation of the Cricut brand.
- We rely on Amazon Web Services for a substantial portion of our computing, storage, data processing, networking and other services. Any disruption of or interference with our use of Amazon Web Services or other third-party services could adversely affect our business, financial condition and results of operations.
- If we fail to offer high-quality customer support, our business and reputation will suffer.
- Our business depends on the integration of our software across a wide range of desktop and mobile devices and operating systems that are outside of our control.
- Failures in Internet infrastructure or interference with broadband access, including regulatory actions, could cause current or potential users to believe that our platform system or design apps are unreliable, possibly leading our users to switch to our competitors or to avoid using our products and platform.
- We may be subject to warranty claims and brick-and-mortar and online retail partner return policies that could result in significant direct or indirect costs, or we could experience greater product returns than expected, either of which could adversely affect our business, financial condition and results of operations.
- Product recalls and/or product liability, as well as changes in product safety and other consumer protection laws, may adversely affect our operations, merchandise offerings, reputation, results of operations, cash flow and financial condition.
- Changes in how we market our products could adversely affect our marketing expenses and revenue.
- User metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could harm our business, revenue and financial results.
- An economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and platform services.
- 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. Much of our debt is secured by a substantial portion of our assets. Much of our debt has a variable interest rate component that may significantly increase our interest costs in a rising rate environment.
- We may not be able to satisfy our debt obligations upon the occurrence of a change in control under the Credit Agreement.
- We may require additional capital to support business growth and objectives, and this capital may not be available to us on reasonable terms, if at all, and could result in stockholder dilution.
- If we cannot maintain our culture as we grow, we could lose the innovation and teamwork that we believe contribute to our success and our business may be harmed.
- We may experience fluctuations in our tax obligations and effective tax rate.
- We may incur significant losses from fraud.
- Risks Related to Manufacturing, Supply Chain and Fulfillment
- We primarily depend upon two contract manufacturers, and our operations would be disrupted if we encountered problems with our contract manufacturers.
- If our third-party contract manufacturers are unable to meet our needs, as a result of operational issues or other factors, our business would be harmed. The location of our third-party manufacturers in Malaysia and China may exacerbate some of these risks.
- We rely on a limited number of third-party suppliers, some of which are sole-source suppliers, and many of which are located internationally, to provide components to our manufacturers, as well as to source our accessories and materials, which may lead to supply shortages, long lead times for components and supply changes, any of which could disrupt our supply chain and may negatively affect our business.
- Managing our inventory supply chain, including manufacturing and component lead time, is complex and exposes us to risk.
- 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.
- A disruption in the service, a significant increase in the cost of our primary delivery and shipping services for our products or a significant disruption at shipping ports could adversely affect our business.
- We have limited control over our contract manufacturers, component suppliers and third-party logistics partners, which may subject us to significant risks, including the potential inability to produce or obtain quality products on a timely basis or in sufficient quantity, which could adversely affect our business, financial condition and results of operations.
- Our products may be affected from time to time by design and manufacturing defects, and we may face claims related to such defects, either of which could adversely affect our business and result in harm to our reputation.
- Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.
- Significant increases in inflation, commodity prices or transportation costs may adversely affect the costs of our component suppliers and contract manufacturers, and we may be unable to pass on these higher costs to our brick-and-mortar and online retail partners or users.
- Key third-party manufacturers are located in China and may be affected by recent and possible future political, social and economic conditions.
- Developments in the social, political, regulatory and economic environment in Malaysia may have a material adverse impact on us.
- Changes in U.S. tax, tariff or other trade policy regarding products produced in other countries could adversely affect our business.
- Risks Related to Privacy, Data Protection and Cybersecurity
- Our actual or perceived failure to comply with privacy, data protection and information security laws, regulations and obligations could harm our business.
- If the use of “cookie” tracking technologies is further restricted, regulated or blocked, or if changes in technology cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of Internet user information we collect would decrease, which could harm our business and results of operations.
- Risks Related to Foreign Operations
- We plan to further expand into international target markets, which will expose us to significant risks.
- We are subject to governmental export and import controls and economic sanctions laws that could subject us to liability and impair our ability to compete in international target markets.
- Failure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.
- We may face exposure to foreign currency exchange rate fluctuations.
- Risks Related to our Intellectual Property
- Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.
- We have faced threats, and in the future may be threatened, by third parties for alleged infringement of their proprietary rights.
- We depend upon third-party licenses and the purchase of third-party works for the use of digital content. An adverse change to, loss of or claim that we do not hold necessary licenses or rights may adversely affect our business, results of operations and financial condition.
- Legislation regarding copyright protection or content review could impose complex and costly constraints on our business model.
- 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.
- The dual class structure of our common stock has the effect of concentrating voting power with our pre-initial public offering stockholders, which limits their ability to influence the outcome of matters submitted to our stockholders for approval, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction.
- We cannot predict the effect our dual class structure may have on the market price of our Class A common stock.
- The stock price of our Class A common stock may be volatile or may decline regardless of our operating performance
- 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.
- We are a “controlled company” within the meaning of the Exchange rules and, as a result, are entitled to rely on exemptions from certain corporate governance requirements that are designed to provide protection to stockholders of companies that are not “controlled companies.”
- If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
- Future sales of our Class A common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
- We may reduce or discontinue the payment of cash dividends in the future.
- Provisions in our charter documents and under Delaware law could make an acquisition of us difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.
- Our charter documents provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
- Our business is subject to a large number of U.S. and non-U.S. laws, many of which are evolving, including laws specific to e-commerce.
- From time to time, we are subject to legal proceedings, regulatory disputes, audits and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention and materially harm our business, results of operations and financial condition.
- We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations.
- Our business is subject to the risk of earthquakes, fire, power outages, floods, public health crises, such as post-COVID-19 factors, and other catastrophic events, and to interruption by man-made problems such as war or terrorism.
- We are subject to payment processing risk.
- The requirements of being a public company, including maintaining adequate internal control over our financial and management systems, may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.
- 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 subject to sales and other taxes, and we may be subject to liabilities on past sales for taxes, surcharges and fees.
Management Discussion
- ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- information appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. 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.”
- 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 6.0 million Active Users to turn ideas into professional-looking handmade goods. We define “Active User” as a registered user of at least one registered connected machine who has utilized their connected machine to create a project in the last 365 days. With our highly versatile Design Space Platform and our products, including our connected machines and accessories and materials, our users create everything from personalized birthday cards, mugs and T-shirts, to large-scale interior decorations.