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Connected Machines, Subscriptions and Accessories and Materials;
−Removed: • 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;
+Added: • 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;
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There are a number of factors that could impact our number of users and our ability to increase sales to users, including:
−Removed: • a decline in the public’s interest in or discretionary time available for do-it-yourself, or DIY, crafting activities;
+Added: • 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;
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• 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.
−Removed: 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.
+Added: 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.
If user engagement declines, then Subscription ARPU and Accessories and Materials ARPU may also decline.
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Declining ARPU has had and may continue to have an adverse effect on our revenue and results of operations.
−Removed: Our revenue growth rate and financial performance in recent periods may not be indicative of our future performance, and we expect our revenue growth rate to decline compared to prior years.
−Removed: We experienced rapid revenue growth in recent periods through 2021, with revenue of $959.0 million, $1,306.2 million, and $886.3 million for the years ended December 31, 2020, 2021 and 2022, respectively.
+Added: 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.
+Added: We experienced rapid revenue growth through 2021 and experienced a reduction in revenue since then, with revenue of $1,306.2 million, $886.3 million, and $765.1 million for the years ended December 31, 2021, 2022 and 2023, respectively.
You should not rely on our revenue for any previous quarterly or annual period as any indication of our revenue or revenue growth in future periods.
−Removed: 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.
−Removed: 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.
+Added: 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.
+Added: 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.
−Removed: 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.
+Added: 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.
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As we introduce new or enhanced products, we may face additional challenges related to managing a more complex supply chain and manufacturing process, including the time and cost associated with onboarding and overseeing additional suppliers, contract manufacturers and third-party logistics partners.
+Added: As we develop, acquire, and introduce new technologies, including those that may incorporate artificial intelligence and machine learning, we may be subject to new or heightened legal, ethical, and other challenges, including the ability to innovate as quickly as our competitors as well as increased research and development expenses.
We may also face challenges managing the inventory of new or existing products, which could lead to excess inventory and discounting of such products.
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For example, during the COVID-19 pandemic and stay-at-home orders, we saw significant growth in sales in 2020, which strained our inventory levels and caused shortages that likely resulted in lost sales.
−Removed: Although our in-channel and on-hand inventory as of December 31, 2022 were sufficient, if we fail to accurately
−Removed: forecast consumer demand, we may experience insufficient or excess inventory levels or a shortage or surplus of products available for sale.
+Added: Although our in-channel and on-hand inventory as of December 31, 2023 were generally sufficient, if we fail to accurately forecast consumer demand, we may experience insufficient or excess inventory levels or a shortage or surplus of products available for sale.
If we underestimate demand or are otherwise unable to meet consumer demand, we could experience loss of revenue, reputational harm and damaged relationships, including through social media or other communications from our community, and adversely affect our business, financial condition and results of operations.
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For the year ended December 31, 2022, our top seven brick-and-mortar and online retail partners accounted for 37% of total revenue.
−Removed: For the twelve months ended December 31, 2022, our top seven brick-and-mortar and online retail partners accounted for 37% of total revenue.
+Added: For the twelve months ended
+Added: December 31, 2023, our top seven brick-and-mortar and online retail partners accounted for 33% of total revenue.
We anticipate that a similar level of concentration will continue for the foreseeable future.
We are dependent on our brick-and-mortar and online retail partners to manage the sales of our products in their stores and on their websites.
−Removed: For example, we depend on brick-and-mortar retail partners to provide adequate and attractive space for our products and point of purchase displays in their stores and to employ, educate and motivate their sales personnel to sell our products.
+Added: For example, we depend on brick-and-mortar retail partners to provide adequate and attractive space for our products and point of purchase displays in their stores, to maintain appropriate inventory for our product in their stores and to employ, educate and motivate their sales personnel to sell our products.
We also depend on our brick-and-mortar and online retail partners to adequately market our products on their websites and provide a positive online shopping and shipping experience for their customers.
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If we fail to meet these requirements, we may not only lose a brick-and-mortar and online retail partner, but we may have to pay significant punitive costs or retailer-imposed fines for such failures.
−Removed: We also impose policies and guidelines on our brick-and-mortar and online retail partners through our contractual agreements.
−Removed: If a retailer fails to follow the policies and guidelines in our sales agreements, we may choose to temporarily or permanently stop shipping product to that retailer, which could adversely affect our revenue and results of operations.
+Added: We also impose policies and guidelines on our brick-and-mortar and online retail partners through our contractual agreements and otherwise.
+Added: We are motivated to work with those retailers that help us create a great experience both on shelf and for the actual usage of our ecosystem.
+Added: If a retailer fails to follow the policies and guidelines in our sales agreements and otherwise, we may choose to temporarily or permanently stop shipping product to that retailer, which could adversely affect our revenue and results of operations.
Because our key brick-and-mortar and online retail partners have dominant positions in their markets, a loss of any key retailer may not be easily replaced.
−Removed: The loss or substantial decline in volume of sales to our key brick-and-mortar and online retail partners would adversely affect our financial performance.
+Added: The loss or substantial decline in volume of sales to our key brick-and-mortar and online retail partners, including lost sales because of inadequate retailer inventory, would adversely affect our operating results and financial performance.
Moreover, if we are not able to meet demand from our key brick-and-mortar and online retail partners, they may limit or eliminate our shelf space, fail to feature our products on their websites or cease to offer our products and instead offer or promote products from our competitors who are able to meet their demands.
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We may not be able to collect our receivables from our brick-and-mortar and online retail partners, or we may incur significant expense in attempting to collect receivables, which would materially and adversely affect our profitability and cash flows from operations.
−Removed: For example, the COVID-19 pandemic had a material adverse effect on many retail chains generally, many of whom were required to close their stores for periods of time, and some of which went out of business.
−Removed: While the challenges that many retail chains experienced during the COVID-19 pandemic did not have a material adverse effect on our business, such challenges could negatively affect our business and results of operations in the future.
In addition, current deteriorating general economic conditions, inflationary pressures affecting the pricing of our products or otherwise, and changes in consumer spending preferences or buying trends could have an effect on sales through our brick-and-mortar and online retail partners.
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To successfully grow our sales through cricut.com, we must continue to drive traffic to our website, convert a larger percentage of potential brick-and-mortar and online retail partner sales to our website and create and maintain a streamlined and intuitive online shopping experience.
−Removed: Increasing sales through cricut.com may be costly and may place increased demands on our operational, managerial, administrative and other resources.
−Removed: We are dependent on our brick-and-mortar and online retail partners to manage their own e-commerce operations effectively and to promote our products through those channels.
−Removed: We or our brick-and-mortar and online retail partners may be unable to effectively address the challenges involved with increasing online sales, which could negatively affect our results of operations and financial condition.
+Added: Increasing sales through cricut.com may be costly
+Added: and may place increased demands on our operational, managerial, administrative and other resources.
+Added: We are dependent on our brick-and-mortar and online retail partners to manage their own e-commerce operations effectively, to maintain appropriate inventory for our product in their e-commerce operations and to promote our products through those channels.
+Added: We or our brick-and-mortar and online retail partners may be unable to effectively address the challenges involved with increasing online sales, including maintaining adequate retailer inventory, which could negatively affect our results of operations and financial condition.
Sales through online channels, either through cricut.com or our online retail partners’ websites, could reduce sales by our current brick-and-mortar retail partners, which could adversely affect our relationship with our brick-and-mortar retail partners, particularly those that do not have a strong online presence.
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Instead of increasing subscriptions, other attempts to increase subscriptions could cause our users to limit their use of our connected machines, cause reputational harm and damaged relationships, and result in reduced sales of connected machines and accessories and materials, any of which could negatively affect our future revenue and results of operations.
−Removed: Finally, any future changes to our subscription model could make our subscriptions less attractive to
−Removed: users or reduce our margins on subscriptions, which could negatively affect our future revenue and results of operations.
+Added: 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.
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Our efforts to increase our sales of accessories and materials may not have the desired effect.
−Removed: 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.
+Added: Because we derive a significant portion of our revenue
+Added: 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.
We also experience competition in connected machines from sellers of both connected and manual cutting and other machines.
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Our competitors may develop or acquire, or have already developed or acquired, intellectual property rights that significantly limit or prevent our ability to compete effectively in the public marketplace.
−Removed: In addition, our competitors may have significantly greater resources than we do, allowing them to identify and capitalize more efficiently upon opportunities in new markets and consumer preferences and trends, quickly transition and adapt their products, devote greater resources to marketing and advertising or better position themselves to withstand substantial price competition.
+Added: In addition, our competitors may have significantly greater resources than we do or may introduce product features, including artificial intelligence and machine learning capabilities, sooner than we do, allowing them to identify and capitalize more efficiently upon opportunities in new markets and consumer preferences and trends, quickly transition and adapt their products, devote greater resources to marketing and advertising or better position themselves to withstand substantial price competition.
If we are not able to compete effectively against our competitors, they may acquire and engage our users or generate revenue at the expense of our efforts, which could adversely affect our business, financial condition and results of operations.
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.
−Removed: Copycat companies or products may attempt to imitate our connected machines and accessories and materials, our brand or the functionality of our products.
+Added: Copycat companies or products have in the past attempted, are currently attempting, and in the future may continue to attempt to imitate our connected machines and accessories and materials, our brand or the functionality of our products.
When consumers purchase copycat products in lieu of our products, it negatively affects our business and results of operations.
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However, we may be unable to detect all copycat products in a timely manner, and, even if we could, technological and legal measures may be insufficient to halt their distribution.
−Removed: 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
−Removed: of such copycat products.
+Added: 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.
Regardless of whether we can successfully enforce our rights against the producers of these products, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition.
−Removed: For example, we are currently aware of certain unauthorized copycat products, such as mats and other accessories, that are actively marketed for use with our connected machines and are available through certain major online retail partners.
+Added: For example, we are currently aware of certain unauthorized copycat products, including machines, mats and other accessories, that are actively marketed for use with our connected machines and are available through certain major online retail partners.
We have taken legal action against certain of the producers of these copycat products and anticipate expending significant financial or other resources in the future to combat these products.
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Further, some of our products may find their way to unauthorized outlets or distribution channels.
−Removed: This “gray market” for our products can undermine authorized brick-and-mortar and online retail partners and distributors who promote and support our products and can damage our reputation and business, and we may have to spend significant time and resources in the future to challenge such copycat products and unauthorized “gray market” products.
+Added: This “gray market” for our products can undermine authorized brick-and-mortar and online retail partners and distributors who
+Added: promote and support our products and can damage our reputation and business, and we may have to spend significant time and resources in the future to challenge such copycat products and unauthorized “gray market” products.
Competitive pricing pressures, including with respect to our products, subscriptions and shipping, may harm our business and results of operations.
If we are unable to sustain pricing levels for our products and subscriptions, whether due to competitive pressure or otherwise, our gross margins could be significantly reduced.
−Removed: As of December 31, 2022, our portfolio of connected machines range from $179.00 to $429.00 MSRP, and subscription offerings range from $9.99 per month to $95.88 per year for Cricut Access or $119.88 per year for Cricut Access Premium, which includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping.
−Removed: Within our accessories and materials, our SKUs range in price from $0.99 to $999.00.
+Added: Our portfolio of connected machines range from $149.00 to $999.00 MSRP, and subscription offerings range from $9.99 per month to $95.88 per year for Cricut Access or $119.88 per year for Cricut Access Premium, which includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping.
+Added: 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.
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If there is price compression in the market after these decisions are made, our business and results of operations could be adversely affected.
−Removed: If we are not able to accurately estimate variable consideration from sales incentives each quarter, it could affect revenue in future periods.
+Added: If we are not able to accurately estimate variable consideration from customer rebates each quarter, it could affect revenue in future periods.
We participate in promotional and rebate programs with our key brick-and-mortar and online retail partners to enhance the sale of our products.
These promotional programs consist of incentives or entitlements to our customers, such as advertising allowances, volume and growth incentives, business development, product damage allowances and point-of-sale support.
−Removed: Sales incentives are considered to be variable consideration, which we estimate each quarter using the expected value method or most likely amount, based upon the nature of the incentive.
+Added: Customer rebates are considered to be variable consideration, which we estimate each quarter 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 sales incentive liability in our consolidated balance sheets at the date of the transaction.
−Removed: To the extent that our estimates of variable consideration from sales incentives each quarter are not accurate, it could affect our revenue in future periods.
+Added: To the extent that our estimates of variable consideration from customer rebates each quarter are not accurate, it could affect our revenue in future periods.
We have grown rapidly in recent years and have limited operating experience at our current scale of operations.
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We have grown rapidly in recent years and have limited operating experience at our current size.
−Removed: For example, our revenue grew from $486.6 million in 2019 to $1,306.2 million in 2021 before reducing to $886.3 million in 2022.
−Removed: In addition, between December 31, 2020 and December 31, 2021, our employee headcount increased from over 640 to over 830, and as of December 31, 2022, our employee headcount was over 775.
+Added: For example, our revenue grew from $959.0 million in 2020 to $1,306.2 million in 2021 before reducing to $886.3 million
+Added: in 2022 and $765.1 million in 2023.
+Added: In addition, between December 31, 2021 and December 31, 2022, our employee headcount decreased from over 830 to over 775, and as of December 31, 2023, our employee headcount was over 690.
In January 2023, due to the challenging macroeconomic environment and with the goal of maintaining the health and sustainability of the company, we implemented a workforce reduction which impacted approximately 8% of Cricut employees.
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For example, in 2021, 2022 and 2023, our fourth quarter represented 30%, 32% and 30% of total revenue for the year, respectively.
−Removed: Our promotional discounting activity is also higher in the fourth quarter, which negatively impacts gross
−Removed: margin during this period.
+Added: Our promotional discounting activity is also higher in the fourth quarter, which negatively impacts gross margin during this period.
Accordingly, adverse events that occur during these months could have a disproportionate effect on our results of operations for the entire fiscal year.
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Moreover, we experienced a significant increase in sales after the outbreak of the COVID-19 pandemic, and the rollout of COVID-19 vaccines, lifting of restrictions on movement and/or normalized full-time return to work trends have negatively impacted demand for our products and subscriptions, as have current deteriorating general economic conditions, inflationary pressures affecting the pricing of our products, and changes in consumer spending preferences and buying trends, and our sales activity may continue to diminish as a result.
−Removed: 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.
+Added: 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.
Our quarterly results of operations and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.
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• 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.
−Removed: 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.
+Added: 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.
Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our results of operations.
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We believe that our growth depends on our ability to reach our market opportunity in terms of our SAM, which includes active creatives who we address with our current products and price points, and our TAM, which includes potential creatives who we believe we can reach over the long term as we make products for new uses and products that are more accessible, even easier to use and available at a broad set of price points.
−Removed: See the section titled “Business - Our Opportunity.”.
−Removed: We assess our SAM and TAM in the United States and Canada, as well as internationally.
+Added: See the section titled “Business - Our Opportunity.” We assess our SAM and TAM in the United States and Canada, as well as internationally.
We believe that in order to further penetrate our SAM and TAM, we must continually improve ease of use and user experience, launch new products in new categories and expand internationally.
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Our rapid growth has, in certain instances, strained these systems.
−Removed: As we grow, we continue to implement modifications and upgrades to our systems, including sunsetting the use of internal servers and implementing a company-wide product lifecycle management
+Added: As we grow, we continue to implement modifications and upgrades to our systems, including sunsetting the use of internal servers and implementing a company-wide product lifecycle management system.
These changes subject us to inherent costs and risks associated with replacing and upgrading these systems, including, but not limited to, impairment of our ability to fulfill brick-and-mortar and online retail partners orders and other disruptions in our business operations.
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As our user community grows and their usage of our services increases, we will be required to make additional investments in network capacity to maintain adequate data transmission speeds, the availability of which may be limited, and the cost of which may be on terms unacceptable to us.
−Removed: If adequate capacity is not available to us as our users’ usage increases, our network may be unable to achieve or maintain sufficiently high reliability or performance.
+Added: If adequate capacity is not available to us as our users’ usage increases, our network may be
+Added: unable to achieve or maintain sufficiently high reliability or performance.
In the event that our users are unable to access our platform or suffer operational issues with our platform, it could negatively affect their experience with our products and platform and harm our reputation.
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If we lose any of our key distributors, particularly in our international target markets, if we are unable to meet our key distributors’ demand requirements or if our key distributors sell competing products, our business and results of operations could be adversely affected.
−Removed: 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
−Removed: certain retailers.
+Added: 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.
Any loss of market share or financial difficulties faced by our key distributors, including bankruptcy and financial restructuring, could adversely affect our financial performance.
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Additionally, the loss of any key personnel could make it more difficult to manage our operations and research and development activities, reduce our employee retention and revenue and impair our ability to compete.
−Removed: For example, Martin Petersen, Cricut’s former Chief Financial Officer, retired from Cricut effective September 30, 2022.
In connection with our initial public offering, we entered into employment letters with our key personnel.
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Amazon Web Services has broad discretion to change and interpret the terms of service and other policies with respect to us, and those actions may be unfavorable to our business operations.
−Removed: 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.
+Added: Amazon Web Services may also take actions beyond our control that
+Added: 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.
Although we expect that we could obtain similar services from other third parties, if our arrangements with Amazon Web Services were terminated, we could experience interruptions on our platform and in our ability to make our content available to users, as well as delays and additional expenses in arranging for alternative cloud infrastructure services.
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If we are unable to continue to develop self-service support resources that are easy to use and allow our users to resolve their technical issues, or if our users choose not to collaborate or engage with other users on technical support issues, our self-service support resources may not be effective, and our users’ experience with our platform may be negatively impacted.
−Removed: Any failure to, or market perception that we do
−Removed: 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.
+Added: 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.
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.
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To deliver high-quality images and projects, it is important that our software is designed effectively and works well with a range of third-party desktop and mobile systems, networks and standards.
−Removed: 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.
+Added: 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,
+Added: 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.
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A number of states have enacted or are considering legislation or executive actions that would regulate the conduct of broadband providers.
−Removed: 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
−Removed: national network neutrality rules.
+Added: 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.
We cannot predict whether the FCC order or state initiatives will be modified, overturned or vacated by legal action of the court, federal or state legislation or the FCC.
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We generally provide a one-year limited warranty on our connected machines and customer satisfaction guarantees on certain other products, and we permit returns of certain products for a full refund within 15 days of receipt of order.
+Added: We also recently introduced an extended warranty program in the United States.
Additionally, our brick-and-mortar and online retail partners and distributors provide users with their own respective warranty and/or return policies relative to our connected machines, accessories and materials and other Cricut products they sell, which in turn flow down to us as a contractual obligation and/or allowance that we must honor.
−Removed: 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.
+Added: The occurrence of
+Added: 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 addition, we could incur significant costs to correct any defects, warranty claims or other problems, including costs related to product recalls.
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Also, while our warranty is limited to repairs and returns, warranty claims may result in litigation, the occurrence of which could adversely affect our business, financial condition and results of operations.
−Removed: 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.
+Added: 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.
Extended warranties are regulated in the United States on a state level and are treated differently by each state.
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If our suppliers or manufacturers are unable or unwilling to recall products failing to meet our quality standards, we may be required to recall those products at a substantial cost to us.
−Removed: Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain merchandise, or additional
−Removed: labor costs associated with readying merchandise for sale.
+Added: Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain merchandise, or additional labor costs associated with readying merchandise for sale.
Long lead times on merchandise ordering cycles increase the difficulty for us to plan and prepare for potential changes to applicable laws.
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We maintain general liability insurance; however, design and manufacturing defects, and claims related thereto, may subject us to judgments or settlements that result in damages materially in excess of the limits of our insurance coverage.
−Removed: In addition, we may be exposed to write-offs of inventory or intangible assets or other expenses such as litigation costs and regulatory fines.
+Added: In addition, we may be exposed to write-offs of inventory or intangible assets
+Added: or other expenses such as litigation costs and regulatory fines.
If we cannot successfully defend any large claim, maintain our general liability insurance on acceptable terms or maintain adequate coverage against potential claims, our business, results of operations and financial condition could be adversely impacted.
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Our products and subscriptions may be considered discretionary items for consumers.
−Removed: Factors affecting the level of consumer spending for such discretionary items include general economic conditions, consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, inflationary pressures, consumers’ individual savings-to-spend ratio, levels of unemployment, discretionary time available, tax rates and political factors, including war or other armed conflicts, including the current conflict between Russia and Ukraine.
+Added: Factors affecting the level of consumer spending for such discretionary items include general economic conditions, consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, inflationary pressures, consumers’ individual savings-to-spend ratio, levels of unemployment, discretionary time and money available, tax rates and political factors, including war or other armed conflicts, including the current conflicts between Russia and Ukraine and between Israel and Hamas.
While we saw an increase in demand for our products and subscriptions during the COVID-19 pandemic in 2020 and 2021, our current revenue growth rates are declining compared to those years.
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Current deteriorating general economic conditions, inflationary pressures affecting the pricing of our products, and changes in consumer spending preferences and buying trends are having an adverse effect on demand for our products.
+Added: Further, a federal government shutdown resulting from failing to pass budget appropriations, adopt continuing funding resolutions, or raise the debt ceiling, and other budgetary decisions limiting or delaying deferral government spending, may negatively impact U.S.
+Added: or global economic conditions, including corporate and consumer spending, and liquidity of capital markets.
Unfavorable economic conditions or other related factors may lead consumers to delay or reduce purchases of our products and subscriptions, and consumer demand for our products and subscriptions may not grow as we expect.
−Removed: 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.
−Removed: 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.
+Added: 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.
+Added: Our sensitivity to economic
+Added: 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.
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Much of our debt has a variable interest rate component that may significantly increase our interest costs in a rising rate environment.
−Removed: 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.
−Removed: 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.
−Removed: The New Credit Agreement and related loan documents could have important consequences to us, including the following:
+Added: 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.
+Added: 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.
+Added: 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;
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• exposure to the risk of increasing interest rates as certain borrowings are, and will continue to be, at variable rates of interest.
−Removed: 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.
+Added: 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.
We are also subject to financial covenants that require us to maintain a maximum leverage ratio and a minimum interest coverage ratio.
These restrictions may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry or take future actions.
−Removed: 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.
−Removed: Pursuant to the New Credit Agreement and related loan documents, we granted a security interest in substantially all of our assets.
+Added: 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.
+Added: 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.
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Even if new financing were available, it may not be on terms acceptable to us.
−Removed: 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.
−Removed: 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
−Removed: as of the date of the proposed credit extension.
−Removed: 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.
−Removed: Additionally, from time to time in the future we may need to refinance obligations outstanding under the New Credit Agreement and related loan documents.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: 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.
−Removed: 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.
+Added: It is possible that financing to replace or renew our debt may be
+Added: unfavorable, which would adversely affect our financial condition and results of operations.
In certain cases, we may turn to equity or other alternative financing.
−Removed: Our debt under the New Credit Agreement is subject to variable rates of interest.
+Added: Our debt under the Credit Agreement is subject to variable rates of interest.
If interest rates increase, our borrowing costs may increase substantially.
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We may use interest rate derivatives to hedge a portion of our variable rate debt, when appropriate, based upon market conditions.
−Removed: We may not be able to satisfy our debt obligations upon the occurrence of a change in control under the New Credit Agreement
−Removed: 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.
−Removed: 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.
+Added: We may not be able to satisfy our debt obligations upon the occurrence of a change in control under the Credit Agreement
+Added: 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.
+Added: 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.
−Removed: 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.
+Added: 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.
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.
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Recent employment trends have required us to make substantial changes to the way that the vast majority of our employee population does their work, and we have faced new and unforeseen challenges arising from the management of remote, geographically-dispersed teams.
−Removed: In addition, our recent workforce reduction could affect our culture.
Any failure to preserve our culture could adversely affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
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Specifically, Ashish Arora, our Chief Executive Officer, has not previously been the chief executive officer of a publicly traded company, and Kimball Shill, our Chief Financial Officer, is serving in that role for the first time.
−Removed: 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.
+Added: 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
+Added: the continuous scrutiny of securities analysts and investors.
These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations.
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In addition, under current credit card practices, we are typically liable for fraudulent credit card transactions.
−Removed: Our failure to adequately prevent fraudulent transactions could
−Removed: damage our reputation, result in litigation or regulatory action and lead to expenses that could substantially impact our results of operations.
+Added: Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could substantially impact our results of operations.
Risks Related to Manufacturing, Supply Chain and Fulfillment
−Removed: We primarily depend upon a single contract manufacturer, and our operations would be disrupted if we encountered problems with the contract manufacturer.
−Removed: We depend on third-party contract manufacturers to produce all of our products, and primarily rely upon one contract manufacturer, Intretech, to build most of our connected machines in Malaysia and China.
−Removed: We are increasing use of another contract manufacturer, also with operations in Malaysia.
−Removed: 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.
+Added: We primarily depend upon two contract manufacturers, and our operations would be disrupted if we encountered problems with our contract manufacturers.
+Added: We depend on third-party contract manufacturers to produce all of our products, and primarily rely upon two contract manufacturers to build most of our connected machines in Malaysia and China.
+Added: 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.
+Added: 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.
Such agreements may be terminated by the vendors only for cause, such as (i) a breach of our payment obligation for accepted products that is not cured within ten days after notice from the vendor or (ii) certain events relating to our insolvency or filing a petition for bankruptcy.
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We may also terminate the agreements for convenience for any reason by giving 60 days’ prior written notice to the vendor.
−Removed: 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.
−Removed: 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.
+Added: 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.
+Added: 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.
Furthermore, certain of our contract manufacturers have in the past and may in the future experience adverse changes in their business conditions.
−Removed: 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 .
−Removed: In addition, Intretech primarily manufactures our connected machines at one facility located in Malaysia with some manufacturing conducted in the People’s Republic of China, or China.
+Added: 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 .
+Added: In addition, our primary two contract manufacturers primarily manufacture our connected machines at facilities located in Malaysia, with some manufacturing conducted by one of our primary contract manufacturers in the People’s Republic of China, or China.
Manufacturing in these countries may be subject to political, economic, pandemic-related labor constraints, border closures, social and legal uncertainties that may harm our relationships with these parties.
Our other contract manufacturers are also located in China and Malaysia, which may increase supply risk, including the risk of supply interruptions.
−Removed: Our contract with Intretech does not obligate them to supply our connected machines in any specific quantity or at any specific price and allows us to enter purchase orders with Intretech.
+Added: Our contracts with our two primary contract manufacturers do not obligate them to supply our connected machines in any specific quantity or at any specific price and allow us to enter purchase orders with such manufacturers.
Entering into agreements requiring additional purchase orders is a typical part of our business and is common practice with other vendors that we may use from time to time.
−Removed: If Intretech fails for any reason to continue manufacturing our connected machines in required volumes, in a timely manner, at high quality levels or at all, we may have to increase connected machine production at currently qualified contract manufacturers or engage acceptable alternative contract manufacturers, either of which would be time consuming, particularly given the complexity of our connected machines.
+Added: If our two primary contract manufacturers fail for any reason to continue manufacturing our connected machines in required volumes, in a timely manner, at high quality levels or at all, we may have to increase connected machine production at currently qualified contract manufacturers or engage acceptable alternative contract manufacturers, either of which would be time consuming, particularly given the complexity of our connected machines.
Identifying, selecting and onboarding acceptable alternative contract manufacturers could also be costly.
Alternative contract manufacturers may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices or to our quality and performance standards.
−Removed: Any significant interruption in manufacturing at Intretech would reduce our supply of connected machines, which could cause us to delay our orders or breach our purchase orders with our brick-and-mortar and online retail partners, distributors and online sales channels, which in turn would reduce our revenue and user growth.
+Added: Any significant interruption in manufacturing at our two primary contract manufacturers would reduce our supply of connected machines, which could cause us to delay our orders or breach our purchase orders with our brick-and-mortar and online retail partners, distributors and online sales channels, which in turn would reduce our revenue and user growth.
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.
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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.
−Removed: Operational difficulties,
−Removed: 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.
+Added: Operational difficulties, such as a significant interruption in the operations of or equipment breakdowns in production facilities operated by
+Added: third parties, could delay production or shipment of our products.
In addition, events such as inclement weather, natural disasters, government shut-downs as a result of air quality, power grid limitations, pandemics, civil unrest or other reasons, labor strikes or shortages, transportation security vulnerabilities or cyberattacks could impair third-party production capabilities.
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Moreover, if the costs of meeting production requirements, including capital expenditures, were to exceed our expectations, our results of operations would be harmed.
−Removed: Our third-party manufacturers, including Intretech, are largely based in Malaysia and China.
+Added: 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.
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Access to credit in Asia is tightening, which is having an impact on the terms upon which we and our contract manufacturers are able to obtain access to components or accessories and materials from particular suppliers.
−Removed: 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
−Removed: products to brick-and-mortar and online retail partners or users in a timely manner and our business could be materially and adversely affected.
+Added: 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
+Added: materially and adversely affected.
Such supply chain issues, if severe enough, could also affect our contract manufacturers’ ability to remain in business, which would require us to shift production of products made by such manufacturers to other of our manufacturers or new manufacturers, either of which could result in delays in delivery of our products and could have a material and adverse effect on our business.
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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.
−Removed: 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.
+Added: 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.
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Privacy Shield adequate for the purposes of personal data transfers from Switzerland to the United States.
−Removed: On October 7, 2022, President Biden signed an Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities, which directs the United States to take certain steps to implement the EU-U.S.
+Added: On October 7, 2022, President Biden signed an Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities, directing the United States to take certain steps to implement the EU-U.S.
Data Privacy Framework, and on December 13, 2022, the European Commission announced a draft decision on U.S.
−Removed: However, there have been reports that the EU-U.S.
+Added: adequacy, which has allowed the EU-U.S.
+Added: Data Privacy Framework to become available for use by companies seeking to legitimize personal data transfers from the EU to the U.S.
+Added: There have, however, been reports that the EU-U.S.
Data Privacy Framework may be subject to challenge.
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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.
−Removed: On June 4, 2021, the European Commission published new SCCs.
−Removed: The CJEU’s decision, the revised SCCs, regulatory guidance and opinions and other developments relating to cross-border data transfer may
−Removed: require us to implement additional contractual and technical safeguards for any personal data transferred out of the EEA and Switzerland.
+Added: On June 4, 2021, the European
+Added: Commission published new SCCs.
+Added: 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.
More generally, we may find it necessary or desirable to modify our data handling practices, and our practices relating to cross-border transfers of data or other data handling practices, or those of our vendors, contractors and consultants, may be challenged and our business, financial condition and operating results may be adversely impacted.
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A Brazilian Data Protection Authority, Brazilian National Data Protection Authority (Autoridade Nacional de Proteção de Dados, or ANPD), has been established and has begun issuing guidance on how to interpret and implement the LGPD’s requirements.
−Removed: The ANPD has been tasked with issuing guidance regarding notice of processing, data transfer requirements and other compliance obligations, such as security measures, recordkeeping, training and governance.
−Removed: Pending such developments from the ANPD and any emerging caselaw, our LGPD approach may be subject to further change, our compliance measures when implemented may not be fully adequate, we may expend significant time and cost in developing a privacy governance program and data transfer mechanisms in an effort to comply with the LGPD and any implementing regulations or guidance, and we may potentially face litigation prior to the implementation of regulations and guidance regarding the LGPD or before we have had a reasonable opportunity to fully implement measures designed to comply with such regulations and applicable guidance.
+Added: The ANPD has issued guidance regarding aspects of compliance with the LGPD, and is anticipated to issue further guidance.
+Added: Our LGPD approach may be subject to further change, our compliance measures may not be fully adequate, we may expend significant time and cost in developing a privacy governance program and data transfer mechanisms in an effort to comply with the LGPD and any implementing regulations or guidance, and we may potentially face litigation or other proceedings relating to actual or alleged noncompliance with the LGPD.
Vietnam’s cybersecurity law went into effect on January 1, 2019 and includes stringent requirements regarding data localization and data transfers.
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Additionally, a new privacy law, the CPRA, was approved by California voters in November 2020, which went into effect January 1, 2023.
−Removed: The CPRA creates obligations relating to consumer personal information collected as of January 1, 2022, with implementing regulations expected in early 2023, and enforcement beginning July 1, 2023.
+Added: The CPRA creates obligations relating to consumer personal information collected as of January 1, 2022, with
+Added: implementing regulations remaining partially in flux, and enforcement having commenced July 1, 2023.
The CPRA significantly modifies the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in efforts to comply.
−Removed: Other states have also enacted or proposed similar data privacy laws.
−Removed: For example, in 2021 and 2022, Virginia passed its Consumer Data Protection Act, Colorado passed the Colorado Privacy Act, Utah passed the Utah Consumer Privacy Act, and Connecticut passed the Act Concerning Personal Data and Online Monitoring, all of which differ from the CPRA and have or will become effective in 2023.
−Removed: 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.
+Added: Numerous other states have also enacted or proposed similar data privacy laws.
+Added: For example, Virginia, Colorado, Utah and Connecticut have each passed laws similar to but different from the CCPA and CPRA that have taken effect in 2023;
+Added: Florida, Montana, Oregon and Texas have enacted similar laws that go into effect in 2024;
+Added: Tennessee, Delaware and Iowa have enacted similar laws that go into effect in 2025;
+Added: and Indiana has enacted a similar law that will go into effect in 2026.
+Added: 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.
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.
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Information technology helps us operate more efficiently, interface with users and brick-and-mortar and online retail partners, offer features for our products and services, maintain financial accuracy and efficiency and accurately produce our financial statements.
−Removed: 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.
−Removed: Such security breaches or cyberattacks could expose us to a risk of lost, exposed or corrupted information, unauthorized disclosure of information, litigation and possible liability to employees, users, brick-and-mortar and online retail partners and regulatory authorities.
+Added: 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.
+Added: Cyberattacks and other means of attempting and causing security breaches and incidents, are becoming increasingly sophisticated, including as a result of the proliferation of artificial intelligence and machine learning.
+Added: The use of artificial intelligence and machine learning may result in cybersecurity incidents that implicate the personal data of end users of such applications.
+Added: Any such cybersecurity incidents related to our use of artificial intelligence and machine learning applications could adversely affect our reputation and results of operations.
+Added: We have been subject to cyberattacks, security breaches, and incidents in the past, and such cyberattacks and other security breaches and incidents could expose us to a risk of lost, exposed or corrupted information, unauthorized disclosure of information, litigation and possible liability to employees, users, brick-and-mortar and online retail partners and regulatory authorities.
In addition, a significant portion of our data and information is hosted in a cloud-computing environment, where design apps and data are hosted, accessed and processed through a third-party provider over a broadband Internet connection.
−Removed: In a cloud-computing environment, we could be subject to outages, security breaches and cyberattacks affecting the third-party service provider.
−Removed: Since the COVID-19 pandemic, more of our and our service providers’ personnel are working remotely, which increases the risks of security breaches and cyberattacks.
−Removed: 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,
−Removed: 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.
+Added: computing environment, we could be subject to outages, security breaches and incidents and cyberattacks affecting the third-party service provider.
+Added: More of our and our service providers’ personnel are working remotely in recent years than prior to the COVID-19 pandemic, which increases the risks of cyberattacks and security breaches and incidents.
+Added: 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.
Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we internally and externally report our results of operations.
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We strive to implement reasonable security procedures and practices to help ensure that our data management systems effectively collect, store, process and report relevant data for the operation of our business, though there are no assurances that these procedures and practices will be successful or that additional systems issues will not arise in the future.
−Removed: 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.
−Removed: We have been, and may in the future be, subject to compromises and other security breaches impacting such data.
−Removed: 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.
+Added: 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.
+Added: We have been, and may in the future be, subject to compromises and other security breaches or incidents impacting such data.
+Added: 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.
Third parties may also attempt to fraudulently induce employees or users, using constantly evolving social engineering techniques, into disclosing usernames, passwords or other sensitive information, which may in turn be used to access information technology systems used in our business.
1 unchanged sentence
In addition, unauthorized persons may attempt to hack into our products or systems to obtain personal data relating to users or employees, our confidential or proprietary information or confidential information we maintain from third parties, which, if successful, could pose a risk of loss of data, risk to customer safety and risk of product recall.
−Removed: 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.
+Added: 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.
Moreover, we manufacture and sell hardware and software products that allow our users to store confidential information, including their original designs, locally or in our cloud infrastructure.
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While we have implemented security measures designed to protect our hardware and software products from unauthorized access and cyberattacks, these measures may not be effective in securing these products, particularly since techniques used to obtain unauthorized access or otherwise sabotage systems, change frequently and may not be recognized until launched against a target.
−Removed: 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.
−Removed: 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.
−Removed: Many governments have enacted laws requiring companies to provide notice of security breaches or cyberattacks involving certain types of personal data or personal information.
−Removed: We are also contractually required to notify certain customers of security breaches or cyberattacks.
−Removed: 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.
+Added: 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.
+Added: 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.
+Added: Many governments have enacted laws requiring companies to provide notice of certain security breaches involving certain types of personal data or personal information.
+Added: We are also contractually required to notify certain
+Added: customers of cyberattacks, security breaches or incidents.
+Added: 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.
We maintain cybersecurity insurance, subject to applicable deductibles and policy limits;
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For example, the European Commission has proposed a draft regulation, known as the Regulation of Privacy and Electronic Communications, or the ePrivacy Regulation, which would replace the current ePrivacy Directive.
−Removed: If adopted, the earliest date for entry into force is in 2023, with broad potential impacts on the use of internet-based services and tracking technologies, such as cookies.
+Added: If adopted, the ePrivacy Regulation could have broad potential impacts on the use of internet-based services and tracking technologies, such as cookies.
We expect to incur additional costs to comply with the requirements of the ePrivacy Regulation and national implementation laws once they are enacted .
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Additionally, some providers of consumer devices and web browsers have implemented means to make it easier for Internet users to block tracking technologies or to require new permissions from users for certain activities, which could, if widely adopted, significantly reduce the effectiveness of such practices and technologies.
−Removed: For example, Apple introduced an iOS update in April 2021 that allowed users to more easily opt-out of tracking activity across devices, which has impacted and may continue to impact business.
+Added: For example, Apple introduced an iOS update in April 2021 that allowed users to more easily opt-out of tracking activity across devices, and subsequently incorporated new SDK privacy controls into iOS 17, which was released in September 2023.
+Added: These developments have impacted and may continue to impact business.
In February 2022, Google announced it planned to adopt similar restrictions to restrict tracking activity across Android devices.
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In addition, Brexit, and the ongoing negotiations of the future trading relationship between the United Kingdom and the EU during the transition period, have yet to provide clarity on what the outcome will be for the United Kingdom or Europe.
−Removed: 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.
+Added: 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
+Added: additional legal, political and economic uncertainty.
If these actions impacting our international distribution and sales channels result in increased costs for us or our international partners, such changes could result in higher costs to us, adversely affecting our operations, particularly as we expand our international presence.
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public companies are required to maintain records that accurately and fairly represent their transactions and maintain internal controls and compliance procedures designed to prevent violations of anti-corruption laws.
−Removed: 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.
+Added: 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
+Added: agents will not take actions in violation of our policies or applicable law for which we may ultimately be held responsible.
Any violation of the FCPA, other applicable anti-corruption laws or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, fines, damages, severe criminal or civil penalties against us, our officers or our employees, disgorgement of profits, suspension or debarment from government contracts, any of which could adversely affect our reputation, business, results of operations, stock price, financial condition and prospects.
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Our success depends in large part on our proprietary technology and our patents, trade secrets, trademarks and other intellectual property rights.
−Removed: 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.
+Added: We rely on, and expect to continue to rely on, a combination of trademark,
+Added: 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.
However, our efforts to protect our intellectual property rights may not be sufficient or effective, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable.
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Effective protection of patents, trademarks and domain names is expensive and difficult to maintain, both in terms of application and registration costs as well as the costs of defending and enforcing those rights.
−Removed: As we have grown, we have sought to obtain and protect our intellectual property rights in an increasing number of countries, a
−Removed: process that can be expensive and may not always be successful.
+Added: 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.
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Our use of third-party content, including images, software and other intellectual property may be subject to claims of infringement or misappropriation.
−Removed: We cannot guarantee that our internally-developed or acquired technologies and content do not or will not infringe the intellectual property rights of others.
+Added: We cannot guarantee that our internally-developed or acquired technologies and content, including from our Contributing Artist Program, do not or will not infringe the intellectual property rights of others.
From time to time, our competitors or other third parties may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights.
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Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.
−Removed: Further, during the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments.
+Added: 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.
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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.
−Removed: For additional information, see the section titled “Business—Legal Proceedings.”
+Added: 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.
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We may also be required to enter into license agreements with various rights holders to obtain licenses that authorize the storage and use of content uploaded by our users.
−Removed: We may not be able to develop technological solutions to comply with applicable law on economically reasonable terms and there is no guarantee that we will be able to enter into agreements with all relevant rights holders on terms that we deem reasonable.
+Added: We may not be able to develop technological solutions to
+Added: comply with applicable law on economically reasonable terms and there is no guarantee that we will be able to enter into agreements with all relevant rights holders on terms that we deem reasonable.
Compliance may therefore cause us to encounter increased costs which could substantially harm our business and results of operations.
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Future transfers by the holders of Class B common stock will generally result in those shares automatically converting into shares of Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning or other transfers by Petrus.
−Removed: 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
−Removed: their permitted entities as of 11:59 p.m.
+Added: 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
+Added: 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.
Eastern Time on the Effectiveness Date, which we refer to herein as the 50% Ownership Threshold, (ii) the first date after the Effectiveness Date when the outstanding shares of Class B common stock represent less than a majority of the total voting power of the then outstanding shares of our capital stock entitled to vote generally in the election of directors or (iii) the time following the Effectiveness Date specified by affirmative vote or written election of the holders of at least two-thirds of the outstanding shares of Class B common stock.
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We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other negative consequences.
−Removed: For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices.
−Removed: In July 2017, FTSE Russell and S&P Dow Jones announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices.
−Removed: Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500.
+Added: For example, certain index providers (like FTSE Russell) have restrictions on including companies with multiple-class share structures in certain of their indices, while others (like S&P Dow Jones) have backed away from such policies.
Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices;
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• developments or disputes concerning our or other parties’ products, services or intellectual property rights;
−Removed: • the inclusion or exclusion of our Class A common stock from any trading indices, such as the S&P 500 Index;
−Removed: • 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;
+Added: • the inclusion or exclusion of our Class A common stock from any trading indices;
+Added: • 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;
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We may not pay dividends in the future.
−Removed: We recently declared a $0.35 per share special dividend payable February 15, 2023, for stockholders of record on February 1, 2023;
+Added: We declared a $0.35 per share special dividend payable February 15, 2023, for stockholders of record on February 1, 2023, and an additional $1.00 per share special dividend payable July 17, 2023, for stock holders of record on July 3, 2023;
however, we may not pay any other dividends in the future.
−Removed: Additionally, our ability to pay dividends on our capital stock is limited by the restrictions under the terms of our New Credit Agreement.
−Removed: 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.
+Added: Additionally, our ability to pay dividends on our capital stock is limited by the restrictions under the terms of our Credit Agreement.
+Added: 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.
We anticipate that for the foreseeable future we will retain all of our future earnings for use in the development of our business and for general corporate purposes.
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laws, many of which are evolving, including laws specific to e-commerce.
−Removed: 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
−Removed: advertising, content protection, electronic contracts or gift cards.
+Added: 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.
+Added: In addition, emerging technologies we utilize, including artificial intelligence and machine learning, may also become subject to regulation under new laws or new applications of existing laws.
In some cases, non-U.S.
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If an increasing number of such laws are passed, the resulting compliance costs and potential liability risk could negatively impact our business.
−Removed: From time to time, we may be subject to legal proceedings, regulatory disputes 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.
−Removed: From time to time, we may be subject to claims, lawsuits, regulatory disputes, government inquiries and other proceedings, including matters related to intellectual property, commercial, royalties, employment and tax that could adversely affect our business, results of operations and financial condition.
+Added: 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.
+Added: From time to time, we are subject to claims, lawsuits, regulatory disputes, audits, government inquiries and other proceedings, including matters related to intellectual property, commercial, tariffs, royalties, employment and tax that could adversely affect our business, results of operations and financial condition.
As we have grown, we have seen a rise in the number and significance of these disputes and inquiries.
−Removed: Litigation and regulatory proceedings, and particularly any intellectual property infringement matters that we may face, could be protracted and expensive, and the results are difficult to predict.
+Added: Litigation and regulatory proceedings, and particularly any intellectual property infringement matters that we face, could be protracted and expensive, and the results are difficult to predict.
Certain of these matters may include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief.
Adverse outcomes with respect to any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, make content unavailable or require us to stop offering certain features, all of which could negatively affect our subscription and revenue growth.
−Removed: See the section titled “Business—Legal Proceedings” for additional information.
−Removed: The results of claims, lawsuits, regulatory disputes, government inquiries and other proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment.
+Added: See the section titled “Legal Proceedings” for additional information.
+Added: The results of claims, lawsuits, regulatory disputes, audits, government inquiries and other proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment.
There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition and results of operations.
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The time required to evaluate such indications of interest could require significant attention from management, disrupt the ordinary functioning of our business and adversely affect our business, financial condition and results of operations.
−Removed: Our business is subject to the risk of earthquakes, fire, power outages, floods, public health crises, including the COVID-19 pandemic, and other catastrophic events, and to interruption by manmade problems such as war or terrorism.
−Removed: Our business is vulnerable to damage or interruption from earthquakes, fires, pandemics, floods, power losses, telecommunications failures, terrorist attacks, acts of war, including the current conflict between Russia and Ukraine, human errors, break-ins, public health crises, including the COVID-19 pandemic and similar events.
−Removed: For example, our operations have been subject to a range of external factors related to the COVID-19 pandemic that are not within our control.
+Added: Our business is subject to the risk of earthquakes, fire, power outages, floods, public health crises, such as the COVID-19 pandemic, and other catastrophic events, and to interruption by man-made problems such as war or terrorism.
+Added: Our business is vulnerable to damage or interruption from earthquakes, fires, pandemics, floods, power losses, telecommunications failures, terrorist attacks, acts of war, including the current conflicts between Russia and Ukraine and between Israel and Hamas, human errors, break-ins, public health crises, such as the COVID-19 pandemic and similar events.
The third-party systems and operations and manufacturers we rely on are subject to similar risks.
−Removed: As another example, we engage third-party service providers, a portion of whose software development staff resides in Ukraine.
+Added: For example, we engage third-party service providers, a portion of whose software development staff resides in Ukraine.
Due to the current conflict, we may experience an interruption in the services provided by these parties.
Our insurance policies may not cover losses from these catastrophic events or may provide insufficient compensation that does not cover our total losses.
−Removed: 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.
+Added: 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
+Added: insurance coverage may be insufficient to compensate us for losses that may occur.
Acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our or our suppliers’ and manufacturers’ businesses or the economy as a whole.
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We rely on internal systems as well as those of third parties to process payment.
−Removed: Acceptance and processing of these payment methods are subject to certain rules and regulations and
−Removed: require payment of interchange and other fees.
+Added: Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees.
To the extent there are disruptions in our payment processing systems, increases in payment processing fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment processors or changes to rules or regulations concerning payment processing, our revenue, operating expenses and results of operation could be adversely impacted.
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In order to maintain and, if required, improve our disclosure controls and procedures, and internal control over, financial reporting to meet this standard, significant resources and management oversight may be required.
−Removed: 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.
+Added: If, in the future,
+Added: 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.
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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
−Removed: 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.
+Added: 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.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to deferred revenue and entitlements.
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If such obligations were imposed, the additional costs associated with tax collection, remittance and audit requirements could adversely affect our business, financial condition and results of operations.
−Removed: Unresolved Staff Comments
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.