CRICUT, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read together with our interim condensed consolidated
financial statements and related notes and other financial information appearing
elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 2021 ("2021 Form 10-K"). This discussion and analysis
contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results could differ materially from these
forward-looking statements as a result of many factors, including those
discussed in the sections titled "Risk Factors" and "Special Note Regarding
Forward-Looking Statements."

Overview of our activities and our history

At Cricut, our mission is to help people lead creative lives. We have designed
and built a creativity platform that enables our engaged and loyal community of
nearly 7.5 million users to turn ideas into professional-looking handmade goods.
With our highly versatile connected machines, design apps and accessories and
materials, our users create everything from personalized birthday cards, mugs
and T-shirts to large-scale interior decorations.

Our users' journeys typically begin with the purchase of a connected machine. We
currently sell a portfolio of connected machines that cut, write, score and
create other decorative effects using a wide variety of materials including
paper, vinyl, leather and more. Our connected machines are designed for a wide
range of uses and are available at a variety of price points (MSRP by machine
family as of September 30, 2022):

• Cricut Joy for on-the-go customization, $179.00 MSRP

• Cricut Explore to cut, write and mark, $249.00$319.00 MSRP

• Cricut Maker to cut, write, mark and add decorative effects to a wider range of materials, $399.00$429.00 MSRP

Our software integrates our connected machines and design apps, allowing our
users to create and share seamlessly. Our software is cloud-based, meaning that
users can access and work on their projects anywhere, at any time, across
desktops or mobile devices. We enable our users to be inspired, to create and
share projects with the Cricut community and to follow others doing the same. On
our apps, users can find inspiration, purchase or upload content like fonts and
images, design a project from scratch or find a vast array of ready-to-make
projects.

Users can leverage the full power of our platform by using our connected
machines together with our free design apps, in-app purchases and subscription
offerings to design and complete projects. All users can access a select number
of free images, fonts and projects from our design apps or upload their own. In
addition, we offer a wider selection of images, fonts and projects for purchase
à la carte, including licensed content from partners with well-known brands and
characters, like major motion picture studios. We also have two subscription
offerings: Cricut Access and Cricut Access Premium. Cricut Access provides a
subscription to images, fonts and projects as well as other member benefits,
including exclusive software features and functionality, discounts, and priority
Cricut Member Care. Cricut Access is billed monthly for $9.99 per month or
annually for $95.88 per year. Cricut Access Premium includes all of the benefits
of Cricut Access as well as additional discounts and preferred shipping and is
billed annually for $119.88 per year. As of September 30, 2022, we had nearly
2.5 million Paid Subscribers to Cricut Access and Cricut Access Premium.

We sell a broad range of accessories and materials that bring our users' designs
to life, from advanced tools like heat presses to Cricut-branded rulers, scoring
tools, pens, paper and iron-on vinyl, all designed to work seamlessly with our
connected machines. Designing and completing projects drives repeat purchases of
Cricut-branded accessories and materials.

We design and develop our software and hardware products, and we work with third-party contractors to source components and finished products and with third-party logistics companies to warehouse and distribute our products.

We sell our connected machines and accessories and materials through our
brick-and-mortar and online retail partners, as well as through our website at
cricut.com. Our partners include Amazon, Hobby Lobby, HSN, Jo-Ann, Michaels,
Target, Walmart and many others. We also sell our products, including
subscriptions to Cricut Access and Cricut Access Premium, on cricut.com.
                                       24
--------------------------------------------------------------------------------

Historically, we generate higher revenue levels in the second half of the year
compared to the first half of the year, coinciding with the ramp up to, and
including the holiday shopping season in the United States. For example, in 2019
and 2020, the second half of the year represented 59% and 60% of total revenue
for the year, respectively. The seasonality patterns experienced in 2021 were
not representative of our typical historical patterns due to the unique aspects
of the pandemic that resulted in unusually high demand in the first and second
quarters of 2021. As the impact of the pandemic on behaviors abate, we expect to
return to a more normal seasonality pattern. As we continue to grow
internationally, we expect we may experience seasonality in additional markets,
which may differ from the seasonality experienced in the United States.

On March 29, 2021, we completed an initial public offering ("IPO"), in which we
sold 13,250,000 shares of Class A common stock, and the selling stockholders
sold an additional 2,064,903 shares of Class A common stock at a price to the
public of $20.00 per share. We received aggregate net proceeds of $242.7 million
after deducting offering costs, underwriting discounts and commissions of $22.3
million. On April 28, 2021, we sold an additional 968,815 shares of Class A
common stock and the selling stockholders sold an additional 150,984 shares of
Class A common stock pursuant to the partial exercise of the underwriters'
option to purchase additional shares which generated net proceeds of $18.0
million after deducting for underwriting discounts and commissions of $1.4
million.

For more information about our business model, factors affecting our performance and seasonality, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K.

Key business indicators

In addition to the measures presented in our condensed interim consolidated financial statements, we use the following key indicators to evaluate our business, measure our performance, identify trends and make strategic decisions.

                                                             As of September 30,
                                                              2022              2021
   Users (in thousands)                                           7,457        5,732
   Percentage of Users Creating in Trailing 90 Days                  48  %        56  %
   Paid Subscribers (in thousands)                                2,456        1,814


                                              Three Months Ended September 30,
                                                     2022                       2021
    Subscription ARPU                $           9.40                         $  9.60
    Accessories and Materials ARPU   $           7.61                         $ 18.79


Users

We define a User as a registered user of at least one registered connected
machine as of the end of a period. One user may own multiple registered
connected machines but is only counted once if that user registers those
connected machines by using the same email address. If possession of a connected
machine is transferred to a new owner and registered by that new owner, the new
owner is added to the total user count and the prior owner is removed from the
total user count if the prior owner does not own any other registered connected
machines. User count is an important indicator of the health of our business,
because changes in the number of users reflects changes in connected machine
sales and represents opportunities for us to drive additional sales of
subscriptions and accessories and materials. There are certain limitations
associated with this metric. For example, this metric does not capture whether a
User is active in using a connected machine and does not indicate whether a User
is purchasing subscriptions or accessories and materials. We compensate for
these limitations by also reviewing other metrics that capture portions of this
information, including the metrics below.

Percentage of users creating in the last 90 days

We define the Percentage of Users Creating in Trailing 90 Days as the percentage
of users who have used a connected machine for any activity, such as cutting,
writing or any other activity enabled by our connected machines, in the past 90
days. This metric is a key indicator of our engagement with users, which helps
drive sales
                                       25
--------------------------------------------------------------------------------

subscriptions and accessories and materials. There are some limitations associated with this metric. For example, this metric does not capture how active a user is during the 90-day period, or whether a user purchases subscriptions or accessories and hardware. We compensate for some of these limitations by also looking at other measures that capture portions of this information, including the measures below.

Paid Subscribers

We define Paid Subscribers as the number of users with a subscription to Cricut
Access or Cricut Access Premium, excluding cancelled, unpaid or free trial
subscriptions, as of the end of a period. Paid Subscribers is a key metric to
track growth in our subscriptions revenue and potential leverage in our gross
margin.

Subscription ARPU

We define Subscription ARPU as Subscriptions revenue divided by average number
of users in a period. Subscription ARPU allows us to forecast Subscriptions
revenue over time and is an indicator of our ability to expand with users and of
user engagement with our subscription offerings.

ARPU Accessories and Materials

We define Accessories and Materials ARPU as Accessories and Materials revenue
divided by average number of users in a period. Accessories and Materials ARPU
allows us to forecast Accessories and Materials revenue over time and is an
indicator of our ability to expand with users, particularly the volume of
projects created by our users.

Components of our operating results

We operate and manage our business in three reportable segments: Connected Machines, Subscriptions, and Accessories & Materials. We identify our reportable segments based on information used by management to monitor performance and make operating decisions. See Note 16 to our condensed consolidated financial statements included elsewhere in this file for additional information regarding our reportable segments.

Revenue

Connected machines

We generate Connected Machines revenue from sales of our portfolio of connected
machines, currently consisting of machines in three product families, Cricut
Maker, which includes Maker and Maker 3, Cricut Explore, which includes Explore
Air 2 and Explore 3, and Cricut Joy, net of sales discounts, incentives and
returns. Connected Machines revenue is recognized at the point in time when
control is transferred, which is either upon shipment or delivery to the
customer in accordance with the terms of each customer contract.

Subscriptions

We generate Subscriptions revenue primarily from sales of subscriptions to
Cricut Access and Cricut Access Premium and a portion of the revenue allocated
to unspecified future upgrades and enhancements related to the essential
software and access to our cloud-based services. For a monthly or annual
subscription fee, Cricut Access includes a subscription to images, fonts and
projects as well as other member benefits, including exclusive software features
and functionality, discounts, and priority Cricut Member Care. For an annual
subscription fee, Cricut Access Premium includes all of the benefits of Cricut
Access as well as additional discounts and preferred shipping. Subscriptions
revenue excludes à la carte digital content purchases. Subscriptions revenue is
recognized on a ratable basis over the subscription term.

Accessories and materials

We generate Accessories and Materials revenue from sales of ancillary products,
such as Cricut EasyPress, Cricut Mug Press, Cricut Autopress, hand tools,
machine replacement tools and blades, project materials such as vinyl and
iron-on and sales of à la carte digital content purchases, including fonts,
images and projects. Accessories and Materials revenue is recognized for sales
of such items, net of sales discounts, incentives and returns. Accessories and
Materials revenue is recognized at the point in time when control is
transferred, which is either upon shipment or delivery to the customer in
accordance with the terms of each customer contract.
                                       26
--------------------------------------------------------------------------------

Revenue cost

Connected machines

Cost of revenue related to Connected Machines consists of product costs,
including costs of components, costs of contract manufacturers for production,
inspecting and packaging, shipping, receiving, handling, warehousing and
fulfillment, duties and other applicable importing costs, warranty replacement,
excess and obsolete inventory write-downs, tooling and equipment depreciation
and royalties. We expect our cost of revenue related to Connected Machines as a
percentage of revenue to fluctuate in the near term as we address global supply
chain challenges and increased expenses and continue to invest in the growth of
our business and decrease over the long term as we drive greater scale and
efficiency in our business.

Subscriptions

Cost of revenue related to Subscriptions consists primarily of hosting fees,
digital content costs, amortization of capitalized software development costs
and software maintenance costs. We expect our cost of revenue related to
Subscriptions as a percentage of revenue to increase as we expand our content
offerings and benefits of the subscription, including localized content for
international target markets, discounts and features that drive value of the
subscription.

Accessories and Materials

Costs of revenue related to Accessories and Materials consists of product costs,
including costs of components, costs of contract manufacturers for production,
inspecting and packaging, shipping, receiving, handling, warehousing and
fulfillment, duties and other applicable importing costs, warranty replacement,
excess and obsolete inventory write-downs, tooling and equipment depreciation
and royalties. We expect our cost of revenue related to Accessories and
Materials as a percentage of revenue to fluctuate in the near term as we address
global supply chain challenges and increased expenses and continue to invest in
the growth of our business and decrease over the long term as we drive greater
scale and efficiency in our business.

Functionnary costs

Research and development

Research and development expenses consist primarily of costs associated with the
development of our connected machines, software and accessories and materials,
including personnel-related expenses for engineering, product development and
quality assurance, as well as prototype costs, service fees incurred by
contracting with vendors and allocated overhead. We expect research and
development expense to increase as a percentage of revenue to levels somewhat
higher compared to historical annual levels to support growth from new products
and services in the future.

Sales and Marketing

Sales and marketing expenses consist primarily of the advertising and marketing
of our products, third-party payment processing fees, personnel-related
expenses, including salaries and bonuses, benefits and stock-based compensation
expense, as well as sales incentives, professional services, promotional items,
and allocated overhead costs. We expect our sales and marketing expenses as a
percentage of revenue to fluctuate in the near term as we expand internationally
and launch new products, but over the long term we anticipate to be similar to
pre-COVID-19 pandemic annual levels.

General and administrative

General and administrative expenses consist of personnel-related expenses for
our finance, legal, human resources and administrative personnel, including
salaries and bonuses, benefits and stock-based compensation expense, as well as
the costs of professional services, any allocated overhead, information
technology and other administrative expenses. We expect general and
administrative expenses as a percentage of revenue over the long term to remain
relatively similar to pre-COVID-19 pandemic annual levels.

Other income, net

Other income, net, primarily includes interest expense associated with our debt financing arrangements and the amortization of debt issuance costs.

                                       27
--------------------------------------------------------------------------------

Provision for income taxes

Provision for income taxes consists of income taxes in the United States and
certain state and foreign jurisdictions in which we conduct business. We have
not recorded a valuation allowance against our deferred tax assets as we have
concluded that it is more likely than not that the deferred tax assets will be
realized.

Results of Operations

The following tables set forth the components of our interim condensed
consolidated statements of operations for each of the periods presented and as a
percentage of our revenue for those periods. The period-to-period comparison of
results of operations is not necessarily indicative of results of future
periods.

The following table is presented in thousands:

                                               Three Months Ended September 

30, nine months ended September 30,

                                                   2022                2021               2022                2021
(in thousands)
Revenue:
Connected machines                             $   52,420          $ 102,454          $  150,249          $ 390,100
Subscriptions                                      68,865             53,303             201,247            150,115
Accessories and materials                          55,711            104,329             254,040            378,186
Total revenue                                     176,996            260,086             605,536            918,401
Cost of revenue:
Connected machines(1)                              49,240             87,649             144,835            323,558
Subscriptions(1)                                    6,500              5,934              18,933             15,517
Accessories and materials(1)                       39,422             64,440             175,486            226,698
Total cost of revenue                              95,162            158,023             339,254            565,773
Gross profit                                       81,834            102,063             266,282            352,628
Operating expenses:
Research and development(1)                        18,747             20,531              59,332             56,835
Sales and marketing(1)                             29,165             30,293              93,470             90,812
General and administrative(1)                      16,501             13,491              44,623             38,417
Total operating expenses                           64,413             64,315             197,425            186,064
Income from operations                             17,421             37,748              68,857            166,564
Other income, net                                     235                 24                 518                  9
Income before provision for income taxes           17,656             37,772              69,375            166,573
Provision for income taxes                          5,212              7,767              19,600             38,024
Net income                                     $   12,444          $  30,005          $   49,775          $ 128,549



(1) Includes stock-based compensation expense as follows:

                                             Three Months Ended September 

30, nine months ended September 30,

                                                  2022                2021               2022                2021
(in thousands)
Cost of revenue
Connected machines                           $        11          $      10          $       23          $      26
Subscriptions                                        115                 66                 274                154
Accessories and materials                              -                  -                   -                  -
Total cost of revenue                                126                 76                 297                180
Research and development                           4,746              3,590              13,672             10,999
Sales and marketing                                3,347              2,777               9,470             10,809
General and administrative                         3,051              1,703               7,191              5,953

Total stock-based compensation expense $11,270 $8,146

         $   30,630          $  27,941



                                       28
--------------------------------------------------------------------------------

Comparison of the three and nine month periods ended September 30, 2022 and 2021

Revenue

                                      Three Months Ended
                                         September 30,                           Change                  Nine Months Ended September 30,                   Change
                                    2022               2021                $                 %               2022                2021                 $                 %
(dollars in thousands)
Revenue:
Connected machines              $  52,420          $ 102,454          $ (50,034)            (49) %       $  150,249          $ 390,100          $ (239,851)            (61) %
Subscriptions                      68,865             53,303             15,562              29  %          201,247            150,115              51,132              34  %
Accessories and materials          55,711            104,329            (48,618)            (47) %          254,040            378,186            (124,146)            (33) %
Total revenue                   $ 176,996          $ 260,086          $ (83,090)            (32) %       $  605,536          $ 918,401          $ (312,865)            (34) %


Three months completed September 30, 2022 and 2021

Connected Machines revenue decreased by $50.0 million, or 49%, to $52.4 million
for the three months ended September 30, 2022 from $102.5 million for the three
months ended September 30, 2021. The decrease was primarily driven by a decline
in the number of Connected Machines sold during the period, across all product
families, due to higher channel inventory entering the quarter and lower
consumer demand.

Subscription revenue increased by $15.6 millioni.e. 29%, at $68.9 million for the three months ended September 30, 2022 of $53.3 million for the three months ended September 30, 2021. The increase is mainly due to an increase in the number of paid subscribers which increased by 35%, from 1.8 million to September 30, 2021 to nearly 2.5 million September 30, 2022.

Accessories and Materials revenue decreased by $48.6 million, or 47%, to $55.7
million for the three months ended September 30, 2022 from $104.3 million for
the three months ended September 30, 2021. The decrease was driven by a decline
in unit sales of EasyPress, Project Materials, due in part to increased
competition, and a decline in unit sales of Mug Press.

Nine month period ended September 30, 2022 and 2021

Connected Machines revenue decreased by $239.9 million, or 61%, to $150.2
million for the nine months ended September 30, 2022 from $390.1 million for the
nine months ended September 30, 2021. The decrease was primarily driven by a
decline in the number of Connected Machines sold during the period, across all
product families, due to higher channel inventory entering the year and lower
consumer demand.

Subscriptions revenue increased by $51.1 million, or 34%, to $201.2 million for
the nine months ended September 30, 2022 from $150.1 million for the nine months
ended September 30, 2021. The increase was primarily driven by an increase in
the number of Paid Subscribers which increased by 35% from 1.8 million as of
September 30, 2021 to nearly 2.5 million as of September 30, 2022.

Accessories and Materials revenue decreased by $124.1 million, or 33%, to $254.0
million for the nine months ended September 30, 2022 from $378.2 million for the
nine months ended September 30, 2021. The decrease was driven by a decline in
unit sales of Project Materials, due in part to increased competition, as well
as a decline in unit sales of EasyPress and Mug Press. The decrease was
partially offset by increased revenue from Autopress and Hat Press.
                                       29
--------------------------------------------------------------------------------

Cost of revenue, gross profit and gross margin

                                        Three Months Ended
                                           September 30,                           Change                    Nine Months Ended September 30,                     Change
                                      2022               2021                $                 %                 2022                  2021                 $                 %
(dollars in thousands)
Cost of Revenue:
Connected machines                $      49,240       $    87,649       $ (38,409)            (44) %       $         144,835       $    323,558       $ (178,723)            (55) %
Subscriptions                             6,500             5,934             566              10  %                  18,933             15,517            3,416              22  %
Accessories and materials                39,422            64,440         (25,018)            (39) %                 175,486            226,698          (51,212)            (23) %
Total cost revenue                $      95,162       $   158,023       $ (62,861)            (40) %       $         339,254       $    565,773       $   (226,519)          (40) %
Gross Profit:
Connected machines                        3,180            14,805         (11,625)            (79) %                   5,414             66,542          (61,128)            (92) %
Subscriptions                            62,365            47,369          14,996              32  %                 182,314            134,598           47,716              35  %
Accessories and materials                16,289            39,889         (23,600)            (59) %                  78,554            151,488          (72,934)            (48) %
Total gross profit                $      81,834       $   102,063       $ (20,229)            (20) %       $         266,282       $    352,628       $  (86,346)            (24) %
Gross Margin
Connected machines                         6  %            14   %                                                       4  %            17    %
Subscriptions                             91  %            89   %                                                      91  %            90    %
Accessories and materials                 29  %            38   %                                                      31  %            40    %


Three months completed September 30, 2022 and 2021

Connected Machines cost of revenue decreased by $38.4 million, or 44%, to $49.2
million for the three months ended September 30, 2022 from $87.6 million for the
three months ended September 30, 2021. The decrease was primarily driven by a
decline in the number of Connected Machines sold across all product families
during the three months ended September 30, 2022 compared to the three months
ended September 30, 2021.

Gross margin for Connected Machines decreased to 6% for the three months ended
September 30, 2022 from 14% for the three months ended September 30, 2021. Gross
margin decreased due to higher sales incentives as a percentage of revenue and
higher warranty costs.

Subscriptions cost of revenue increased by $0.6 million, or 10%, to $6.5 million
for the three months ended September 30, 2022 from $5.9 million for the three
months ended September 30, 2021. The increase was primarily driven by an
increase in amortization of capitalized software development costs, offset
partially by a decrease in hosting fees and digital content costs.

Gross margin for Subscriptions increased to 91% for the three months ended
September 30, 2022 from 89% for the three months ended September 30, 2021. Gross
margin increased due to lower hosting fees and digital content costs, offset
partially by an increase in amortization of capitalized software development
costs as a percentage of revenue.

Accessories and Materials cost of revenue decreased by $25.0 million, or 39%, to
$39.4 million for the three months ended September 30, 2022 from $64.4 million
for the three months ended September 30, 2021. The decrease was primarily driven
by a decline in unit sales of Accessories and Materials during the period,
particularly for units of EasyPress, Project Materials, and Mug Press.

Gross margin for Accessories and Materials decreased to 29% for the three months
ended September 30, 2022 from 38% for the three months ended September 30, 2021.
Gross margin decreased primarily due to higher sales incentives, and higher
freight and handling costs due to global supply chain challenges.

Nine month period ended September 30, 2022 and 2021

Connected machine revenue cost decreased by $178.7 millioni.e. 55%, at
$144.8 million for the nine months ended September 30, 2022 of $323.6 million
for the nine months ended September 30, 2021. The

                                       30
--------------------------------------------------------------------------------

decrease was primarily driven by a decline in the number of Connected Machines
sold across all product families during the nine months ended September 30, 2022
compared to the nine months ended September 30, 2021.

Gross margin for Connected Machines decreased to 4% for the nine months ended
September 30, 2022 from 17% for the nine months ended September 30, 2021. Gross
margin decreased due to higher sales incentives as a percentage of revenue,
end-of-life pricing for Explore Air 2 and Maker, higher warranty costs, and
higher freight and handling costs due to global supply chain challenges as a
percentage of revenue.

Subscriptions cost of revenue increased by $3.4 million, or 22%, to $18.9
million for the nine months ended September 30, 2022 from $15.5 million for the
nine months ended September 30, 2021. The increase was primarily driven by an
increase in amortization of capitalized software development costs, offset
partially by lower hosting fees and digital content costs.

Gross margin for Subscriptions increased to 91% for the nine months ended
September 30, 2022 from 90% for the nine months ended September 30, 2021. Gross
margin increased due to lower hosting fees and digital content costs, offset
partially by an increase in amortization of capitalized software development
costs.

Accessories and Materials cost of revenue decreased by $51.2 million, or 23%, to
$175.5 million for the nine months ended September 30, 2022 from $226.7 million
for the nine months ended September 30, 2021. The decrease was primarily driven
by a decline in unit sales of Accessories and Materials during the period,
particularly for units of Project Materials, EasyPress, and Mug Press. The
decrease was partially offset by an increase in units sold of Autopress and Hat
Press.

Gross margin for Accessories and Materials decreased to 31% for the nine months
ended September 30, 2022 from 40% for the nine months ended September 30, 2021.
Gross margin decreased primarily due to higher sales incentives and higher
freight and handling costs due to global supply chain challenges.

Operating Expenses

Research and Development

                                   Three Months Ended
                                     September 30,                          Change                   Nine Months Ended September 30,                 Change
                                 2022               2021               $                %                 2022                2021              $               %
(dollars in thousands)
Research and development     $      18,747       $   20,531       $ (1,784)             (9) %       $         59,332       $   56,835       $ 2,497              4  %
As a percentage of total
revenue                              11  %            8   %                                                    10  %            6   %


Research and development expenses decreased by $1.8 million, or 9%, to $18.7
million for the three months ended September 30, 2022 from $20.5 million for the
three months ended September 30, 2021. The decrease was primarily due to a $3.2
million decrease in product development expenses for future products, offset by
increases in stock-based compensation expense.

Research and development expenses increased by $2.5 million, or 4%, to $59.3
million for the nine months ended September 30, 2022 from $56.8 million for the
nine months ended September 30, 2021. The increase was primarily due to a $2.7
million increase in personnel-related expenses due to headcount increases as
well as an increase in stock-based compensation expense, offset by a decrease in
product development expenses for future products.

Sales and Marketing

                                    Three Months Ended
                                       September 30,                         Change                  Nine Months Ended September 30,                  Change
                                  2022               2021                $               %                2022                2021               $               %
(dollars in thousands)
Sales and marketing           $      29,165       $    30,293       $ (1,128)           (4) %       $         93,470       $    90,812       $ 2,658             3  %
As a percentage of total
revenue                               16  %            12   %                                                  15  %            10   %


                                       31
--------------------------------------------------------------------------------

Sales and marketing expenses decreased by $1.1 million, or 4%, to $29.2 million
for the three months ended September 30, 2022 from $30.3 million for the three
months ended September 30, 2021. The decrease was primarily due to a $3.2
million decrease in advertising and other marketing costs, offset by increases
in software subscription expenses and stock-based compensation expense.

Sales and marketing expenses increased by $2.7 million, or 3%, to $93.5 million
for the nine months ended September 30, 2022 from $90.8 million for the nine
months ended September 30, 2021. The increase was primarily due to a $6.0
million increase in payment processing fees, as well as increases in
personnel-related expenses due to headcount increases and software subscription
expenses. The variance was offset by decreases in advertising and other
marketing costs which included the launch of Explore 3 and Maker 3 in June 2021.

General and Administrative

                                        Three Months Ended
                                           September 30,                         Change                  Nine Months Ended September 30,                  Change
                                      2022               2021               $               %                 2022                2021               $               %
(dollars in thousands)
General and administrative        $      16,501       $    13,491       $ 3,010             22  %       $         44,623       $    38,417       $ 6,206             16  %
As a percentage of total revenue           9  %             5   %                                                   7  %             4   %


General and administrative expenses increased by $3.0 million, or 22%, to $16.5
million for the three months ended September 30, 2022 from $13.5 million for the
three months ended September 30, 2021. The increase was primarily due to a $1.3
million increase in stock-based compensation expense, increases in professional
services, and personnel-related expenses due to headcount increases.

General and administrative expenses increased by $6.2 million, or 16%, to $44.6
million for the nine months ended September 30, 2022 from $38.4 million for the
nine months ended September 30, 2021. The increase was primarily due to a $2.2
million increase in personnel-related expenses due to headcount increases,
increases in stock-based compensation expense, and software subscriptions.

Other Income, Net

                                      Three Months Ended                                               Nine Months Ended September
                                         September 30,                         Change                              30,                              Change
                                     2022              2021              $               %                2022              2021              $                %
(dollars in thousands)
Other income, net                $      235          $   24          $  211              879  %       $     518          $     9          $  509              5656  %


Other income, net has increased by $0.2 million or 879% to $0.2 million for the
three months ended September 30, 2022 from $24 thousand for the three months
ended September 30, 2021. The increase was primarily due to an increase in
interest income.

Other income, net has increased by $0.5 million or 5656% to $0.5 million for the
nine months ended September 30, 2022 from $9 thousand for the nine months ended
September 30, 2021. The increase was primarily due to an increase in interest
income.

Income Tax Expense

                                          Three Months Ended                                                  Nine Months Ended September
                                             September 30,                           Change                               30,                                Change
                                         2022                2021               $                %               2022              2021                $                 %
(dollars in thousands)
Provision for income taxes         $    5,212             $ 7,767          $ (2,555)            (33) %       $  19,600          $ 38,024          $ (18,424)            (48) %


Provision for income taxes decreased by $2.6 million, or 33%, to $5.2 million
for the three months ended September 30, 2022 from $7.8 million for the three
months ended September 30, 2021. The decrease was primarily
                                       32
--------------------------------------------------------------------------------

due to a reduction in pre-tax net income and represents an effective tax rate
after discrete items of 29.5% and 20.6% for the three months ended September 30,
2022 and 2021, respectively. The increase in the effective tax rate after
discrete items is primarily due to discrete tax items including a stock-based
compensation difference of $0.6 million due to the decrease in stock price upon
vesting versus the stock price at the grant date and a change in allocation of
sales which resulted in a $1 million change in utilization of state research and
development credit.

Provision for income taxes decreased by $18.4 million, or 48%, to $19.6 million
for the nine months ended September 30, 2022 from $38.0 million for the nine
months ended September 30, 2021. The decrease was primarily due to a reduction
in pre-tax net income and represents an effective tax rate after discrete items
of 28.3% and 22.8% for the nine months ended September 30, 2022 and 2021,
respectively. The increase in the effective tax rate after discrete items is due
primarily to a $2.6 million discrete item in the nine months ended September 30,
2022, related to RSU's that vested throughout the period, which resulted in a
significant tax shortfall due to the decrease in stock price upon vesting versus
the stock price at the grant date.

Liquidity and Capital Resources
Our operations during the periods presented have been financed primarily through
cash flow from operating activities and the net proceeds from our initial public
offering in March of 2021. We believe our balances of cash and cash equivalents
and marketable securities, which totaled $124.2 million and $73.8 million,
respectively, as of September 30, 2022, along with forecasted cash expected to
be generated by ongoing operations and $300.0 million in available borrowings
and the option to increase the aggregate amount of the New Credit Facility by up
to an additional $150.0 million (see Note 7) will be sufficient to satisfy our
cash requirements over the next 12 months and beyond.

Our future capital requirements may vary materially from those currently planned
and will depend on many factors, including our rate of revenue growth, the
timing and extent of spending on research and development efforts and other
growth initiatives, the expansion of sales and marketing activities, the timing
of new product introductions, market acceptance of our products and overall
economic conditions. To the extent that current and anticipated future sources
of liquidity are insufficient to fund our future business activities and
requirements, we may be required to seek additional equity or debt financing.
The sale of additional equity would result in additional dilution to our
stockholders. The incurrence of debt financing would result in debt service
obligations, and the instruments governing such debt could provide for operating
and financing covenants that would restrict our operations. There can be no
assurances that we will be able to raise additional capital. The inability to
raise capital would adversely affect our ability to achieve our business
objectives.

Other than our previously disclosed information $50 million share repurchase program, our cash requirements have not changed significantly since the 2021 Form 10-K.

Cash Flows

                                                                   Nine Months Ended September 30,
                                                                      2022                 2021
(in thousands)
Net cash flows provided by (used in) operating activities        $        630          $ (131,793)
Net cash flows used in investing activities                          (101,011)            (28,339)
Net cash flows provided by (used in) financing activities             (16,654)            261,990


Operating Activities

The change in net cash flows from operating activities for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 is
primarily due to greater reductions in accounts receivable year over year as
well as less cash used to fund inventories. These increases were partially
offset by a larger decrease in payable balances with inventory vendors for the
nine months ended September 30, 2022 compared to nine months ended September 30,
2021.

Investing Activities

The change in net cash flows from investing activities for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 was due
to investments in marketable securities.
                                       33
--------------------------------------------------------------------------------

Fundraising activities

The change in net cash flows from financing activities for the nine months ended
September 30, 2022 compared to nine months ended September 30, 2021 was
primarily due to proceeds of $262.0 million received from our IPO during 2021
partially offset by repurchases of common stock during 2022.

Critical accounting policies

Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP"). The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
revenues and expenses incurred during the reporting periods. Our estimates are
based on our historical experience and on various other factors that we believe
are reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The critical accounting
policies that reflect our more significant judgments and estimates used in the
preparation of our condensed consolidated financial statements include those
described in Note 2 of the notes to our condensed consolidated financial
statements in the section titled "-Summary of Significant Accounting Policies"
in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the 2021 Form
10-K.

© Edgar Online, source Previews

Comments are closed.