Financial Data and Key Metrics Changes - Revenue in Q1 2022 was $244.8 million, a decline of 24% year-over-year, but up 70% compared to Q1 2020 [23][24] - Operating income for Q1 was $31.4 million, or 12.8% of revenue, down from $64.7 million or 20% in Q1 2021 [39] - Net income in Q1 was $23.5 million, down from $49.4 million in Q1 2021, with diluted earnings per share at $0.11 compared to $0.24 in the prior year [40] Business Line Data and Key Metrics Changes - Revenue from Connected Machines was $62.4 million, down 56% year-over-year, but grew nearly 10% on a 2-year basis [27] - Subscription revenue was $64.8 million, up 40% year-over-year and nearly 238% on a 2-year basis [27] - Revenue from Accessories and Materials was $117.6 million, down 14% year-over-year, but grew 74% compared to Q1 2020 [27] Market Data and Key Metrics Changes - International markets represented 15% of total revenues, up from 10% in Q1 of the prior year, with a 9% year-over-year increase in international revenues [28] - User engagement was 54% in Q1, down from 62% in the prior year, with 3.7 million engaged users [29][33] Company Strategy and Development Direction - The company is focused on long-term growth and profitability, emphasizing user engagement and onboarding processes [8][19] - Plans to expand into international markets, including recent launches in Turkey and upcoming launches in Japan and South Korea [13] - The product roadmap includes enhancements to subscription offerings and new tools to improve user experience [11][17] Management's Comments on Operating Environment and Future Outlook - Management noted pressures from slowing consumer demand and macroeconomic factors, but remains confident in long-term growth opportunities [19][42] - The company anticipates challenges in reaching its target of 8 million users by year-end due to current market conditions [42] - Management emphasized the importance of maintaining profitability while investing in user engagement and product development [45] Other Important Information - The company added over 495,000 new users in Q1, ending with nearly 7 million total users [9][29] - Gross margin improved to 40.5%, up from 37% in Q1 last year, driven by diverse revenue streams [34] - Operating expenses were $67.6 million, reflecting continued investments in the business [38] Q&A Session Summary Question: User engagement and project types - Management explained that engagement is calculated based on users who have cut in the last 90 days, with a typical seasonal slowdown expected [47] Question: Customer response to inflationary pressures - Management noted a focus on attracting beginner crafters and simplifying projects to accommodate new users [48] Question: Product roadmap excitement - Management highlighted upcoming product launches and enhancements to the Cricut platform, focusing on user onboarding and engagement [51][54] Question: Consumer demand and revenue expectations - Management indicated that while new user growth remains healthy, a slowdown in machine sell-through is expected to impact Q2 and Q3 [69] Question: Subscriber growth outlook - Management clarified that subscriber growth may be flat or decline in the short term due to lower consumer demand, but expects a return to growth in Q4 [61][63]

Q1 2022 Financial Results 1 Financial Results Q1 2022 May 10, 2022 NASDAQ : CRCT Statement Safe Harbor This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate ...

[Note Regarding Forward-Looking Statements](index=2&type=section&id=NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[7](index=7&type=chunk)[8](index=8&type=chunk)[11](index=11&type=chunk) [Part I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) [Condensed Consolidated Balance Sheets (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) The balance sheets show a decrease in total assets and liabilities, driven by lower accounts receivable and payable Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | As of March 31, 2022 (in thousands) | As of December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $966,184 | $1,006,250 | | Total Liabilities | $259,558 | $332,274 | | Total Current Assets | $879,528 | $928,099 | | Total Current Liabilities | $232,716 | $308,367 | | Cash and Cash Equivalents | $245,699 | $241,597 | | Accounts Receivable, net | $122,780 | $199,508 | | Inventories | $483,009 | $454,174 | | Accounts Payable | $155,657 | $204,714 | | Accrued Expenses and Other Current Liabilities | $41,669 | $69,351 | [Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(unaudited)) The company's financial performance shows a significant decrease in total revenue and net income for Q1 2022 Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $244,783 | $323,822 | $(79,039) | (24)% | | Connected Machines Revenue | $62,391 | $141,320 | $(78,929) | (56)% | | Subscriptions Revenue | $64,778 | $46,139 | $18,639 | 40% | | Accessories and Materials Revenue | $117,614 | $136,363 | $(18,749) | (14)% | | Gross Profit | $99,020 | $120,270 | $(21,250) | (18)% | | Income from Operations | $31,407 | $64,664 | $(33,257) | (51)% | | Net Income | $23,504 | $49,418 | $(25,914) | (52)% | | Basic EPS | $0.11 | $0.24 | $(0.13) | (54)% | | Diluted EPS | $0.11 | $0.24 | $(0.13) | (54)% | [Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(unaudited)) Stockholders' equity increased due to net income and stock-based compensation, following a significant 2021 IPO Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | As of March 31, 2022 (in thousands) | As of December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Stockholders' Equity | $706,626 | $673,976 | | Net Income | $23,504 | $23,504 (for the period) | | Stock-based Compensation | $10,500 | N/A | | Accumulated Deficit | $(20,056) | $(43,560) | - In 2021, the company completed its IPO, generating **$242.7 million in net proceeds** and significantly increasing additional paid-in capital[22](index=22&type=chunk)[34](index=34&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Operating activities generated positive cash flow in 2022, a significant improvement from a net cash outflow in 2021 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $15,579 | $(21,963) | $37,542 | | Net Cash from Investing Activities | $(9,807) | $(7,839) | $(1,968) | | Net Cash from Financing Activities | $(1,642) | $245,098 | $(246,740) | | Net Increase in Cash and Cash Equivalents | $4,102 | $215,257 | $(211,155) | | Cash and Cash Equivalents at End of Period | $245,699 | $337,472 | $(91,773) | - The significant change in financing activities from 2021 to 2022 is primarily due to the **$245.1 million proceeds received from the IPO in 2021**[27](index=27&type=chunk)[164](index=164&type=chunk) Notes to Condensed Consolidated Financial Statements [1. Description of Business and Basis of Presentation](index=9&type=section&id=1.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Cricut designs and markets a creativity platform with three segments: Connected Machines, Subscriptions, and Accessories - Cricut, Inc is a designer and marketer of a creativity platform, offering connected machines, design apps, and accessories/materials under the Cricut brand globally[30](index=30&type=chunk)[31](index=31&type=chunk) - The company completed its IPO on March 29, 2021, selling 13,250,000 shares of Class A common stock and receiving **$242.7 million in net proceeds**[34](index=34&type=chunk) - The business is organized into three reportable segments: **Connected Machines, Subscriptions, and Accessories and Materials**[33](index=33&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements are prepared using GAAP, requiring management estimates and using the two-class method for EPS - The financial statements are prepared using GAAP, requiring management to make estimates and assumptions for revenue recognition, warranty reserves, inventory, intangible assets, stock-based compensation, and income taxes[43](index=43&type=chunk) - Money market funds, classified as Level 1 in the fair value hierarchy, totaled **$212.8 million as of March 31, 2022**, and $197.8 million as of December 31, 2021, with no unrealized gains or losses[46](index=46&type=chunk) - Earnings per share are computed using the two-class method, with identical liquidation and dividend rights for Class A and Class B common stock, resulting in the same net income per share for both classes[47](index=47&type=chunk) [3. Revenue and Deferred Revenue](index=11&type=section&id=3.%20Revenue%20and%20Deferred%20Revenue) Deferred revenue primarily consists of subscription services and is expected to be mostly recognized in 2022 - Deferred revenue primarily stems from subscription-based services and allocations from connected machine sales for future upgrades and cloud services[49](index=49&type=chunk) Changes in Deferred Revenue Balance (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Deferred Revenue, beginning of period | $35,405 | $26,276 | | Recognition of revenue included in beginning of period deferred revenue | $(18,039) | $(14,389) | | Revenue deferred, net of revenue recognized | $18,321 | $16,118 | | Deferred Revenue, end of period | $35,687 | $28,005 | Expected Recognition of Deferred Revenue as of March 31, 2022 (in thousands) | Year Ended December 31, | Revenue expected to be recognized (in thousands) | | :--- | :--- | | 2022 (remainder of year) | $28,977 | | 2023 | $5,035 | | 2024 | $1,646 | | 2025 | $29 | | Total | $35,687 | Total Revenue by Geography (in thousands) | Geography | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | North America | $208,305 | $290,337 | | International | $36,478 | $33,485 | | Total Revenue | $244,783 | $323,822 | [4. Inventory](index=12&type=section&id=4.%20Inventory) The company's inventory, primarily finished goods, increased from December 31, 2021, to March 31, 2022 Inventory Composition (in thousands) | Inventory Type | As of March 31, 2022 (in thousands) | As of December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Raw Materials | $24,279 | $20,187 | | Finished Goods | $458,730 | $433,987 | | Total Inventories | $483,009 | $454,174 | [5. Accrued Expenses and Other Current Liabilities](index=12&type=section&id=5.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses decreased from year-end 2021, primarily due to a reduction in sales incentives Accrued Expenses and Other Current Liabilities (in thousands) | Liability Type | As of March 31, 2022 (in thousands) | As of December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Sales Incentives | $21,667 | $36,969 | | Other Accrued Liabilities and Other Current Liabilities | $20,002 | $32,382 | | Total Accrued Expenses | $41,669 | $69,351 | [6. Revolving Credit Facility](index=12&type=section&id=6.%20Revolving%20Credit%20Facility) The company maintained full availability of its $150 million credit facility with no outstanding balance - Cricut has a **$150.0 million asset-based senior secured revolving credit facility**, maturing September 4, 2023[56](index=56&type=chunk) - As of March 31, 2022, **no amount was outstanding** under the credit facility, and $150.0 million was available for borrowings[58](index=58&type=chunk) - The company was in compliance with all financial and non-financial debt covenants as of March 31, 2022[60](index=60&type=chunk) [7. Income Taxes](index=13&type=section&id=7.%20Income%20Taxes) The effective tax rate increased, while the provision for income taxes decreased due to lower pre-tax net income Income Tax Highlights | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Effective Tax Rate (after discrete items) | 25.1% | 23.5% | +1.6% | | Provision for Income Taxes (in thousands) | $7,864 | $15,217 | $(7,353) | - The decrease in income tax provision was primarily due to a **reduction in pre-tax net income**[62](index=62&type=chunk) - The company has concluded that its net deferred tax assets will likely be realized and has **not recorded a valuation allowance**[63](index=63&type=chunk) [8. Capital Structure](index=13&type=section&id=8.%20Capital%20Structure) The company has a dual-class stock structure, with Class B shares carrying five votes per share - As of March 31, 2022, the company had **40,233,642 shares of Class A common stock** and **181,575,972 shares of Class B common stock** issued and outstanding[64](index=64&type=chunk) - Class A common stock has one vote per share, and **Class B common stock has five votes per share**, convertible into Class A at any time[64](index=64&type=chunk) - During the three months ended March 31, 2022, **2,336,595 shares of Class B common stock were converted to Class A**[64](index=64&type=chunk) [9. Stock-Based Compensation](index=14&type=section&id=9.%20Stock-Based%20Compensation) Stock-based compensation decreased, with significant unrecognized costs for service-based and performance-based awards Stock-Based Compensation Cost (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Stock-Based Compensation | $10,270 | $12,676 | | Stock-Based Compensation Expense | $8,958 | $11,685 | | Capitalized for Software Development Costs | $541 | $294 | | Capitalized to Inventory | $771 | $697 | - As of March 31, 2022, unrecognized stock-based compensation cost for service-based awards was **$115.7 million** (over 3.0 years) and for PRSUs was **$154.6 million**[66](index=66&type=chunk) - **No stock-based compensation was recorded for PRSUs** during the three months ended March 31, 2022, as the company determined it was not probable that any performance conditions would be achieved[76](index=76&type=chunk) [10. Commitments and Contingencies](index=17&type=section&id=10.%20Commitments%20and%20Contingencies) The company is involved in ordinary legal proceedings not expected to materially affect its financial position - The company is subject to ordinary course legal proceedings and claims, but management **does not anticipate a material effect** on financial position, results of operations, or liquidity[84](index=84&type=chunk) [11. Leases](index=18&type=section&id=11.%20Leases) Operating lease costs increased in Q1 2022 following an amendment to the corporate headquarters lease Operating Lease Costs (in millions) | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Operating Lease Costs | $1.4 | $1.0 | | Variable Lease Costs | $0.2 | $0.0 | | Cash Paid for Operating Lease Liabilities | $1.4 | $1.1 | - The company amended its corporate headquarters lease in December 2021, **extending the term through March 2027** and reducing the annual rent rate[87](index=87&type=chunk) Maturities of Operating Lease Liabilities as of March 31, 2022 (in thousands) | Year Ending December 31, | Operating Leases (in thousands) | | :--- | :--- | | 2022 (remainder of year) | $3,372 | | 2023 | $5,678 | | 2024 | $5,419 | | 2025 | $4,255 | | 2026 | $3,799 | | Thereafter | $967 | | Total minimum lease payments, net | $23,490 | | Present value of operating lease liabilities | $21,926 | [12. Related Party Transactions](index=18&type=section&id=12.%20Related%20Party%20Transactions) The company received no capital contributions from its former parent in Q1 2022, unlike the prior year Capital Contributions from Former Parent (in millions) | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Capital Contributions from former parent | $0.0 | $0.2 | [13. Employee Benefit Plan](index=19&type=section&id=13.%20Employee%20Benefit%20Plan) Company contributions to its 401(k) plan increased slightly year-over-year 401(k) Contributions (in millions) | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | 401(k) Contributions | $0.8 | $0.7 | [14. Net Income Per Share](index=19&type=section&id=14.%20Net%20Income%20Per%20Share) Basic and diluted earnings per share both decreased to $0.11, reflecting the decline in net income Net Income Per Share Highlights | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $23,504 | $49,418 | $(25,914) | | Basic EPS | $0.11 | $0.24 | $(0.13) | | Diluted EPS | $0.11 | $0.24 | $(0.13) | | Weighted-average common shares outstanding, basic | 212,403,383 | 207,309,946 | +5,093,437 | | Diluted weighted-average common shares outstanding | 220,967,935 | 208,458,352 | +12,509,583 | - Potentially dilutive shares, including **6,615,000 PRSUs**, were excluded from diluted EPS computation for Q1 2022 because their performance conditions were not achieved, making them anti-dilutive[94](index=94&type=chunk) [15. Segment Information](index=20&type=section&id=15.%20Segment%20Information) Connected Machines revenue and profit fell sharply, while Subscriptions grew and Accessories and Materials declined - The company's three reportable segments are **Connected Machines, Subscriptions, and Accessories and Materials**[96](index=96&type=chunk)[97](index=97&type=chunk) Segment Financial Performance (in thousands) | Segment | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Connected Machines | Revenue | $62,391 | $141,320 | $(78,929) | (56)% | | | Cost of Revenue | $60,713 | $119,692 | $(58,979) | (49)% | | | Gross Profit | $1,678 | $21,628 | $(19,950) | (92)% | | Subscriptions | Revenue | $64,778 | $46,139 | $18,639 | 40% | | | Cost of Revenue | $6,252 | $4,298 | $1,954 | 45% | | | Gross Profit | $58,526 | $41,841 | $16,685 | 40% | | Accessories and Materials | Revenue | $117,614 | $136,363 | $(18,749) | (14)% | | | Cost of Revenue | $78,798 | $79,562 | $(764) | (1)% | | | Gross Profit | $38,816 | $56,801 | $(17,985) | (32)% | | Consolidated | Revenue | $244,783 | $323,822 | $(79,039) | (24)% | | | Cost of Revenue | $145,763 | $203,552 | $(57,789) | (28)% | | | Gross Profit | $99,020 | $120,270 | $(21,250) | (18)% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) [Overview of Our Business and History](index=21&type=section&id=Overview%20of%20Our%20Business%20and%20History) Cricut's creativity platform includes connected machines, design apps, and subscriptions with over 2.3 million users - Cricut's platform includes connected machines (Joy, Explore, Maker), cloud-based design apps, and a broad range of accessories and materials[101](index=101&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk) - As of March 31, 2022, the company had **over 2.3 million Paid Subscribers** to Cricut Access and Cricut Access Premium[103](index=103&type=chunk) - The company typically experiences higher revenue in the second half of the year due to the holiday shopping season, but 2021's seasonality was skewed by unusually high demand in Q1 and Q2 due to the pandemic[107](index=107&type=chunk) [Key Business Metrics](index=22&type=section&id=Key%20Business%20Metrics) Users and Paid Subscribers increased year-over-year, while user creation percentage and ARPU metrics declined Key Business Metrics | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Users (in thousands) | 6,904 | 4,939 | +1,965 | 40% | | Percentage of Users Creating in Trailing 90 Days | 54% | 62% | -8% | (13)% | | Paid Subscribers (in thousands) | 2,311 | 1,614 | +697 | 43% | | Subscription ARPU | $9.73 | $9.90 | $(0.17) | (1.7)% | | Accessories and Materials ARPU | $17.67 | $29.40 | $(11.73) | (39.9)% | - User count is a key indicator of business health, reflecting connected machine sales and opportunities for subscription and accessory sales[115](index=115&type=chunk) - Paid Subscribers is a key metric for tracking growth in subscriptions revenue and potential gross margin leverage[118](index=118&type=chunk) [Components of our Results of Operations](index=23&type=section&id=Components%20of%20our%20Results%20of%20Operations) This section details revenue and cost components for the Connected Machines, Subscriptions, and Accessories segments - Connected Machines revenue is from machine sales, recognized upon shipment or delivery[122](index=122&type=chunk) - Subscriptions revenue is from Cricut Access fees and allocated revenue for software upgrades/cloud services, recognized ratably over the subscription term[123](index=123&type=chunk) - Accessories and Materials revenue is from ancillary products and à la carte digital content, recognized upon shipment or delivery[124](index=124&type=chunk) - Cost of revenue for Connected Machines and Accessories & Materials includes product costs, manufacturing, shipping, warranty, and inventory write-downs; Subscriptions cost of revenue includes hosting fees, digital content, and software amortization[125](index=125&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) Results of Operations [Comparison of the Three Months Ended March 31, 2022 and 2021 (Revenue)](index=26&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20March%2031%2C%202022%20and%202021%20(Revenue)) Total revenue decreased by 24%, driven by a 56% decline in Connected Machines, despite 40% growth in Subscriptions Revenue Comparison (in thousands) | Revenue Segment | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Connected Machines | $62,391 | $141,320 | $(78,929) | (56)% | | Subscriptions | $64,778 | $46,139 | $18,639 | 40% | | Accessories and Materials | $117,614 | $136,363 | $(18,749) | (14)% | | Total Revenue | $244,783 | $323,822 | $(79,039) | (24)% | - Connected Machines revenue decreased primarily due to **lower demand for Maker and Explore families**[139](index=139&type=chunk) - Subscriptions revenue increased due to a **43% rise in Paid Subscribers**, from 1.6 million to 2.3 million[140](index=140&type=chunk) - Accessories and Materials revenue decreased due to lower unit sales of heat presses and project materials, partially offset by new product launches in Q1 2022[141](index=141&type=chunk) [Cost of Revenue, Gross Profit and Gross Margin](index=27&type=section&id=Cost%20of%20Revenue%2C%20Gross%20Profit%20and%20Gross%20Margin) Connected Machines gross margin dropped significantly from 15% to 3% due to lower prices and higher costs Cost of Revenue, Gross Profit and Gross Margin Comparison (in thousands) | Segment | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Connected Machines | Cost of Revenue | $60,713 | $119,692 | $(58,979) | (49)% | | | Gross Profit | $1,678 | $21,628 | $(19,950) | (92)% | | | Gross Margin | 3% | 15% | -12% | (80)% | | Subscriptions | Cost of Revenue | $6,252 | $4,298 | $1,954 | 45% | | | Gross Profit | $58,526 | $41,841 | $16,685 | 40% | | | Gross Margin | 90% | 91% | -1% | (1.1)% | | Accessories and Materials | Cost of Revenue | $78,798 | $79,562 | $(764) | (1)% | | | Gross Profit | $38,816 | $56,801 | $(17,985) | (32)% | | | Gross Margin | 33% | 42% | -9% | (21.4)% | - Connected Machines gross margin decreased due to **lower selling prices, higher warranty costs, and increased freight and handling costs**[145](index=145&type=chunk) - Accessories and Materials gross margin decreased due to **higher freight and handling costs and lower average selling prices**[149](index=149&type=chunk) [Operating Expenses](index=28&type=section&id=Operating%20Expenses) Total operating expenses increased by 21.6%, driven by higher R&D, sales and marketing, and G&A costs Operating Expenses Comparison (in thousands) | Operating Expense | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and Development | $20,530 | $15,698 | $4,832 | 31% | | Sales and Marketing | $32,789 | $27,489 | $5,300 | 19% | | General and Administrative | $14,294 | $12,419 | $1,875 | 15% | | Total Operating Expenses | $67,613 | $55,606 | $12,007 | 21.6% | - R&D expenses increased due to a **$2.5 million rise in product development** for future products, along with higher personnel and stock-based compensation[151](index=151&type=chunk) - Sales and marketing expenses increased primarily due to a **$4.7 million increase in payment processing fees**[152](index=152&type=chunk) [Other Expense, Net](index=28&type=section&id=Other%20Expense%2C%20Net) Other expense, net remained materially consistent year-over-year with a slight increase of $10 thousand Other Expense, Net Comparison (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Other Expense, Net | $(39) | $(29) | $(10) | 34% | [Income Tax Expense](index=29&type=section&id=Income%20Tax%20Expense) The provision for income taxes decreased by 48% due to a reduction in pre-tax net income Income Tax Expense Comparison (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Provision for Income Taxes | $7,864 | $15,217 | $(7,353) | (48)% | | Effective Tax Rate | 25.1% | 23.5% | +1.6% | 6.8% | - The decrease in income tax provision was primarily driven by a **reduction in pre-tax net income**[157](index=157&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company believes its $245.7 million in cash and $150.0 million credit facility are sufficient for future needs - As of March 31, 2022, the company had **$245.7 million in cash and cash equivalents** and **$150.0 million in available borrowings** from its credit facility[158](index=158&type=chunk) - The company believes current liquidity sources are **sufficient to meet cash requirements for the next 12 months and beyond**[158](index=158&type=chunk) - Future capital requirements are subject to factors like revenue growth, R&D spending, sales and marketing expansion, and new product introductions[159](index=159&type=chunk) [Operating Activities](index=29&type=section&id=Operating%20Activities) Net cash from operating activities improved significantly to $15.6 million due to better working capital management Net Cash Flows from Operating Activities (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $15,579 | $(21,963) | - The improvement in operating cash flow was driven by **greater reductions in accounts receivable** and less cash used for inventories, partially offset by increased cash used for sales incentive liabilities[160](index=160&type=chunk) [Investing Activities](index=29&type=section&id=Investing%20Activities) Net cash used in investing activities increased due to higher acquisitions of property and equipment Net Cash Flows from Investing Activities (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash from Investing Activities | $(9,807) | $(7,839) | - Increased cash usage in investing activities was due to **higher acquisitions of property and equipment** and capitalized software development costs[161](index=161&type=chunk) [Financing Activities](index=30&type=section&id=Financing%20Activities) Net cash from financing activities decreased significantly due to the absence of IPO proceeds from the prior year Net Cash Flows from Financing Activities (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash from Financing Activities | $(1,642) | $245,098 | - The substantial decrease in cash from financing activities was primarily due to the **$245.1 million proceeds received from the IPO in 2021**, which did not recur in 2022[164](index=164&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) Financial statements rely on significant management estimates, particularly for deferred revenue and entitlements - Preparation of financial statements requires significant estimates and assumptions, particularly for **deferred revenue and entitlements**, which are based on historical experience and current economic factors[165](index=165&type=chunk)[490](index=490&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) [Interest Rate Risk](index=30&type=section&id=Interest%20Rate%20Risk) The company's primary interest rate exposure is from its credit facility, with no material risk anticipated - The company's primary interest rate exposure is from its **revolving credit facility**[166](index=166&type=chunk) - A hypothetical **10% change in interest rates would not have a material impact** on the condensed consolidated financial statements[166](index=166&type=chunk) [Foreign Currency Exchange Risk](index=30&type=section&id=Foreign%20Currency%20Exchange%20Risk) The company is exposed to foreign currency fluctuations but does not currently hedge these risks - Cricut's reporting currency is the U.S dollar, but it transacts in foreign currencies like AUD, CAD, CNY, EUR, GBP, and MYR, exposing it to exchange rate fluctuations[167](index=167&type=chunk)[401](index=401&type=chunk) - Foreign currency translation adjustments are recorded as a component of **accumulated other comprehensive income (loss)**[167](index=167&type=chunk) - The company **does not currently hedge foreign currency exposures** but may consider it if exposure becomes more significant[167](index=167&type=chunk)[401](index=401&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) [Evaluation of Disclosure Controls and Procedures](index=30&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022 - As of March 31, 2022, the CEO and CFO concluded that **disclosure controls and procedures were effective** in ensuring timely and accurate reporting of information for SEC filings[168](index=168&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes to internal control over financial reporting were identified during the period - **No material changes** to internal control over financial reporting occurred during the quarter ended March 31, 2022[170](index=170&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=31&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Control systems provide reasonable, not absolute, assurance due to inherent limitations like human error - Control systems provide **only reasonable assurance, not absolute**, due to inherent limitations such as resource constraints, human error, and potential for circumvention or management override[171](index=171&type=chunk) [Part II. Other Information](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is not party to any material legal proceedings but is a plaintiff in a tariff-related complaint - The company is **not currently involved in any material pending legal proceedings**[174](index=174&type=chunk) - Cricut is a plaintiff in a complaint against the U.S federal government regarding the **imposition of tariffs on products from China**[176](index=176&type=chunk) - Litigation, even if resolved favorably, can incur **significant costs and divert management resources**[175](index=175&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) [Summary of Risk Factors](index=32&type=section&id=Summary%20of%20Risk%20Factors) The company faces high risk from competition, supply chain vulnerabilities, and international trade uncertainties - Key risks include attracting and engaging users, intense competition across all segments, **supply chain dependencies on a single manufacturer** and limited component sources, and international trade barriers[178](index=178&type=chunk) - Other significant risks involve managing business complexity, product quality and warranty claims, protecting intellectual property, general socio-economic conditions, and **reliance on the CEO**[178](index=178&type=chunk)[180](index=180&type=chunk) [Risks Related to Our Industry and Business](index=33&type=section&id=Risks%20Related%20to%20Our%20Industry%20and%20Business) Cricut faces risks from declining user acquisition, intense competition, and dependence on key retail partners - The rate of adding new users is declining, and the number of paid subscribers could **remain flat or decline in the short term**, impacting future growth[181](index=181&type=chunk)[185](index=185&type=chunk) - **Failure to anticipate user preferences**, timely develop new products, or effectively manage inventory could adversely affect the business[186](index=186&type=chunk)[187](index=187&type=chunk)[193](index=193&type=chunk) - Significant dependence on sales of connected machines and to a limited number of brick-and-mortar and online retail partners (**43% of Q1 2022 revenue**) poses a risk if these relationships or sales volumes decline[190](index=190&type=chunk)[196](index=196&type=chunk) - Inability to maintain or increase subscriptions, or if existing users do not renew, could harm future revenue and results, especially given the availability of à la carte digital content[206](index=206&type=chunk)[207](index=207&type=chunk) - The company operates in a **highly competitive market** across all segments, particularly Accessories and Materials, facing competition from lower-priced alternatives and well-established content providers[210](index=210&type=chunk)[211](index=211&type=chunk) - **Competitive pricing pressures**, including from competitors' discounts and shipping offers, could reduce gross margins if Cricut is compelled to match them without corresponding sales volume increases[218](index=218&type=chunk)[220](index=220&type=chunk)[223](index=223&type=chunk) - **Rapid growth and limited operating experience** at current scale, coupled with business complexity, could strain resources and harm brand, culture, and financial performance if not managed effectively[226](index=226&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk) - The business is affected by **seasonality**, with a disproportionate amount of sales in Q4, and recent growth has obscured typical patterns, making future results difficult to predict[231](index=231&type=chunk)[232](index=232&type=chunk) - The company's focus on high-quality products, which may not maximize short-term financial results, could conflict with market expectations and **negatively affect stock price**[238](index=238&type=chunk)[239](index=239&type=chunk) - **Reliance on Amazon Web Services** for computing and storage, and the integration of software across various devices/OS, exposes the company to risks of service disruptions, increased costs, and potential censorship in international markets[258](index=258&type=chunk)[259](index=259&type=chunk)[264](index=264&type=chunk)[266](index=266&type=chunk) - **Failure to offer high-quality customer support**, especially with international expansion and remote work, could harm reputation and business growth[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) - **Warranty claims, product recalls, and product liability risks**, exacerbated by manufacturing defects or non-compliance with safety laws, could lead to significant costs, reputational damage, and reduced sales[273](index=273&type=chunk)[274](index=274&type=chunk)[276](index=276&type=chunk)[279](index=279&type=chunk) - Economic downturns or uncertainty may adversely affect **consumer discretionary spending** and demand for Cricut's products, which are considered discretionary items[286](index=286&type=chunk)[287](index=287&type=chunk) - Covenants in the **$150 million revolving credit facility** may restrict business growth, and non-compliance could lead to accelerated debt repayment[288](index=288&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk) - The company may require additional capital for growth, which may not be available on reasonable terms and could result in **stockholder dilution** or restrictive debt covenants[293](index=293&type=chunk)[294](index=294&type=chunk) - Maintaining corporate culture during growth and managing a public company with limited experience are significant challenges[295](index=295&type=chunk)[296](index=296&type=chunk) - Fluctuations in tax obligations and effective tax rates, due to uncertain tax determinations or changes in tax laws, could adversely affect financial results[297](index=297&type=chunk)[298](index=298&type=chunk)[301](index=301&type=chunk) - The company may incur significant losses from various types of fraud, including **credit card fraud**, which could damage reputation and impact results[303](index=303&type=chunk) [Risks Related to Manufacturing, Supply Chain and Fulfillment](index=50&type=section&id=Risks%20Related%20to%20Manufacturing%2C%20Supply%20Chain%20and%20Fulfillment) The company relies heavily on a single manufacturer and limited suppliers, creating significant supply chain risks - The company primarily depends on a **single contract manufacturer, Intretech (Malaysia/China)**, for most connected machines, posing risks of capacity constraints, component availability issues, and limited control over production[304](index=304&type=chunk)[305](index=305&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) - Reliance on a **limited number of international third-party suppliers**, some sole-source, for components and accessories/materials creates risks of shortages, long lead times, and supply disruptions, exacerbated by global events like the COVID-19 pandemic[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) - **Inaccurate demand forecasting** can lead to manufacturing delays, increased costs, or excess inventory, with the company bearing supply risk under contract manufacturing arrangements[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk) - Dependence on **five third-party logistics partners**, with the majority of products handled by one in California, introduces risks related to staffing, operational control, and potential disruptions[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk) - **Disruptions in shipping services** (air/ocean carriers) or at ports, increased transportation costs, and reliance on major shipping companies like FedEx and UPS could adversely affect product delivery and financial results[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk) - **Limited control over contract manufacturers**, component suppliers, and third-party logistics partners exposes the company to risks including inability to meet demand, reduced product reliability, price increases, and geopolitical/economic instability in manufacturing regions (Malaysia, China)[331](index=331&type=chunk)[332](index=332&type=chunk)[334](index=334&type=chunk) - Products may be affected by **design and manufacturing defects**, leading to warranty claims, product liability, recalls, and reputational harm, potentially exceeding insurance coverage[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk) - Regulations related to **conflict minerals** may increase expenses and limit supply, while significant increases in inflation, commodity prices, or transportation costs could adversely affect costs if not passed on to customers[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk)[344](index=344&type=chunk) - **Geopolitical tensions and trade policies**, particularly with China (tariffs, export controls), could disrupt manufacturing, increase costs, and force relocation of production[345](index=345&type=chunk)[346](index=346&type=chunk)[352](index=352&type=chunk) - Changes in U.S tax, tariff, or other trade policies regarding products from other countries could adversely affect the business, including increased costs and supply chain disruptions[349](index=349&type=chunk)[352](index=352&type=chunk) [Risks Related to Privacy, Data Protection and Cybersecurity](index=57&type=section&id=Risks%20Related%20to%20Privacy%2C%20Data%20Protection%20and%20Cybersecurity) The company faces significant risks from evolving global data privacy laws and cybersecurity threats - The company is subject to numerous and evolving global privacy, data protection, and information security laws (e.g., **GDPR, LGPD, CCPA, CPRA**), with non-compliance potentially leading to significant penalties, investigations, and reputational harm[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[364](index=364&type=chunk)[366](index=366&type=chunk) - **Cybersecurity risks**, including system failures, software defects, malware, and security breaches, could disrupt operations, expose sensitive data, and lead to litigation and financial losses, requiring ongoing investment in security infrastructure[369](index=369&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk)[374](index=374&type=chunk) - **Restrictions on "cookie" tracking technologies**, due to privacy laws or browser settings, could decrease the amount and accuracy of user information collected, harming marketing effectiveness and potentially requiring alternative tracking systems[376](index=376&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[381](index=381&type=chunk) [Risks Related to Foreign Operations](index=62&type=section&id=Risks%20Related%20to%20Foreign%20Operations) International expansion exposes the company to significant regulatory, economic, and geopolitical risks - International expansion exposes the company to significant risks, including difficulties in managing operations, increased competition, **compliance with diverse local laws**, tariffs, currency fluctuations, and political/social unrest[382](index=382&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk) - **Brexit** and ongoing trade negotiations create uncertainty and potential disruptions to trade, increased costs, and legal/economic uncertainty in the UK/EU region[386](index=386&type=chunk) - Compliance with governmental **export/import controls and economic sanctions laws** (e.g., U.S sanctions) is critical, with potential for liability, delays, and restrictions on international sales if violated[387](index=387&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk)[391](index=391&type=chunk) - Failure to comply with **anti-corruption and anti-money laundering laws** (e.g., FCPA, U.K Bribery Act) in global operations could result in severe penalties, investigations, and reputational damage[392](index=392&type=chunk)[393](index=393&type=chunk)[396](index=396&type=chunk)[397](index=397&type=chunk) - Changes in U.S and foreign taxation of international business activities, including **transfer pricing regulations**, could adversely impact financial position and results of operations[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk) - Exposure to **foreign currency exchange rate fluctuations**, particularly with the U.S dollar, can affect revenue and results, and the company does not currently hedge these exposures[401](index=401&type=chunk) [Risks Related to our Intellectual Property](index=64&type=section&id=Risks%20Related%20to%20our%20Intellectual%20Property) Protecting intellectual property is crucial but faces risks from copycat products and infringement claims - **Protecting intellectual property** (patents, trademarks, trade secrets) is crucial but expensive and difficult globally, with risks of challenges, invalidation, or unenforceability[402](index=402&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk)[406](index=406&type=chunk) - Sales of **copycat products or unauthorized "gray market" goods** can harm authorized channels, reputation, and business, requiring significant resources to combat[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - The company faces threats of **alleged infringement from third parties**, which could lead to costly litigation, substantial damages, or restrictions on product offerings[407](index=407&type=chunk)[408](index=408&type=chunk)[410](index=410&type=chunk) - Dependence on **third-party licenses and purchases for digital content** (fonts, images) carries risks of adverse changes, loss of rights, or claims of lacking necessary licenses, potentially leading to copyright infringement liability[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk)[415](index=415&type=chunk) - Legislation regarding copyright protection or content review (e.g., EU law requiring efforts to exclude infringing content) could impose **complex and costly constraints** on the business model, requiring significant investment in technology and licensing[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[419](index=419&type=chunk) - Use of **open source software** in products poses risks, including potential requirements to disclose proprietary source code or make derivative works available on unfavorable terms, and lack of warranties or support[420](index=420&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk) [Risks Related to the Ownership of Our Class A Common Stock](index=67&type=section&id=Risks%20Related%20to%20the%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) The dual-class stock structure concentrates voting power, limiting public stockholder influence - The **dual-class common stock structure** (Class A: 1 vote/share, Class B: 5 votes/share) concentrates voting power with pre-IPO stockholders, particularly Petrus and affiliates (**~67% of total voting power**), limiting other stockholders' influence[423](index=423&type=chunk)[424](index=424&type=chunk)[433](index=433&type=chunk) - The company is a **"controlled company"** under Exchange rules, allowing it to rely on exemptions from certain corporate governance requirements (e.g., independent directors majority, independent nominating/compensation committees)[434](index=434&type=chunk)[437](index=437&type=chunk) - The dual-class structure may result in a **lower or more volatile market price** for Class A common stock and could lead to exclusion from certain stock indices, reducing investment by passive funds[427](index=427&type=chunk) - The stock price of Class A common stock may be **highly volatile** due to numerous factors beyond control, including market performance, operational results, analyst expectations, and macroeconomic conditions[428](index=428&type=chunk)[430](index=430&type=chunk)[431](index=431&type=chunk) - Future sales of a large number of Class A common shares, or the perception of such sales, could **depress the stock price** and make future equity offerings more difficult[440](index=440&type=chunk)[441](index=441&type=chunk) - The company **does not currently intend to pay dividends** for the foreseeable future, with future earnings to be retained for business development and corporate purposes[443](index=443&type=chunk) - Provisions in charter documents and Delaware law could **delay or prevent acquisitions**, limit stockholders' ability to influence management, and adversely affect the Class A common stock price[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk)[448](index=448&type=chunk) - **Exclusive forum provisions** in charter documents designate Delaware courts and federal district courts as exclusive forums for certain disputes, potentially limiting stockholders' ability to choose a favorable judicial forum[449](index=449&type=chunk)[450](index=450&type=chunk)[451](index=451&type=chunk)[452](index=452&type=chunk) [General Risk Factors](index=71&type=section&id=General%20Risk%20Factors) The COVID-19 pandemic poses ongoing risks to operations, supply chains, and consumer spending - The COVID-19 pandemic caused increased demand in 2020-2021, but **current revenue growth rates are declining**, and the pandemic continues to pose risks to operations, supply chain, and consumer discretionary spending[453](index=453&type=chunk)[456](index=456&type=chunk)[457](index=457&type=chunk)[461](index=461&type=chunk)[462](index=462&type=chunk) - The business is subject to a large number of evolving U.S and non-U.S laws, including those specific to **e-commerce, privacy, data protection, and consumer protection**, with compliance being costly and potentially leading to enforcement actions or litigation[463](index=463&type=chunk)[464](index=464&type=chunk)[465](index=465&type=chunk)[466](index=466&type=chunk)[467](index=467&type=chunk)[468](index=468&type=chunk)[469](index=469&type=chunk) - The company is subject to **legal proceedings, regulatory disputes, and governmental inquiries** that could incur significant expenses, divert management attention, and harm the business[470](index=470&type=chunk)[471](index=471&type=chunk)[472](index=472&type=chunk) - **Merger and acquisition activities** could require significant management attention, disrupt the business, dilute stockholder value, and adversely affect results of operations[473](index=473&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk) - The business is vulnerable to **catastrophic events** (earthquakes, fires, floods, public health crises, war, terrorism) and man-made problems, which could disrupt operations and may not be fully covered by insurance[477](index=477&type=chunk)[478](index=478&type=chunk) - **Payment processing risks**, including fraudulent use of payment methods and reliance on third-party financing providers, could impact revenue and operations[479](index=479&type=chunk)[480](index=480&type=chunk) - Estimates of market size (SAM and TAM) may be inaccurate, and there's **no assurance the business will penetrate these markets** as estimated[481](index=481&type=chunk)[482](index=482&type=chunk)[483](index=483&type=chunk) - **Being a public company strains resources**, diverts management attention, and requires maintaining adequate internal controls over financial reporting, incurring significant legal, accounting, and compliance expenses[484](index=484&type=chunk)[485](index=485&type=chunk)[486](index=486&type=chunk)[487](index=487&type=chunk)[488](index=488&type=chunk) - **Incorrect estimates or judgments** related to critical accounting policies (e.g., deferred revenue, entitlements) could adversely affect results of operations[489](index=489&type=chunk)[490](index=490&type=chunk) - The company may be subject to sales and other taxes, and potential liabilities on past sales for taxes, surcharges, and fees, particularly with evolving interpretations of indirect tax laws like those following the **Wayfair decision**[491](index=491&type=chunk)[492](index=492&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section is not applicable, indicating no unregistered sales of equity securities for the period - This section is **not applicable** for the reporting period[493](index=493&type=chunk) [Item 3. Default Upon Senior Securities](index=77&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) This section is not applicable, indicating no defaults upon senior securities for the period - This section is **not applicable** for the reporting period[494](index=494&type=chunk) [Item 4. Mine Safety Disclosures](index=77&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable, indicating no mine safety disclosures for the period - This section is **not applicable** for the reporting period[495](index=495&type=chunk) [Item 5. Other Information](index=77&type=section&id=Item%205.%20Other%20Information) This section is not applicable, indicating no other information to report for the period - This section is **not applicable** for the reporting period[496](index=496&type=chunk) [Item 6. Exhibits](index=78&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including certifications and XBRL documents - Exhibits include a confirmatory employment letter for Kimball Shill, **CEO and CFO certifications** (31.1, 31.2, 32.1, 32.2), and XBRL taxonomy extension documents[499](index=499&type=chunk)[500](index=500&type=chunk)[501](index=501&type=chunk) - Certifications in Exhibits 32.1 and 32.2 are deemed to accompany the report but are **not "filed" for Section 18 purposes** unless specifically incorporated by reference[503](index=503&type=chunk) [Signatures](index=79&type=section&id=Signatures) [Signatures](index=79&type=section&id=Signatures) The report is signed by the CEO, CFO, and Corporate Controller, certifying compliance with the Securities Exchange Act - The report was signed on May 10, 2022, by **Ashish Arora (CEO), Kimball Shill (CFO), and Ryan Harmer (VP of Accounting, Corporate Controller)**[506](index=506&type=chunk)[509](index=509&type=chunk)

NASDAQ : CRCT (6) t) (8) II) Financial Results Q4 2021 & FY 2021 March 8, 2022 cricut. Safe Harbor Statement This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not r ...

Financial Data and Key Metrics Changes - Total revenue for 2021 grew by 36% to $1.3 billion, following a 97% growth in 2020 [10][38] - EBITDA margin for the full year was 16.2%, down from 22.4% in 2020 [40] - Q4 2021 revenue was $387.8 million, a 5% increase year-over-year, and up 123% on a two-year basis [43] - Net income in Q4 2021 was $11.9 million, down from $61.4 million in Q4 2020 [64] Business Line Data and Key Metrics Changes - Revenue from connected machines in Q4 was $158.1 million, down 7% year-on-year [45] - Subscription revenue increased by 51% to $55.7 million, driven by strong machine sales [46] - Revenue from accessories and materials was $174 million, up 7% year-over-year [46] - Paid subscribers grew by 56% to over 2 million, representing 32% of the total user base [24][50] Market Data and Key Metrics Changes - International revenue grew by 53% in Q4 compared to the same quarter in 2020 [47] - The company added 676,000 new users in Q4, a record for any single quarter [47] - Total users on the platform reached 6.4 million by the end of 2021 [47] Company Strategy and Development Direction - The company aims to expand into new markets and retail channels while simplifying the onboarding process for users [32] - Focus on monetizing the user base through new materials, accessories, and enhanced subscription services [32] - Continued investment in platform development, including new types of connected machines [90][91] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from supply chain disruptions and inflationary pressures impacting margins [59][75] - The expectation to end 2022 with at least 8 million total users, with a focus on driving engagement and monetization [75] - Anticipation of a return to more normal seasonality patterns affecting revenue distribution [111] Other Important Information - The company ended 2021 with $241.6 million in cash and cash equivalents [70] - Operating expenses for Q4 were $79 million, significantly higher than the previous year due to increased investments [61] - The company plans to implement price increases to mitigate inflationary pressures [83] Q&A Session Summary Question: Can you discuss the levers to stabilize machine margins and materials gross margin through 2022? - Management highlighted unusually high promotional activity and end-of-life reserves as key factors affecting margins, with plans to implement price increases [78][80][83] Question: How is the innovation pipeline geared towards monetization versus attracting new users? - The strategy focuses on driving monetization of the existing user base while also attracting new users through innovative products [86][87] Question: What is the reason for higher inventory levels? - Higher inventory levels were attributed to defensive buying by retailers in anticipation of supply chain issues, with an estimated $20 million pull forward into Q4 [94][96] Question: Can you clarify the channel inventory and its components? - The $35 million in channel inventory includes $20 million from defensive buying, with the remaining $15 million being prior to Q4 [97][114] Question: How is the company addressing seasonality in 2022? - Management expects a return to a more normal seasonality pattern, with about 40% of revenues coming from the first half of the year [111]

Part I [Business](index=7&type=section&id=Item%201.%20Business) Cricut operates a creativity platform with 6.4 million users, generating $1.31 billion in 2021 revenue from connected machines, subscriptions, and materials Financial Performance (2019-2021) | Metric | 2019 | 2020 | 2021 | YoY Growth (2021) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $486.6 million | $959.0 million | $1,306.2 million | 36% | | **Net Income** | $39.2 million | $154.6 million | $140.5 million | (9)% | - As of December 31, 2021, the company has a community of **6.4 million users**, which grew **48%** from the previous year[19](index=19&type=chunk)[21](index=21&type=chunk) - The company's platform includes a portfolio of connected machines (Cricut Joy, Explore, Maker), free design apps with subscription options (Cricut Access), and a wide range of accessories and materials[23](index=23&type=chunk)[25](index=25&type=chunk) - As of December 31, 2021, Cricut had over **2.0 million paid subscribers** to its Cricut Access and Cricut Access Premium services, representing approximately **32%** of its total user base[23](index=23&type=chunk)[50](index=50&type=chunk) - The company sells products through brick-and-mortar and online retail partners like Amazon, Michaels, and Walmart, as well as directly via cricut.com; in 2021, online channels accounted for **50% of revenue**[53](index=53&type=chunk) - Cricut outsources its manufacturing to third-party contractors, primarily **Xiamen Intretech, Inc.**, with operations in Malaysia and China[91](index=91&type=chunk)[93](index=93&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from user engagement, competition, and significant supply chain dependencies, particularly on its primary manufacturer - The business is highly dependent on its ability to attract and engage users, and a decline in interest in DIY crafting could adversely affect growth[120](index=120&type=chunk)[121](index=121&type=chunk)[126](index=126&type=chunk) - Cricut faces **significant competition** in all segments, particularly in Accessories and Materials, where competitors offer compatible products at lower prices[149](index=149&type=chunk) - The company is primarily dependent on a single contract manufacturer, **Intretech**, for most of its connected machines, creating significant supply chain risk[242](index=242&type=chunk)[243](index=243&type=chunk) - A significant portion of revenue comes from a limited number of key retail partners; in 2021, **Amazon, Michaels, and Walmart each represented 10% or more** of consolidated revenue[101](index=101&type=chunk)[136](index=136&type=chunk) - The dual-class stock structure concentrates approximately **67% of voting power** with Petrus and its affiliates, limiting the influence of Class A common stockholders[354](index=354&type=chunk)[363](index=363&type=chunk) - The business is affected by seasonality, with a disproportionate amount of sales in the fourth quarter, which represented **30% of total revenue** in 2021[169](index=169&type=chunk)[472](index=472&type=chunk) [Properties](index=67&type=section&id=Item%202.%20Properties) Cricut leases all its properties, including its Utah headquarters, and does not own any real estate - The company's corporate headquarters are leased in South Jordan, Utah, with leases expiring at various times through 2027[423](index=423&type=chunk) - Cricut does not own any real property and leases all of its office facilities, including locations in China and Malaysia[423](index=423&type=chunk) [Legal Proceedings](index=68&type=section&id=Item%203.%20Legal%20Proceedings) The company is not party to any material legal proceedings but has joined a lawsuit challenging US tariffs on Chinese goods - The company is not currently involved in any material pending legal proceedings[426](index=426&type=chunk) - In September 2020, Cricut joined other plaintiffs in a lawsuit against the U.S. government, challenging the lawfulness of Section 301 tariffs on products imported from China[428](index=428&type=chunk) [Mine Safety Disclosures](index=68&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[428](index=428&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=69&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq as "CRCT" since March 2021, and it does not currently intend to pay dividends - Class A common stock has been listed on the Nasdaq under the symbol **"CRCT"** since March 25, 2021[431](index=431&type=chunk) - The company does not currently intend to pay cash dividends and plans to retain future earnings for business growth[433](index=433&type=chunk)[434](index=434&type=chunk) - A cash dividend of **$51.2 million** was paid to common stockholders in September 2020[433](index=433&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=71&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew 36% to $1.31 billion in 2021, but net income fell 9% due to rising operating expenses and lower machine margins Key Business Metrics (as of Dec 31) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Users (thousands)** | 2,525 | 4,323 | 6,409 | | **Paid Subscribers (thousands)** | 604 | 1,303 | 2,037 | | **Subscription ARPU** | $25.57 | $32.52 | $38.37 | | **Accessories & Materials ARPU** | $111.44 | $125.88 | $102.91 | Revenue by Segment (in thousands) | Segment | 2020 | 2021 | % Change | | :--- | :--- | :--- | :--- | | **Connected machines** | $416,714 | $548,205 | 32% | | **Subscriptions** | $111,337 | $205,858 | 85% | | **Accessories and materials** | $430,979 | $552,164 | 28% | | **Total revenue** | **$959,030** | **$1,306,227** | **36%** | Gross Margin by Segment | Segment | 2020 | 2021 | | :--- | :--- | :--- | | **Connected machines** | 16% | 12% | | **Subscriptions** | 88% | 89% | | **Accessories and materials** | 39% | 38% | - The increase in Connected Machines revenue was driven by growth in units sold, including the new Explore 3 and Maker 3 models launched in June 2021[498](index=498&type=chunk) - Operating expenses increased significantly in 2021, with **R&D up 105%** to $79.8M and **Sales & Marketing up 112%** to $134.0M, primarily due to higher product development, advertising, and personnel costs[509](index=509&type=chunk)[510](index=510&type=chunk) - Net cash used in operating activities was **$104.9 million** in 2021, a significant shift from $248.2 million provided in 2020, mainly due to increased cash used to build inventory[521](index=521&type=chunk)[522](index=522&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=85&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are minimal interest rate risk and foreign currency exchange risk, which is not currently hedged - The company has minimal exposure to interest rate risk as it had no outstanding borrowings under its credit facilities[536](index=536&type=chunk) - Foreign currency exchange risk exists due to transactions in various foreign currencies, but the impact on results of operations was not material for 2019, 2020, and 2021[537](index=537&type=chunk) - The company does not currently use derivative or hedging instruments for foreign currency exposure but may do so in the future[537](index=537&type=chunk) [Financial Statements and Supplementary Data](index=86&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for fiscal year 2021, detailing assets, liabilities, and performance Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $538,807 | $928,099 | | **Total Assets** | $581,400 | $1,006,250 | | **Total Current Liabilities** | $346,500 | $308,367 | | **Total Liabilities** | $352,475 | $332,274 | | **Total Stockholders' Equity** | $228,925 | $673,976 | Consolidated Statement of Operations Data (in thousands) | Account | 2020 | 2021 | | :--- | :--- | :--- | | **Total Revenue** | $959,030 | $1,306,227 | | **Gross Profit** | $332,374 | $457,450 | | **Income from Operations** | $200,513 | $192,405 | | **Net Income** | $154,578 | $140,473 | Consolidated Statement of Cash Flows Data (in thousands) | Activity | 2020 | 2021 | | :--- | :--- | :--- | | **Net cash from operating activities** | $248,227 | $(104,949) | | **Net cash used in investing activities** | $(21,842) | $(35,786) | | **Net cash from financing activities** | $(110,915) | $260,244 | - The independent auditor's report identifies the **estimation of variable consideration for customer rebates** as a critical audit matter due to the subjective assumptions involved[546](index=546&type=chunk)[547](index=547&type=chunk)[550](index=550&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosures](index=124&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) No changes in or disagreements with accountants on accounting and financial disclosures were reported - None reported[743](index=743&type=chunk) [Controls and Procedures](index=125&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective, and the company is exempt from the internal control report as a new filer - Management concluded that disclosure controls and procedures were **effective** as of December 31, 2021[745](index=745&type=chunk) - The company is exempt from management's report on internal control over financial reporting due to the transition period for newly public companies[746](index=746&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of 2021[747](index=747&type=chunk) [Other Information](index=126&type=section&id=Item%209B.%20Other%20Information) There is no other information to report for this item - None[750](index=750&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=127&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, officers, and governance is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the company's Proxy Statement[755](index=755&type=chunk) [Executive Compensation](index=127&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the company's Proxy Statement[756](index=756&type=chunk) [Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters](index=127&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owner%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the company's Proxy Statement[756](index=756&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=127&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the company's Proxy Statement[757](index=757&type=chunk) [Principal Accounting Fees and Services](index=127&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding accounting fees and services is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the company's Proxy Statement[758](index=758&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=128&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the annual report - This item lists all financial statements, schedules, and exhibits filed with the 10-K report[760](index=760&type=chunk) - Key exhibits include corporate governance documents, material contracts (e.g., credit and supply agreements), and executive compensation plans[764](index=764&type=chunk) [Form 10-K Summary](index=131&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided under this item - None[786](index=786&type=chunk)

Financial Performance - Revenue reached $260.1 million, a 24.4% year-over-year increase[6] - Net income was $30.0 million, resulting in an 11.5% net income margin[6] - EBITDA was $42.7 million, representing a 16.4% EBITDA margin[6] User Growth - Total users exceeded 5.7 million, a 55.7% year-over-year growth[7] - Engaged users surpassed 3.2 million, a 37.4% year-over-year growth[7] - Paid subscribers exceeded 1.8 million, a 55.8% year-over-year growth[7] Revenue Breakdown - Connected machine revenue grew 35.7% year-over-year[21] - Subscription revenue grew 70.8% year-over-year[21] - Accessories & Materials revenue grew 2.0% year-over-year[21] - International revenue grew 109.7% year-over-year and represented 12.0% of total revenue[17, 21] User Monetization - Subscription ARPU (Average Revenue Per User) increased to $9.60[25] - Accessories & Materials ARPU increased to $18.79[25] Investments - Increased investments in software, subscriptions, new product development, and international expansion to drive future growth[6]

Cricut, Inc. (NASDAQ:CRCT) Q3 2021 Earnings Conference Call November 10, 2021 5:00 PM ET Company Participants Stacie Clements – Investor Relations-Blue Shirt Group Ashish Arora – President and Chief Executive Officer Marty Petersen – Chief Financial Officer Conference Call Participants Mark Altschwager – Baird Jim Suva – Citigroup Paul Kearney – Barclays Erik Woodring – Morgan Stanley Operator Ladies and gentlemen, thank you for standing by, and welcome to the Cricut Q3 2021 Conference Call. At this time a ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Cricut, Inc.'s unaudited condensed consolidated financial statements and related management discussion for the period ended September 30, 2021 [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Cricut, Inc.'s unaudited condensed consolidated financial statements for the period ended September 30, 2021, reflecting financial position, operational results, and cash flows, including the significant impact of its Initial Public Offering (IPO) in March 2021 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Cricut's total assets increased to **$980.6 million** by September 30, 2021, driven by higher cash and inventories, while equity surged due to IPO proceeds Condensed Consolidated Balance Sheet Highlights (in thousands of US dollars) | Account | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $224,003 | $122,215 | | Inventories | $524,576 | $248,745 | | Total current assets | $922,176 | $538,807 | | **Total assets** | **$980,604** | **$581,400** | | **Liabilities & Equity** | | | | Total current liabilities | $318,576 | $346,500 | | Total liabilities | $327,386 | $352,475 | | Total stockholders' equity | $653,218 | $228,925 | | **Total liabilities and stockholders' equity** | **$980,604** | **$581,400** | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q3 2021 revenue grew **24%** to **$260.1 million**, but net income declined **34%** to **$30.0 million** due to higher costs, while nine-month revenue increased **56%** to **$918.4 million** Q3 2021 vs Q3 2020 Performance (in thousands of US dollars) | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $260,086 | $209,005 | +24% | | Gross Profit | $102,063 | $89,550 | +14% | | Income from Operations | $37,748 | $57,718 | -35% | | Net Income | $30,005 | $45,211 | -34% | | Diluted EPS | $0.13 | $0.22 | -41% | Nine Months 2021 vs 2020 Performance (in thousands of US dollars) | Metric | Nine Months 2021 | Nine Months 2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $918,401 | $588,064 | +56% | | Gross Profit | $352,628 | $207,625 | +70% | | Income from Operations | $166,564 | $120,929 | +38% | | Net Income | $128,549 | $93,130 | +38% | | Diluted EPS | $0.59 | $0.45 | +31% | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity significantly increased to **$653.2 million** by September 30, 2021, primarily driven by IPO proceeds and net income - The company completed its IPO, receiving net proceeds of **$242.7 million** in March 2021 and an additional **$18.0 million** in April 2021 from the underwriters' option exercise[19](index=19&type=chunk)[31](index=31&type=chunk) - Net income of **$128.5 million** for the nine months ended September 30, 2021, contributed to the increase in retained earnings (by reducing the accumulated deficit)[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Nine-month operating cash flow was a net outflow of **$131.8 million** due to inventory build-up, while financing activities provided **$262.0 million** from the IPO Cash Flow Summary (Nine Months Ended Sep 30, in thousands of US dollars) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(131,793) | $187,403 | | Net cash used in investing activities | $(28,339) | $(16,883) | | Net cash provided by (used in) financing activities | $261,990 | $(109,627) | | **Net increase in cash and cash equivalents** | **$101,788** | **$60,854** | - The significant cash use in operations was mainly driven by a **$276.2 million** increase in inventories to support seasonal sales and mitigate shipping delays[24](index=24&type=chunk)[200](index=200&type=chunk) - Financing activities were dominated by **$262.0 million** in net proceeds from the IPO[24](index=24&type=chunk)[205](index=205&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail Cricut's business as a creativity platform, its March 2021 IPO, three reportable segments, and accounting policies - The company designs and markets a creativity platform with connected machines, design apps, and materials, operating in three reportable segments: Connected Machines, Subscriptions, and Accessories and Materials[27](index=27&type=chunk)[30](index=30&type=chunk)[112](index=112&type=chunk) - The company completed its IPO on March 29, 2021, selling **13,250,000** shares of Class A common stock and raising net proceeds of **$242.7 million**, with an additional **$18.0 million** raised in April 2021[31](index=31&type=chunk) - A corporate reorganization and IPO led to modification of stock-based awards, resulting in **$14.5 million** incremental compensation cost recognized over the vesting term[73](index=73&type=chunk)[75](index=75&type=chunk) Segment Gross Profit (Nine Months Ended Sep 30, 2021, in thousands of US dollars) | Segment | Revenue | Cost of Revenue | Gross Profit | | :--- | :--- | :--- | :--- | | Connected Machines | $390,100 | $323,558 | $66,542 | | Subscriptions | $150,115 | $15,517 | $134,598 | | Accessories and Materials | $378,186 | $226,698 | $151,488 | | **Consolidated Total** | **$918,401** | **$565,773** | **$352,628** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2021 revenue growth of **24%** to **$260.1 million** but a **34%** net income decline, alongside nine-month revenue growth of **56%** to **$918.4 million**, driven by user base expansion and IPO proceeds - In Q3 2021, revenue grew **24%** year-over-year to **$260.1 million**, while net income fell **34%** to **$30.0 million**[122](index=122&type=chunk) - For the nine months ended September 30, 2021, revenue grew **56%** year-over-year to **$918.4 million**, and net income grew **38%** to **$128.5 million**[125](index=125&type=chunk) Key Business Metrics (as of Sep 30, 2021) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Users (in thousands) | 5,732 | 3,688 | | Paid Subscribers (in thousands) | 1,814 | 1,164 | - The company's cash position was strengthened by net proceeds of **$260.7 million** from its IPO in March and April 2021[125](index=125&type=chunk)[192](index=192&type=chunk) - Operating cash flow was negative **$131.8 million** for the first nine months of 2021, primarily due to a **$276.2 million** increase in inventory to support seasonal demand and mitigate supply chain risks[199](index=199&type=chunk)[200](index=200&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies interest rate and foreign currency exchange risks as primary market exposures, neither of which is currently considered material - The company is primarily exposed to interest rate risk from its revolving credit facility, but a hypothetical **10%** change in rates would not have a material impact[211](index=211&type=chunk) - Foreign currency exchange risk exists due to transactions in various foreign currencies, but the impact has not been material, and the company does not currently hedge this exposure[212](index=212&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[213](index=213&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[214](index=214&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers other required disclosures including legal proceedings, comprehensive risk factors, equity sales, and filed exhibits [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any material pending legal proceedings but is involved in a complaint against the U.S. government regarding tariffs on Chinese imports - The company is not currently involved in any material legal proceedings[220](index=220&type=chunk) - In September 2020, Cricut joined a complaint against the U.S. government challenging the legality of Section 301 tariffs on certain products from China[222](index=222&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks including user engagement, intense competition, supply chain vulnerabilities, intellectual property, and the dual-class stock structure [Risks Related to Our Industry and Business](index=42&type=section&id=Risks%20Related%20to%20Our%20Industry%20and%20Business) The company's success depends on user engagement, product innovation, accurate demand forecasting, and managing reliance on key retail partners - The company's growth depends on its ability to attract and engage users and anticipate their preferences for new products[227](index=227&type=chunk)[232](index=232&type=chunk) - For the nine months ended September 30, 2021, the top seven brick-and-mortar and online retail partners accounted for **55%** of product revenue, indicating significant partner concentration risk[241](index=241&type=chunk) - Inaccurate forecasting of consumer demand could lead to inventory shortages or excess stock, impacting revenue and margins, with the company intending to carry higher inventory levels to mitigate supply chain risks[238](index=238&type=chunk)[239](index=239&type=chunk) [Risks Related to Manufacturing, Supply Chain and Fulfillment](index=58&type=section&id=Risks%20Related%20to%20Manufacturing%2C%20Supply%20Chain%20and%20Fulfillment) Cricut faces significant manufacturing and supply chain risks due to dependence on a single contract manufacturer, limited-source suppliers, and manufacturing concentration in China and Malaysia - The company is primarily dependent on a single contract manufacturer, Xiamen Intretech, Inc., for the production of most of its connected machines[353](index=353&type=chunk) - Reliance on limited or sole-source suppliers for key components, such as microchips, exposes the company to shortages and price increases, which is a current global issue[362](index=362&type=chunk)[365](index=365&type=chunk) - Manufacturing concentration in China and Malaysia exposes the company to risks from tariffs, trade policy changes, and regional disruptions like the COVID-19 pandemic[357](index=357&type=chunk)[359](index=359&type=chunk)[394](index=394&type=chunk) [Risks Related to Privacy, Data Protection and Cybersecurity](index=65&type=section&id=Risks%20Related%20to%20Privacy%2C%20Data%20Protection%20and%20Cybersecurity) The company is subject to evolving global privacy laws and cybersecurity threats, with non-compliance or breaches posing significant financial and reputational risks - The company is subject to numerous and evolving privacy laws globally, such as GDPR and CCPA, with non-compliance posing risks of significant penalties and reputational damage[402](index=402&type=chunk)[403](index=403&type=chunk)[410](index=410&type=chunk) - Cybersecurity threats, including breaches, phishing, and hacking, pose a risk to user data, proprietary information, and system integrity[415](index=415&type=chunk)[418](index=418&type=chunk) - The company relies on Amazon Web Services (AWS) for a substantial portion of its computing and data services, making it vulnerable to disruptions or policy changes from AWS[305](index=305&type=chunk)[306](index=306&type=chunk) [Risks Related to Foreign Operations](index=69&type=section&id=Risks%20Related%20to%20Foreign%20Operations) International expansion exposes Cricut to risks including complex local regulations, currency fluctuations, tariffs, and compliance with anti-corruption laws - International expansion subjects the company to risks including complex local regulations, currency fluctuations, tariffs, and the need to localize products and content[425](index=425&type=chunk) - The company is subject to U.S. and foreign governmental export/import controls and economic sanctions laws, which could impair its ability to compete internationally[430](index=430&type=chunk)[431](index=431&type=chunk) - Compliance with anti-corruption laws like the FCPA and U.K. Bribery Act is critical, and violations could lead to severe penalties and reputational harm[435](index=435&type=chunk)[437](index=437&type=chunk) [Risks Related to our Intellectual Property](index=72&type=section&id=Risks%20Related%20to%20our%20Intellectual%20Property) Cricut's success depends on protecting its intellectual property, facing risks of infringement from counterfeit products and third-party claims, and managing open-source software use - The company's inability to protect its intellectual property (patents, trademarks, etc.) could reduce the value of its products and brand[446](index=446&type=chunk)[447](index=447&type=chunk) - The company faces threats of infringement lawsuits from third parties, which could result in substantial damages, royalty payments, or prevent the sale of certain products[452](index=452&type=chunk)[453](index=453&type=chunk) - Use of open-source software in products carries risks, including potential requirements to disclose proprietary source code or re-engineer products[462](index=462&type=chunk)[463](index=463&type=chunk) [Risks Related to the Ownership of Our Class A Common Stock](index=75&type=section&id=Risks%20Related%20to%20the%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) Risks include concentrated voting power with pre-IPO stockholders due to a dual-class stock structure, affecting corporate governance and stock price volatility - The dual-class stock structure concentrates approximately **66%** of voting power with Petrus and its affiliates, limiting the influence of other stockholders on major corporate decisions[467](index=467&type=chunk)[475](index=475&type=chunk) - As a "controlled company," Cricut is exempt from certain Nasdaq corporate governance requirements, such as having a majority of independent directors[476](index=476&type=chunk) - The company does not intend to pay dividends for the foreseeable future, meaning investors must rely on stock price appreciation for returns[484](index=484&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities and confirms the use of **$260.7 million** net proceeds from its March and April 2021 IPO - The company completed its IPO on March 29, 2021, receiving net proceeds of **$242.7 million**, with an additional **$18.0 million** in net proceeds received on April 28, 2021, from the partial exercise of the underwriters' option[539](index=539&type=chunk) - There were no unregistered sales of equity securities during the reporting period[539](index=539&type=chunk) [Item 3. Default Upon Senior Securities](index=86&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) This item is not applicable as the company reports no defaults upon senior securities - Not applicable[542](index=542&type=chunk) [Item 4. Mine Safety Disclosures](index=86&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[543](index=543&type=chunk) [Item 5. Other Information](index=86&type=section&id=Item%205.%20Other%20Information) This item is not applicable as there is no other information to report - Not applicable[544](index=544&type=chunk) [Item 6. Exhibits](index=87&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes CEO and CFO certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act[550](index=550&type=chunk) - XBRL Taxonomy Extension documents are also filed as exhibits[550](index=550&type=chunk)

Financial Performance - Cricut's Q2 2021 net revenue reached $334.5 million, a 41% year-over-year increase[7] - Net income for Q2 2021 was $49.1 million, up 39% year-over-year[7] - EBITDA for Q2 2021 was $68.5 million, a 42% year-over-year increase, including $8.1 million of stock-based compensation expense[7] - International revenue grew by 179% year-over-year and represented 8.5% of total revenue[23] User Growth and Engagement - Total users reached 5.4 million, a 64% year-over-year growth[8] - Engaged users totaled 3.2 million, a 53% year-over-year growth, with 59% of all users engaged in Q2 2021[8] - Ending paid subscribers reached 1.8 million, a 77% year-over-year growth, with almost 33% of users as paid subscribers[8, 12] Product and Platform Expansion - Cricut Access provides access to over 175,000 images, a 40% increase compared to Q2 2020[12] - The company launched Cricut Explore 3 and Cricut Maker 3, featuring faster performance and new materials[15] User Monetization - Subscriptions ARPU (Average Revenue Per User) was $9.83 in Q2 2021[30] - Accessories & Materials ARPU was $26.67 in Q2 2021[30] Market Opportunity - The company estimates a total addressable market (TAM) of 402 million users and a serviceable addressable market (SAM) of 129 million users[18]