Cricut(CRCT) - 2021 Q4 - Annual Report

Part I Business 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][21] - 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][25] - 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][50] - 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] - Cricut outsources its manufacturing to third-party contractors, primarily Xiamen Intretech, Inc., with operations in Malaysia and China[91][93] Risk Factors 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][121][126] - Cricut faces significant competition in all segments, particularly in Accessories and Materials, where competitors offer compatible products at lower prices[149] - The company is primarily dependent on a single contract manufacturer, Intretech, for most of its connected machines, creating significant supply chain risk[242][243] - 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][136] - 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][363] - 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][472] Properties 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] - Cricut does not own any real property and leases all of its office facilities, including locations in China and Malaysia[423] Legal Proceedings 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] - 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] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[428] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - The company does not currently intend to pay cash dividends and plans to retain future earnings for business growth[433][434] - A cash dividend of $51.2 million was paid to common stockholders in September 2020[433] Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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][510] - 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][522] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - The company does not currently use derivative or hedging instruments for foreign currency exposure but may do so in the future[537] Financial Statements and Supplementary Data 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][547][550] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures No changes in or disagreements with accountants on accounting and financial disclosures were reported - None reported[743] Controls and Procedures 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] - The company is exempt from management's report on internal control over financial reporting due to the transition period for newly public companies[746] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2021[747] Other Information There is no other information to report for this item - None[750] Part III Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accounting Fees and Services 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] Part IV Exhibits, Financial Statement Schedules 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] - Key exhibits include corporate governance documents, material contracts (e.g., credit and supply agreements), and executive compensation plans[764] Form 10-K Summary No summary is provided under this item - None[786]