Cricut, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Cricut sells connected crafting machines, subscriptions and craft accessories and materials. Comparisons are with the three months ended March 31, 2022.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $181.2 million | $244.8 million | Down 26% |
| Gross profit / gross margin | $76.7 million / 42.3% | $99.0 million / 40.4% | Gross profit down 23% |
| Operating income / margin | $10.5 million / 5.8% | $31.4 million / 12.8% | Operating income down 66% |
| Net income / diluted EPS | $9.1 million / $0.04 | $23.5 million / $0.11 | Net income down 61% |
| Operating cash flow | $95.2 million | $15.6 million | Up $79.6 million |
| Cash, cash equivalents and marketable securities | $307.3 million | $299.2 million at Dec. 31, 2022 | Up $8.1 million |
Revenue by segment: Connected Machines $34.1 million, down 45%; Subscriptions $75.1 million, up 16%; Accessories and Materials $72.0 million, down 39%. Management attributed the declines in hardware and accessories/materials to lower consumer demand and unit sales. Subscription growth reflected a 17% increase in paid subscribers.
Gross margin differed sharply by segment: Connected Machines 3%, Subscriptions 90%, and Accessories and Materials 11%, versus 3%, 90%, and 33%, respectively, a year earlier. The overall margin improved despite lower gross profit, but operating margin compressed as revenue fell and general and administrative costs increased.
Operating cash flow benefited substantially from working-capital movements, including cash inflows from accounts receivable and inventory reductions; it should not be read as solely reflecting earnings growth. Investing cash outflow was $7.7 million, primarily capital expenditures. Financing cash outflow was $80.1 million, including the $75.5 million cash dividend and $3.2 million of share repurchases.
Balance sheet and liquidity
At March 31, 2023, total assets were $846.4 million and total liabilities were $152.3 million. Current assets were $707.0 million and current liabilities $130.5 million. Current inventory was $293.7 million, down from $351.7 million at year-end. The filing reports no borrowings outstanding under the $300 million revolving credit facility; the full $300 million was available, and the company was in compliance with its covenants. Management said cash, marketable securities, expected operating cash generation and available borrowing capacity should fund requirements for the next 12 months and beyond.
Material changes, outlook and risks
- Engagement metrics weakened even as the user base grew: users increased to 8.239 million from 6.904 million, but the share creating in the trailing 90 days fell to 45% from 54%. Paid subscribers rose to 2.715 million from 2.311 million. Subscription ARPU declined to $9.31 from $9.73; Accessories and Materials ARPU fell to $8.93 from $17.67.
- Accessories and Materials gross profit fell to $8.1 million from $38.8 million. Management cited $8.6 million of excess inventory write-downs, higher warehousing and operating costs, and higher inventory procurement costs flowing through cost of revenue as inventory declined.
- General and administrative expense rose 31% to $18.7 million, including higher professional services, personnel, bad debt and software costs. A January 2023 restructuring resulted in $1.2 million of severance expense; management expects approximately $6.7 million in gross savings during 2023 across research and development, sales and marketing, and general and administrative functions.
- The filing provides no specific revenue or earnings guidance. Management expects near-term expense ratios and segment costs to fluctuate and cites demand, competition, seasonality and economic conditions as important factors. Historically, Q4 is the strongest revenue quarter, but recent pandemic and economic trends have disrupted normal seasonality.
- Key risks include continued soft consumer demand and declining engagement, inventory forecasting and further write-downs, dependence on a primary contract manufacturer and limited suppliers, retail partner concentration, tariffs and supply-chain disruption, and cybersecurity, privacy and intellectual-property risks. The company reported no material pending legal proceedings and said ordinary-course claims were not expected to materially affect its financial position, results or liquidity. It is also pursuing a lawsuit challenging certain U.S. China-related tariffs.
- Cricut repurchased 346,699 Class A shares for $3.2 million during the quarter, with $28.3 million remaining under its $50 million authorization. The special $0.35-per-share dividend was paid in February. The company has a dual-class structure; Petrus and affiliates held approximately 70% of voting power, and Cricut identified itself as a controlled company.
Important facts for investors to verify
- Whether demand stabilizes and the declines in active creation and Accessories and Materials ARPU reverse.
- Whether inventory levels and obsolescence charges continue to decline, and whether segment gross margins recover from Q1 levels.
- How much of the reported operating cash flow reflects sustainable operations versus working-capital releases.
- Whether the restructuring delivers the stated savings without impairing product development, service or growth.
- Available liquidity, covenant compliance, capital returns and the implications of concentrated voting control.