Cricut, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; amounts below are in U.S. dollars. Cricut sells connected crafting machines, subscriptions, and accessories and materials.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $183.8 million | $334.5 million | $428.5 million | $658.3 million |
| Gross profit | $85.4 million | $130.3 million | $184.4 million | $250.6 million |
| Gross margin | 46.5% | 39.0% | 43.0% | 38.1% |
| Operating income | $20.0 million | $64.2 million | $51.4 million | $128.8 million |
| Net income | $13.8 million | $49.1 million | $37.3 million | $98.5 million |
| Diluted EPS | $0.06 | $0.22 | $0.17 | $0.46 |
- Q2 revenue fell 45% year over year; six-month revenue fell 35%. Lower connected-machine and accessories/materials sales more than offset subscription growth.
- Q2 segment revenue: connected machines $35.4 million, down 76%; subscriptions $67.6 million, up 33%; accessories and materials $80.7 million, down 41%. Six-month changes were down 66%, up 37%, and down 28%, respectively.
- Subscription gross margin was 91% in both Q2 and the first half, compared with 90% in the prior-year periods. Connected-machine margin was 2% in both 2022 periods, versus 21% in Q2 2021 and 18% in the prior-year first half. Accessories/materials margin declined to 29% in Q2 and 31% for six months, from 40% and 41%.
- Operating expenses were $65.4 million in Q2, slightly below prior year, and $133.0 million for six months, up 9%. Operating margin fell to 10.9% from 19.2% in Q2 and to 12.0% from 19.6% for the first half.
- Operating cash flow was positive $13.0 million for six months, versus negative $54.0 million a year earlier. Inventory used $64.8 million of cash, while accounts receivable released $118.4 million; accounts payable decreased $91.8 million.
- Cash and cash equivalents were $147.8 million and marketable securities $83.5 million at June 30, totaling $231.3 million. Total inventory was $515.8 million, including $31.5 million classified as non-current, compared with $454.2 million at year-end. Current liabilities were $193.1 million; current assets were $825.1 million.
- No borrowings were outstanding under the prior $150 million revolving facility at June 30, and the company reported $150 million available. Total liabilities were $218.3 million; the filing reports no term debt outstanding.
Changes, outlook, and notable items
- Management attributed weaker hardware demand to lower consumer demand and elevated channel inventory entering Q2. Accessories/materials weakness included lower EasyPress, Mug Press, and project-material sales, with increased competition cited as a factor.
- Higher freight and handling, sales incentives, warranty costs, excess and obsolete inventory, and end-of-life pricing pressured product margins. Management said it intends to carry higher inventory until supply-chain risks improve.
- Paid subscribers increased 34% year over year to 2.367 million; registered users increased to 7.192 million from 5.373 million. However, the share of users creating in the trailing 90 days declined to 51% from 59%. Subscription ARPU was $9.59 versus $9.83; accessories/materials ARPU was $11.45 versus $26.67.
- Management said pandemic-era demand was unusually high and expects a return to more typical seasonality, with historically higher second-half sales. It warned that revenue growth is declining, new-user growth has slowed, and paid subscribers could remain flat or decline in the near term. The filing gives no specific revenue or earnings guidance.
- The six-month tax provision included a $1.8 million discrete tax shortfall related to RSUs vesting as the share price declined. The company recorded no compensation expense for 2022 performance-based RSUs because achievement of their targets was not considered probable.
- Subsequent to quarter-end, Cricut entered a five-year, senior secured revolving credit facility of up to $300 million, with an option to seek up to $150 million more; it reported no borrowings as of August 9, 2022. The facility includes leverage and interest-coverage covenants. The board also authorized a share repurchase program of up to $50 million on July 19, 2022.
- The filing identifies risks including discretionary consumer demand and inflation, competition, channel inventory, supply-chain and freight costs, reliance on a primary contract manufacturer and key retail partners, tariffs, and cybersecurity/privacy exposure. No material pending legal proceeding was reported; management said it was not aware of contingencies expected to materially affect financial position, results, or liquidity. Cricut is a controlled company with dual-class voting stock.
Important facts for investors to verify
- Whether the steep decline in machine and accessories/materials sales reflects temporary post-pandemic normalization or continuing demand and competitive pressure.
- Inventory quality, channel inventory levels, and the extent of future discounting, obsolescence charges, or margin pressure.
- Whether subscription growth and user engagement can remain resilient as active-creation rates and subscription ARPU have declined.
- Cash generation and liquidity needs after the $50 million repurchase authorization, including use and covenant headroom under the new secured facility.
- The impact of the RSU-related tax item, performance-based awards, and the company’s dual-class voting control on reported results and shareholder rights.