Cricut, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; year-over-year comparisons are to the corresponding 2020 periods. Financial amounts below are in U.S. dollars.
Business context
Cricut sells connected crafting machines, subscriptions and accessories and materials, supported by design apps and digital content. At June 30, 2021, it reported 5.373 million users and 1.765 million paid subscribers. The company completed its IPO in March 2021 and sold additional shares in April.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $334.5 million | $235.3 million | $658.3 million | $379.1 million |
| Gross profit / margin | $130.3 million / 39.0% | $73.3 million / 31.1% | $250.6 million / 38.1% | $118.1 million / 31.1% |
| Operating income / margin | $64.2 million / 19.2% | $45.8 million / 19.4% | $128.8 million / 19.6% | $63.2 million / 16.7% |
| Net income / margin | $49.1 million / 14.7% | $34.9 million / 14.8% | $98.5 million / 15.0% | $47.9 million / 12.6% |
| Diluted EPS | $0.22 | $0.17 | $0.46 | $0.23 |
| EBITDA, non-GAAP | $68.5 million | $49.2 million | $137.1 million | $69.9 million |
Q2 revenue increased 42%; first-half revenue increased 74%. First-half revenue by segment was $287.6 million from connected machines, $96.8 million from subscriptions and $273.9 million from accessories and materials. Subscription revenue grew fastest: 111% in Q2 and 124% for the first half.
At June 30, cash and cash equivalents were $314.1 million, including $283.3 million held in money market funds. Current assets were $924.9 million and current liabilities were $353.2 million. The company had no borrowings outstanding and reported $150 million available under its asset-based revolving facility, which matures in September 2023. It was in compliance with debt covenants. Total liabilities were $360.7 million.
First-half operating cash flow was negative $54.0 million, versus positive $115.3 million in 2020, mainly reflecting a $178.5 million inventory increase. Investing cash outflow was $16.1 million; financing provided $262.0 million, primarily from the IPO. Cash increased by $191.9 million during the period.
Changes versus prior comparable periods
- Q2 revenue growth was led by subscriptions (+111%), accessories and materials (+40%) and connected machines (+29%). First-half growth was 124%, 65% and 69%, respectively.
- Consolidated gross margin improved to 39.0% in Q2 from 31.1%; first-half margin rose to 38.1% from 31.1%. Management attributed segment margin gains to product mix, lower handling costs, tariff mitigation and improved cost leverage.
- Operating expenses rose substantially: Q2 R&D increased 139%, sales and marketing 146%, and general and administrative 129%. Management cited product development, product-launch marketing, hiring, stock compensation and public-company costs.
- Users grew from 3.274 million to 5.373 million and paid subscribers from 996,000 to 1.765 million. The share of users creating in the trailing 90 days declined from 63% to 59%; accessories and materials ARPU declined from $32.23 to $26.67, while subscription ARPU increased from $7.91 to $9.83.
- Inventory increased from $248.7 million at year-end 2020 to $426.9 million at June 30, 2021. Stock-based compensation expense was $19.8 million for the first half, versus $2.8 million a year earlier.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management said cash, operating cash flows and available credit were expected to cover working capital and capital expenditures for at least the next 12 months.
- Management expected near-term cost-of-revenue percentages to fluctuate amid global supply-chain challenges and investment. It planned to carry higher inventory until supply risks improved and warned that higher inventory and potential second-half 2021 promotions could pressure margins.
- The filing cautions that recent growth may not continue: demand benefited from the pandemic, and demand could ease as restrictions lift and work patterns normalize. Management also expects revenue growth rates to decline compared with prior years.
- Key exposures include reliance on a primary machine manufacturer and limited or sole-source components; microchip shortages, shipping and port delays, tariffs and manufacturing concentration in China and Malaysia; inventory forecasting and obsolescence; retailer and distributor concentration; competition and pricing; and seasonal sales patterns.
- Other material risks include dependence on user engagement and subscription renewals, product quality and warranty claims, cybersecurity and privacy obligations, international expansion and foreign exchange. The company identified no material pending legal proceeding, but disclosed ordinary-course claims and litigation and a lawsuit challenging U.S. tariffs on certain China-origin imports. Management said it was not aware of contingencies expected to materially affect financial position, results or liquidity.
- The company’s dual-class structure gives Class B shares five votes each; Petrus and affiliates held approximately 61.4% of voting power, and the company qualified as a controlled company. The filing also noted that 25% of each stockholder’s shares subject to lock-up restrictions could become available for sale on August 18, 2021.
Important facts for investors to verify
- Whether elevated inventory converts to sales without substantial discounting, write-downs or continuing working-capital pressure.
- Whether subscriber and user growth—and engagement, given the lower creating rate—remain durable after pandemic-related demand effects.
- Whether supply constraints, tariffs, freight costs and planned promotions affect product availability and gross margins.
- How operating expenses and stock-based compensation evolve; the filing reported $128.0 million of unrecognized equity-award compensation cost expected to be recognized over a weighted-average 3.4 years.
- The implications of the August 18, 2021 lock-up expiration, dual-class voting control and controlled-company governance exemptions.
- The IPO proceeds and share-count disclosures across the filing, including later share conversions and the August 5, 2021 outstanding-share figures.