Cricut, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the unaudited quarter and nine months ended September 30, 2022. Cricut sells connected crafting machines, subscriptions, and accessories and materials, supported by design software and a user community. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $177.0 | $260.1 | $605.5 | $918.4 |
| Gross profit / margin | $81.8 / 46.2% | $102.1 / 39.2% | $266.3 / 44.0% | $352.6 / 38.4% |
| Operating income / margin | $17.4 / 9.8% | $37.7 / 14.5% | $68.9 / 11.4% | $166.6 / 18.1% |
| Net income / margin | $12.4 / 7.0% | $30.0 / 11.5% | $49.8 / 8.2% | $128.5 / 14.0% |
| Diluted EPS | $0.06 | $0.13 | $0.23 | $0.59 |
| Operating cash flow | Not separately presented for the quarter | $0.6 | $(131.8) |
- Q3 revenue by segment: connected machines $52.4 million, down 49%; subscriptions $68.9 million, up 29%; accessories and materials $55.7 million, down 47% year over year. For the nine months, revenue fell 61%, rose 34%, and fell 33%, respectively.
- Q3 gross margin improved year over year, but operating income and net income declined as lower hardware and accessories sales outweighed subscription growth. Subscription gross margin was 91%; connected machines’ was 6%, and accessories and materials’ was 29%.
- Nine-month operating cash flow improved to near break-even from a $131.8 million outflow. The filing attributes the change mainly to a larger reduction in receivables and less cash used for inventory, partly offset by lower payables.
Financial position and liquidity
- At September 30, cash and cash equivalents were $124.2 million and marketable securities were $73.8 million, totaling $198.0 million in cash and securities. Cash alone was down from $241.6 million at year-end 2021; the company also invested in marketable securities during the period.
- Current assets were $803.2 million and current liabilities $154.0 million. Inventory was $510.6 million in total, including $26.8 million classified as non-current; current inventory was $483.7 million.
- No borrowings were outstanding under the new $300 million revolving credit facility; all $300 million was available. The five-year facility matures in August 2027, is secured by substantially all company assets, and includes leverage and interest-coverage covenants. The company reported covenant compliance.
- Stockholders’ equity was $742.7 million. The company repurchased 1.38 million shares for $10.0 million during the nine months under a $50 million authorization.
Material changes, outlook, and risks
- Management links weaker machine sales to higher channel inventory entering the period and lower consumer demand. It cites increased competition in project materials and higher sales incentives, freight, and handling costs as pressures on accessories and materials. Connected-machine margins also faced higher warranty costs and end-of-life pricing on certain products.
- Paid subscribers increased 35% year over year to 2.456 million, while users reached 7.457 million. However, the share of users creating in the trailing 90 days fell to 48% from 56%; accessories and materials ARPU fell to $7.61 from $18.79, and subscription ARPU to $9.40 from $9.60.
- The filing gives no specific revenue or earnings guidance. Management believes cash, securities, forecast operating cash generation, and available credit are sufficient for cash requirements over the next 12 months and beyond. It expects higher inventory levels to continue until supply-chain risks improve and notes that seasonality typically makes the fourth quarter important.
- Key stated risks include weaker discretionary demand, inflation and consumer confidence, competition, retailer/channel inventory, inventory forecasting and obsolescence, supply-chain and shipping costs, reliance on contract manufacturers and limited component suppliers, tariffs, and cybersecurity and privacy obligations. The company recorded a $6.2 million inventory-obsolescence provision in the first nine months.
- There were no material pending legal proceedings identified, although the company participates in a lawsuit challenging certain U.S. tariffs on China-origin products. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
- Unusual compensation item: 6.565 million performance-based RSUs were outstanding, with $153.0 million of unrecognized compensation cost; no expense was recorded for these awards in the nine months because achievement of performance conditions was not considered probable. Former CFO Martin Petersen retired effective September 30, 2022.
Investor verification points
- Check whether subscriber growth and engagement can translate into recurring revenue and whether the sharp decline in accessories and materials ARPU stabilizes.
- Monitor channel inventory, consumer demand, discounting, inventory levels and obsolescence reserves, and segment gross margins—especially connected machines and accessories and materials.
- Reconcile the low nine-month operating cash flow with working-capital movements and track cash plus marketable securities after inventory purchases and share repurchases.
- Review the $300 million secured credit facility’s covenants and availability, and the company’s stated liquidity outlook; no facility borrowing was outstanding at quarter-end.
- Assess the $50 million repurchase authorization, including the $10.0 million already spent, against investment needs and operating cash generation.
- Consider voting control: Class B shares carry five votes each, and Petrus and affiliates held approximately 68% of voting power as of September 30, 2022.