Cricut, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the same 2020 periods. Cricut operates a creativity platform spanning connected machines, subscriptions, and accessories and materials. Financial amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $260.1m (+24%) | $209.0m | $918.4m (+56%) | $588.1m |
| Gross profit / margin | $102.1m / 39.2% | $89.6m / 42.8% | $352.6m / 38.4% | $207.6m / 35.3% |
| Operating income / margin | $37.7m / 14.5% | $57.7m / 27.6% | $166.6m / 18.1% | $120.9m / 20.6% |
| Net income / margin | $30.0m / 11.5% | $45.2m / 21.6% | $128.5m / 14.0% | $93.1m / 15.8% |
| Diluted EPS | $0.13 | $0.22 | $0.59 | $0.45 |
| EBITDA (non-GAAP) | $42.7m | $61.0m | $179.9m | $130.9m |
Revenue mix: Q3 connected machines revenue was $102.5m (+36%), subscriptions $53.3m (+71%), and accessories and materials $104.3m (+2%). Nine-month increases were 59%, 102%, and 41%, respectively. Q3 connected-machine gross margin fell to 14% from 23%, and accessories and materials margin to 38% from 43%; subscriptions margin was 89% versus 90%. For the nine months, segment margins were 17% (16%), 90% (88%), and 40% (38%), respectively.
Cash flow and balance sheet: Operating activities used $131.8m in the first nine months of 2021, compared with $187.4m provided in 2020. Investing used $28.3m; financing provided $262.0m, primarily IPO proceeds. Cash and cash equivalents were $224.0m at September 30, 2021, versus $122.2m at year-end 2020. Inventory rose to $524.6m from $248.7m. Total liabilities were $327.4m and stockholders’ equity $653.2m.
Debt and liquidity: No borrowings were outstanding under the $150m asset-based revolving facility; $150m was available, subject to borrowing-base requirements. The facility matures September 2023. Cricut reported covenant compliance and said existing cash, operating cash flow, and available credit should cover working capital and capital expenditures for at least 12 months. The filing reports no material off-balance-sheet arrangements.
Material changes and management commentary
- Q3 revenue grew, but net income fell 34% year over year as operating expenses increased substantially: R&D rose 106%, sales and marketing 122%, and G&A 65%. Q3 operating margin declined to 14.5% from 27.6%.
- Management attributed machine-margin pressure to promotions, sales incentives, and higher freight costs amid global supply-chain constraints. Accessories and materials margin was affected by product mix, freight, and incentives. Management expects near-term segment cost ratios to fluctuate as supply challenges and growth investments continue.
- The operating cash outflow chiefly reflected a $276.2m increase in inventory, built to support seasonal demand and mitigate shipping delays, along with higher prepaid expenses and lower accrued liabilities. Management said it intended to carry elevated inventory until supply-chain risks improve; inventory levels and promotions could pressure margins.
- The company completed its IPO in March 2021 and a partial over-allotment sale in April, receiving approximately $260.7m net in total. The nine-month cash-flow statement reports $262.0m of IPO proceeds net of offering costs.
- Users increased to 5.732m from 3.681m, and paid subscribers to 1.814m from 1.164m. However, the share of users creating in the trailing 90 days declined to 56% from 63%; accessories and materials ARPU fell to $18.79 from $29.41, while subscription ARPU rose to $9.60 from $8.97.
Outlook, risks, and unusual items
- The filing provides no specific revenue or earnings guidance. Management cautioned that recent growth may not persist and expects growth rates to decline; it noted that COVID-era demand may ease as restrictions lift and work patterns normalize.
- Key risks include supply and shipping disruptions, reliance on a primary contract manufacturer and limited or sole-source suppliers, tariffs and trade exposure, inventory forecasting, and dependence on major retail partners. The seven largest retail partners accounted for 55% of product revenue in the first nine months of 2021.
- Seasonality is significant: historically, the fourth quarter generated 36%–39% of annual revenue, with heavier promotions that can reduce gross margin. COVID-19 effects, consumer demand, competition, and execution of new products and international expansion add uncertainty.
- Stock-based compensation expense was $27.9m for the nine months, versus $5.0m a year earlier; the filing also describes IPO-related award modifications and $129.5m of unrecognized equity-award compensation cost.
- Cricut disclosed an ongoing complaint, joined with other plaintiffs, challenging U.S. tariffs on certain China-origin goods. Management said it was not aware of ordinary-course litigation contingencies expected to materially affect financial position, results, or liquidity; the company reported no material pending legal proceedings.
- The dual-class structure gives Class B shares five votes each; Petrus and affiliates held approximately 66% of voting power, and the company qualified as a controlled company. Management concluded disclosure controls were effective, while noting ordinary inherent limitations.
Important facts for investors to verify
- Whether the unusually large inventory build converts into seasonal sales or leads to markdowns, obsolescence, or further cash use.
- Whether freight, component availability, manufacturing capacity, and tariffs continue to constrain supply or reduce product margins.
- Whether lower user engagement and accessories-and-materials ARPU persist despite growth in users and paid subscribers.
- How operating expenses and stock-based compensation affect profitability as revenue growth moderates.
- The sustainability of COVID-era demand, the impact of fourth-quarter seasonality and promotions, and the concentration of sales among major retail partners.
- The amount of revolving credit actually available under borrowing-base terms, and developments in the tariff litigation and other contingencies.