Cricut, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Cricut sells connected crafting machines, subscriptions and accessories and materials. Its platform had 8.446 million registered users and 2.722 million paid subscribers at quarter-end.
Financial performance
Amounts in millions except per-share data. Comparisons are with the same 2022 period.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $177.8 | $183.8 | $359.0 | $428.5 |
| Gross profit | $87.7 | $85.4 | $164.3 | $184.4 |
| Gross margin | 49.3% | 46.5% | 45.8% | 43.0% |
| Operating income | $19.3 | $20.0 | $29.8 | $51.4 |
| Net income | $16.0 | $13.8 | $25.1 | $37.3 |
| Diluted EPS | $0.07 | $0.06 | $0.11 | $0.17 |
| Operating cash flow | Not separately provided | Not separately provided | $159.6 | $13.0 |
Q2 operating margin was 10.8% versus 10.9%; net margin was 9.0% versus 7.5%. For the first half, operating margin was 8.3% versus 12.0%; net margin was 7.0% versus 8.7%.
- Q2 revenue mix: Connected machines $37.3 million (+5%); subscriptions $76.1 million (+13%); accessories and materials $64.4 million (−20%).
- Cash and liquidity: June 30 cash and cash equivalents were $286.1 million and marketable securities $75.4 million. Current assets were $763.0 million and current liabilities $395.2 million.
- Debt: No revolver borrowings were outstanding; $300 million was available under the five-year facility. Cricut reported compliance with its covenants.
- Capital returns: A $1.00-per-share special dividend was declared in May. The $234.6 million aggregate obligation was recorded at June 30; Cricut reported paying $217.4 million in cash to shareholders on July 17. The company also repurchased $4.2 million of shares in the first half.
Changes versus prior year
- First-half revenue fell 16%, led by accessories and materials (−31%) and connected machines (−27%); subscription revenue rose 14% as paid subscribers increased 15% year over year.
- Q2 gross profit increased 3% despite lower revenue, with overall gross margin up about 2.8 percentage points. Connected-machine margin improved to 9% from 2%; subscription margin was 90% versus 91%; accessories and materials margin declined to 25% from 29%.
- First-half gross profit declined 11%. Accessories and materials margin fell to 18% from 31%, reflecting $8.6 million of Q1 excess project-material inventory write-downs, higher warehousing and operations costs, and promotions.
- First-half operating income declined 42%, while net income declined 33%. General and administrative expense rose 47% for the half, primarily due to higher bad-debt allowance, personnel and professional-services costs. The receivables allowance was $7.0 million at June 30, versus $0.4 million at year-end 2022.
- Operating cash flow increased substantially year over year, primarily reflecting lower inventory purchases and working-capital movements. Investing cash use was $12.8 million, versus $101.6 million, largely because the prior-year period included purchases of marketable securities. Financing cash use was $85.6 million, mainly dividends and share repurchases.
Outlook, commentary and risks
- Management said cash, securities, anticipated operating cash flow and available borrowing capacity should meet cash needs for the next 12 months and beyond. The filing provides no specific revenue or earnings guidance.
- Longer-term expense expectations include R&D at 7–8% of revenue, sales and marketing at 8–10%, and G&A at 3–4%. Cricut expected 2023 gross savings of approximately $4.6 million from its January restructuring in R&D, $1.1 million in sales and marketing, and $1.0 million in G&A. The restructuring included approximately 8% workforce reduction and $1.2 million of severance costs.
- Management identified softer consumer demand and lower sales volumes as factors affecting results. Users grew year over year, but the share creating in the trailing 90 days fell to 43% from 51%; creator count was approximately 3.652 million versus 3.670 million. Subscription ARPU declined to $9.13 from $9.59, and accessories and materials ARPU to $7.71 from $11.45.
- Key risks include discretionary-spending weakness, competition and pricing pressure, inventory forecasting and write-downs, reliance on a primary contract manufacturer and limited suppliers, tariffs and international exposure, retail-partner concentration, product quality, cybersecurity and privacy, and dependence on user engagement. Cricut also noted seasonality, with historically higher revenue in Q4.
- The company reported no material pending legal proceedings and no litigation contingencies management believed would materially affect its financial position, results or liquidity. It remains a plaintiff in litigation challenging certain U.S. tariffs. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether subscription growth and paid-subscriber retention can offset continued weakness in connected-machine and accessories-and-materials demand.
- Whether user engagement and ARPU stabilize, given declines in both creator participation and reported ARPU measures.
- How much of first-half operating cash flow reflects sustainable operations versus working-capital changes, and the cash position following the July dividend payment.
- Whether inventory write-downs, bad-debt costs and retailer receivable exposure recur; review inventory levels and the allowance for credit losses.
- Whether gross-margin recovery persists, particularly in accessories and materials, and whether management achieves its stated restructuring savings.
- Debt-facility covenant headroom and the terms governing any future dividends, alongside the company’s dependence on key suppliers and manufacturers.