Cricut, Inc. — Q1 2021 Form 10-Q
Business context and period. Cricut designs and markets connected craft machines, design software and subscriptions, and craft accessories and materials. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. The company completed its IPO on March 29, 2021.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $323.8 million | $143.7 million |
| Gross profit / gross margin | $120.3 million / 37.1% | $44.8 million / 31.1% |
| Operating income / operating margin | $64.7 million / 20.0% | $17.5 million / 12.1% |
| Net income / diluted EPS | $49.4 million / $0.24 | $13.0 million / $0.06 |
| EBITDA / EBITDA margin (non-GAAP) | $68.6 million / 21.2% | $20.7 million / 14.4% |
| Cash from operating activities | $(22.0) million | $6.4 million |
Revenue grew 125% year over year. Connected machines generated $141.3 million (+148%); subscriptions $46.1 million (+141%); and accessories and materials $136.4 million (+102%). Gross margins improved in all three segments: connected machines 15% (from 9%), subscriptions 91% (from 85%), and accessories and materials 42% (from 34%).
Operating cash flow was negative despite higher net income, chiefly reflecting a $52.9 million inventory increase and a $48.3 million decrease in accounts payable, largely related to inventory purchasing and payments. Investing cash outflow was $7.8 million, primarily for property, equipment and software development.
Liquidity, debt and capital
At March 31, 2021, cash and cash equivalents were $337.5 million, versus $122.2 million at year-end 2020; current assets were $795.8 million and current liabilities $294.8 million. The company had no borrowings outstanding under its revolving credit facility and reported $137.3 million of borrowing availability. The facility has $150 million of lender commitments, is asset-based, and matures in September 2023; the company reported compliance with its covenants.
The IPO generated $242.7 million of net proceeds for Cricut from its sale of 13.25 million shares at $20 per share. Selling stockholders also sold shares. A partial underwriters’ option exercise on April 28 generated a further $18.1 million of net proceeds for the company, a subsequent event.
Changes, outlook and notable items
- Growth reflected increased consumer demand and product sales, higher paid subscribers (1.614 million versus 740,000), and the launch of the Mug Press. Users increased to 4.939 million from 2.803 million.
- Management said it expects near-term cost-of-revenue percentages to fluctuate amid global supply-chain challenges and continued investment. It expects research and development spending to grow near term, and sales and marketing spending to rise as it expands internationally and launches products.
- No specific revenue or earnings guidance was provided. Management said cash, operating cash flows and available credit should meet working-capital and capital-expenditure needs for at least 12 months.
- Stock-based compensation expense rose to $11.7 million from $1.4 million. Reorganization-related award modifications included $14.5 million of incremental compensation cost, of which $3.5 million was recognized in Q1, including a cumulative adjustment for prior vesting.
- Management identified COVID-19-driven demand as uncertain and warned growth could slow as restrictions ease and consumers return to normal routines. The filing also highlights seasonality, supply constraints and port delays, dependence on a primary China-based machine manufacturer and limited component suppliers, tariffs, and reliance on major retail partners. The top seven retail partners accounted for 52% of product revenue.
- The company reported no material pending legal proceedings and no contingencies management believed would materially affect financial position, results or liquidity. It joined a lawsuit challenging certain U.S. tariffs on China-origin products. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
- Class B shares carry five votes per share versus one vote for Class A. Petrus and affiliates held approximately 61.4% of voting power, and the company qualified as a controlled company.
Important facts for investors to verify
- Whether unusually rapid pandemic-era demand, subscriber growth and product engagement persist as restrictions ease.
- Whether inventory accumulation, supplier payment timing, shipping constraints and manufacturing concentration affect operating cash flow, product availability or margins.
- How much of future earnings may be affected by stock-based compensation, including the award modifications, and by public-company expenses.
- The company’s dependence on key retail partners, its exposure to tariffs and the status or financial relevance of its tariff litigation.
- The impact of dual-class voting control and the timing and effect of potential share sales following the IPO.