Cricut, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Cricut, Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) As of June 30, 2022 As of December 31, 2021 (unaudited) Assets Current assets: Cash and cash equivalents $ 147,771 $ 241,597 Marketable securities 83,547 — Accounts receivable, net 81,061 199,508 Inventories 484,216 454,174 Prepaid expenses and other current assets 28,498 32,820 Total current assets 825,093 928,099 Property and equipment, net 63,112 53,261 Operating lease right-of-use asset 19,541 17,653 Intangible assets, net 1,140 1,520 Deferred tax assets 3,255 3,255 Other assets 34,458 2,462 Total assets $ 946,599 $ 1,006,250 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 113,554 $ 204,714 Accrued expenses and other current liabilities 43,028 69,351 Deferred revenue, current portion 31,261 30,547 Operating lease liabilities, current portion 5,257 3,755 Total current liabilities 193,100 308,367 Operating lease liabilities, net of current portion 16,709 15,780 Deferred revenue, net of current portion 3,913 4,858 Other non-current liabilities 4,617 3,269 Total liabilities 218,339 332,274 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, par value $ 0.001 per share, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021. — — Common stock, par value $ 0.001 per share, 1,250,000,000 shares authorized as of June 30, 2022, 222,186,359 shares issued and outstanding as of June 30, 2022; 1,250,000,000 shares authorized as of December 31, 2021, 221,913,559 shares issued and outstanding as of December 31, 2021. 222 222 Additional paid-in capital 734,787 717,369 Accumulated deficit ( 6,229 ) ( 43,560 ) Accumulated other comprehensive income (loss) ( 520 ) ( 55 ) Total stockholders’ equity 728,260 673,976 Total liabilities and stockholders’ equity $ 946,599 $ 1,006,250 See accompanying notes to these unaudited condensed consolidated financial statements. 4 Cricut, Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) (in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue: Connected machines $ 35,438 $ 146,326 $ 97,829 $ 287,646 Subscriptions 67,604 50,673 132,382 96,812 Accessories and materials 80,715 137,494 198,329 273,857 Total revenue 183,757 334,493 428,540 658,315 Cost of revenue: Connected machines 34,882 116,217 95,595 235,909 Subscriptions 6,181 5,285 12,433 9,583 Accessories and materials 57,266 82,696 136,064 162,258 Total cost of revenue 98,329 204,198 244,092 407,750 Gross profit 85,428 130,295 184,448 250,565 Operating expenses: Research and development 20,055 20,606 40,585 36,304 Sales and marketing 31,516 33,030 64,305 60,519 General and administrative 13,828 12,507 28,122 24,926 Total operating expenses 65,399 66,143 133,012 121,749 Income from operations 20,029 64,152 51,436 128,816 Total other income (expense), net 322 14 283 ( 15 ) Income before provision for income taxes 20,351 64,166 51,719 128,801 Provision for income taxes 6,524 15,040 14,388 30,257 Net income $ 13,827 $ 49,126 $ 37,331 $ 98,544 Other comprehensive income (loss): Change in net unrealized gains (losses) on marketable securities $ ( 343 ) $ — $ ( 343 ) $ — Change in foreign currency translation adjustment, net of tax ( 110 ) 4 ( 122 ) ( 9 ) Total other comprehensive income (loss): $ ( 453 ) $ 4 $ ( 465 ) $ ( 9 ) Comprehensive income $ 13,374 $ 49,130 $ 36,866 $ 98,535 Earnings per share, basic $ 0.06 $ 0.24 $ 0.17 $ 0.47 Earnings per share, diluted $ 0.06 $ 0.22 $ 0.17 $ 0.46 Weighted-average common shares outstanding, basic 214,852,256 208,205,162 213,634,584 207,760,027 Weighted-average common shares outstanding, diluted 220,791,640 222,947,030 221,199,963 216,403,427 See accompanying notes to these unaudited condensed consolidated financial statements. 5 Cricut, Inc. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) (in thousands, except share amounts) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance as of December 31, 2021 221,913,559 $ 222 $ 717,369 $ — $ ( 43,560 ) $ ( 55 ) $ 673,976 Net income — — — 23,504 — 23,504 Issuance of common stock upon vesting or exercise of stock-based awards, net of withholding tax 10,387 — ( 1,328 ) — — ( 1,328 ) Forfeiture of unvested common stock ( 114,332 ) — — — — — Stock-based compensation — — 10,500 — — 10,500 Compensatory units repurchased — — ( 14 ) — — ( 14 ) Other comprehensive loss — — — — ( 12 ) ( 12 ) Balance as of March 31, 2022 221,809,614 $ 222 $ 726,527 $ ( 20,056 ) $ ( 67 ) $ 706,626 Net income — $ — $ — $ 13,827 $ — $ 13,827 Issuance of common stock upon vesting or exercise of stock-based awards, net of withholding tax 500,237 $ — $ ( 3,218 ) $ — $ — $ ( 3,218 ) Forfeiture of unvested common stock ( 123,492 ) $ — $ — $ — $ — $ — Stock-based compensation — $ — $ 11,478 $ — $ — $ 11,478 Other comprehensive loss — $ — $ — $ — $ ( 453 ) $ ( 453 ) Balance as of June 30, 2022 222,186,359 $ 222 $ 734,787 $ ( 6,229 ) $ ( 520 ) $ 728,260 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance as of December 31, 2020 208,116,104 $ 208 $ 412,741 $ ( 184,033 ) $ 9 $ 228,925 Net income — — — 49,418 — 49,418 Capital contributions — — 200 — — 200 Initial public offering, net of offering costs 13,250,000 13 242,655 — — 242,668 Repurchase upon Corporate Reorganization ( 524 ) — ( 10 ) — — ( 10 ) Extinguishment of liability awards to equity — — 10,784 — — 10,784 Stock-based compensation — — 6,635 — — 6,635 Compensatory units repurchased — — ( 160 ) — — ( 160 ) Other comprehensive loss — — — — ( 13 ) ( 13 ) Balance as of Balance as of March 31, 2021 221,365,580 $ 221 $ 672,845 $ ( 134,615 ) $ ( 4 ) $ 538,447 Net income — $ — $ — $ 49,126 $ — $ 49,126 Issuance of common stock upon vesting or exercise of stock-based awards 64,566 $ — $ — $ — $ — $ — Forfeiture of unvested common stock ( 145,902 ) $ — $ — $ — $ — $ — Initial public offering, net of offering costs 968,815 $ 1 $ 18,019 $ — $ — $ 18,020 Stock-based compensation — $ — $ 8,015 $ — $ — $ 8,015 Other comprehensive income — $ — $ — $ — $ 4 $ 4 Balance as of June 30, 2021 222,253,059 $ 222 $ 698,879 $ ( 85,489 ) $ — $ 613,612 See accompanying notes to these unaudited condensed consolidated financial statements. 6 Cricut, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net income $ 37,331 $ 98,544 Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities: Depreciation and amortization (including amortization of debt issuance costs) 12,129 8,317 Stock-based compensation 19,360 19,795 Non-cash lease expense 2,406 1,887 Provision for inventory obsolescence 4,454 1,598 Other ( 59 ) ( 110 ) Changes in operating assets and liabilities: Accounts receivable 118,447 ( 659 ) Inventories ( 64,783 ) ( 178,527 ) Prepaid expenses and other current assets 4,237 ( 15,361 ) Other assets ( 594 ) 311 Accounts payable ( 91,840 ) 28,833 Accrued expenses and other current liabilities and other non-current liabilities ( 25,990 ) ( 20,560 ) Operating lease liabilities ( 1,861 ) ( 2,187 ) Deferred revenue ( 231 ) 4,124 Net cash and cash equivalents (used in) provided by operating activities 13,006 ( 53,995 ) Cash flows from investing activities: Purchase of marketable securities ( 84,601 ) — Proceeds from maturities of marketable securities 807 — Acquisitions of property and equipment, including capitalized software development costs ( 17,775 ) ( 16,124 ) Net cash and cash equivalents used in investing activities ( 101,569 ) ( 16,124 ) Cash flows from financing activities: Proceeds from capital contributions — 200 Proceeds from issuance of common stock upon initial public offering, net of offering costs — 262,007 Repurchase of compensatory units ( 14 ) ( 160 ) Repurchase of common stock upon Corporate Reorganization — ( 10 ) Proceeds from exercise of stock options 31 — Employee tax withholding payments on stock-based awards ( 5,048 ) — Payments on capital leases — ( 24 ) Net cash and cash equivalents (used in) provided by financing activities ( 5,031 ) 262,013 Effect of exchange rate on changes on cash and cash equivalents ( 232 ) ( 29 ) Net increase (decrease) in cash and cash equivalents ( 93,826 ) 191,865 Cash and cash equivalents at beginning of period 241,597 122,215 Cash and cash equivalents at end of period $ 147,771 $ 314,080 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ — $ 14 Cash paid during the period for income taxes $ 5,967 $ 52,410 Supplemental disclosures of non-cash investing and financing activities: Right-of-use assets obtained in exchange for new operating lease liabilities $ 4,307 $ 3,529 Property and equipment included in accounts payable and accrued expenses and other current liabilities $ 5,895 $ 3,118 Tax withholdings on stock-based awards included in accrued expenses and other current liabilities $ 388 $ — Stock-based compensation capitalized for software development costs $ 1,153 $ 673 Reclassification of liability awards to equity upon modification $ — $ 10,784 Leasehold improvements acquired through tenant allowances $ 752 $ — See accompanying notes to these unaudited condensed consolidated financial statements. 7 Cricut, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Description of Business and Basis of Presentation Nature of Business Cricut, Inc. (“Cricut” or the “Company”) is a designer and marketer of a creativity platform that enables users to turn ideas into professional-looking handmade goods. Using the Company’s versatile connected machines, design apps and accessories and materials, users create everything from personalized birthday cards, mugs and T-shirts to large-scale interior decorations. The Company’s connected machines and related accessories and materials and subscription services are primarily marketed under the Cricut brand in the United States, as well as Europe and other countries of the world. Headquartered in South Jordan, Utah, the Company is an innovator in its industry, focused on bringing innovative technology (automation and consumerization of industrial tools) to the craft, DIY and home décor categories. The Company’s condensed consolidated financial statements include the operations of its wholly owned subsidiaries, which are located throughout Europe and in the Asia-Pacific region. The Company designs, markets and distributes the Cricut family of products, including connected machines, design apps and accessories and materials. In addition, Cricut sells a broad line of images, fonts and projects for purchase à la carte. On September 2, 2020, Cricut converted from a Utah corporation to a Delaware corporation. In connection with such conversion, each share of Class A common stock, par value $ 0.01 , of the Utah corporation was exchanged for one share of common stock of the Delaware corporation, par value $ 0.001 . On March 11, 2021, the Company filed an Amended and Restated Certificate of Incorporation to effect a 64.2645654 -for-1 forward stock split of its outstanding common stock. The par value per share was not adjusted as a result of the forward stock split. All authorized, issued and outstanding shares of common stock, additional paid in capital and the related per share amounts contained in the condensed consolidated financial statements have been retroactively adjusted to reflect the forward stock split and change in par value for all prior periods presented. The Company organizes its business into the following three reportable segments: Connected Machines, Subscriptions, and Accessories and Materials. See Note 16, Segment Information, for further discussion of the Company’s segment reporting structure. Initial Public Offering and Corporate Reorganization The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on March 24, 2021 by the Securities and Exchange Commission (“SEC”), and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on March 25, 202 1. On March 29, 2021, the Company closed its IPO, in which the Company sold 13,250,000 shares of Class A common stock and the selling stockholders sold an additional 2,064,903 shares of Class A common stock at a price to the public of $ 20.00 per share. The Company received aggregate net proceeds of $ 242.7 million after deducting offering costs, underwriting discounts and commissions of $ 22.3 million. On April 28, 2021, the Company sold an additional 968,815 shares of Class A common stock and the selling stockholders sold an additional 150,984 shares of Class A common stock pursuant to the partial exercise of the underwriters’ option to purchase additional shares which generated net proceeds of $ 18.0 million after deducting for underwriting discounts and commissions of $ 1.4 million. Immediately prior to the IPO, the Company engaged in a series of related Corporate Reorganization transactions as follows: • Cricut, Inc. filed an amended and restated certificate of incorporation; and • Cricut Holdings, LLC, or Cricut Holdings, dissolved and liquidated in accordance with the terms and conditions of its then existing limited liability company agreement, pursuant to which the holders of existing units in Cricut Holdings (including holders of purchased units, incentive units, zero strike price incentive units, certain phantom units and options), or the Existing Unitholders, received 100 % of the capital stock of Cricut, Inc., its sole asset, at the time of the liquidation with a value implied by the initial public offering price of the shares of Class A common stock to be sold in this offering. Cricut Holdings ceased to exist following this transaction. 8 In connection with the Corporate Reorganization the outstanding stock based compensation awards issued by Cricut Holdings were modified or settled as described in Note 10 below. Upon filing the amended and restated certificate of incorporation, all of the Company’s historical Common Stock converted to Class B common stock. Shares of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to five votes per share and is convertible at any time into one share of Class A common stock. Basis of Presentation and Consolidation The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the annual report on Form 10-K for the fiscal year ended December 31, 2021 (The “Annual Report”). However, the Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading. The condensed consolidated financial statements include the accounts of Cricut, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited financial statements as of that date but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, cash flows and the changes in equity for the interim periods. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending December 31, 2022, or any other period. Certain prior year reported amounts have been reclassified to conform with the current period presentation. These reclassifications did not have a material impact on the Company's consolidated financial statements or related footnotes. There were no material changes to the Company's significant accounting policies during the six months ended June 30, 2022. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. For revenue recognition, examples of estimates and judgments include: determining the nature and timing of satisfaction of performance obligations, determining the standalone selling price (“SSP”) of performance obligations, estimating variable consideration such as sales incentives and product returns. Other estimates include the warranty reserve, allowance for doubtful accounts, inventory reserve, intangible assets and other long-lived assets valuation, legal contingencies, stock-based compensation, income taxes, deferred tax assets valuation and developed software, among others. These estimates and assumptions are based on the Company’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including any effects of the ongoing pandemic and the economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from these estimates. 9 Marketable Securities The Company designates investments in debt securities as available-for-sale. Available-for-sale debt securities with original maturities of three months or less from the date of purchase are classified within cash and cash equivalents. Available-for-sale debt securities with original maturities longer than three months are available to fund current operations and are classified as marketable securities, within current assets on the consolidated balance sheets. Available-for-sale debt securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. Realized gains and losses on the sale of marketable securities are determined using the average cost method on a first-in, first-out basis and recorded in total other income (expense), net in the condensed consolidated statements of operations and comprehensive income. The available-for-sale debt securities are subject to a periodic impairment review. For investments in an unrealized loss position, the Company writes down the amortized cost basis of the investment if it is more likely than not that the Company will be required or will intend to sell the investment before recovery of its amortized cost basis. For investments not likely to be sold before recovery of the amortized cost basis, the Company determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions, and reasonable and supportable forecasts of economic conditions. The Company recognizes an allowance for credit losses up to the amount of the unrealized loss when appropriate. Allowances for credit losses and write-downs are recognized in total other income (expense), net, and unrealized losses not related to credit losses are recognized in accumulated other comprehensive income (loss). There are no allowances for credit losses recorded for the periods presented. As of June 30, 2022, the gross unrealized losses on available-for-sale securities are related to market interest rate changes and not attributable to credit. Fair Value Measurement The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Money market funds and certain marketable securities are highly liquid investments and are actively traded. The pricing information for these assets is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy. Other marketable securities such as corporate bonds, commercial paper, U.S. Treasury and agency securities are valued using observable inputs from similar assets, or from observable data in markets that are not active; these assets are classified as Level 2 of the fair value hierarchy. There were no transfers between Levels 1, 2 or 3 for any of the periods presented. There were no liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021. Earnings Per Share Earnings per share is computed using the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A common stock and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of profits are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net income per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period. Stock-based awards subject to conditions other than service conditions are considered contingently issuable shares and are included in basic EPS based on the number of awards that would be issuable if the reporting date were the end of the contingency period. Inventories Inventories (current and non-current), which primarily consist of finished goods, are valued at the lower of average cost or net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Assessments to value the inventory at the lower of the average cost to purchase the inventory, or the net realizable value of the 10 inventory, are based upon assumptions about future demand, physical deterioration, changes in price levels and market conditions. As a result of the Company’s assessments, when the net realizable value of inventory is less than the carrying value, the inventory cost is written down to the net realizable value and the write down is recorded as a charge to cost of revenue. Inventories include indirect acquisition and production costs that are incurred to bring the inventories to their present condition and location. Inventories are recorded net of reserves for obsolescence. Once established, the original cost of the inventory less the related inventory reserve represents the new cost basis of such products. As needed, we complete strategic and market beneficial purchases of critical raw materials that are used in our core production process (such as microchips) in quantities that exceed anticipated consumption within our normal operating cycle, which is 12 months. We classify such raw materials that we do not expect to consume within our normal operating cycle as non-current within Other assets. 3. Revenue and Deferred Revenue Deferred revenue relates to performance obligations for which payments have been received from the customer prior to revenue recognition. Deferred revenue primarily consists of deferred subscription-based services. Deferred revenue also includes amounts allocated from the sale of a connected machine to the unspecified upgrades and enhancements and the Company’s cloud-based services. The Company had no material contract assets. The following table summarizes the changes in the deferred revenue balance for the six months ended June 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 (in thousands) Deferred revenue, beginning of period $ 35,405 $ 26,276 Recognition of revenue included in beginning of period deferred revenue ( 23,938 ) ( 18,805 ) Revenue deferred, net of revenue recognized on contracts in the respective period 23,707 22,930 Deferred revenue, end of period $ 35,174 $ 30,401 As of June 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was equal to the deferred revenue balance. The Company expects the following recognition of deferred revenue as of June 30, 2022: Year Ended December 31, 2022 (remainder of year) 2023 2024 2025 Total (in thousands) Revenue expected to be recognized $ 25,314 $ 7,847 $ 1,884 $ 129 $ 35,174 The Company’s revenue from contracts with customers disaggregated by major product lines, excluding sales-based taxes, are included in Note 16 under the heading “Segment Information.” Revenue recognized during the three and six months ended June 30, 2022 related to performance obligations satisfied or partially satisfied in prior periods was $ 0.3 million and $ 0.7 million, respectively. The following table presents the total revenue by geography based on the ship-to address for the periods indicated: 11 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) North America* $ 159,479 $ 306,173 $ 367,784 $ 596,510 International 24,278 28,320 60,756 61,805 Total revenue $ 183,757 $ 334,493 $ 428,540 $ 658,315 *North America revenue consists of revenues from the United States and Canada. 4. Cash, Cash Equivalents, and Financial Instruments The following table shows the Company’s cash, cash equivalents, and marketable securities by significant investment category as of June 30, 2022: As of June 30, 2022 Adjusted Cost Allowance for Credit Losses Total Unrealized Gains Total Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities (in thousands) Cash $ 128,989 $ — $ — $ — $ 128,989 $ 128,989 $ — Level 1: Commercial paper 27,842 — — ( 20 ) 27,822 16,635 11,187 Subtotal 27,842 — — ( 20 ) 27,822 16,635 11,187 Level 2: Corporate debt securities 47,408 — — ( 239 ) 47,169 2,147 45,022 U.S. treasury securities 27,422 — — ( 84 ) 27,338 — 27,338 Subtotal 74,830 — — ( 323 ) 74,507 2,147 72,360 Total $ 231,661 $ — $ — $ ( 343 ) $ 231,318 $ 147,771 $ 83,547 Marketable securities held as of June 30, 2022 generally mature over the next one to eighteen months . As of December 31, 2021 the Company had cash and cash equivalents of $ 241.6 million including $ 106.0 million in money market funds with no unrealized gains or losses. 5. Inventory Inventories are comprised of the following: As of June 30, 2022 As of December 31, 2021 (in thousands) Raw materials $ 34,659 $ 20,187 Finished goods 481,102 433,987 Total inventories $ 515,761 $ 454,174 Inventories current $ 484,216 $ 454,174 Inventories non-current (included in other assets) $ 31,545 $ — 12 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: As of June 30, 2022 As of December 31, 2021 (in thousands) Sales incentives $ 18,979 $ 36,969 Other accrued liabilities and other current liabilities 24,049 32,382 Total accrued expenses $ 43,028 $ 69,351 7. Revolving Credit Facility 2020 Credit Agreement In September 2020, the Company entered into the Credit Agreement with JPMorgan Chase Bank, N.A., Citibank, N.A. and Origin Bank. The Credit Agreement replaces the prior amended credit agreement with Origin Bank. The Credit Agreement provides for a three-year asset-based senior secured revolving credit facility of up to $ 150.0 million, maturing on September 4, 2023. During the term of the Credit Agreement, the Company may increase the aggregate amount of the Credit Facility by up to an additional $ 200.0 million, (for maximum aggregate lender commitments of up to $ 350.0 million), subject to the satisfaction of certain conditions under the Credit Agreement, including obtaining the consent of the administrative agent and an increased commitment from existing or new lenders. The Credit Facility may be used to issue letters of credit and for other business purposes, including working capital needs. The amount that can be borrowed under the Credit Facility is limited to the lesser of (a) the borrowing base minus the aggregate revolving exposure or (b) aggregate lender commitments at any given time. The borrowing base is determined according to certain percentages of eligible accounts receivable and eligible inventory (which may be valued at average cost, market value or net orderly liquidation value), subject to reserves determined by the administrative agent. At any time that the Company’s borrowing base is less than the aggregate lender commitments, the Company can only borrow revolving loans up to the amount of the Company’s borrowing base and not in the full amount of the aggregate lender commitments. As of June 30, 2022, no amount was outstanding under the Credit Agreement and available borrowings were $ 150.0 million. Generally, borrowings under the Credit Agreement bear interest at a rate based on LIBOR (“Adjusted LIBO rate”) or an alternative base rate (“ABR”), plus, in each case, an applicable margin. The applicable margin will range from (a) with respect to borrowings bearing interest at the ABR, 1.50 % to 2.00 %, and (b) with respect to borrowings bearing interest at the ABR (i) if the “REVLIBOR30 Screen Rate” (as defined in the Credit Agreement) is available for such period, 1.50 % to 2.00 %, or (ii) otherwise, 0.00 % to 0.50 %, in each case for the previous clauses (a) and (b), based on our “Fixed Charge Coverage Ratio” as defined in the Credit Agreement. The Credit Agreement contains financial covenants during the initial year of the agreement, requiring the Company to maintain a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing 12 month basis. The Company is also subject to this covenant in future periods if the available commitment is less than the greater of $ 15.0 million and 10 % of total commitment made by all lenders. Management has determined that the Company was in compliance with all financial and non-financial debt covenants as of June 30, 2022. As disclosed in Note 17, the 2020 Credit Agreement was replaced on August 4, 2022. 8. Income Taxes As required by Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” the Company computes interim period income taxes by applying an estimated annual effective tax rate to our year-to-date income from operations before income taxes, except for significant unusual or infrequently occurring items. The estimated effective tax rate is adjusted each quarter in accordance with ASC 740. The estimated annual effective tax rate was 32.1 percent and 27.8 percent for the three and six months ended June 30, 2022, respectively, and 23.4 percent and 23.5 percent for the three and six months ended June 30, 2021, respectively. The Company’s provision for income taxes was $ 6.5 million and $ 14.4 million, respectively, for the three and six ended June 30, 2022, and $ 15.0 million and $ 30.3 million, respectively, for the three and six 13 months ended June 30, 2021. The provision for income taxes varied from the tax computed at the U.S. federal statutory income tax rate for the periods presented primarily due to discrete tax items including a stock based compensation shortfall due to the decrease in stock price upon vesting. The Company reviews its deferred tax assets for realization based upon historical taxable income, prudent and feasible tax planning strategies, the expected timing of the reversals of existing temporary differences and expected future taxable income. The Company has concluded that it is more likely than not that the net deferred tax assets will be realized. Accordingly, the Company has not recorded a valuation allowance against net deferred tax assets for any of the periods presented. 9. Capital Structure As of June 30, 2022, the Company had authorized 100,000,000 shares of preferred stock, par value $ 0.001 per share, and 1,250,000,000 shares of common stock, par value $ 0.001 per share, which was divided between two series: Class A common stock and Class B common stock. As of June 30, 2022, the Company had 1,000,000,000 shares of Class A common stock and 250,000,000 shares of Class B common stock authorized and 44,050,301 shares of Class A common stock and 178,136,058 shares of Class B common stock issued and outstanding. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to five votes per share and is convertible at any time into one share of Class A common stock. During the six months ended June 30, 2022 and 2021, 5,653,017 and 2,215,887 shares of Class B common stock were converted to Class A common stock, respectively. 10. Stock-Based Compensation Stock-based Compensation Cost The following table shows the stock-based compensation cost by award type for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Equity classified awards Restricted stock units 8,424 4,479 15,250 4,775 Stock options 906 773 1,918 4,267 Class B common stock 2,148 2,763 4,810 5,608 Liability classified awards 22 1,004 ( 208 ) 7,045 Total stock-based compensation $ 11,500 $ 9,019 $ 21,770 $ 21,695 14 The following table sets forth the total stock-based compensation cost included in the Company’s condensed consolidated statements of operations and comprehensive income or capitalized to assets for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Cost of revenue Connected machines $ 9 $ 8 $ 12 $ 16 Subscriptions 107 52 159 88 Accessories and materials — — — — Total cost of revenue 116 60 171 104 Research and development 4,915 3,768 8,926 7,409 Sales and marketing 3,255 2,425 6,123 8,032 General and administrative 2,116 1,857 4,140 4,250 Total stock-based compensation expense $ 10,402 $ 8,110 $ 19,360 $ 19,795 Capitalized for software development costs 612 379 1,153 673 Capitalized to inventory 486 530 1,257 1,227 Total stock-based compensation $ 11,500 $ 9,019 $ 21,770 $ 21,695 As of June 30, 2022, there was $ 136.8 million of unrecognized stock-based compensation cost related to service-based awards which is expected to be recognized over a weighted-average period of 3.1 years. The total unrecognized compensation expense related to unvested performance-based restricted stock units (“PRSUs”) was $ 154.2 million as of June 30, 2022. Corporate Reorganization and Stock-Based Compensation Modifications In connection with the Corporate Reorganization, all outstanding awards issued under the Incentive Unit Plan discussed below were modified by exchanging the outstanding awards of Cricut Holdings for awards of the Company. All service based vesting conditions were unaffected by the modification. As described below, the vesting conditions were modified for certain awards which previously had both service and market based vesting conditions. All vested equity classified awards were settled in shares of the Company’s Class B common stock previously held by Cricut Holdings. Unvested equity classified awards were converted to restricted shares of the Company’s Class B common stock subject to future vesting, or in the case of options were converted into options to purchase the Company’s Class B common stock. All vested liability classified awards converted into either shares of Class B common stock to the extent permitted in each applicable jurisdiction or settled in cash. All unvested liability classified awards converted into restricted stock units (“RSUs”) under the 2021 Equity Incentive Plan that will vest into shares of Class A common stock of Cricut, Inc. to the extent permitted in each applicable jurisdiction or into restricted stock unit equivalents which will be settled in cash upon vesting as described below. In connection with the Corporate Reorganization and modification, the Company granted options under the 2021 Equity Incentive Plan to certain employees. The number of options was calculated based on the number of outstanding incentive units or incentive unit equivalents prior to the modification and the participation threshold of such awards. The vesting terms of the options are also based on the vesting terms of the original award. Therefore, the Company considered the exchange of the original award for the restricted shares or RSUs plus the options to be a single modification and began recognizing the incremental compensation cost of $ 14.5 million beginning in March 2021 over the vesting term, including a cumulative adjustment in March 2021 to recognize the incremental compensation cost associated with historical vesting. As part of the modification of outstanding awards in connection with the Corporate Reorganization, awards issued under the Incentive Unit Plan which included both service and market conditions were modified to remove the market vesting condition and to increase the participation threshold of the award to the price specified in the former market condition. In total, 3.0 million, 3.0 million, 1.0 million and 1.0 million awards which previously had a participation threshold of $ 2.00 , $ 2.00 , $ 5.00 and $ 5.00 per share, respectively, were modified to have a participation threshold of $ 3.00 , $ 4.00 , $ 6.00 and $ 7.00 per share, respectively. Incremental compensation cost associated with these awards is included in the total incremental compensation cost associated with the issuance of additional options to employees described above as this change was part of a single modification. 15 2021 Equity Incentive Plan In March 2021, the Company’s 2021 Equity Incentive Plan became effective. The 2021 Equity Incentive Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants. As of June 30, 2022, 31,895,729 shares of Class A common stock were reserved for issuance under this plan including shares reserved for previously granted awards discussed below as well as shares reserved for issuance of future awards under the plan. A summary of the Company’s service-based RSU activity under the 2021 Equity Incentive Plan is as follows: Number of RSUs Weighted- Average Grant Date Fair Value (per share) Outstanding at December 31, 2021 4,673,831 $ 23.84 Granted 2,895,550 $ 13.82 Vested ( 910,462 ) $ 22.60 Forfeited/cancelled ( 215,938 ) $ 22.09 Outstanding at June 30, 2022 6,442,981 $ 19.56 In 2022, the Company granted PRSUs under the 2021 Equity Incentive Plan to certain employees that represent shares potentially issuable in the future. The PRSUs vest in two equal tranches subject to the Company achieving cumulative adjusted earnings per share over eight quarters of $ 4.93 share and $ 6.16 per share, respectively, at any point during the 5-year performance period, subject to employees remaining with the Company through the vesting date. Adjusted earnings per share means GAAP net income adjusted to exclude income tax expenses, as well as stock-based compensation expense and payroll tax expense specifically related to the PRSU awards. A summary of the Company’s PRSU activity under the 2021 Equity Incentive Plan is as follows: Number of PRSUs (a) Weighted- Average Grant Date Fair Value (per share) Outstanding at December 31, 2021 — $ — Granted 6,655,000 $ 23.31 Forfeited/cancelled ( 40,000 ) $ 23.37 Outstanding at June 30, 2022 6,615,000 $ 23.31 a. Represents the maximum number of PRSUs assuming all performance targets are achieved. The expense recognized each period for these PRSUs is primarily dependent upon the Company’s estimate of the probability of achieving the performance targets. At June 30, 2022, the Company determined it was not probable any performance conditions would be achieved so no stock-based compensation was recorded for these PRSUs during the six months ended June 30, 2022. Options under the 2021 Equity Incentive Plan have a contractual term of 10 years. The exercise price of an incentive stock option and non-qualified stock option shall not be less than 100% of the fair market value of the shares on the date of grant. 16 A summary of the Company’s stock option activity under the 2021 Equity Incentive Plan is as follows: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 3,260,357 $ 20.00 5.8 $ 6,814 Exercised ( 1,535 ) $ 20.00 Forfeited/cancelled ( 13,004 ) $ 20.00 Outstanding at June 30, 2022 3,245,818 $ 20.00 5.3 $ — Vested and exercisable at June 30, 2022 1,578,208 $ 20.00 4.9 $ — In connection with the Corporate Reorganization, certain employees received restricted stock unit equivalents (“RSU equivalents”). Upon vesting, these awards are settled for a cash payment equal to the intrinsic value of the award on the date of the Corporate Reorganization plus the difference between the Company’s stock price on the vesting date less the base price specified at the time of the grant. As of June 30, 2022, the total recognized liability for these awards was $ 0.7 million. A summary of the RSU equivalent activity under the 2021 Equity Incentive Plan is as follows: Number of RSU Equivalents Weighted- Average Base Price Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 81,077 $ 20.00 $ 1,231 Granted 1,000 $ — Forfeited / Cancelled ( 7,141 ) $ 20.00 Outstanding at June 30, 2022 74,936 $ 19.73 $ 960 Unvested Class B Common Stock The Company’s unvested Class B common stock resulted from the Corporate Reorganization and is not part of the 2021 Equity Incentive Plan. Activity related to Class B common stock subject to future vesting for the six months ended June 30, 2022 is as follows: Number of Unvested Shares Weighted- Average Grant Date Fair Value (per share) Outstanding at December 31, 2021 10,854,859 $ 20.00 Vested ( 3,634,707 ) $ 20.00 Forfeited / Cancelled ( 227,783 ) $ 20.00 Outstanding at June 30, 2022 6,992,369 $ 20.00 17 Options to Purchase Class B Common Stock The Company’s options to purchase Class B common stock resulted from the Corporate Reorganization and are not part of the 2021 Equity Incentive Plan. A summary of the Company stock option activity for the options to purchase shares of Class B common stock is as follows: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 434,000 $ 9.04 3.9 $ 5,664 Forfeited / Cancelled ( 50,000 ) $ 9.04 Outstanding at June 30, 2022 384,000 $ 9.04 3.4 $ — Vested at June 30, 2022 — $ — N/A $ — 2021 Employee Stock Purchase Plan In March 2021, the Company’s 2021 Employee Stock Purchase Plan (“2021 ESPP”) became effective. Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute, through payroll deductions, up to 15 % of their eligible compensation to purchase the Company’s Class A common stock at a discounted price per share. As of June 30, 2022, 6,219,145 shares of our Class A common stock were available for sale under the 2021 ESPP. No offerings have been authorized to date by the administrator under the 2021 ESPP. If the administrator authorizes an offering period under the 2021 ESPP, the administrator will establish the duration of offering periods and purchase periods, including the starting and ending dates of offering periods and purchase periods, provided that no offering period may have a duration exceeding 27 months. 11. Commitments and Contingencies Litigation The Company is subject to certain outside claims and litigation arising in the ordinary course of business. Management is not aware of any contingencies which it believes will have a material effect on its financial position, results of operations or liquidity. 12. Leases Lease commitments The Company leases office space with lease terms ranging from 1 to 10 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease. In December 2021, the Company amended its operating lease for its corporate headquarters in South Jordan, Utah to extend the term through March 2027 and to reduce the annual rent rate for future periods. As a result of this amendment, the Company remeasured the associated operating lease liability and right-of-use asset for this lease. The Company also leased additional space at its corporate headquarters which commenced in January of 2022 under the same terms as its existing lease. The Company has determined its leases should be classified as operating leases. Variable lease costs are comprised primarily of the Company's proportionate share of operating expenses, property taxes, and insurance and are classified as lease cost due to the Company's election to not separate lease and non-lease components. The Company incurred operating lease costs of $ 1.3 million and $ 2.7 million for the three and six months ended June 30, 2022, respectively, and $ 1.2 million and $ 2.2 million for the three and six months ended June 30, 2021, respectively. The Company also incurred variable lease costs of $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2022, respectively, and nil for the three and six months ended June 30, 2021. 18 Cash paid for amounts included in the measurement of operating lease liabilities was $ 1.5 million and $ 2.8 million for the three and six months ended June 30, 2022, respectively, and $ 1.4 million and $ 2.5 million for the three and six months ended June 30, 2021, respectively. These amounts were included in net cash used in operating activities in the Company's consolidated statements of cash flows. As of June 30, 2022, the maturities of the Company's operating lease liabilities were as follows: Year Ending December 31, Operating Leases (in thousands) 2022 (remainder of the year) $ 2,848 2023 5,999 2024 5,518 2025 4,252 2026 3,798 Thereafter 967 Total minimum lease payments, net $ 23,382 Less: imputed interest $ ( 1,416 ) Present value of operating lease liabilities $ 21,966 Operating lease liabilities, current $ 5,257 Operating lease liabilities, non-current $ 16,709 As of June 30, 2022, the weighted average remaining operating lease term and the weighted average discount rate used to determine the operating lease liability were as follows: As of June 30, 2022 Weighted-average remaining lease term of operating leases 4.2 years Weighted-average discount rate of operating leases 2.6 % 13. Related Party Transactions For the three months ended June 30, 2022 and 2021, the Company received no capital contributions from its former parent company, Cricut Holdings. For the six months ended June 30, 2022 and 2021, the Company received capital contributions of nil and $ 0.2 million from its former parent company, Cricut Holdings. The equity offering was purchased by a subset of then current common unitholders of Cricut Holdings and employees of the Company. 14. Employee Benefit Plan The Company sponsors a 401(k) plan for the benefit of its employees who have attained at least 18 years of age. The Company matches 50 % of the first 12 % of an employee’s salary contributed to the plan on the first day of the month following their hire date. The Company contributed $ 0.6 million and $ 1.4 million for the three and six months ended June 30, 2022. The Company contributed $ 0.5 million and $ 1.2 million for the three and six months ended June 30, 2021, respectively. 19 15. Net Income Per Share The computation of net income per share is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands, except share and per share amounts) Basic earnings per share: Net income $ 13,827 $ 49,126 $ 37,331 $ 98,544 Shares used in computation: Weighted-average common shares outstanding, basic 214,852,256 208,205,162 213,634,584 207,760,027 Earnings per share, basic $ 0.06 $ 0.24 $ 0.17 $ 0.47 Diluted earnings per share: Net income $ 13,827 $ 49,126 $ 37,331 $ 98,544 Shares used in computation: Weighted-average common shares outstanding, basic 214,852,256 208,205,162 213,634,584 207,760,027 Weighted-average effect of potentially dilutive securities: Unvested common stock subject to forfeiture 5,439,764 12,593,087 6,841,217 7,005,901 Employee stock options 2,042 891,015 81,850 484,067 Restricted stock units 497,578 1,058,685 642,312 1,047,840 Underwriters’ option to purchase additional shares — 199,081 — 105,592 Diluted weighted-average common shares outstanding 220,791,640 222,947,030 221,199,963 216,403,427 Diluted net income per share $ 0.06 $ 0.22 $ 0.17 $ 0.46 The following potentially dilutive shares were excluded from the computation of diluted earnings per share for the periods presented because including them would have had an anti-dilutive effect: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Employee stock options 3,245,818 109,402 3,245,818 290,621 Restricted stock units 6,174,330 107,250 3,371,942 — Unvested common stock subject to forfeiture 1,062,247 — 511,094 — As of June 30, 2022, 6,615,000 PRSUs were not assessed for inclusion in diluted earnings per share, and any potential antidilutive shares were excluded from the table above because they are subject to performance conditions that were not achieved as of such date. 16. Segment Information The Company applies ASC Topic 280, Segment Reporting, in determining reportable segments for its financial statement disclosure. The Company’s operating segments are generally organized by the type of product or service offered. Similar operating segments have been aggregated into three reportable segments: Connected Machines, Subscriptions and Accessories and Materials. Segment information is presented in the same manner that the Company’s Chief Operating Decision Maker (“CODM”) reviews the results of operations in assessing performance and allocating resources. The CODM reviews revenue and gross profit for each of the reportable segments. Gross profit is defined as revenue less cost of revenue incurred by the segment. The Company does not allocate assets at 20 the reportable segment level as these are managed on an entity wide group basis. As of June 30, 2022, long-lived assets located outside the United States, primarily located in Malaysia and China, were $ 21.9 million. The Connected Machines segment derives revenue from the sale of its connected machine hardware and related essential software. The Subscriptions segment derives revenue primarily from monthly and annual subscription fees and a portion of the revenue allocated to unspecified future upgrades and enhancements related to the essential software and access to the Company’s cloud-based services. The Accessories and Materials segment primarily consists of craft, DIY, home décor products and heat presses including the Cricut EasyPress, Cricut Mug Press, and Cricut Autopress. There are no internal revenue transactions between the Company’s segments. Key financial performance measures of the segments including revenue, cost of revenue and gross profit are as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Connected Machines: Revenue $ 35,438 $ 146,326 $ 97,829 $ 287,646 Cost of revenue $ 34,882 $ 116,217 $ 95,595 $ 235,909 Gross profit $ 556 $ 30,109 $ 2,234 $ 51,737 Subscriptions: Revenue $ 67,604 $ 50,673 $ 132,382 $ 96,812 Cost of revenue $ 6,181 $ 5,285 $ 12,433 $ 9,583 Gross profit $ 61,423 $ 45,388 $ 119,949 $ 87,229 Accessories and Materials: Revenue $ 80,715 $ 137,494 $ 198,329 $ 273,857 Cost of revenue $ 57,266 $ 82,696 $ 136,064 $ 162,258 Gross profit $ 23,449 $ 54,798 $ 62,265 $ 111,599 Consolidated: Revenue $ 183,757 $ 334,493 $ 428,540 $ 658,315 Cost of revenue $ 98,329 $ 204,198 $ 244,092 $ 407,750 Gross profit $ 85,428 $ 130,295 $ 184,448 $ 250,565 17. Subsequent Events On August 4, 2022, the Company entered into a credit agreement (the “New Credit Agreement”) with JPMorgan Chase Bank, N.A, Citigroup N.A., PNC Bank, N.A., KeyBank, N.A., and other parties. The New Credit Agreement replaces the Company’s prior asset-based Credit Agreement with JPMorgan Chase Bank, N.A., Citigroup N.A., and Origin Bank. The New Credit Agreement provides for a five-year revolving credit facility (the “Credit Facility”) of up to $ 300.0 million, maturing on August 4, 2027. In addition, during the term of the New Credit Agreement, the Company may increase the aggregate amount of the Credit Facility by up to an additional $ 150.0 million, (for maximum aggregate lender commitments of up to $ 450.0 million), subject to customary conditions under the New Credit Agreement, including obtaining a consent from participating lenders (or another lender, if applicable) to such increase. The Credit Facility may be used to issue letters of credit and for other business purposes, including working capital needs. The New Credit Agreement is collateralized by substantially all of our assets and contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature. In particular, the New Credit Agreement will not permit the leverage ratio to be greater than 3.0 to 1.0, measured on the last day of any fiscal quarter. In addition, the New Credit Agreement will not permit the interest 21 coverage ratio to be less than 3.0 to 1.0, for any period of four consecutive quarters, measured on the last day of any fiscal quarter. On July 19, 2022, the Company’s Board of Directors approved a common stock repurchase program under which the Company may purchase shares of its outstanding Class A common stock up to an aggregate transactional value of $ 50 million, depending on the Company’s continuing analysis of market, financial, and other factors. The share repurchase program may be suspended or discontinued at any time and does not have a predetermined expiration date. 22