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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-40257
Cricut, Inc.
(Exact name of Registrant as specified in its charter)
Delaware87-0282025
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
10855 South River Front Parkway
South Jordan, Utah 84095
(385) 351-0633
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.001 per shareCRCTThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of May 6, 2021, the registrant had 16,434,702 shares of Class A Common Stock, and 205,753,791 shares of Class B Common Stock, outstanding.


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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risk and uncertainties. These forward-looking statements, which are subject to a number of risks, uncertainties and assumptions about us, generally relate to future events or our future financial or operating performance. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “target,” “project” or “contemplate” or the negative version of these words and other comparable terminology that concern our expectations, strategy, plans, intentions or projections. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to attract and engage users and attract and expand our relationships with brick-and-mortar and online retail partners and distributors;
our future results of operations, including trends in revenue, costs, operating expenses and key metrics;
our ability to compete successfully in competitive markets;
our expectations and management of future growth;
our ability to manage our supply chain, manufacturing, distribution and fulfillment, including the ability to forecast demand;
our ability to enter new markets and manage our expansion efforts, including internationally;
our ability to attract and retain management, key employees and qualified personnel;
our ability to effectively and efficiently protect our brand;
our ability to maintain, protect and enhance our intellectual property and not infringe upon others’ intellectual property;
our continued use of open source software;
our estimated Serviceable Addressable Market, or SAM, and Total Addressable Market, or TAM;
our ability to prevent serious errors, defects or vulnerabilities in our products and software;
the adequacy of our capital resources to fund operations and growth;
our anticipated uses of net proceeds from our initial public offering;
our ability to remain in compliance with laws and regulations that currently apply or become applicable to our business both domestically and internationally;
Petrus’ significant influence over us and our status as a “controlled company” under the rules of the Nasdaq Global Select Market, or the Exchange;
expectations regarding the impact of the COVID-19 pandemic, the related responses by governments and private industry on our business and financial condition, as well as the financial condition of our brick-and-mortar and online retail partners, online and e-commerce channels and users; and
the other factors identified under the section titled “Risk Factors” appearing elsewhere in this Quarterly Report on Form 10-Q.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. These statements are only predictions based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. There are important factors that could cause our actual results, events or circumstances to differ materially from the results, events or circumstances expressed or implied by the forward-looking statements, including those factors discussed in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. You should specifically consider
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the numerous risks outlined in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cricut, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
As of March 31, 2021As of December 31, 2020
(unaudited)
Assets
Current assets:
Cash and cash equivalents$337,472 $122,215 
Accounts receivable, net154,356 162,931 
Inventories301,776 248,745 
Prepaid expenses and other current assets2,225 4,916 
Total current assets795,829 538,807 
Property and equipment, net37,377 33,441 
Intangible assets, net2,090 2,280 
Deferred tax assets3,119 3,119 
Other assets1,772 3,753 
Total assets$840,187 $581,400 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$203,828 $251,658 
Accrued expenses and other current liabilities66,409 71,324 
Deferred revenue, current portion24,551 23,518 
Total current liabilities294,788 346,500 
Deferred revenue, net of current portion3,454 2,758 
Other non-current liabilities3,498 3,217 
Total liabilities301,740 352,475 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021. No shares issued, authorized or outstanding as of December 31, 2020.
  
Common stock, par value $0.001 per share, 1,250,000,000 shares
authorized as of March 31, 2021, 221,365,580 shares issued and outstanding as of March 31, 2021; 257,058,262 shares authorized as of
December 31, 2020, 208,116,104 shares issued and outstanding as of December 31, 2020
221 208 
Additional paid-in capital672,845 412,741 
Accumulated deficit(134,615)(184,033)
Accumulated other comprehensive income (loss)(4)9 
Total stockholders’ equity538,447 228,925 
Total liabilities and stockholders’ equity$840,187 $581,400 
See accompanying notes to these unaudited condensed consolidated financial statements.
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Cricut, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended March 31,
20212020
Revenue:
Connected machines$141,320 $56,888 
Subscriptions46,139 19,180 
Accessories and materials136,363 67,655 
Total revenue323,822 143,723 
Cost of revenue:
Connected machines119,692 51,577 
Subscriptions4,298 2,841 
Accessories and materials79,562 44,537 
Total cost of revenue203,552 98,955 
Gross profit120,270 44,768 
Operating expenses:
Research and development15,698 9,171 
Sales and marketing27,489 12,447 
General and administrative12,419 5,700 
Total operating expenses55,606 27,318 
Income from operations64,664 17,450 
Other expense, net(29)(574)
Income before provision for income taxes64,635 16,876 
Provision for income taxes15,217 3,836 
Net income$49,418 $13,040 
Other comprehensive income (loss):
Foreign currency translation adjustment(13)98 
Comprehensive income49,405 13,138 
Net income$49,418 $13,040 
Earnings per share, basic$0.24 $0.06 
Earnings per share, diluted$0.24 $0.06 
Weighted-average common shares outstanding, basic207,309,946 208,116,104 
Weighted-average common shares outstanding, diluted208,458,352 208,116,104 
See accompanying notes to these unaudited condensed consolidated financial statements.
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Cricut, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share amounts)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
SharesAmount
Balance as of December 31, 2020208,116,104 $208 $412,741 $(184,033)$9 $228,925 
Net income— — — 49,418 — 49,418 
Capital contributions— — 200 — — 200 
Initial public offering, net of offering costs13,250,000 13 242,655 — — 242,668 
Repurchase upon Corporate Reorganization(524)— (10)— — (10)
Reclassification of liability awards to equity upon modification
— — 10,784 10,784 
Stock-based compensation— — 6,635 — — 6,635 
Compensatory units repurchased— — (160)— — (160)
Other comprehensive loss— — — — (13)(13)
Balance as of March 31, 2021221,365,580 $221 $672,845 $(134,615)$(4)$538,447 
Common stockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
SharesAmount
Balance as of December 31, 2019208,116,104 $208 459,573 (338,611)(28)121,142 
Net income— — — 13,040 — 13,040 
Capital contributions— — 1,083 — — 1,083 
Stock-based compensation— — 1,379 — — 1,379 
Compensatory units repurchased— — (732)— — (732)
Other comprehensive income— — — — 98 98 
Balance as of March 31, 2020208,116,104 $208 $461,303 $(325,571)$70 $136,010 
See accompanying notes to these unaudited condensed consolidated financial statements.
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Cricut, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net income$49,418 $13,040 
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)
3,956 3,246 
Stock-based compensation11,685 1,446 
Provision for inventory obsolescence605 2,580 
Provision for doubtful accounts(109)467 
Changes in operating assets and liabilities:
Accounts receivable8,684 (12,707)
Inventories(52,939)31,968 
Prepaid expenses and other current assets2,680 448 
Other assets(30)38 
Accounts payable(48,317)(43,289)
Accrued expenses and other current liabilities and other non-current
   liabilities
675 8,273 
Deferred revenue1,729 927 
Net cash and cash equivalents (used in) provided by operating
   activities
(21,963)6,437 
Cash flows from investing activities:
Acquisitions of property and equipment, including costs capitalized for
development of internal use software
(7,839)(7,753)
Net cash and cash equivalents used in investing activities(7,839)(7,753)
Cash flows from financing activities:
Proceeds from capital contributions200 1,083 
Proceeds from issuance of common stock upon initial public offering, net of offering costs245,082  
Repurchase of compensatory units(160)(732)
Repurchase of common stock upon Corporate Reorganization
(10) 
Payments on term loan (1,250)
Drawdowns on revolving loan 169,426 
Payments on revolving loan (131,792)
Payments on capital leases(14)(25)
Net cash provided by financing activities245,098 36,710 
Effect of exchange rate on changes on cash and cash equivalents(39)83 
Net increase in cash and cash equivalents215,257 35,477 
Cash and cash equivalents at beginning of period122,215 6,653 
Cash and cash equivalents at end of period$337,472 $42,130 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$9 $591 
Cash paid during the period for income taxes$789 $ 
Supplemental disclosures of non-cash investing and financing
activities:
Property and equipment included in accounts payable and accrued
expenses and other current liabilities
$2,085 $1,061 
Stock-based compensation capitalized for software development costs$294 $77 
Deferred offering costs in accounts payable and accrued expenses and
other current liabilities
$1,096 $ 
Reclassification of liability awards to equity upon modification$10,784 $ 
See accompanying notes to these unaudited condensed consolidated financial statements.
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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, 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 13, 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, 2021. 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 $18.1 million after deducting for underwriting discounts and commissions of $1.3 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.
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In connection with the Corporate Reorganization the outstanding stock based compensation awards issued by Cricut Holdings were modified or settled as described in Note 8 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 final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, (the "Securities Act"), on March 25, 2021 (the "Prospectus"). 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, 2020, included herein, 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 months ended March 31, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending December 31, 2021, or any other period.
Except as described elsewhere in Note 2 below, there have been no material changes to the Company's significant accounting policies as described in the Company’s Prospectus.
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 internally 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.
Deferred Offering Costs
The Company recorded deferred offering costs of $1.9 million as other assets on the consolidated balance sheet as of December 31, 2020 and consist of costs incurred in connection with the Company’s IPO, including legal,
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accounting, printing and other IPO-related costs. Upon completion of the IPO, these deferred offering costs were reclassified to stockholders’ equity and recorded against the proceeds from the offering.
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 are highly liquid investments and are actively traded. The pricing information for the Company’s money market funds are 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. There were no transfers between Levels 1, 2 or 3 for any of the periods presented. As of March 31, 2021 and December 31, 2020, the Company held $319.1 million and $106.0 million in money market funds, respectively, with no unrealized gains or losses.
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 and Stock-Equivalent Compensation
The Company records compensation expense for all stock-based awards granted based on the fair value of the award at the time of the grant. Stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis for awards with only a service condition. The graded vesting method is used for awards that have service and other conditions. Forfeitures are accounted for as they occur.
The Company estimates the fair value of awards with time-based or performance-based vesting provisions using the Black-Scholes method. The fair value of awards subject to market conditions is estimated using a Geometric Brownian Motion Stock Path Monte Carlo Simulation (“Monte Carlo Simulation”). The determination of the grant date fair value of the awards issued is affected by a number of variables, including the fair value of the underlying shares or units, the expected price volatility over the expected life of the awards, the expected term of the award, risk-free interest rates, the expected dividend yield of the underlying units and the likelihood of termination.

The Company has limited publicly available stock information and therefore, the Company uses the historical volatility of the stock price of similar publicly traded peer companies. The Company estimates the expected term using the simplified method for “plain vanilla” stock option awards or based on the expected time to a liquidation event or other transaction that would result in settlement of other awards. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield is 0.0% as the Company does not anticipate paying dividends, and the Company and its former parent, Cricut Holdings, have not paid dividends other than a one-time dividend paid in 2020. Likelihood of termination for the Monte Carlo Simulation is estimated based upon both historical turnover and anticipated turnover based upon Company or market pressures.
3.Revenue and Deferred Revenue
Deferred revenue relates to performance obligations for which payments have been received by the customer prior to revenue recognition. Deferred revenue primarily consists of deferred subscription-based services. Deferred revenue also includes amounts allocated to the unspecified upgrades and enhancements and the Company’s cloud-based services. The Company had no material contract assets.
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The following table summarizes the changes in the deferred revenue balance (in thousands):
March 31,
2021
March 31,
2020
(in thousands)
Deferred revenue, beginning of period$26,276 $14,566 
Recognition of revenue included in beginning of period
deferred revenue
(14,389)(7,212)
Revenue deferred, net of revenue recognized on contracts in
the respective period
16,118 8,140 
Deferred revenue, end of period$28,005 $15,494 
As of March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was equal to the deferred revenue balance.
The Company expected the following recognition of deferred revenue as of March 31, 2021:
Year Ended December 31,
2021 (remainder of year)20222023Total
(in thousands)
Revenue expected to be recognized$23,846 $2,579 $1,580 $28,005 
The Company’s revenue from contracts with customers disaggregated by major product lines, excluding sales-based taxes, are included in Note 13 under the heading “Segment Information.”
Revenue recognized during the three months ended March 31, 2021 related to performance obligations satisfied or partially satisfied in prior periods was $0.6 million.
The following table presents the total revenue by geography based on the ship-to address for the periods indicated:
Three Months Ended March 31,
20212020
(in thousands)
North America*$290,337 $134,248 
International33,485 9,475 
Total revenue$323,822 $143,723 
*Consists of United States and Canada
4.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
As of
March 31,
2021
As of
December 31,
2020
(in thousands)
Customer rebates$23,000 $30,295 
Other accrued liabilities and other current liabilities43,409 41,029 
Total accrued expenses$66,409 $71,324 
5.Revolving Credit Facility
2020 Credit Agreement
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In September 2020, the Company entered into the New Credit Agreement with JPMorgan Chase Bank, N.A., Citibank, N.A. and Origin Bank. The New Credit Agreement replaces the prior amended Credit Agreement with Origin Bank. The New 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 New Credit Agreement, the Company may increase the aggregate amount of the New 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 New Credit Agreement, including obtaining the consent of the administrative agent and an increased commitment from existing or new lenders. The New 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 New 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 March 31, 2021, no amount was outstanding under the New Credit Agreement and available borrowings were $137.3 million.
Generally, borrowings under the New 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 New 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 New Credit Agreement.
The New 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 commitments 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 March 31, 2021.
6.Income Taxes
As required by ASC 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 23.5 percent and 22.7 percent for the three months ended March 31, 2021 and March 31, 2020, respectively, resulting in a year-to-date provision for income taxes of $15.2 million and $3.8 million, respectively. 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 state taxes. The Company reported no significant discrete tax items.

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 the three months ended March 31, 2021.
7.Capital Structure
In connection with the Corporate Reorganization prior to the IPO, the Company filed an amended and restated certification of incorporation which 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. All previously outstanding common stock was reclassified as Class B common stock. During the quarter, 2,064,903 shares of Class B common stock converted to Class A
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common stock. As of March 31, 2021, 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 15,314,903 shares of Class A common stock and 206,050,677 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.
8.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
March 31, 2021
Three Months Ended
March 31, 2020
(in thousands)
Equity classified awards$6,635 $1,378 
Liability classified awards6,041 203 
Total stock-based compensation$12,676 $1,581 
The following table sets forth the total stock-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive income for the periods indicated:
Three Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
(in thousands)
Cost of revenue
Connected machines$8 $2 
Subscriptions36 9 
Accessories and materials  
Total cost of revenue44 11 
Research and development3,641 760 
Sales and marketing5,607 457 
General and administrative2,393 218 
Total stock-based compensation expense$11,685 $1,446 
During the three months ended March 31, 2021 and 2020, the Company capitalized $0.7 million and $0.1 million of stock-based compensation to inventories, respectively.
As of March 31, 2021, there was $64.4 million of unrecognized stock-based compensation cost related to equity awards which is expected to be recognized over a weighted-average period of 3.5 years.
As of March 31, 2021, there was $0.9 million of unrecognized stock-based compensation cost related to liability classified awards which is expected to be recognized over a weighted-average period of 3.5 years.
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
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common stock to the extent permitted in each applicable jurisdiction or settled in cash. All unvested liability classified awards converted into 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 will recognize the incremental compensation cost of $14.5 million over the vesting term. Of this amount, the Company recognized $3.5 million during the three months ended March 31, 2021, including a cumulative adjustment 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.
These modifications are shown as cancellations under the Incentive Unit Plan and as grants under the activity summarized below.
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 March 31, 2021, 20,800,000 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 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, 2020 $ 
Granted1,124,862 $20.00 
Outstanding at March 31, 20211,124,862 $20.00 
Options under the 2021 Equity Incentive Plan have a contractual term of 10 years. The exercise price of an ISO and NSO shall not be less than 100% of the fair market value of the shares on the date of grant.
A summary of the Company’s stock option activity under the 2021 Equity Incentive Plan is as follows:
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Number of
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Terms
(Years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2020 $ — $ 
Granted3,419,359 20.00 
Outstanding at March 31, 20213,419,359 $20.00 8.7$ 
Vested and exercisable at March 31, 2021738,570 $20.00 7.9$ 
The weighted-average grant date fair value of options granted under the 2021 Equity Incentive Plan during the three months ended March 31, 2021 was $8.79 per share based on the following weighted-average assumptions:

Three Months Ended
March 31, 2021
Expected volatility51.6 %
Risk-free interest rate0.8 %
Expected term (in years)4.9
Expected dividend %

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 difference between the Company’s stock price on the vesting date less the base price specified at the time of the grant. As of March 31, 2021 the total recognized liability for these awards was $0.5 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, 2020 $ $ 
Granted94,304 6.14 
Outstanding at March 31, 202194,304 $6.14 $1,448 
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 three months ended March 31, 2021 is as follows:
Number of
Unvested Shares
Weighted-
Average
Grant Date Fair Value (per share)
Outstanding at December 31, 2020 $ 
Granted14,037,505 $20.00 
Outstanding at March 31, 202114,037,505 $20.00 
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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
Terms
(Years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2020 $ — $ 
Granted522,000 $9.04 
Outstanding at March 31, 2021522,000 $9.04 9.7$5,590 
Vested at March 31, 20212,000 $9.04 0.7$21 
The weighted-average grant date fair value of options to purchase Class B common stock during the three months ended March 31, 2021 was $13.42 per share based on the following weighted-average assumptions:

Three Months Ended
March 31, 2021
Expected volatility51.4 %
Risk-free interest rate0.8 %
Expected term (in years)5.5
Expected dividend %

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 March 31, 2021, 4,000,000 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.
Incentive Unit Plan
The Company’s former parent, Cricut Holdings, authorized an Incentive Unit Compensation Plan (the “IU Plan”) that allowed for issuances of CIUs. The participation threshold of the awards granted under the IU Plan was typically equal to the fair market value of Cricut Holdings’ membership units at the date of the grant, except zero strike price incentive unit awards which have no participation threshold. Except as noted below, all awards issued under the IU Plan only had service-based conditions. Per unit amounts in the activity below are based on the value of Cricut Holdings’ units.
Equity Classified Units
The Company’s former parent, Cricut Holdings, granted CIUs to employees of the Company. These awards vested 25% annually over four years of service. The Company’s former parent also granted a performance-based incentive unit, which is discussed later. These awards are collectively referred to as equity classified incentive units. Once vested, all equity classified incentive units remained outstanding until the liquidation of Cricut Holdings or until repurchased by Cricut Holdings. Upon the liquidation of Cricut Holdings all outstanding awards were settled or modified as described above.
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A summary of the equity classified incentive units activity for the three months ended March 31, 2021 is as follows:
Equity
Incentive
Units
Weighted-
Average
Participation
Threshold
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 202093,371,324 $0.97 $600,316 
Granted1,548,223 $ 
Exercised $ 
Forfeited(82,500)$1.29 
Cancelled upon Corporate Reorganization(94,837,047)$0.95 
Outstanding at March 31, 2021 $ $ 
Vested at March 31, 2021 $ $ 
The following table summarizes the unvested equity classified incentive units activity for the three months ended March 31, 2021:
Number of
Awards
Weighted-
Average
Grant Date Fair
Value Per Unit
Unvested at December 31, 202037,116,025 $0.74 
Granted1,548,223 $9.06 
Vested(7,123,673)$0.40 
Forfeited(82,500)$0.79 
Cancelled upon Corporate Reorganization(31,458,075)$1.23 
Unvested at March 31, 2021 $ 
The total fair value of equity classified incentive units vested during the three months ended March 31, 2021 was $3.1 million.
The grant date fair value of CIUs granted during the three months ended March 31, 2021 was equal to the estimated fair value of Cricut Holdings’ common unit on the date of the grant as all CIUs had no participation threshold.
Equity Classified Options
The Company’s former parent, Cricut Holdings, granted employees of the Company options to purchase zero strike price incentive units. These options generally vested on a cliff basis upon completion of the service period specified for each award. All outstanding options of Cricut Holdings were exchanged for options to purchase class B common stock of Cricut Inc. in connection with the Corporate Reorganization. A summary of option activity for the three months ended March 31, 2021 is as follows:
Number of
Options
Weighted-
Average
Exercise Price
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 20201,140,000 $4.52 $3,283 
Granted27,027 $7.40 
Exercised(27,027)$7.40 $52 
Forfeited(84,000)$4.52 
Cancelled upon Corporate Reorganization(1,056,000)$4.52 
Outstanding at March 31, 2021 $ $ 
Vested at March 31, 2021 $ $ 
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Liability Classified Incentive Unit Equivalents
The Company’s former parent issued incentive unit equivalents (phantom units) to various employees under the Incentive Unit Plan. The incentive unit equivalents paid out upon the occurrence of a liquidation event such as a change in control transaction. In addition, the units did not participate until the sum of distributions and capital appreciation of the common units from the date of grant of the incentive units equaled a specified participation threshold per unit. The incentive unit equivalents did not represent any kind of legal equity interest in the Company or the former parent Company and required cash settlement. Accordingly, the incentive unit equivalent awards were accounted for as liability classified awards and required initial and subsequent measurement at fair value.
Initially, during the three months ended March 31, 2020, these awards generally vested 12.5% annually for each of the first four years of service and 50% after the fifth year of service. Following the amendment of these awards in January 2020, these awards vested 25% annually over four years of service. All liability classified incentive units had indefinite contract terms and, once vested, remained outstanding until liquidation of Cricut Holdings or until repurchased by Cricut Holdings. Upon the liquidation of Cricut Holdings all outstanding awards were settled or modified as described above.
A summary of the liability classified incentive unit equivalents activity for the three months ended March 31, 2021 is as follows:
Liability
Incentive
Equivalents
Weighted-
Average
Participation
Threshold
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 20202,851,516 $2.13 $15,017 
Granted320,000 $ 
Forfeited(4,000)$ 
Cancelled upon Corporate Reorganization(3,167,516)$1.92 
Outstanding at March 31, 2021 $ $ 
Exercisable at March 31, 2021 $ $ 
Vested and expected to vest at March 31, 2021 $ $ 
The following table summarizes the unvested liability classified incentive unit equivalents activity for the three months ended March 31, 2021:
Number of
Awards
Weighted-
Average
Grant Date Fair
Value Per Unit
Unvested at December 31, 20202,851,516 $1.74 
Granted320,000 $8.19 
Forfeited(4,000)$6.58 
Cancelled upon Corporate Reorganization(3,167,516)$2.39 
Unvested at March 31, 2021 $ 
The Company estimated the fair value of liability classified incentive unit equivalents upon the modification or settlement as part of the Corporate Reorganization based on the estimated fair value of the awards received to settle the liability. The cumulative adjustment upon settlement or modification is included in stock-based compensation related to liability awards above.
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Liability classified incentive unit equivalents were included in accrued expenses per the Company’s consolidated balance sheets and the rollforward of this liability is as follows (in thousands):
Balance at December 31, 2020$5,702 
Stock-based compensation during period$6,041 
Settlement or modification of awards$(11,743)
Balance at March 31, 2021$ 
9.Commitments and Contingencies
Lease commitments
Operating lease payments primarily relate to office and warehousing space and leases of computer equipment under operating leases. The leases provide for monthly payments with expirations through July 31, 2025. Certain of these arrangements include free rent, landlord incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs or defined rent increases.
The Company leases certain equipment and furniture under capital leases. Future minimum lease payments under non-cancellable capital leases at March 31, 2021 were immaterial. The future minimum lease payments under non-cancellable operating leases at March 31, 2021 were as follows:
Year Ending December 31,
Operating
Leases
(in thousands)
2021 (remainder of the year)$3,262 
20223,955 
20233,874 
20243,850 
20252,228 
Thereafter 
Total minimum lease payments, net$17,169 
Rent expense totaled $1.0 million and, $1.2 million for the three months ended March 31, 2021 and 2020, respectively. Sublease rental income was nil and $0.2 million for three months ended March 31, 2021 and 2020, respectively.
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.
10.Related Party Transactions
During the three months ended March 31, 2021 and 2020 respectively the Company received $0.2 million and $1.1 million of capital contributions from its former parent company, Cricut Holdings, as a result of additional common units issued by Cricut Holdings at the estimated fair value of the underlying units. The equity offering was purchased by a subset of then current common unitholders of Cricut Holdings and employees of the Company.
11.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
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the month following their hire date. The Company contributed $0.7 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively.
12.Net Income Per Share
The computation of net income per share is as follows:
Three Months Ended March 31,
20212020
(in thousands, except share and per share amounts)
Basic earnings per share:
Net income$49,418 $13,040 
Shares used in computation:
Weighted-average common shares outstanding, basic207,309,946 208,116,104 
Earnings per share, basic$0.24 $0.06 
Diluted earnings per share:
Net income$49,418 $13,040 
Shares used in computation:
Weighted-average common shares outstanding, basic207,309,946 208,116,104 
Weighted-average effect of potentially dilutive securities:
Unvested common stock subject to forfeiture1,089,343  
Employee stock options31,828  
Restricted stock units and awards26,229  
Underwriters’ option to purchase additional shares1,006  
Diluted weighted-average common shares outstanding208,458,352 208,116,104 
Diluted net income per share$0.24 $0.06 
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 March 31,
20212020
Employee stock options3,419,359  
Restricted stock units41,019 
13.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 the reportable segment level as these are managed on an entity wide group basis. As of March 31, 2021, long-lived assets located outside the United States, primarily located in Malaysia and China, were $13.4 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 minimal amount of revenue allocated to the 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 and home décor products. There are no internal revenue transactions between the Company’s segments.
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Key financial performance measures of the segments including revenue, cost of revenue and gross profit are as follows:
Three Months Ended March 31,
20212020
(in thousands)
Connected Machines:
Revenue$141,320 $56,888 
Cost of revenue$119,692 $51,577 
Gross profit$21,628 $5,311 
Subscriptions:
Revenue$46,139 $19,180 
Cost of revenue$4,298 $2,841 
Gross profit$41,841 $16,339 
Accessories and Materials:
Revenue$136,363 $67,655 
Cost of revenue$79,562 $44,537 
Gross profit$56,801 $23,118 
Consolidated:
Revenue$323,822 $143,723 
Cost of revenue$203,552 $98,955 
Gross profit$120,270 $44,768 
14.Subsequent Events
In connection with the IPO, the underwriters were granted a 30-day option to purchase up to 1,987,495 additional shares. 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 $18.1 million after deducting for underwriting discounts and commissions of $1.3 million.

On May 1, 2021, the Company granted 3,086,721 restricted stock units under the 2021 Equity Incentive Plan to certain employees of the Company which generally vest over a service period of four years.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our interim condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus or Prospectus dated March 24, 2021 and filed with the U.S Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act, on March 25, 2021. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Overview of Our Business and History
At Cricut, our mission is to help people lead creative lives. We have designed and built a creativity platform that enables our engaged and loyal community of 4.9 million users to turn ideas into professional-looking handmade goods. With our highly versatile connected machines, design apps and accessories and materials, our users create everything from personalized birthday cards, mugs and T-shirts to large-scale interior decorations.
Our users’ journeys typically begin with the purchase of a connected machine. We currently sell a portfolio of connected machines that cut, write, score and create other decorative effects using a wide variety of materials including paper, vinyl, leather and more. Our connected machines are designed for a wide range of uses and are available at a variety of price points (MSRP as of March 31, 2021):
Cricut Joy for personalization on-the-go, $179.99 MSRP
Cricut Explore for cutting, writing and scoring, $249.99 MSRP
Cricut Maker for cutting, writing, scoring and adding decorative effects to a wider range of materials, $399.99 MSRP
Our software integrates our connected machines and design apps, allowing our users to create and share seamlessly. Our software is cloud-based, meaning that users can access and work on their projects anywhere, at any time, across desktops or mobile devices. Users can leverage the full power of our platform by using our connected machines together with our free design apps, in-app purchases and subscription offerings to design and complete projects. All users can access a select number of free images, fonts and projects from our design apps or upload their own. In addition, we offer a wider selection of images, fonts and projects for purchase à la carte, including licensed content from partners with well-known brands and characters, like major motion picture studios. We also have two subscription offerings: Cricut Access and Cricut Access Premium. Cricut Access provides a subscription to images, fonts and projects as well as other member benefits, such as discounts and priority Cricut Member Care. Cricut Access Premium includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping. As of March 31, 2021, we had 1.6 million Paid Subscribers to Cricut Access and Cricut Access Premium.
We sell a broad range of accessories and materials that bring our users’ designs to life, from advanced tools like heat presses to Cricut-branded rulers, scoring tools, pens, paper and iron-on vinyl, all designed to work seamlessly with our connected machines. Designing and completing projects drives repeat purchases of Cricut-branded accessories and materials.
We design and develop our software and hardware products, and we work with third-party contract manufacturers to source components and finished goods and with third-party logistics companies to warehouse and distribute our products.
We sell our connected machines and accessories and materials through our brick-and-mortar and online retail partners, as well as through our website at cricut.com. Our partners include Amazon,
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Hobby Lobby, HSN, Jo-Ann, Michaels, Target, Walmart and many others. We also sell our products, including subscriptions to Cricut Access and Cricut Access Premium, on cricut.com.
For the three months ended March 31, 2021 and 2020, we generated:
Total revenue of $323.8 million and $143.7 million, respectively, representing 125% year-over-year growth
Net income of $49.4 million and $13.0 million, respectively, representing 279% year-over-year growth
EBITDA of $68.6 million and $20.7 million, respectively, representing 232% year-over-year growth
On March 29, 2021, we completed an initial public offering (“IPO”), in which we 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. We received aggregate net proceeds of $242.7 million after deducting offering costs, underwriting discounts and commissions of $22.3 million. On April 28, 2021, we 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 $18.1 million after deducting for underwriting discounts and commissions of $1.3 million.
Key Business Metrics and Non-GAAP Financial Measures
In addition to the measures presented in our interim condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, identify trends and make strategic decisions.

As of March 31,
20212020
Users (in thousands)4,939 2,803 
Percentage of Users Creating in Trailing 90 Days62 %60 %
Paid Subscribers (in thousands)1,614 740 

For the Three Months Ended
March 31,
20212020
Subscription ARPU$9.96 $7.20 
Accessories and Materials ARPU$29.45 $25.40 
EBITDA (in millions)$68.6 $20.7 

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Users
We define a User as a registered user of at least one registered connected machine as of the end of a period. One user may own multiple registered connected machines but is only counted once if that user registers those connected machines by using the same email address. If possession of a connected machine is transferred to a new owner and registered by that new owner, the new owner is added to the total user count and the prior owner is removed from the total user count if the prior owner does not own any other registered connected machines. User count is a key indicator of the health of our business, because changes in the number of users reflects changes in connected machine sales and represents opportunities for us to drive additional sales of subscriptions and accessories and materials. There are certain limitations associated with this metric. For example, this metric does not capture whether a User is active in using a connected machine and does not indicate whether a User is purchasing subscriptions or accessories and materials. We compensate for these limitations by also reviewing other metrics that capture portions of this information, including the metrics below.
Percentage of Users Creating in Trailing 90 Days
We define the Percentage of Users Creating in Trailing 90 Days as the percentage of users who have used a connected machine for any activity, such as cutting, writing or any other activity enabled by our connected machines, in the past 90 days. This metric is a key indicator of our engagement with users, which helps drive sales of subscriptions and accessories and materials. There are certain limitations associated with this metric. For example, this metric does not capture whether a User is purchasing subscriptions or accessories and materials. We compensate for these limitations by also reviewing other metrics that capture portions of this information, including the metrics below.
Paid Subscribers
We define Paid Subscribers as the number of users with a subscription to Cricut Access or Cricut Access Premium, excluding cancelled, unpaid or free trial subscriptions, as of the end of a period. Paid Subscribers is a key metric to track growth in our subscriptions revenue and potential leverage in our gross margin.
Subscription ARPU
We define Subscription ARPU as Subscriptions revenue divided by average users in a period. Subscription ARPU allows us to forecast Subscriptions revenue over time and is an indicator of our ability to expand with users and of user engagement with our subscription offerings.
Accessories and Materials ARPU
We define Accessories and Materials ARPU as Accessories and Materials revenue divided by average users in a period. Accessories and Materials ARPU allows us to forecast Accessories and Materials revenue over time and is an indicator of our ability to expand with users, particularly the volume of projects created by our users.
EBITDA and EBITDA Margin
We define EBITDA as net income adjusted to exclude: interest expense, net; income taxes and depreciation and amortization. We use EBITDA and EBITDA Margin as measures of operating performance in our business. We believe these non-GAAP financial measures are useful to investors for period-to-period comparisons of our business and in understanding and evaluating our results of operations for the following reasons:

EBITDA and EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization expense, interest expense, net and income taxes that can vary substantially from
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company to company depending upon their financing and the method by which assets were acquired;
our management uses EBITDA and EBITDA Margin in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core results of operations and the effectiveness of our business strategy and in evaluating our financial performance; and
EBITDA and EBITDA Margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core results of operations and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Our use of EBITDA and EBITDA Margin has limitations as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. Some of these limitations are, or may in the future be, as follows:

although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
EBITDA and EBITDA Margin do not reflect the portion of software development costs that we capitalize under GAAP, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our investment in new products;
EBITDA and EBITDA Margin do not reflect: (i) changes in, or cash requirements for, our working capital needs, (ii) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us or (iii) tax payments that may represent a reduction in cash available to us.

Because of these limitations, we believe EBITDA and EBITDA Margin should be considered along with other operating and financial performance measures presented in accordance with GAAP.

Set forth below is a reconciliation of EBITDA to net income for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,
2021

2020
(in thousands)
Net income$49,418$13,040
Net income margin15.3 %9.1 %
Adjusted to exclude the following:
Depreciation and amortization expense$3,886$3,236
Interest expense, net$79$574
Corporate income tax expense$15,217$3,836
EBITDA$68,600$20,686
EBITDA margin21.2 %14.4 %
Components of our Results of Operations
We operate and manage our business in three reportable segments: Connected Machines, Subscriptions and Accessories and Materials. We identify our reportable segments based on the information used by management to monitor performance and make operating decisions. See Note 13
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to our interim condensed consolidated financial statements included elsewhere in this filing for additional information regarding our reportable segments.
Revenue
Connected Machines
We generate Connected Machines revenue from sales of our portfolio of connected machines, currently consisting of Cricut Maker, Cricut Explore and Cricut Joy, net of sales discounts, incentives and returns. Connected Machines revenue is recognized at the point in time when control is transferred, which is either upon shipment or delivery to the customer in accordance with the terms of each customer contract.
Subscriptions
We generate Subscriptions revenue primarily from sales of subscriptions to Cricut Access and Cricut Access Premium and a minimal amount of revenue allocated to the unspecified future upgrades and enhancements related to the essential software and access to our cloud-based services. For a monthly or annual subscription fee, Cricut Access includes a subscription to images, fonts and projects as well as other member benefits, including discounts and priority Cricut Member Care. For an annual subscription fee, Cricut Access Premium includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping. Subscriptions revenue excludes à la carte digital content purchases. Subscriptions revenue is recognized on a ratable basis over the subscription term.
Accessories and Materials
We generate Accessories and Materials revenue from sales of ancillary products, such as Cricut EasyPress, Cricut Mug Press, hand tools, machine replacement tools and blades, project materials such as vinyl and iron-on and sales of à la carte digital content purchases, including fonts, images and projects. Accessories and Materials revenue is recognized for sales of such items, net of sales discounts, incentives and returns. Accessories and Materials revenue is recognized at the point in time when control is transferred, which is either upon shipment or delivery to the customer in accordance with the terms of each customer contract.
Cost of Revenue
Connected Machines
Cost of revenue related to Connected Machines consists of product costs, including costs of components, costs of contract manufacturers for production, inspecting and packaging, shipping, receiving, handling, warehousing and fulfillment, duties and other applicable importing costs, warranty replacement, excess and obsolete inventory write-downs, tooling and equipment depreciation and royalties. We expect our cost of revenue related to Connected Machines as a percentage of revenue to fluctuate in the near term as we address global supply chain challenges created by the COVID-19 pandemic and continue to invest in the growth of our business and decrease over the long term as we drive greater scale and efficiency in our business.
Subscriptions
Cost of revenue related to Subscriptions consists primarily of hosting fees, digital content costs, amortization of capitalized software development costs and software maintenance costs. We expect our cost of revenue related to Subscriptions as a percentage of revenue to fluctuate in the near term as we expand our content offerings, including localized content for international target markets, and decrease over time as we drive greater scale and efficiency in our business.
Accessories and Materials
Costs of revenue related to Accessories and Materials consists of product costs, including costs of components, costs of contract manufacturers for production, inspecting and packaging, shipping,
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receiving, handling, warehousing and fulfillment, duties and other applicable importing costs, warranty replacement, excess and obsolete inventory write-downs, tooling and equipment depreciation and royalties. We expect our cost of revenue related to Accessories and Materials as a percentage of revenue to fluctuate in the near term as we address global supply chain challenges created by the COVID-19 pandemic and continue to invest in the growth of our business and decrease over the long term as we drive greater scale and efficiency in our business.
Operating Expenses
Research and Development
Research and development expenses consist primarily of costs associated with the development of our connected machines, software and accessories and materials, including personnel-related expenses for engineering, product development and quality assurance, as well as prototype costs, service fees incurred by contracting with vendors and allocated overhead. We expect our research and development expenses to grow in the near term as we begin developing and investing in more new products to support growth further into the future. Longer term, we expect research and development expense to increase as a percentage of revenue to levels somewhat higher than recent historical levels.
Sales and Marketing
Sales and marketing expenses consist primarily of the advertising and marketing of our products and personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense, as well as sales incentives, professional services and allocated overhead costs. We expect our sales and marketing expenses as a percentage of revenue to increase in the near and long term as we expand internationally and launch new products.
General and Administrative
General and administrative expenses consist of personnel-related expenses for our finance, legal, human resources and administrative personnel, including salaries and bonuses, benefits and stock-based compensation expense, as well as the costs of professional services, any allocated overhead, information technology and other administrative expenses. We expect our general and administrative expenses as a percentage of revenue to increase in the near term as we expand our operations and incur expenses to become a public company, and to decline over the long term as we drive greater scale and efficiency in our business.
Other Expense, Net
Other expense, net consists primarily of interest expenses associated with our debt financing arrangements and amortization of debt issuance costs.
Provision for Income Taxes
Provision for income taxes consists of income taxes in the United States and certain state and foreign jurisdictions in which we conduct business. We have not recorded a valuation allowance against our deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will be realized.
Results of Operations
The following tables set forth the components of our interim condensed consolidated statements of operations for each of the periods presented and as a percentage of our revenue for those periods.
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The period-to-period comparison of results of operations is not necessarily indicative of results of future periods.
The following table is presented in thousands:

Three Months Ended
March 31,
20212020
(in thousands)
Revenue:
Connected machines$141,320 $56,888 
Subscriptions46,139 19,180 
Accessories and materials136,363 67,655 
Total revenue323,822 143,723 
Cost of revenue:
Connected machines(1)
119,692 51,577 
Subscriptions(1)
4,298 2,841 
Accessories and materials(1)
79,562 44,537 
Total cost of revenue203,552 98,955 
Gross profit120,270 44,768 
Operating expenses:
Research and development(1)
15,698 9,171 
Sales and marketing(1)
27,489 12,447