SEC Filing | Cricut, Inc.

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crct-20210930

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 September 30, 2021


☐			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)


Delaware						87-0282025
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share	CRCT	The 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 November 3, 2021, the registrant had 36,274,100 shares of Class A Common Stock, and 186,145,218 shares of Class B Common Stock, outstanding.

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		PAGE
NOTE REGARDING FORWARD-LOOKING STATEMENTS		2
PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements (u naudited)	5
	Condensed Consolidated Balance Sheets (unaudited)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)	7
	Condensed Consolidated Statements of Cash Flows (unaudited)	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Default Upon Senior Securities	86
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	86
Item 6.	Exhibits	87
	Signatures	88

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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 and manage our inventory;

•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 the numerous risks

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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 September 30, 2021		As of December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	224,003	$	122,215
Accounts receivable, net	143,121		162,931
Inventories	524,576		248,745
Prepaid expenses and other current assets	30,476		4,916
Total current assets	922,176		538,807
Property and equipment, net	52,672		33,441
Intangible assets, net	1,710		2,280
Deferred tax assets	3,119		3,119
Other assets	927		3,753
Total assets	$	980,604	$	581,400
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	251,124	$	251,658
Accrued expenses and other current liabilities	41,771		71,324
Deferred revenue, current portion	25,681		23,518
Total current liabilities	318,576		346,500
Deferred revenue, net of current portion	4,160		2,758
Other non-current liabilities	4,650		3,217
Total liabilities	327,386		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 September 30, 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 September 30, 2021, 222,179,221 shares issued and outstanding as of September 30, 2021; 257,058,262 shares authorized as of December 31, 2020, 208,116,104 shares issued and outstanding as of December 31, 2020.	222		208
Additional paid-in capital	708,496		412,741
Accumulated deficit	(55,484)		(184,033)
Accumulated other comprehensive income (loss)	(16)		9
Total stockholders’ equity	653,218		228,925
Total liabilities and stockholders’ equity	$	980,604	$	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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue:
Connected machines	$	102,454	$	75,523	$	390,100	$	245,799
Subscriptions	53,303		31,206		150,115		74,414
Accessories and materials	104,329		102,276		378,186		267,851
Total revenue	260,086		209,005		918,401		588,064
Cost of revenue:
Connected machines	87,649		58,525		323,558		205,645
Subscriptions	5,934		2,998		15,517		8,961
Accessories and materials	64,440		57,932		226,698		165,833
Total cost of revenue	158,023		119,455		565,773		380,439
Gross profit	102,063		89,550		352,628		207,625
Operating expenses:
Research and development	20,531		9,977		56,835		27,784
Sales and marketing	30,293		13,660		90,812		39,544
General and administrative	13,491		8,195		38,417		19,368
Total operating expenses	64,315		31,832		186,064		86,696
Income from operations	37,748		57,718		166,564		120,929
Other income (expense), net	24		(302)		9		(1,244)
Income before provision for income taxes	37,772		57,416		166,573		119,685
Provision for income taxes	7,767		12,205		38,024		26,555
Net income	$	30,005	$	45,211	$	128,549	$	93,130
Other comprehensive income (loss):
Foreign currency translation adjustment	(16)		(112)		(25)		(47)
Comprehensive income	29,989		45,099		128,524		93,083

Earnings per share, basic	$	0.14	$	0.22	$	0.62	$	0.45
Earnings per share, diluted	$	0.13	$	0.22	$	0.59	$	0.45
Weighted-average common shares outstanding, basic	208,988,168		208,116,104		208,169,736		208,116,104
Weighted-average common shares outstanding, diluted	224,331,039		208,116,104		218,491,114		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 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)
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, 2021	221,365,580	$	221	$	672,845	$	(134,615)	$	(4)	$	538,447
Net income	—	—		—		49,126		—		49,126

Issuance of common stock upon vesting of restricted stock units	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
Net income	—	—		—		30,005		—		30,005


Issuance of common stock upon vesting or exercise of stock-based awards	29,939	—		(353)		—		—		(353)
Forfeiture of unvested common stock	(103,777)	—		—		—		—		—
Stock-based compensation	—	—		9,970		—		—		9,970

Other comprehensive loss	—	—		—		—		(16)		(16)


Balance as of September 30, 2021	222,179,221	$	222	$	708,496	$	(55,484)	$	(16)	$	653,218

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	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2019	208,116,104	$	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, 2020	208,116,104	$	208	$	461,303	$	(325,571)	$	70	$	136,010
Net income	—	—		—		34,879		—		34,879
Capital contributions	—	—		4		—		—		4
Stock-based compensation	—	—		827		—		—		827
Compensatory units repurchased	—	—		(1,630)		—		—		(1,630)
Other comprehensive loss	—	—		—		—		(33)		(33)
Balance as of June 30, 2020	208,116,104	$	208	$	460,504	$	(290,692)	$	37	$	170,057
Net income	—	—		—		45,211		—		45,211
Cash dividend	—	—		(51,202)		—		—		(51,202)
Stock-based compensation	—	—		1,052		—		—		1,052
Compensatory units repurchased	—	—		(676)		—		—		(676)
Other comprehensive loss	—	—		—		—		(112)		(112)
Balance as of September 30, 2020	208,116,104	$	208	$	409,678	$	(245,481)	$	(75)	$	164,330

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)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	128,549	$	93,130
Adjustments to reconcile net income to net cash and cash equivalents (used in) provided by operating activities:
Depreciation and amortization (including amortization of debt issuance costs)	13,365		10,136
Stock-based compensation	27,941		4,961

Gain on disposal of property and equipment	(2)		—
Provision for inventory obsolescence	2,283		2,186
Provision for doubtful accounts	1,231		469
Loss on extinguishment of debt	—		162
Changes in operating assets and liabilities:
Accounts receivable	18,579		(41,374)
Inventories	(276,223)		4,404
Prepaid expenses and other current assets	(25,578)		(1,036)
Other assets	675		(637)
Accounts payable	(1,603)		96,434
Accrued expenses and other current liabilities and other non-current liabilities	(24,574)		13,244
Deferred revenue	3,564		5,324
Net cash and cash equivalents (used in) provided by operating activities	(131,793)		187,403
Cash flows from investing activities:
Acquisitions of property and equipment, including costs capitalized for development of internal use software	(28,339)		(16,883)
Net cash and cash equivalents (used in) provided by investing activities	(28,339)		(16,883)
Cash flows from financing activities:
Proceeds from capital contributions	200		1,087
Proceeds from issuance of common stock upon initial public offering, net of offering costs	262,007		—
Repurchase of compensatory units	(170)		(3,038)

Proceeds from exercise of stock options	108		—
Tax withholding on stock-based awards	(107)		—
Payments on term loan	—		(22,917)
Drawdowns on revolving loan	—		228,269
Payments on revolving loan	—		(260,862)

Payments for debt issuance costs	—		(795)
Cash dividend	—		(51,202)
Other financing activities, net	(48)		(169)
Net cash and cash equivalents (used in) provided by financing activities	261,990		(109,627)
Effect of exchange rate on changes on cash and cash equivalents	(70)		(39)
Net increase in cash and cash equivalents	101,788		60,854
Cash and cash equivalents at beginning of period	122,215		6,653
Cash and cash equivalents at end of period	$	224,003	$	67,507
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	14	$	1,305
Cash paid during the period for income taxes	$	66,868	$	25,091
Supplemental disclosures of non-cash investing and financing activities:
Property and equipment included in accounts payable and accrued expenses and other current liabilities	$	4,910	$	788
Tax withholdings on stock-based awards included in accrued expenses and other current liabilities	$	344	$	—
Stock-based compensation capitalized for software development costs	$	1,149	$	181
Deferred offering costs in accounts payable and accrued expenses and other current liabilities	$	—	$	500
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 $18.0 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.

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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 and nine months ended September 30, 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 September 30, 2021 and December 31, 2020, the Company held $161.7 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.

Recently Issued Accounting Standards

Recent accounting standards not yet adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the

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statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of 12 months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. The Company anticipates adopting this standard as of January 1, 2021 in its annual report for the fiscal year ending on December 31, 2021. The Company expects to recognize right-to-use assets and corresponding lease liabilities at the date of adoption and does not expect the adoption to significantly impact its consolidated statement of operations and comprehensive loss or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses” (Topic 326). ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets. The Company anticipates adopting this standard in the annual report for the Company’s fiscal year ending on December 31, 2021. The Company does not expect the adoption of this ASU will have a material impact on the Company’s consolidated financial statements and footnote disclosures.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740). ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes. The Company anticipates adopting this standard in the annual report for the Company’s fiscal year ending on December 31, 2021. The Company does not anticipate that the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and related disclosures.

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 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 nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020
(in thousands)
Deferred revenue, beginning of period	$	26,276	$	14,566
Recognition of revenue included in beginning of period deferred revenue	(21,910)		(12,227)
Revenue deferred, net of revenue recognized on contracts in the respective period	25,475		17,552
Deferred revenue, end of period	$	29,841	$	19,891

As of September 30, 2021, 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 September 30, 2021:


	Year Ended December 31,
	2021 (remainder of year)		2022		2023		2024		Total
(in thousands)
Revenue expected to be recognized	$	22,779	$	3,765	$	2,709	$	588	$	29,841

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 and nine months ended September 30, 2021 related to performance obligations satisfied or partially satisfied in prior periods was $0.1 million and $0.8 million, respectively.

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The following table presents the total revenue by geography based on the ship-to address for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(in thousands)
North America*	$	228,858	$	194,116	$	825,368	$	553,556
International	31,228		14,889		93,033		34,508
Total revenue	$	260,086	$	209,005	$	918,401	$	588,064
*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 September 30, 2021		As of December 31, 2020
(in thousands)
Sales incentives	$	21,581	$	30,295
Other accrued liabilities and other current liabilities	20,190		41,029
Total accrued expenses	$	41,771	$	71,324

5.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 September 30, 2021, 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

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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 September 30, 2021.

6.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 effective tax rate after discrete items was 20.6 percent and 22.8 percent for the three and nine months ended September 30, 2021, respectively, and 21.3 percent and 22.2 percent for the three and nine months ended September 30, 2020, respectively. The Company’s provision for income taxes after discrete items was $7.8 million and $38.0 million, respectively, for the three and nine months ended September 30, 2021, and $12.2 million and $26.6 million, respectively, for the three and nine months ended September 30, 2020. 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 offset by discrete tax items including research and development tax credits as well as foreign derived intangible income (FDII).

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.

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 three and nine months ended September 30, 2021, 16,149,173 and 18,365,060 shares of Class B common stock were converted to Class A common stock, respectively. As of September 30, 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 32,678,380 shares of Class A common stock and 189,500,841 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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(in thousands)
Equity classified awards	$	9,970	$	1,052	$	24,620	$	3,258
Liability classified awards	(684)		1,316		6,361		2,141
Total stock-based compensation	$	9,286	$	2,368	$	30,981	$	5,399

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:

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(in thousands)
Cost of revenue
Connected machines	$	10	$	2	$	26	$	5
Subscriptions	66		7		154		22
Accessories and materials	—		—		—		—
Total cost of revenue	76		9		180		27
Research and development	3,590		716		10,999		1,984
Sales and marketing	2,777		1,166		10,809		2,278
General and administrative	1,703		297		5,953		672
Total stock-based compensation expense	$	8,146	$	2,188	$	27,941	$	4,961
Capitalized for software development costs	$	476	$	56	$	1,149	$	181
Capitalized to inventory	$	664	$	124	$	1,891	$	257
Total stock-based compensation	$	9,286	$	2,368	$	30,981	$	5,399

As of September 30, 2021, there was $129.5 million of unrecognized stock-based compensation cost related to equity awards which is expected to be recognized over a weighted-average period of 3.4 years.

As of September 30, 2021, there was $1.0 million of estimated unrecognized stock-based compensation cost related to liability classified awards which is expected to be recognized over a weighted-average period of 1.6 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 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 will recognize the incremental compensation cost of $14.5 million over the vesting term. Of this amount, the Company recognized $0.8 million and $5.1 million during the three and nine months ended September 30, 2021, respectively, 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

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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 September 30, 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	—	$	—
Granted	4,696,833	$	23.38
Vested	(105,901)	$	20.00
Forfeited/cancelled	(47,500)	$	23.61
Outstanding at September 30, 2021	4,543,432	$	23.46

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.

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, 2020	—	$	—
Granted	3,419,359	20.00
Exercised	(5,417)	20.00
Forfeited/cancelled	(80,241)	20.00
Outstanding at September 30, 2021	3,333,701	$	20.00	6.1	$	25,269
Vested and exercisable at September 30, 2021	1,030,288	$	20.00	5.4	$	7,810

The weighted-average grant date fair value of options granted under the 2021 Equity Incentive Plan during the nine months ended September 30, 2021 was $8.79 per share based on the following weighted-average assumptions:

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	Nine Months Ended September 30, 2021
Expected volatility	51.6	%
Risk-free interest rate	0.8	%
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 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 September 30, 2021 the total recognized liability for these awards was $0.8 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	—
Granted	94,304	20.00
Vested	(11,305)	$	20.00	$	391
Outstanding at September 30, 2021	82,999	$	20.00	$	1,729

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 nine months ended September 30, 2021 is as follows:


	Number of Unvested Shares	Weighted- Average Grant Date Fair Value (per share)
Outstanding at December 31, 2020	—
Granted	14,037,505	$	20.00
Vested	(1,031,920)	$	20.00
Forfeited / Cancelled	(249,679)	$	20.00
Outstanding at September 30, 2021	12,755,906	$	20.00

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:

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	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Term (Years)	Aggregate Intrinsic Value
					(in thousands)
Outstanding at December 31, 2020	—
Granted	522,000	$	9.04
Forfeited / Cancelled	(72,000)	$	9.04
Outstanding at September 30, 2021	450,000	$	9.04	4.1	$	8,343
Vested at September 30, 2021	2,000	$	9.04	0.2	$	37

The weighted-average grant date fair value of options to purchase Class B common stock during the nine months ended September 30, 2021 was $13.42 per share based on the following weighted-average assumptions:


	Nine Months Ended September 30, 2021
Expected volatility	51.4	%
Risk-free interest rate	0.8	%
Expected term (in years)