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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, 2022
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 3, 2022, the registrant had 43,494,478 shares of Class A Common Stock, and 178,322,511 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 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 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;
risks related to general socio-economic and political conditions as well as consumer confidence; 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 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
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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, 2022As of December 31, 2021
(unaudited)
Assets
Current assets:
Cash and cash equivalents$245,699 $241,597 
Accounts receivable, net122,780 199,508 
Inventories483,009 454,174 
Prepaid expenses and other current assets28,040 32,820 
Total current assets879,528 928,099 
Property and equipment, net59,537 53,261 
Operating lease right-of-use asset20,008 17,653 
Intangible assets, net1,330 1,520 
Deferred tax assets3,255 3,255 
Other assets2,526 2,462 
Total assets$966,184 $1,006,250 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$155,657 $204,714 
Accrued expenses and other current liabilities41,669 69,351 
Deferred revenue, current portion31,208 30,547 
Operating lease liabilities, current portion4,182 3,755 
Total current liabilities232,716 308,367 
Operating lease liabilities, net of current portion17,744 15,780 
Deferred revenue, net of current portion4,479 4,858 
Other non-current liabilities4,619 3,269 
Total liabilities259,558 332,274 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2022 and December 31, 2021.
  
Common stock, par value $0.001 per share, 1,250,000,000 shares authorized as of March 31, 2022, 221,809,614 shares issued and outstanding as of March 31, 2022; 1,250,000,000 shares authorized as of December 31, 2021, 221,913,559 shares issued and outstanding as of December 31, 2021.
222 222 
Additional paid-in capital726,527 717,369 
Accumulated deficit(20,056)(43,560)
Accumulated other comprehensive income (loss)(67)(55)
Total stockholders’ equity706,626 673,976 
Total liabilities and stockholders’ equity$966,184 $1,006,250 
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,
20222021
Revenue:
Connected machines$62,391 $141,320 
Subscriptions64,778 46,139 
Accessories and materials117,614 136,363 
Total revenue244,783 323,822 
Cost of revenue:
Connected machines60,713 119,692 
Subscriptions6,252 4,298 
Accessories and materials78,798 79,562 
Total cost of revenue145,763 203,552 
Gross profit99,020 120,270 
Operating expenses:
Research and development20,530 15,698 
Sales and marketing32,789 27,489 
General and administrative14,294 12,419 
Total operating expenses67,613 55,606 
Income from operations31,407 64,664 
Total other expense, net(39)(29)
Income before provision for income taxes31,368 64,635 
Provision for income taxes7,864 15,217 
Net income$23,504 $49,418 
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax(12)(13)
Comprehensive income$23,492 $49,405 
Earnings per share, basic$0.11 $0.24 
Earnings per share, diluted$0.11 $0.24 
Weighted-average common shares outstanding, basic212,403,383 207,309,946 
Weighted-average common shares outstanding, diluted220,967,935 208,458,352 
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, 2021221,913,559 $222 $717,369 $— $(43,560)$(55)$673,976 
Net income— — — 23,504 — 23,504 
Issuance of common stock upon vesting or exercise of stock-based awards, net of withholding tax10,387 — (1,328)— — (1,328)
Forfeiture of unvested common stock(114,332)— — — —  
Stock-based compensation— — 10,500 — — 10,500 
Compensatory units repurchased— — (14)— — (14)
Other comprehensive loss— — — — (12)(12)
Balance as of March 31, 2022221,809,614 $222 $726,527 $(20,056)$(67)$706,626 
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)
Extinguishment of liability awards to equity— — 10,784 — — 10,784 
Stock-based compensation— — 6,635 — — 6,635 
Compensatory units repurchased— — (160)— — (160)
Other comprehensive loss— — — — (13)(13)
Balance as of Balance as of March 31, 2021221,365,580 $221 $672,845 $(134,615)$(4)$538,447 
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,
20222021
Cash flows from operating activities:
Net income$23,504 $49,418 
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)
6,030 3,956 
Stock-based compensation8,958 11,685 
Non-cash lease expense1,222 864 
Provision for inventory obsolescence1,063 605 
Provision for doubtful accounts (109)
Changes in operating assets and liabilities:
Accounts receivable76,729 8,684 
Inventories(29,127)(52,939)
Prepaid expenses and other current assets4,771 2,680 
Other assets(134)(30)
Accounts payable(49,688)(48,317)
Accrued expenses and other current liabilities and other non-current liabilities
(26,845)819 
Operating lease liabilities(1,185)(1,008)
Deferred revenue281 1,729 
Net cash and cash equivalents (used in) provided by operating activities
15,579 (21,963)
Cash flows from investing activities:
Acquisitions of property and equipment, including capitalized software development costs
(9,807)(7,839)
Net cash and cash equivalents (used in) provided by investing activities(9,807)(7,839)
Cash flows from financing activities:
Proceeds from capital contributions 200 
Proceeds from issuance of common stock upon initial public offering, net of offering costs 245,082 
Repurchase of compensatory units(14)(160)
Repurchase of common stock upon Corporate Reorganization
 (10)
Proceeds from exercise of stock options31  
Employee tax withholding payments on stock-based awards(1,659) 
Payments on capital leases (14)
Net cash and cash equivalents (used in) provided by financing activities(1,642)245,098 
Effect of exchange rate on changes on cash and cash equivalents(28)(39)
Net increase in cash and cash equivalents4,102 215,257 
Cash and cash equivalents at beginning of period241,597 122,215 
Cash and cash equivalents at end of period$245,699 $337,472 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$ $9 
Cash paid during the period for income taxes$532 $789 
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities$3,579 $68 
Property and equipment included in accounts payable and accrued expenses and other current liabilities
$5,056 $2,085 
Tax withholdings on stock-based awards included in accrued expenses and other current liabilities$559 $ 
Stock-based compensation capitalized for software development costs$541 $294 
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, 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 15, 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 9 below.
Upon filing the amended and restated certificate of incorporation, all of the Company’s historical Common Stock converted to Class B common stock. Shares of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to five votes per share and is convertible at any time into one share of Class A common stock.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the annual report on Form 10-K for the fiscal year ended December 31, 2021 (The “Annual Report”). However, the Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading.
The condensed consolidated financial statements include the accounts of Cricut, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of December 31, 2021, 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, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending December 31, 2022, or any other period.
Certain prior year reported amounts have been reclassified to conform with the current period presentation. These reclassifications did not have a material impact on the Company's consolidated financial statements or related footnotes.
There were no material changes to the Company's significant accounting policies during the three months ended March 31, 2022.
2.Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. For revenue recognition, examples of estimates and judgments include: determining the nature and timing of satisfaction of performance obligations, determining the standalone selling price (“SSP”) of performance obligations, estimating variable consideration such as sales incentives and product returns. Other estimates include the warranty reserve, allowance for doubtful accounts, inventory reserve, intangible assets and other long-lived assets valuation, legal contingencies, stock-based compensation, income taxes, deferred tax assets valuation and developed software, among others. These estimates and assumptions are based on the Company’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including any effects of the ongoing pandemic and the economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from these estimates.
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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, 2022 and December 31, 2021, the Company held $212.8 million and $197.8 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 awards subject to conditions other than service conditions are considered contingently issuable shares and are included in basic EPS based on the number of awards that would be issuable if the reporting date were the end of the contingency period.
3.Revenue and Deferred Revenue
Deferred revenue relates to performance obligations for which payments have been received from the customer prior to revenue recognition. Deferred revenue primarily consists of deferred subscription-based services. Deferred revenue also includes amounts allocated from the sale of a connected machine to the unspecified upgrades and enhancements and the Company’s cloud-based services. The Company had no material contract assets.
The following table summarizes the changes in the deferred revenue balance for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
(in thousands)
Deferred revenue, beginning of period$35,405 $26,276 
Recognition of revenue included in beginning of period
deferred revenue
(18,039)(14,389)
Revenue deferred, net of revenue recognized on contracts in
the respective period
18,321 16,118 
Deferred revenue, end of period$35,687 $28,005 
As of March 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was equal to the deferred revenue balance.
The Company expects the following recognition of deferred revenue as of March 31, 2022:
Year Ended December 31,
2022 (remainder of year)202320242025Total
(in thousands)
Revenue expected to be recognized$28,977 $5,035 $1,646 $29 $35,687 
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The Company’s revenue from contracts with customers disaggregated by major product lines, excluding sales-based taxes, are included in Note 15 under the heading “Segment Information.”
Revenue recognized during the three months ended March 31, 2022 related to performance obligations satisfied or partially satisfied in prior periods was $0.4 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,
20222021
(in thousands)
North America*$208,305 $290,337 
International36,478 33,485 
Total revenue$244,783 $323,822 
North America revenue consists of revenues from the United States and Canada.
4.Inventory
Inventories are comprised of the following:
As of
March 31,
2022
As of
December 31,
2021
(in thousands)
Raw Materials$24,279 $20,187 
Finished goods458,730 433,987 
Total Inventories$483,009 $454,174 
5.     Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
As of
March 31,
2022
As of
December 31,
2021
(in thousands)
Sales incentives$21,667 $36,969 
Other accrued liabilities and other current liabilities20,002 32,382 
Total accrued expenses$41,669 $69,351 
6.    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
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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, 2022, no amount was outstanding under the Credit Agreement and available borrowings were $150.0 million.
Generally, borrowings under the Credit Agreement bear interest at a rate based on LIBOR (“Adjusted LIBO rate”) or an alternative base rate (“ABR”), plus, in each case, an applicable margin. The applicable margin will range from (a) with respect to borrowings bearing interest at the ABR, 1.50% to 2.00%, and (b) with respect to borrowings bearing interest at the ABR (i) if the “REVLIBOR30 Screen Rate” (as defined in the Credit Agreement) is available for such period, 1.50% to 2.00%, or (ii) otherwise, 0.00% to 0.50%, in each case for the previous clauses (a) and (b), based on our “Fixed Charge Coverage Ratio” as defined in the Credit Agreement.
The Credit Agreement contains financial covenants during the initial year of the agreement, requiring the Company to maintain a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing 12 month basis. The Company is also subject to this covenant in future periods if the available commitment is less than the greater of $15.0 million and 10% of total commitment made by all lenders. Management has determined that the Company was in compliance with all financial and non-financial debt covenants as of March 31, 2022.
7.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 25.1 percent and 23.5 percent for the three months ended March 31, 2022 and 2021, respectively. The Company’s provision for income taxes after discrete items was $7.9 million and $15.2 million, respectively, for the three months ended March 31, 2022 and 2021. The provision for income taxes varied from the tax computed at the U.S. federal statutory income tax rate for the periods presented primarily due to 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.
8.Capital Structure
As of March 31, 2022, the Company had authorized 100,000,000 shares of preferred stock, par value $0.001 per share, and 1,250,000,000 shares of common stock, par value $0.001 per share, which was divided between two series: Class A common stock and Class B common stock. As of March 31, 2022, the Company had 1,000,000,000 shares of Class A common stock and 250,000,000 shares of Class B common stock authorized and 40,233,642 shares of Class A common stock and 181,575,972 shares of Class B common stock issued and outstanding. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to five votes per share and is convertible at any time into one share of Class A common stock. During the three months ended March 31, 2022 and 2021, 2,336,595 and 2,064,903 shares of Class B common stock were converted to Class A common stock, respectively.
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9.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,
20222021
(in thousands)
Equity classified awards
Restricted stock units6,826 296 
Stock options1,012 3,494 
Class B common stock 2,662 2,845 
Liability classified awards(230)6,041 
Total stock-based compensation$10,270 $12,676 
The following table sets forth the total stock-based compensation cost included in the Company’s condensed consolidated statements of operations and comprehensive income or capitalized to assets for the periods indicated:
Three Months Ended March 31,
20222021
(in thousands)
Cost of revenue
Connected machines$3 $8 
Subscriptions52 36 
Accessories and materials  
Total cost of revenue55 44 
Research and development4,011 3,641 
Sales and marketing2,868 5,607 
General and administrative2,024 2,393 
Total stock-based compensation expense$8,958 $11,685 
Capitalized for software development costs541294
Capitalized to inventory771697
Total stock-based compensation$10,270 $12,676 
As of March 31, 2022, there was $115.7 million of unrecognized stock-based compensation cost related to service-based awards which is expected to be recognized over a weighted-average period of 3.0 years. The total unrecognized compensation expense related to unvested performance-based restricted stock units (“PRSUs”) was $154.6 million as of March 31, 2022.
Corporate Reorganization and Stock-Based Compensation Modifications
In connection with the Corporate Reorganization, all outstanding awards issued under the Incentive Unit Plan discussed below were modified by exchanging the outstanding awards of Cricut Holdings for awards of the Company. All service based vesting conditions were unaffected by the modification. As described below, the vesting conditions were modified for certain awards which previously had both service and market based vesting conditions.
All vested equity classified awards were settled in shares of the Company’s Class B common stock previously held by Cricut Holdings. Unvested equity classified awards were converted to restricted shares of the Company’s Class B common stock subject to future vesting, or in the case of options were converted into options to purchase the Company’s Class B common stock. All vested liability classified awards converted into either shares of Class B common stock to the extent permitted in each applicable jurisdiction or settled in cash. All unvested liability classified awards converted into restricted stock units (“RSUs”) under the 2021 Equity Incentive Plan that will vest into shares of Class A common stock of Cricut, Inc. to the extent permitted in each applicable jurisdiction or into restricted stock unit equivalents which will be settled in cash upon vesting as described below.
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In connection with the Corporate Reorganization and modification, the Company granted options under the 2021 Equity Incentive Plan to certain employees. The number of options was calculated based on the number of outstanding incentive units or incentive unit equivalents prior to the modification and the participation threshold of such awards. The vesting terms of the options are also based on the vesting terms of the original award. Therefore, the Company considered the exchange of the original award for the restricted shares or RSUs plus the options to be a single modification and began recognizing the incremental compensation cost of $14.5 million beginning in March 2021 over the vesting term, including a cumulative adjustment in March 2021 to recognize the incremental compensation cost associated with historical vesting.
As part of the modification of outstanding awards in connection with the Corporate Reorganization, awards issued under the Incentive Unit Plan which included both service and market conditions were modified to remove the market vesting condition and to increase the participation threshold of the award to the price specified in the former market condition. In total, 3.0 million, 3.0 million, 1.0 million and 1.0 million awards which previously had a participation threshold of $2.00, $2.00, $5.00 and $5.00 per share, respectively, were modified to have a participation threshold of $3.00, $4.00, $6.00 and $7.00 per share, respectively. Incremental compensation cost associated with these awards is included in the total incremental compensation cost associated with the issuance of additional options to employees described above as this change was part of a single modification.
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, 2022, 31,895,729 shares of Class A common stock were reserved for issuance under this plan including shares reserved for previously granted awards discussed below as well as shares reserved for issuance of future awards under the plan.
A summary of the Company’s service-based RSU activity under the 2021 Equity Incentive Plan is as follows:
Number of
RSUs
Weighted-
Average
Grant Date
Fair Value
(per share)
Outstanding at December 31, 20214,673,831 $23.84 
Granted102,000 $22.77 
Vested(76,471)$20.00 
Forfeited/cancelled(37,500)$24.14 
Outstanding at March 31, 20224,661,860 $23.87 

In 2022, the Company granted PRSUs under the 2021 Equity Incentive Plan to certain employees that represent shares potentially issuable in the future. The PRSUs vest in two equal tranches subject to the Company achieving cumulative adjusted earnings per share over eight quarters of $4.93 share and $6.16 per share, respectively, at any point during the 5-year performance period, subject to employees remaining with the Company through the vesting date. Adjusted earnings per share means GAAP net income adjusted to exclude income tax expenses, as well as stock-based compensation expense and payroll tax expense specifically related to the PRSU awards.
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A summary of the Company’s PRSU activity under the 2021 Equity Incentive Plan is as follows:

Number of
PRSUs (a)
Weighted-
Average
Grant Date
Fair Value
(per share)
Outstanding at December 31, 2021 $ 
Granted6,615,000 $23.37 
Vested $ 
Forfeited/cancelled $ 
Outstanding at March 31, 20226,615,000 $23.37 
a.Represents the maximum number of PRSUs assuming all performance targets are achieved.
The expense recognized each period for these PRSUs is primarily dependent upon the Company’s estimate of the probability of achieving the performance targets. At March 31, 2022, the Company determined it was not probable any performance conditions would be achieved so no stock-based compensation was recorded for these PRSUs during the three months ended March 31, 2022.
Options under the 2021 Equity Incentive Plan have a contractual term of 10 years. The exercise price of an incentive stock option and non-qualified stock option shall not be less than 100% of the fair market value of the shares on the date of grant.
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, 20213,260,357 $20.00 5.8$2,884 
Granted 
Exercised(1,535)$20.00 
Forfeited/cancelled(2,753)$20.00 
Outstanding at March 31, 20223,256,069 $20.00 5.5$ 
Vested and exercisable at March 31, 20221,541,213 $20.00 5.2$ 
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 March 31, 2022 the total recognized liability for these awards was $0.7 million. A summary of the RSU equivalent activity under the 2021 Equity Incentive Plan is as follows:
Number of
RSU Equivalents
Weighted-
Average
Base Price
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 202181,077 $20.00 $1,231 
Granted $ 
Vested $ 
Forfeited / Cancelled(5,141)$20.00 
Outstanding at March 31, 202275,936 $20.00 $976 
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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, 2022 is as follows:
Number of
Unvested Shares
Weighted-
Average
Grant Date Fair Value (per share)
Outstanding at December 31, 202110,854,859 $20.00 
Granted 
Vested(3,413,855)$20.00 
Forfeited / Cancelled(114,332)$20.00 
Outstanding at March 31, 20227,326,672 $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:
Number of
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Term
(Years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2021434,000 $9.04 3.9$5,664 
Granted $ 
Forfeited / Cancelled(20,000)$9.04 
Outstanding at March 31, 2022414,000 $9.04 3.7$2,884 
Vested at March 31, 2022 $ N/A$ 
2021 Employee Stock Purchase Plan
In March 2021, the Company’s 2021 Employee Stock Purchase Plan (“2021 ESPP”) became effective. Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute, through payroll deductions, up to 15% of their eligible compensation to purchase the Company’s Class A common stock at a discounted price per share. As of March 31, 2022, 6,219,145 shares of our Class A common stock were available for sale under the 2021 ESPP.
No offerings have been authorized to date by the administrator under the 2021 ESPP. If the administrator authorizes an offering period under the 2021 ESPP, the administrator will establish the duration of offering periods and purchase periods, including the starting and ending dates of offering periods and purchase periods, provided that no offering period may have a duration exceeding 27 months.
10.Commitments and Contingencies
Litigation
The Company is subject to certain outside claims and litigation arising in the ordinary course of business. Management is not aware of any contingencies which it believes will have a material effect on its financial position, results of operations or liquidity.

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11.Leases
Lease commitments
The Company leases office space with lease terms ranging from 1 to 10 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease.
In December 2021, the Company amended its operating lease for its corporate headquarters in South Jordan, Utah to extend the term through March 2027 and to reduce the annual rent rate for future periods. As a result of this amendment, the Company remeasured the associated operating lease liability and right-of-use asset for this lease. The Company also leased additional space at its corporate headquarters which commenced in January of 2022 under the same terms as its existing lease.
The Company has determined its leases should be classified as operating leases. Variable lease costs are comprised primarily of the Company's proportionate share of operating expenses, property taxes, and insurance and are classified as lease cost due to the Company's election to not separate lease and non-lease components. The Company incurred operating lease costs of $1.4 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively. The Company also incurred variable lease costs of $0.2 million and nil for the three months ended March 31, 2022 and 2021, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities was $1.4 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively. These amounts were included in net cash used in operating activities in the Company's consolidated statements of cash flows.
As of March 31, 2022, the maturities of the Company's operating lease liabilities were as follows: 
Year Ending December 31,
Operating
Leases
(in thousands)
2022 (remainder of the year)$3,372 
20235,678 
20245,419 
20254,255 
20263,799 
Thereafter967 
Total minimum lease payments, net$23,490 
Less: imputed interest$(1,564)
Present value of operating lease liabilities$21,926 
Operating lease liabilities, current$4,182 
Operating lease liabilities, non-current$17,744 
As of March 31, 2022, the weighted average remaining operating lease term and the weighted average discount rate used to determine the operating lease liability were as follows:
As of March 31, 2022
Weighted-average remaining lease term of operating leases4.5 years
Weighted-average discount rate of operating leases2.6 %

12.Related Party Transactions
For the three months ended March 31, 2022 and 2021, the Company received capital contributions of nil and $0.2 million from its former parent company, Cricut Holdings. The equity offering was purchased by a subset of then current common unitholders of Cricut Holdings and employees of the Company.
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13.Employee Benefit Plan
The Company sponsors a 401(k) plan for the benefit of its employees who have attained at least 18 Years of age. The Company matches 50% of the first 12% of an employee’s salary contributed to the plan on the first day of the month following their hire date. The Company contributed $0.8 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively.
14.Net Income Per Share
The computation of net income per share is as follows:
Three Months Ended March 31,
20222021
(in thousands, except share and per share amounts)
Basic earnings per share:
Net income$23,504 $49,418 
Shares used in computation:
Weighted-average common shares outstanding, basic212,403,383 207,309,946 
Earnings per share, basic$0.11 $0.24 
Diluted earnings per share:
Net income$23,504 $49,418 
Shares used in computation:
Weighted-average common shares outstanding, basic212,403,383 207,309,946 
Weighted-average effect of potentially dilutive securities:
Unvested common stock subject to forfeiture8,170,977 1,089,343 
Employee stock options145,517 31,828 
Restricted stock units248,058 26,229 
Underwriters’ option to purchase additional shares 1,006 
Diluted weighted-average common shares outstanding220,967,935 208,458,352 
Diluted net income per share$0.11 $0.24 
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,
20222021
Employee stock options3,256,069 3,419,359 
Restricted stock units3,987,963 41,019 
Unvested common stock128,447  

As of March 31, 2022, 6,615,000 PRSUs were not assessed for inclusion in diluted earnings per share, and any potential antidilutive shares were excluded from the table above because they are subject to performance conditions that were not achieved as of such date.
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15.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, 2022, long-lived assets located outside the United States, primarily located in Malaysia and China, were $21.4 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 portion of the revenue allocated to unspecified future upgrades and enhancements related to the essential software and access to the Company’s cloud-based services. The Accessories and Materials segment primarily consists of craft, DIY, home décor products and heat presses including the Cricut Mug Press and Cricut EasyPress. There are no internal revenue transactions between the Company’s segments.
Key financial performance measures of the segments including revenue, cost of revenue and gross profit are as follows:
Three Months Ended March 31,
20222021
(in thousands)
Connected Machines:
Revenue$62,391 $141,320 
Cost of revenue$60,713 $119,692 
Gross profit$1,678 $21,628 
Subscriptions:
Revenue$64,778 $46,139 
Cost of revenue$6,252 $4,298 
Gross profit$58,526 $41,841 
Accessories and Materials:
Revenue$117,614 $136,363 
Cost of revenue$78,798 $79,562 
Gross profit$38,816 $56,801 
Consolidated:
Revenue$244,783 $323,822 
Cost of revenue$145,763 $203,552 
Gross profit$99,020 $120,270 
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 audited consolidated financial statements included in our 2021 Form 10-K. 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.”
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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 over 6.9 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 by machine family as of March 31, 2022):
Cricut Joy for personalization on-the-go, $179.99 MSRP
Cricut Explore for cutting, writing and scoring, $249.99 - $299.99 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. We enable our users to be inspired, to create and share projects with the Cricut community and to follow others doing the same. On our apps, users can find inspiration, purchase or upload content like fonts and images, design a project from scratch or find a vast array of ready-to-make projects.
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, including exclusive software features and functionality, discounts, and priority Cricut Member Care. Cricut Access is billed monthly for $9.99 per month or annually for $95.88 per year. Cricut Access Premium includes all of the benefits of Cricut Access as well as additional discounts and preferred shipping and is billed annually for $119.88 per year. As of March 31, 2022, we had over 2.3 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, 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.

Historically, we generate higher revenue levels in the second half of the year compared to the first half of the year, coinciding with the ramp up to, and including the holiday shopping season in the United States. For example, in 2019 and 2020, the second half of the year represented 59% and 60% of total revenue for the year, respectively. The seasonality patterns experienced in 2021 were not representative of our typical historical patterns due to the unique aspects of the pandemic that resulted in unusually high demand in the first and second quarters of 2021. As the impact of the pandemic on behaviors abate, we expect to return to a more normal seasonality pattern. As we
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continue to grow internationally, we expect we may experience seasonality in additional markets, which may differ from the seasonality experienced in the United States.
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 $18.0 million after deducting for underwriting discounts and commissions of $1.4 million.
For more information regarding our business model, factors affecting our performance, and seasonality, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K.
Key Business Metrics
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.
Three Months Ended March 31,
20222021
Users (in thousands)6,904 4,939 
Percentage of Users Creating in Trailing 90 Days54 %62 %
Paid Subscribers (in thousands)2,311 1,614 
Three Months Ended March 31,
20222021
Subscription ARPU$9.73 $9.96 
Accessories and Materials ARPU$17.67 $29.45 
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 how active a User is during the 90-day period, nor whether a User is purchasing subscriptions or accessories and materials. We compensate for some of these limitations by also reviewing other metrics that capture portions of this information, including the metrics below.
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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 number of 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 number of 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.
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 15 to our 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 machines in three product families, Cricut Maker, which includes Maker and Maker 3, Cricut Explore, which includes Explore Air 2 and Explore 3, 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 portion of the revenue allocated to 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 exclusive software features and functionality, 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,
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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, 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 research and development expense to increase as percentage of revenue to levels somewhat higher compared to the historical levels to support growth from new products and services in the future.
Sales and Marketing
Sales and marketing expenses consist primarily of the advertising and marketing of our products, third-party payment processing fees, personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense, as well as sales incentives, professional services, promotional items, and allocated overhead costs. We expect our sales and marketing expenses as a percentage of revenue to fluctuate in the near term as we expand internationally and launch new products, but over the long term we anticipate to be similar to recent historical levels.
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 general and administrative expenses as a percentage of revenue over the long term to remain relatively similar to recent historical levels.
Other Expense, Net
Other expense, net consists primarily of interest expense 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.
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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. 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,
20222021
(in thousands)
Revenue:
Connected machines$62,391 $141,320 
Subscriptions64,778 46,139 
Accessories and materials117,614 136,363 
Total revenue244,783 323,822 
Cost of revenue:
Connected machines(1)
60,713 119,692 
Subscriptions(1)
6,252 4,298 
Accessories and materials(1)
78,798 79,562 
Total cost of revenue145,763 203,552 
Gross profit99,020 120,270 
Operating expenses:
Research and development(1)
20,530 15,698 
Sales and marketing(1)
32,789 27,489 
General and administrative(1)
14,294 12,419 
Total operating expenses67,613 55,606 
Income from operations31,407 64,664 
Other expense, net(39)(29)
Income before provision for income taxes31,368 64,635 
Provision for income taxes7,864 15,217 
Net income$23,504 $49,418 
(1)    Includes stock-based compensation expense as follows:
Three Months Ended March 31,
20222021
(in thousands)
Cost of revenue
Connected machines$$
Subscriptions52 36 
Accessories and materials— — 
Total cost of revenue55 44 
Research and development4,011 3,641 
Sales and marketing2,868 5,607 
General and administrative2,024 2,393 
Total stock-based compensation expense$8,958 $11,685 

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Comparison of the Three Months Ended March 31, 2022 and 2021
Revenue
Three Months Ended
March 31,
Change
20222021$%
(dollars in thousands)
Revenue:
Connected machines$62,391 $141,320 $(78,929)(56)%
Subscriptions64,778 46,139 18,639 40 %
Accessories and materials117,614 136,363 (18,749)(14)%
Total revenue$244,783 $323,822 $(79,039)(24)%

Three Months Ended March 31, 2022 and 2021
Connected Machines revenue decreased by $78.9 million, or 56%, to $62.4 million for the three months ended March 31, 2022 from $141.3 million for the three months ended March 31, 2021. The decrease was primarily driven by a decline in the number of Connected Machines sold during the period, particularly of the Maker and Explore families, due to lower demand.
Subscriptions revenue increased by $18.6 million, or 40%, to $64.8 million for the three months ended March 31, 2022 from $46.1 million for the three months ended March 31, 2021. The increase was primarily driven by an increase in the number of Paid Subscribers which increased by 43% from 1.6 million as of March 31, 2021 to 2.3 million as of March 31, 2022.
Accessories and Materials revenue decreased by $18.7 million, or 14%, to $117.6 million for the three months ended March 31, 2022 from $136.4 million for the three months ended March 31, 2021. The decrease was primarily driven by a decline in unit sales of Accessories and Materials during the period, particularly decline in units of EasyPress, Mug Press and Project Materials sold during the period. The decrease was partially offset by revenue from new product launches of Bright 360 Lamps, Hat Press, Autopress, and EasyPress 3, which launched in Q1 2022.

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Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended
March 31,
Change
20222021$%
(dollars in thousands)
Cost of Revenue:
Connected machines$60,713$119,692$(58,979)(49)%
Subscriptions6,2524,2981,954 45 %
Accessories and materials