CRICUT, INC. 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."
Overview of Our Business and History
AtCricut , 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 nearly 7.2 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 ofJune 30, 2022 ):
•Cricut Joy for personalization on-the-go,
•Cricut Explore for cutting, writing and scoring,
•Cricut Maker for cutting, writing, scoring and adding decorative effects to a
wider range of materials,
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 theCricut 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 ofJune 30, 2022 , we had nearly 2.4 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 toCricut -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 ofCricut -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. 23 -------------------------------------------------------------------------------- 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 inthe 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 continue to grow internationally, we expect we may experience seasonality in additional markets, which may differ from the seasonality experienced inthe United States . OnMarch 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 . OnApril 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.
As of June 30,
2022 2021
Users (in thousands) 7,192 5,373
Percentage of Users Creating in Trailing 90 Days 51 % 59 %
Paid Subscribers (in thousands) 2,367
1,765
Three Months Ended June 30,
2022 2021
Subscription ARPU $ 9.59 $ 9.83
Accessories and Materials ARPU $ 11.45 $ 26.67
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 an important 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
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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.
Paid Subscribers
We define Paid Subscribers as the number of users with a subscription toCricut 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 16 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 includesExplore 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 ofCricut 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 , Cricut Autopress, 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. 25 --------------------------------------------------------------------------------
Cost of Revenue
Connected Machines
Cost of revenue related to Connected Machines consists of product costs, including costs of components, costs of contract manufacturers for production, inspecting and packaging, shipping, receiving, handling, warehousing and fulfillment, duties and other applicable importing costs, warranty replacement, excess and obsolete inventory write-downs, tooling and equipment depreciation and royalties. We expect our cost of revenue related to Connected Machines as a percentage of revenue to fluctuate in the near term as we address global supply chain challenges and increased expenses 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 increase as we expand our content offerings and benefits of the subscription, including localized content for international target markets, discounts and features that drive value of the subscription. 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 and increased expenses 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 a percentage of revenue to levels somewhat higher compared to historical annual 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 pre-COVID-19 pandemic annual 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 pre-COVID-19 pandemic annual levels.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs.
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--------------------------------------------------------------------------------Provision for Income Taxes
Provision for income taxes consists of income taxes inthe United States and certain state and foreign jurisdictions in which we conduct business. We have not recorded a valuation allowance against our deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will be realized. Results of Operations The following tables set forth the components of our interim condensed consolidated statements of operations for each of the periods presented and as a percentage of our revenue for those periods. 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Revenue:
Connected machines $ 35,438 $ 146,326 $ 97,829 $ 287,646
Subscriptions 67,604 50,673 132,382 96,812
Accessories and materials 80,715 137,494 198,329 273,857
Total revenue 183,757 334,493 428,540 658,315
Cost of revenue:
Connected machines(1) 34,882 116,217 95,595 235,909
Subscriptions(1) 6,181 5,285 12,433 9,583
Accessories and materials(1) 57,266 82,696 136,064 162,258
Total cost of revenue 98,329 204,198 244,092 407,750
Gross profit 85,428 130,295 184,448 250,565
Operating expenses:
Research and development(1) 20,055 20,606 40,585 36,304
Sales and marketing(1) 31,516 33,030 64,305 60,519
General and administrative(1) 13,828 12,507 28,122 24,926
Total operating expenses 65,399 66,143 133,012 121,749
Income from operations 20,029 64,152 51,436 128,816
Other income (expense), net 322 14 283 (15)
Income before provision for income taxes 20,351 64,166 51,719 128,801
Provision for income taxes 6,524 15,040 14,388 30,257
Net income $ 13,827 $ 49,126 $ 37,331 $ 98,544 (1) Includes stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue
Connected machines $ 9 $ 8 $ 12 $ 16
Subscriptions 107 52 159 88
Accessories and materials - - - -
Total cost of revenue 116 60 171 104
Research and development 4,915 3,768 8,926 7,409
Sales and marketing 3,255 2,425 6,123 8,032
General and administrative 2,116 1,857 4,140 4,250
Total stock-based compensation expense
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Comparison of the Three and Six Months Ended
Revenue
Three Months Ended
June 30, Change Six Months Ended June 30, Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Revenue:
Connected machines $ 35,438 $ 146,326 $ (110,888) (76) % $ 97,829 $ 287,646 $ (189,817) (66) %
Subscriptions 67,604 50,673 16,931 33 % 132,382 96,812 35,570 37 %
Accessories and materials 80,715 137,494 (56,779) (41) % 198,329 273,857 (75,528) (28) %
Total revenue $ 183,757 $ 334,493 $ (150,736) (45) % $ 428,540 $ 658,315 $ (229,775) (35) %
Three Months Ended
Connected Machines revenue decreased by$110.9 million , or 76%, to$35.4 million for the three months endedJune 30, 2022 from$146.3 million for the three months endedJune 30, 2021 . The decrease was primarily driven by a decline in the number of Connected Machines sold during the period, across all product families, due to higher channel inventory entering the quarter and lower consumer demand. Subscriptions revenue increased by$16.9 million , or 33%, to$67.6 million for the three months endedJune 30, 2022 from$50.7 million for the three months endedJune 30, 2021 . The increase was primarily driven by an increase in the number of Paid Subscribers which increased by 34% from 1.8 million as ofJune 30, 2021 to 2.4 million as ofJune 30, 2022 . Accessories and Materials revenue decreased by$56.8 million , or 41%, to$80.7 million for the three months endedJune 30, 2022 from$137.5 million for the three months endedJune 30, 2021 . The decrease was primarily driven by a decline in unit sales of Accessories, particularly for units ofEasyPress and Mug Press , as well as a decline in unit sales of Project Materials, due in part to increased competition in this space. The decrease was partially offset by increased revenue from Autopress,Hat Press , BrightPad, and Bright 360 Lamps.
Six Months Ended
Connected Machines revenue decreased by$189.8 million , or 66%, to$97.8 million for the six months endedJune 30, 2022 from$287.6 million for the six months endedJune 30, 2021 . The decrease was primarily driven by a decline in the number of Connected Machines sold during the period, across all product families, due to lower consumer demand. Subscriptions revenue increased by$35.6 million , or 37%, to$132.4 million for the six months endedJune 30, 2022 from$96.8 million for the six months endedJune 30, 2021 . The increase was primarily driven by an increase in the number of Paid Subscribers which increased by 34% from 1.8 million as ofJune 30, 2021 to 2.4 million as ofJune 30, 2022 . Accessories and Materials revenue decreased by$75.5 million , or 28%, to$198.3 million for the six months endedJune 30, 2022 from$273.9 million for the six months endedJune 30, 2021 . The decrease was primarily driven by a decline in unit sales of Accessories, particularly for units ofEasyPress and Mug Press , as well as a decline in unit sales of Project Materials, due in part to increased competition in this space. The decrease was partially offset by increased revenue from Autopress,Hat Press , BrightPad, and Bright 360 Lamps. 28 --------------------------------------------------------------------------------
Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended
June 30, Change Six Months Ended June 30, Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Cost of Revenue:
Connected machines $ 34,882 $ 116,217 $ (81,335) (70) % $ 95,595 $ 235,909 $ (140,314) (59) %
Subscriptions 6,181 5,285 896 17 % 12,433 9,583 2,850 30 %
Accessories and materials 57,266 82,696 (25,430) (31) % 136,064 162,258 (26,194) (16) %
Total cost revenue $ 98,329 $ 204,198 $ (105,869) (52) % $ 244,092 $ 407,750 $ (163,658) (40) %
Gross Profit:
Connected machines 556 30,109 (29,553) (98) % 2,234 51,737 (49,503) (96) %
Subscriptions 61,423 45,388 16,035 35 % 119,949 87,229 32,720 38 %
Accessories and materials 23,449 54,798 (31,349) (57) % 62,265 111,599 (49,334) (44) %
Total gross profit $ 85,428 $ 130,295 $ (44,867) (34) % $ 184,448 $ 250,565 $ (66,117) (26) %
Gross Margin
Connected machines 2 % 21 % 2 % 18 %
Subscriptions 91 % 90 % 91 % 90 %
Accessories and materials 29 % 40 % 31 % 41 %
Three Months Ended
Connected Machines cost of revenue decreased by$81.3 million , or 70%, to$34.9 million for the three months endedJune 30, 2022 from$116.2 million for the three months endedJune 30, 2021 . The decrease was primarily driven by a decline in the number of Connected Machines sold across all product families during the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Gross margin for Connected Machines decreased to 2% for the three months endedJune 30, 2022 from 21% for the three months endedJune 30, 2021 . Gross margin decreased due to higher sales incentives as a percentage of revenue, end-of-life pricing forExplore Air 2 and Maker, higher freight and handling costs due to global supply chain challenges as a percentage of revenue, higher warranty costs as a percentage of revenue, and higher excess and obsolete costs as a percentage of revenue. Subscriptions cost of revenue increased by$0.9 million , or 17%, to$6.2 million for the three months endedJune 30, 2022 from$5.3 million for the three months endedJune 30, 2021 . The increase was primarily driven by an increase in amortization of capitalized software development costs. Gross margin for Subscriptions increased to 91% for the three months endedJune 30, 2022 from 90% for the three months endedJune 30, 2021 . Gross margin increased due to lower digital content costs and hosting fees as a percentage of subscriptions revenue. Accessories and Materials cost of revenue decreased by$25.4 million , or 31%, to$57.3 million for the three months endedJune 30, 2022 from$82.7 million for the three months endedJune 30, 2021 . The decrease was primarily driven by a decline in unit sales of Accessories and Materials during the period, particularly for units of EasyPress,Mug Press and Project Materials. The decrease was partially offset by an increase in units sold of Autopress,Hat Press , BrightPad, and Bright 360 Lamps. Gross margin for Accessories and Materials decreased to 29% for the three months endedJune 30, 2022 from 40% for the three months endedJune 30, 2021 . Gross margin decreased primarily due to higher freight and handling costs due to global supply chain challenges, higher excess and obsolete costs, and higher sales incentives as a percentage of revenue.
Six Months Ended
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Connected Machines cost of revenue decreased by $140.3 million , or 59%, to $95.6
million for the six months ended June 30, 2022 from $235.9 million for the six
months ended June 30, 2021 . The decrease was primarily driven by a decline in
the number of Connected Machines sold across all product families during the six
months ended June 30, 2022 compared to the six months ended June 30, 2021 .
Gross margin for Connected Machines decreased to 2% for the six months ended
June 30, 2022 from 18% for the six months ended June 30, 2021 . Gross margin
decreased due to end-of-life pricing for Explore Air 2 and Maker, higher freight
and handling costs due to global supply chain challenges as a percentage of
revenue, higher warranty costs as a percentage of revenue, and higher sales
incentives as a percentage of revenue.
Subscriptions cost of revenue increased by $2.9 million , or 30%, to $12.4
million for the six months ended June 30, 2022 from $9.6 million for the six
months ended June 30, 2021 . The increase was primarily driven by an increase in
amortization of capitalized software development costs.
Gross margin for Subscriptions increased to 91% for the six months ended June
30, 2022 from 90% for the six months ended June 30, 2021 . Gross margin increased
due to lower digital content costs and hosting fees as a percentage of
subscriptions revenue.
Accessories and Materials cost of revenue decreased by $26.2 million , or 16%, to
$136.1 million for the six months ended June 30, 2022 from $162.3 million for
the six months ended June 30, 2021 . The decrease was primarily driven by a
decline in unit sales of Accessories and Materials during the period,
particularly for units of EasyPress, Mug Press and Project Materials. The
decrease was partially offset by an increase in units sold of Autopress, Hat
Press , BrightPad, and Bright 360 Lamps along with higher freight cost.
Gross margin for Accessories and Materials decreased to 31% for the six months
ended June 30, 2022 from 41% for the six months ended June 30, 2021 . Gross
margin decreased primarily due to higher freight and handling costs due to
global supply chain challenges as a percentage of revenue, unfavorable product
mix changes, and higher sales incentives as a percentage of revenue.
Operating Expenses
Research and Development
Three Months Ended
June 30, Change Six Months Ended June 30, Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Research and development $ 20,055 $ 20,606 $ (551) (3) % $ 40,585 $ 36,304 $ 4,281 12 %
As a percentage of total
revenue 11 % 6 % 9 % 6 %
Research and development expenses decreased by $0.6 million , or 3%, to $20.1
million for the three months ended June 30, 2022 from $20.6 million for the
three months ended June 30, 2021 . The decrease was primarily due to a $3.1
million decrease in product development expenses for future products, offset by
increases in personnel-related expenses due to headcount increases and
stock-based compensation expense.
Research and development expenses increased by $4.3 million , or 12%, to $40.6
million for the six months ended June 30, 2022 from $36.3 million for the six
months ended June 30, 2021 . The increase was primarily due to a $2.8 million
increase in personnel-related expenses due to headcount increases as well as an
increase in stock-based compensation expense.
Sales and Marketing
Three Months Ended
June 30, Change Six Months Ended June 30, Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Sales and marketing $ 31,516 $ 33,030 $ (1,514) (5) % $ 64,305 $ 60,519 $ 3,786 6 %
As a percentage of total
revenue 17 % 10 % 15 % 9 %
30-------------------------------------------------------------------------------- Sales and marketing expenses decreased by$1.5 million , or 5%, to$31.5 million for the three months endedJune 30, 2022 from$33.0 million for the three months endedJune 30, 2021 . The decrease was primarily due to a$5.1 million decrease in advertising and other marketing costs which included the launch of the Explore 3 and Maker 3 inJune 2021 . The variance was offset by increases in personnel-related expenses due to headcount increases, stock-based compensation expense, and payment processing fees. Sales and marketing expenses increased by$3.8 million , or 6%, to$64.3 million for the six months endedJune 30, 2022 from$60.5 million for the six months endedJune 30, 2021 . The increase was primarily due to a$5.6 million increase in payment processing fees, increases in personnel-related expenses due to headcount increases, and software subscription expenses. The variance was offset by decreases in advertising and other marketing costs including to support the launch of Explore 3 and Maker 3 which launched inJune 2021 and stock-based compensation expense. General and Administrative Three Months Ended June 30, Change Six Months Ended June 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) General and administrative$ 13,828 $ 12,507 $ 1,321 11 % $ 28,122$ 24,926 $ 3,196 13 % As a percentage of total revenue 8 % 4 % 7 % 4 %
General and administrative expenses increased by
General and administrative expenses increased by$3.2 million , or 13%, to$28.1 million for the six months endedJune 30, 2022 from$24.9 million for the six months endedJune 30, 2021 . The increase was primarily due to a$1.5 million increases in personnel-related expenses due to headcount increases. Other Income (Expense), Net Three Months Ended June 30, Change Six Months Ended June 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Other income (expense), net$ 322 $ 14 $ 308 2200 % $ 283$ (15) $ 298 (1987) % Other income (expense), net is materially consistent for the three and six months endedJune 30, 2022 in comparison to the three and six months endedJune 30, 2021 . Income Tax Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Provision for income taxes$ 6,524 $ 15,040 $ (8,516) (57) %$ 14,388 $ 30,257 $ (15,869) (52) % Provision for income taxes decreased by$8.5 million , or 57%, to$6.5 million for the three months endedJune 30, 2022 from$15.0 million for the three months endedJune 30, 2021 . The decrease was primarily due to a reduction in pre-tax net income and represents an effective tax rate after discrete items of 32.1% and 23.4% for the three months endedJune 30, 2022 and 2021, respectively. The increase in the effective tax rate after discrete items 31 --------------------------------------------------------------------------------
is due primarily to a
Provision for income taxes decreased by$15.9 million , or 52%, to$14.4 million for the six months endedJune 30, 2022 from$30.3 million for the six months endedJune 30, 2021 . The decrease was primarily due to a reduction in pre-tax net income and represents an effective tax rate after discrete items of 27.8% and 23.5% for the six months endedJune 30, 2022 and 2021, respectively. The increase in the effective tax rate after discrete items is primarily due to a$1.8 million discrete item in the three months endedJune 30, 2022 , related to RSU's that vested inMay 2022 , which resulted in a significant tax shortfall due to the decrease in share price.
Liquidity and Capital Resources
Our operations during the periods presented have been financed primarily through cash flow from operating activities and the net proceeds from our initial public offering in March of 2021. We believe our balances of cash and cash equivalents and marketable securities, which totaled$147.8 million and$83.5 million , respectively, as ofJune 30, 2022 , along with forecasted cash expected to be generated by ongoing operations and$300.0 million in available borrowings on our new credit facility (see Note 7 and Note 17) will be sufficient to satisfy our cash requirements over the next 12 months and beyond. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other growth initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.
Other than our recently announced
Cash Flows
Six Months Ended June 30,
2022 2021
(in thousands)
Net cash flows (used in) provided by operating activities $ 13,006 $ (53,995)
Net cash flows used in investing activities (101,569) (16,124)
Net cash flows provided (used in) by financing activities (5,031) 262,013
Operating Activities
The change in net cash flows from operating activities for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to
greater reductions in accounts receivable year over year as well as less cash
used to fund inventories. These increases were partially offset by a larger
decrease in payable balances with inventory vendors for the six months ended
June 30, 2022 compared to six months ended June 30, 2021 .
Investing Activities
The change in net cash flows from investing activities for the six months ended
Financing Activities
The change in net cash flows from financing activities for the six months endedJune 30, 2022 compared to six months endedJune 30, 2021 was primarily due to proceeds of$262.0 million received from our IPO during 2021. 32 --------------------------------------------------------------------------------
Critical Accounting Policies
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements include those described in Note 2 of the notes to our condensed consolidated financial statements in the section titled "-Summary of Significant Accounting Policies" in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the 2021 Form 10-K.
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