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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2021
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation Stock-based Compensation Cost The following table shows the stock-based compensation cost by award type for the periods indicated:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
(in thousands) |  |  |  |  |  |  |
Equity classified awards | $ | 9,970 |  |  | $ | 1,052 |  |  | $ | 24,620 |  |  | $ | 3,258 |
Liability classified awards | (684) |  |  | 1,316 |  |  | 6,361 |  |  | 2,141 |
Total stock-based compensation | $ | 9,286 |  |  | $ | 2,368 |  |  | $ | 30,981 |  |  | $ | 5,399 |
The following table sets forth the total stock-based compensation cost included in the Company’s condensed consolidated statements of operations and comprehensive income or capitalized to assets for the periods indicated:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
(in thousands) |  |  |  |  |  |  |
Cost of revenue |  |  |  |  |  |  |
Connected machines | $ | 10 |  |  | $ | 2 |  |  | $ | 26 |  |  | $ | 5 |
Subscriptions | 66 |  |  | 7 |  |  | 154 |  |  | 22 |
Accessories and materials | — |  |  | — |  |  | — |  |  | — |
Total cost of revenue | 76 |  |  | 9 |  |  | 180 |  |  | 27 |
Research and development | 3,590 |  |  | 716 |  |  | 10,999 |  |  | 1,984 |
Sales and marketing | 2,777 |  |  | 1,166 |  |  | 10,809 |  |  | 2,278 |
General and administrative | 1,703 |  |  | 297 |  |  | 5,953 |  |  | 672 |
Total stock-based compensation expense | $ | 8,146 |  |  | $ | 2,188 |  |  | $ | 27,941 |  |  | $ | 4,961 |
Capitalized for software development costs | $ | 476 |  |  | $ | 56 |  |  | $ | 1,149 |  |  | $ | 181 |
Capitalized to inventory | $ | 664 |  |  | $ | 124 |  |  | $ | 1,891 |  |  | $ | 257 |
Total stock-based compensation | $ | 9,286 |  |  | $ | 2,368 |  |  | $ | 30,981 |  |  | $ | 5,399 |
As of September 30, 2021, there was $129.5 million of unrecognized stock-based compensation cost related to equity awards which is expected to be recognized over a weighted-average period of 3.4 years. As of September 30, 2021, there was $1.0 million of estimated unrecognized stock-based compensation cost related to liability classified awards which is expected to be recognized over a weighted-average period of 1.6 years. Corporate Reorganization and Stock-Based Compensation Modifications In connection with the Corporate Reorganization, all outstanding awards issued under the Incentive Unit Plan discussed below were modified by exchanging the outstanding awards of Cricut Holdings for awards of the Company. All service based vesting conditions were unaffected by the modification. As described below, the vesting conditions were modified for certain awards which previously had both service and market based vesting conditions. All vested equity classified awards were settled in shares of the Company’s Class B common stock previously held by Cricut Holdings. Unvested equity classified awards were converted to restricted shares of the Company’s Class B common stock subject to future vesting, or in the case of options were converted into options to purchase the Company’s Class B common stock. All vested liability classified awards converted into either shares of Class B common stock to the extent permitted in each applicable jurisdiction or settled in cash. All unvested liability classified awards converted into restricted stock units (“RSUs”) under the 2021 Equity Incentive Plan that will vest into shares of Class A common stock of Cricut, Inc. to the extent permitted in each applicable jurisdiction or into restricted stock unit equivalents which will be settled in cash upon vesting as described below. In connection with the Corporate Reorganization and modification, the Company granted options under the 2021 Equity Incentive Plan to certain employees. The number of options was calculated based on the number of outstanding incentive units or incentive unit equivalents prior to the modification and the participation threshold of such awards. The vesting terms of the options are also based on the vesting terms of the original award. Therefore, the Company considered the exchange of the original award for the restricted shares or RSUs plus the options to be a single modification and will recognize the incremental compensation cost of $14.5 million over the vesting term. Of this amount, the Company recognized $0.8 million and $5.1 million during the three and nine months ended September 30, 2021, respectively, including a cumulative adjustment in March 2021 to recognize the incremental compensation cost associated with historical vesting. As part of the modification of outstanding awards in connection with the Corporate Reorganization, awards issued under the Incentive Unit Plan which included both service and market conditions were modified to remove the market vesting condition and to increase the participation threshold of the award to the price specified in the former market condition. In total, 3.0 million, 3.0 million, 1.0 million and 1.0 million awards which previously had a participation threshold of $2.00, $2.00, $5.00 and $5.00 per share, respectively, were modified to have a participation threshold of $3.00, $4.00, $6.00 and $7.00 per share, respectively. Incremental compensation cost associated with these awards is included in the total incremental compensation cost associated with the issuance of additional options to employees described above as this change was part of a single modification. These modifications are shown as cancellations under the Incentive Unit Plan and as grants under the activity summarized below. 2021 Equity Incentive Plan In March 2021, the Company’s 2021 Equity Incentive Plan became effective. The 2021 Equity Incentive Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants. As of September 30, 2021, 20,800,000 shares of Class A common stock were reserved for issuance under this plan including shares reserved for previously granted awards discussed below as well as shares reserved for issuance of future awards under the plan. A summary of the Company’s RSU activity under the 2021 Equity Incentive Plan is as follows:
| Number of RSUs |  | Weighted- Average Grant Date Fair Value (per share)
Outstanding at December 31, 2020 | — |  |  | $ | — |
Granted | 4,696,833 |  |  | $ | 23.38 |
Vested | (105,901) |  |  | $ | 20.00 |
Forfeited/cancelled | (47,500) |  |  | $ | 23.61 |
Outstanding at September 30, 2021 | 4,543,432 |  |  | $ | 23.46 |
Options under the 2021 Equity Incentive Plan have a contractual term of 10 years. The exercise price of an incentive stock option and non-qualified stock option shall not be less than 100% of the fair market value of the shares on the date of grant. A summary of the Company’s stock option activity under the 2021 Equity Incentive Plan is as follows:
| Number of Options |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Term (Years) |  | Aggregate Intrinsic Value
|  |  |  |  |  |  | (in thousands)
Outstanding at December 31, 2020 | — |  |  | $ | — |  |  |  |  |
Granted | 3,419,359 |  |  | 20.00 |  |  |  |  |
Exercised | (5,417) |  |  | 20.00 |  |  |  |  |
Forfeited/cancelled | (80,241) |  |  | 20.00 |  |  |  |  |
Outstanding at September 30, 2021 | 3,333,701 |  |  | $ | 20.00 |  |  | 6.1 |  | $ | 25,269 |
Vested and exercisable at September 30, 2021 | 1,030,288 |  |  | $ | 20.00 |  |  | 5.4 |  | $ | 7,810 |
The weighted-average grant date fair value of options granted under the 2021 Equity Incentive Plan during the nine months ended September 30, 2021 was $8.79 per share based on the following weighted-average assumptions:
| Nine Months Ended September 30, 2021
Expected volatility | 51.6 | %
Risk-free interest rate | 0.8 | %
Expected term (in years) | 4.9
Expected dividend | — | %
In connection with the Corporate Reorganization, certain employees received restricted stock unit equivalents (“RSU equivalents”). Upon vesting, these awards are settled for a cash payment equal to the intrinsic value of the award on the date of the Corporate Reorganization plus the difference between the Company’s stock price on the vesting date less the base price specified at the time of the grant. As of September 30, 2021 the total recognized liability for these awards was $0.8 million. A summary of the RSU equivalent activity under the 2021 Equity Incentive Plan is as follows:
| Number of RSU Equivalents |  | Weighted- Average Base Price |  | Aggregate Intrinsic Value
|  |  |  |  | (in thousands)
Outstanding at December 31, 2020 | — |  |  |  |  |
Granted | 94,304 |  |  | 20.00 |  |  |
Vested | (11,305) |  |  | $ | 20.00 |  |  | $ | 391 |
Outstanding at September 30, 2021 | 82,999 |  |  | $ | 20.00 |  |  | $ | 1,729 |
Unvested Class B Common Stock The Company’s unvested Class B common stock resulted from the Corporate Reorganization and is not part of the 2021 Equity Incentive Plan. Activity related to Class B common stock subject to future vesting for the nine months ended September 30, 2021 is as follows:
| Number of Unvested Shares |  | Weighted- Average Grant Date Fair Value (per share)
Outstanding at December 31, 2020 | — |  |  |
Granted | 14,037,505 |  |  | $ | 20.00 |
Vested | (1,031,920) |  |  | $ | 20.00 |
Forfeited / Cancelled | (249,679) |  |  | $ | 20.00 |
Outstanding at September 30, 2021 | 12,755,906 |  |  | $ | 20.00 |
Options to Purchase Class B Common Stock The Company’s options to purchase Class B common stock resulted from the Corporate Reorganization and are not part of the 2021 Equity Incentive Plan. A summary of the Company stock option activity for the options to purchase shares of Class B common stock is as follows:
| Number of Options |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Term (Years) |  | Aggregate Intrinsic Value
|  |  |  |  |  |  | (in thousands)
Outstanding at December 31, 2020 | — |  |  |  |  |  |  |
Granted | 522,000 |  |  | $ | 9.04 |  |  |  |  |
Forfeited / Cancelled | (72,000) |  |  | $ | 9.04 |  |  |  |  |
Outstanding at September 30, 2021 | 450,000 |  |  | $ | 9.04 |  |  | 4.1 |  | $ | 8,343 |
Vested at September 30, 2021 | 2,000 |  |  | $ | 9.04 |  |  | 0.2 |  | $ | 37 |
The weighted-average grant date fair value of options to purchase Class B common stock during the nine months ended September 30, 2021 was $13.42 per share based on the following weighted-average assumptions:
| Nine Months Ended September 30, 2021
Expected volatility | 51.4 | %
Risk-free interest rate | 0.8 | %
Expected term (in years) | 5.5
Expected dividend | — | %
2021 Employee Stock Purchase Plan In March 2021, the Company’s 2021 Employee Stock Purchase Plan (“2021 ESPP”) became effective. Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute, through payroll deductions, up to 15% of their eligible compensation to purchase the Company’s Class A common stock at a discounted price per share. As of September 30, 2021, 4,000,000 shares of our Class A common stock were available for sale under the 2021 ESPP. No offerings have been authorized to date by the administrator under the 2021 ESPP. If the administrator authorizes an offering period under the 2021 ESPP, the administrator will establish the duration of offering periods and purchase periods, including the starting and ending dates of offering periods and purchase periods, provided that no offering period may have a duration exceeding 27 months. Incentive Unit Plan The Company’s former parent, Cricut Holdings, authorized an Incentive Unit Compensation Plan (the “IU Plan”) that allowed for issuances of common incentive units (“CIUs”). The participation threshold of the awards granted under the IU Plan was typically equal to the fair market value of Cricut Holdings’ membership units at the date of the grant, except zero strike price incentive unit awards which have no participation threshold. Except as noted below, all awards issued under the IU Plan only had service-based conditions. Per unit amounts in the activity below are based on the value of Cricut Holdings’ units. Equity Classified Units The Company’s former parent, Cricut Holdings, granted CIUs to employees of the Company. These awards vested 25% annually over four years of service. The Company’s former parent also granted a performance-based incentive unit, which is discussed later. These awards are collectively referred to as equity classified incentive units. Once vested, all equity classified incentive units remained outstanding until the liquidation of Cricut Holdings or until repurchased by Cricut Holdings. Upon the liquidation of Cricut Holdings all outstanding awards were settled or modified as described above. A summary of the equity classified incentive units activity for the nine months ended September 30, 2021 is as follows:
| Equity Incentive Units |  | Weighted- Average Participation Threshold |  | Aggregate Intrinsic Value
|  |  |  |  | (in thousands)
Outstanding at December 31, 2020 | 93,371,324 |  |  | $ | 0.97 |  |  | $ | 600,316 |
Granted | 1,548,223 |  |  | $ | — |  |  |
Exercised | — |  |  | $ | — |  |  |
Forfeited | (82,500) |  |  | $ | 1.29 |  |  |
Cancelled upon Corporate Reorganization | (94,837,047) |  |  | $ | 0.95 |  |  |
Outstanding at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
Vested at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
The following table summarizes the unvested equity classified incentive units activity for the nine months ended September 30, 2021:
| Number of Awards |  | Weighted- Average Grant Date Fair Value Per Unit
Unvested at December 31, 2020 | 37,116,025 |  |  | $ | 0.74 |
Granted | 1,548,223 |  |  | $ | 9.06 |
Vested | (7,123,673) |  |  | $ | 0.40 |
Forfeited | (82,500) |  |  | $ | 0.79 |
Cancelled upon Corporate Reorganization | (31,458,075) |  |  | $ | 1.23 |
Unvested at September 30, 2021 | — |  |  | $ | — |
The total fair value of equity classified incentive units vested during the nine months ended September 30, 2021 was $3.1 million. The grant date fair value of CIUs granted during the nine months ended September 30, 2021 was equal to the estimated fair value of Cricut Holdings’ common unit on the date of the grant as all CIUs had no participation threshold. Equity Classified Options The Company’s former parent, Cricut Holdings, granted employees of the Company options to purchase zero strike price incentive units. These options generally vested on a cliff basis upon completion of the service period specified for each award. All outstanding options of Cricut Holdings were exchanged for options to purchase class B common stock of Cricut Inc. in connection with the Corporate Reorganization. A summary of option activity for the nine months ended September 30, 2021 is as follows:
| Number of Options |  | Weighted- Average Exercise Price |  | Aggregate Intrinsic Value
|  |  |  |  | (in thousands)
Outstanding at December 31, 2020 | 1,140,000 |  |  | $ | 4.52 |  |  | $ | 3,283 |
Granted | 27,027 |  |  | $ | 7.40 |  |  |
Exercised | (27,027) |  |  | $ | 7.40 |  |  | $ | 52 |
Forfeited | (84,000) |  |  | $ | 4.52 |  |  |
Cancelled upon Corporate Reorganization | (1,056,000) |  |  | $ | 4.52 |  |  |
Outstanding at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
Vested at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
Liability Classified Incentive Unit Equivalents The Company’s former parent issued incentive unit equivalents (phantom units) to various employees under the Incentive Unit Plan. The incentive unit equivalents paid out upon the occurrence of a liquidation event such as a change in control transaction. In addition, the units did not participate until the sum of distributions and capital appreciation of the common units from the date of grant of the incentive units equaled a specified participation threshold per unit. The incentive unit equivalents did not represent any kind of legal equity interest in the Company or the former parent Company and required cash settlement. Accordingly, the incentive unit equivalent awards were accounted for as liability classified awards and required initial and subsequent measurement at fair value. Initially, during the nine months ended September 30, 2020, these awards generally vested 12.5% annually for each of the first four years of service and 50% after the fifth year of service. Following the amendment of these awards in January 2020, these awards vested 25% annually over four years of service. All liability classified incentive units had indefinite contract terms and, once vested, remained outstanding until liquidation of Cricut Holdings or until repurchased by Cricut Holdings. Upon the liquidation of Cricut Holdings all outstanding awards were settled or modified as described above. A summary of the liability classified incentive unit equivalents activity for the nine months ended September 30, 2021 is as follows:
| Liability Incentive Equivalents |  | Weighted- Average Participation Threshold |  | Aggregate Intrinsic Value
|  |  |  |  | (in thousands)
Outstanding at December 31, 2020 | 2,851,516 |  |  | $ | 2.13 |  |  | $ | 15,017 |
Granted | 320,000 |  |  |  |  |
Forfeited | (4,000) |  |  |  |  |
Cancelled upon Corporate Reorganization | (3,167,516) |  |  | $ | 1.92 |  |  |
Outstanding at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
Exercisable at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
Vested and expected to vest at September 30, 2021 | — |  |  | $ | — |  |  | $ | — |
The following table summarizes the unvested liability classified incentive unit equivalents activity for the nine months ended September 30, 2021:
| Number of Awards |  | Weighted- Average Grant Date Fair Value Per Unit
Unvested at December 31, 2020 | 2,851,516 |  |  | $ | 1.74 |
Granted | 320,000 |  |  | $ | 8.19 |
Forfeited | (4,000) |  |  | $ | 6.58 |
Cancelled upon Corporate Reorganization | (3,167,516) |  |  | $ | 2.39 |
Unvested at September 30, 2021 | — |  |  | $ | — |
The Company estimated the fair value of liability classified incentive unit equivalents upon the modification or settlement as part of the Corporate Reorganization based on the estimated fair value of the awards received to settle the liability. The cumulative adjustment upon settlement or modification is included in stock-based compensation related to liability awards above. Liability classified incentive unit equivalents were included in accrued expenses per the Company’s consolidated balance sheets and the rollforward of this liability is as follows (in thousands):
| Nine Months Ended September 30, 2021
Balance at December 31, 2020 | $ | 5,702 |
Stock-based compensation during period | $ | 6,041 |
Settlement or modification of awards | $ | (11,743) |
Balance at September 30, 2021 | $ | — |

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