Cricut Inc

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 platform, versatile connected machines, and accessories and materials, users create everything from personalized birthday cards, mugs and T-shirts to large-scale interior decorations. The Company’s subscription services, connected machines and related accessories and materials are primarily marketed under the Cricut brand in the United States, as well as Europe and other countries around 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 the platform, connected machines, and accessories and materials. In addition, Cricut sells a broad line of images, fonts, and projects for purchase à la carte.

During the year ended December 31, 2023 and prior periods, we had three reportable segments: Connected Machines, Subscriptions, and Accessories and Materials. As of January 2024, we realigned our operating segment structure and now havetwo reportable segments: Platform and Products. The change in operating segments is based on how the Company’s chief operating decision maker (“CODM”) makes operating decisions and assesses business performance. Prior period segment information has been recast retrospectively to reflect the realignment. See Note 16, Segment Information, for further discussion of the Company’s segment reporting structure.

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, 2023 (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, 2023 was derived from the audited consolidated financial statements as of that date but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, cash flows and the changes in equity for the interim periods. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending December 31, 2024, or any other period.

Recently Issued Accounting Pronouncements

In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) Compensation-Stock Compensation (Topic 718). The ASU clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. Public business entities must apply the ASU’s guidance to annual periods beginning after December 15, 2025. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In December, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. Public business entities must apply the ASU’s guidance to annual periods beginning after December 15, 2024 (2025 for calendar-year-end Public business entities). The Company is currently evaluating the impact of this standard on the consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses, and is effective for fiscal years beginning after December 15, 2023 on a retrospective basis. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

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 of performance obligations, and estimating variable consideration such as sales incentives and product returns. Other estimates include the warranty reserve, allowance for credit losses, 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 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.

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 and certain marketable securities are highly liquid investments and are actively traded. The pricing information for these assets is 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. Other marketable securities such as U.S. Treasury securities are valued using observable inputs from similar assets, or from observable data in markets that are not active; these assets are classified as Level 2 of the fair value hierarchy. There were no transfers between Levels 1, 2 or 3 for any of the periods presented. There were no liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.

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.

Accounts Receivable

Accounts receivable are recorded at original invoice amounts less estimates for credit losses. Management determines the allowance for credit losses by specifically identifying troubled accounts and by using historical write off experience, adjusted for current market conditions and reasonable supportable forecasts of future economic conditions, applied to an aging of all other accounts. If a retailer fails to follow the policies and guidelines in our sales agreements, we may choose to temporarily or permanently stop shipping product to that retailer.

As of June 30, 2024, December 31, 2023, and January 1, 2023, the Company had net accounts receivable balances of $83.8 million, $111.2 million and $136.5 million, respectively. As of June 30, 2024, and December 31, 2023, the Company had an allowance for credit losses against accounts receivable of $1.1 million and $2.0 million, respectively.

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 has recognized no contract assets as of June 30, 2024, December 31, 2023 and January 1, 2023.

The following table summarizes the changes in the deferred revenue balance for the six months ended June 30, 2024 and 2023:

As of June 30, 2024, 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 June 30, 2024:

The Company’s revenue from contracts with customers disaggregated by major product lines, excluding sales-based taxes, are included in Note 16 under the heading “Segment Information.”

Revenue recognized during the three and six months ended June 30, 2024 related to performance obligations satisfied or partially satisfied was $0.3 million and $2.9 million, respectively.

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

The following table presents the total revenue by source for the periods indicated:

4. Cash, Cash Equivalents, and Financial Instruments

The following table shows the Company’s cash, cash equivalents, and marketable securities by significant investment category as of June 30, 2024 and December 31, 2023:

Marketable securities held as of June 30, 2024 generally mature over the next twenty-four months. As of June 30, 2024 and December 31, 2023 all balances were in a gain position, therefore there are no allowances for credit losses recorded for the periods presented.

5. Inventories

Inventories are comprised of the following:

The Company’s recorded inventory reserves as of June 30, 2024 consisted of $2.9 million related to excess connected machine inventory, $45.3 million related to excess accessories and materials inventory, and $3.2 million related to raw material components. Amounts charged to the reserve account are recorded primarily in cost of revenues.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

7. Revolving Credit Facility

On August 4, 2022, the Company entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A, Citigroup N.A., PNC Bank, N.A., KeyBank, N.A., and other parties. The Credit Agreement replaced the Company’s prior asset-based Credit Agreement with JPMorgan Chase Bank, N.A., Citigroup N.A., and Origin Bank. The Credit Agreement provides for afive-year revolving credit facility (the “Credit Facility”) of up to $300.0 million, maturing on August 4, 2027. In addition, during the term of the Credit Agreement, the Company may increase the aggregate amount of the Credit Facility by up to an additional $150.0 million, (for maximum aggregate lender commitments of up to $450.0 million), subject to customary conditions under the Credit Agreement, including obtaining a consent from participating lenders (or another lender, if applicable) to such increase. The Credit Facility may be used to issue letters of credit and for other business purposes, including working capital needs. The current unused fee rate is 0.175% on per annum basis.

As of June 30, 2024, and December 31, 2023 total unamortized debt issuance costs were $1.0 million and $1.2 million, respectively.

The Credit Agreement is collateralized by substantially all of the Company’s assets and contains affirmative and negative covenants, representations and warranties, events of default and other terms customary for loans of this nature. In particular, the Credit Agreement will not permit the leverage ratio to be greater than 3.0 to 1.0, measured on the last day of any fiscal quarter. In addition, the Credit Agreement will not permit the interest coverage ratio to be less than 3.0 to 1.0, for any period of four consecutive quarters, measured on the last day of any fiscal quarter. Management has determined that the Company was in compliance with all financial and non-financial debt covenants as of June 30, 2024. As of June 30, 2024 and December 31, 2023, no amounts were outstanding under the Credit Agreement and available borrowings were $300.0 million.

Generally, borrowings under the Credit Agreement bear interest at a rate based on an alternative base rate (“ABR”), plus, in each case, an applicable margin. The applicable margin will range from (a) borrowings bearing interest at the ABR plus 2.00%, and (b) borrowings bearing interest at the Adjusted Term Secured Overnight Financing Rate, the Adjusted Australian Dollar Rate, the Adjusted Canadian Dollar Offered Rate or the Adjusted New Zealand Dollar Rate, as applicable for the interest period in effect for such borrowing plus the applicable rate.

8. 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.

The estimated effective tax rate was 33.6% and 32.1% for the three and six months ended June 30, 2024, respectively, and 30.2% and 29.8% for the three and six months ended June 30, 2023, respectively. The Company’s provision for income taxes was $10.0 million and $18.7 million for the three and six months ended June 30, 2024, respectively, and $6.9 million and $10.7 million for the three and six months ended June 30, 2023, respectively. The provision for income taxes varied from the tax computed at the U.S. federal statutory income tax rate for the periods presented primarily due to an increase for permanent adjustments from Section 83(b) elections and stock-based compensation differences resulting from the decrease in stock price upon vesting versus the stock price at the grant date.

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.

9. Capital Structure

As of June 30, 2024, 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 June 30, 2024, 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 53,214,366 shares of Class A common stock and 162,871,647 shares of Class B common stock issued and outstanding. Each share of Class A common stock is entitled toone vote per share. Each share of Class B common stock is entitled tofive votes per share and is convertible at any time intoone share of Class A common stock. During the six months ended June 30, 2024 and 2023,3,540,837 and 8,573,915 shares of Class B common stock were converted to Class A common stock, respectively.

Stock Repurchase Program

On July 19, 2022, the Company’s Board of Directors approved a share repurchase program to purchase shares of our outstanding Class A common stock up to an aggregate transactional value of $50 million which was recently completed. On May 6, 2024, the Company’s Board of Directors approved an additional $50 million for the share repurchase program to purchase shares of its outstanding Class A common stock depending on the Company’s continuing analysis of market, financial, and other factors. The share repurchase program may be suspended or discontinued at any time and does not have a predetermined expiration date.

During the six months ended June 30, 2024, the Company repurchased and retired 3,170,333 shares of our Class A common stock for $20.0 million.

Dividends

On May 6, 2024, the Company declared a special dividend of $0.40 per share and a recurring semi-annual dividend of $0.10 per share on its Class A and Class B common stock, payable on July 19, 2024 to shareholders of record as of July 2, 2024. As part of the dividends, and pursuant to the underlying award agreements, holders of restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) received a dividend equivalent of $0.40 per unit in the form of additional RSUs or PRSUs subject to the same vesting conditions as the original awards. The aggregate dividend of $121.7 million was to be satisfied in cash of $108.2 million payable to holders of Class A and Class B common stock with the remaining $13.5 million satisfied on the payment date in the form of dividend equivalents to RSU or PRSU holders prior to any subsequent forfeitures.

On May 18, 2023, the Company declared a special dividend of $1.00 per share on its Class A and Class B common stock, payable on July 17, 2023 to shareholders of record as of July 3, 2023. As part of the dividend, and pursuant to the underlying award agreements, holders of restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) received a dividend equivalent of $1.00 per unit in the form of additional RSUs or PRSUs subject to the same vesting conditions as the original awards. The aggregate dividend of $234.6 million was to be satisfied in cash of $219.8 million payable to holders of Class A and Class B common stock with the remaining $14.8 million satisfied on the payment date in the form of dividend equivalents to RSU or PRSU holders prior to any subsequent forfeitures.

On December 21, 2022, the Company declared a special dividend of $0.35 per share on its Class A and Class B common stock, payable on February 15, 2023 to shareholders of record as of February 1, 2023. As part of the dividend, and pursuant to the underlying award agreements, holders of RSUs and PRSUs received a dividend equivalent of $0.35 per unit in the form of additional RSUs or PRSUs subject to the same vesting conditions as the original awards. The aggregate dividend of $81.4 million was to be satisfied in cash of $76.9 million payable to holders of Class A and Class B common stock with the remaining $4.5 million satisfied on the payment date in the form of dividend equivalents to RSU or PRSU holders prior to any subsequent forfeitures.

During the three and six months ended June 30, 2024, an aggregate of $0.1 million and $1.5 million, respectively, was paid in cash. During three and six months ended June 30, 2023, $0.3 million and $75.8 million was paid in cash, and during the six months ended June 30, 2023, $4.4 million was satisfied in the form of dividend equivalents to RSU or PRSU holders.

Dividends payable includes dividends declared but not yet paid and prior dividends on unvested shares of Class B common stock payable upon future vesting.

10. Stock-Based Compensation

Stock-Based Compensation Cost

The following table shows the stock-based compensation cost by award type for the periods indicated:

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:

As of June 30, 2024, there was $92.5 million of unrecognized stock-based compensation cost related to service-based awards which is expected to be recognized over a weighted-average period of 2.5 years. The total unrecognized compensation expense related to unvested PRSUs was $150.4 million as of June 30, 2024.

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 non-statutory 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 June 30, 2024,50,889,323 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 restricted stock unit (“RSU”) activity under the 2021 Equity Incentive Plan is as follows:

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 intwo equal tranches subject to the Company achieving cumulative adjusted earnings per share over eight quarters of $4.93 per 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.

A summary of the Company’s PRSU activity under the 2021 Equity Incentive Plan is as follows:

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 June 30, 2024, 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 six months ended June 30, 2024.

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:

During the six months ended June 30, 2024 and 2023, no options were granted.

Certain employees received restricted stock unit equivalents (“RSU equivalents”) which upon vesting are settled for a cash payment equal to the difference between the Company’s stock price on the vesting date less the base price specified at the time of the grant. As of June 30, 2024, the total recognized liability for these awards was immaterial.

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 six months ended June 30, 2024 is as follows:

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:

During the six months ended June 30, 2024 and 2023, the total intrinsic value of options exercised was immaterial.

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 June 30, 2024,10,602,602 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.

11. 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.

12. Leases

The Company leases office space with lease terms ranging fromone tosix 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.

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 $1.3 million and $2.7 million for the three and six months ended June 30, 2024, respectively, and $1.3 million and $2.7 million, respectively for the three and six months ended June 30, 2023. The Company also incurred variable lease costs of $0.1 million and $0.2 million for the three and six months ended June 30, 2024, respectively, and $0.1 million and $0.2 million, for the three and six months ended June 30, 2023, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $1.5 million for both the three months ended June 30, 2024 and 2023, and $3.0 million for both the six months ended June 30, 2024 and 2023. These amounts were included in net cash provided by operating activities in the Company's consolidated statements of cash flows.

As of June 30, 2024, the maturities of the Company's operating lease liabilities were as follows:

The weighted average remaining operating lease term and the weighted average discount rate used to determine the operating lease liability were as follows:

13. Restructuring

During the three months ended March 31, 2024, and March 31, 2023, the Company undertook restructuring plans to improve efficiency and streamline operations. Costs for each plan were primarily settled within the first fiscal quarter of 2023 and 2024, respectively. During the six months ended June 30, 2024, the Company recognized severance costs of $0.9 million, of which $0.4 million, $0.4 million and $0.1 million were recorded within research and development, selling and marketing, and general and administrative expense, respectively. During the six months ended June 30, 2023, the Company recognized severance costs of $1.2 million, of which $0.7 million, $0.3 million, $0.2 million were recorded within research and development, selling and marketing, and general and administrative expense, respectively.

14. 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 $0.6 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and $1.3 million and $1.4 million for the six months ended June 30, 2024 and 2023, respectively.

15. Net Income Per Share

The computation of net income per share is as follows:

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:

As of June 30, 2024,6,448,062 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.

16. Segment Information

In January 2024, the Company reevaluated its operating segments in order to better align with how the CODM evaluates performance and allocates resources. The key factor evaluated by the Company resulted from the growth and expansion of Design Space, the Company’s digital platform. Since its initial public offering, the Company’s digital platform has evolved and grown considerably. Key enhancements to the platform include the size of its images, fonts, and projects library, the introduction of advanced design tools, the software support for several new cutting machines, and the creation of enhanced subscriptions offerings. The change in operating segments reflects the Company’s strategy to focus on continuing to expand revenue and margin generated from its digital platform and Paid Subscribers. At the same time, a number of product related factors also contributed to this decision, including the relative importance of physical products to the platform, including bundles (comprised of several combinations of machines, accessories, and materials), and changes in our Accessories and Materials business. Based on these changes, the Company has determined that it was appropriate to reduce its reportable segments from three totwo, combining its Subscriptions and digital content businesses into one Platform segment, and its Connected Machines and Accessories and Materials businesses into one Product segment. Prior period segment results have been retrospectively recast to reflect the new reportable segments.

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 considered the provisions of ASC 280-10-50 as it relates to the information provided to and used by the CODM for evaluating performance and allocating resources to operating segments.

The Company does not allocate assets at the reportable segment level as these are managed on an entity wide group basis. As of June 30, 2024, long-lived assets located outside the United States, primarily located in Malaysia and China, were $6.0 million.

The Platform segment derives revenue primarily from monthly and annual subscription fees, digital content, 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. For the six months ended June 30, 2024, upfront digital content revenue comprised 1% of Platform revenue. The remaining Platform revenue consists of ratably recognized subscription revenue. The Products segment derives revenue primarily from the sale of its connected machine hardware, and sale of craft, DIY, home décor products and extensions. 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:

17. Subsequent Events

On July 1, 2024, the Company granted 9,808,000 RSUs to employees and directors of the Company under the 2021 Equity Incentive Plan which vest 30% and 70% for the first and second tranches, subject to the Company achieving operating income over four consecutive quarters of $149 million and $240 million, respectively.