Cricut, Inc.

Good day and thank you for standing by. Welcome to the Cricket Q4 2021 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, to Stacey Clemons with the Boucher Group. You may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricket's fourth quarter and four-year 2021 screens call. Please note that today's call is being webcast on the investor relations section of the company's website. A replay of the webcast will also be available following today's call. For your reference, the accompanying slides used on today's call, along with the supplemental data sheets, have been posted to the Investor Relations section of the company's website, investor.cricut.com. Joining me on the call today are Ashish Arora, Chief Executive Officer, Marty Peterson, Chief Financial Officer, and Kimball Shill, Executive Vice President of Operations and Incoming CFO. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, and management may make additional forward-looking statements, including statements regarding our strategies, business, expenses, and results of operations, in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. These statements are based on current expectations of the company's management. and involve inherent risks and uncertainties, including those identified in the Risk Factor Session of Cricket's most recently filed Form 10-K. Actual events or results could differ most strictly. All non-GAP numbers referenced in today's call are reconciled in the press release or the slide presentation on the Express for Relations website. This call also contains time-sensitive information that is accurate only as of the date of its broadcast, March 8, 2022. Thank you, Stacey, and welcome, everyone.

Before I get started with my comments, I wanted to take a moment to acknowledge the devastating events in Ukraine that are on our minds. As part of a virtual team, we have software partners that we work with in Ukraine. My team and I have been in contact with these team members and their leadership and have expressed their concern and support for them. We also know these events impact many people across our global teams, user communities, friends and families. Our hearts and prayers are with all of them. While these events are truly top-line for us all, let me now shift to talking about our latest updates at Cricket. 2021 was an exciting year for us, with strong momentum across our business. 2021 was also a complicated year as Cricut, our retailers, and our customers navigated the ups and downs of a global pandemic. Total revenue for the year grew 36%, a remarkable performance on top of the very tough comp in 2020, driven by growth across connected machines, accessories and materials, and subscriptions. We delivered 16% EBITDA margin for the full year. Our profitable business model enabled us to fund significant investments towards our long-term growth strategy. In addition, we successfully navigated through some tough supply chain challenges and, as a result, benefited from a strong inventory and cash position that continues as we enter 2022. 2021 represented the second year in a row that we accelerated our growth in two key areas. The first was the expansion of our consumer base, adding nearly 2.1 million new users in 2021. And the second was the growing revenue contribution from our international efforts. In 2021, international revenue grew by nearly 110% compared to the prior year and represented 11% of total revenues. We added new use cases and turned into new markets, expanding our retail footprint and fostering a growing global community that will continue to fuel our engagement flywheel. Revenue in the fourth quarter was strong as anticipated in the holiday season. Our gross margin pressures resulted in a much lower EBITDA margins in the fourth quarter than anticipated, which Mario will talk to in a few minutes. In 2021, we added more than 2 million new users, an increase of over the nearly 1.8 million users added in 2020. At the top of our engagement funnel, 6.4 million total users on our platform. As anticipated, engagement as a percentage of total users in the fourth quarter increased sequentially, consistent with typical holiday seasonality. As a percent of total users, engagement in the fourth quarter was 60%, up significantly from 56% we saw in Q3 at our drop. At the end of 2021, we had 1 million more users cutting in the last 90 days compared to the end of 2020. As we've discussed before, the engagement metric on a percentage basis will fluctuate as we expand our market opportunity and acquire new customers. We're expanding beyond our traditional craft consumer by broadening our use cases and growing partnerships with various retail channels. Our goal is to drive engagement with these users by offering seamless connected experiences, relevant content, community, and value-added services. This increased engagement in turn drives monetization through subscriptions and materials. Our passionate and engaged users fuel our marketing priorities where over 40% of new users come to know about Cricket from word of mouth. This user acquisition, engagement, and sharing cycle powers our business from machines, subscriptions, and accessories and materials. These businesses are symbiotic with each other and the user experience. At the core of this user experience, we ensure compatibility between our connected machines, software content, accessories, and materials. We then work actively with retail partners who are passionate about telling this compatibility story, showcasing the entire Cricket brand and delivering a great experience for our consumers. Our growth from our international expansion was one of the highlights of the year. This past holiday season, we significantly expanded our retail footprint across a broad range of retail channels around the world, beyond craft, including home office, home organization, and consumer electronics. Since the end of 2020, we've introduced Cricket products in 16 new markets, making Cricket products now available for purchase in over 45 countries. Our user acquisition approach is driven by our organic word-of-mouth marketing. Based on our experience to date, these international investments will pay off over time and typically take a few years to achieve critical mass in each country. At the heart of Cricket is our passionate community of users. Securing our Facebook, TikTok, Instagram, and Pinterest pages from projects that our users share across their social channels. Our goal is to amplify their great work and inspire others around the globe. Our community provides a powerful competitive mode while driving organic engagement and new user acquisition. More than 5.7 million social media followers actively engage with Cricket across relevant platforms. The hashtag Cricket alone has more than 3.1 million posts just on Instagram. On YouTube and Pinterest, video views of Cricket content more than tripled compared to 2020. We now have over 3.3 billion views on TikTok, up from 2 billion at the end of 2020. Our international communities continue to grow as well, fueled by hundreds of active influencers outside of the U.S. with a combined reach in the tens of millions. In October, we launched Cricket Learn. showcasing a beginner's guide to live Zoom workshops and short searchable on-demand video instructions covering everything from popular materials to how to use design space. As of today, we've hosted over 80,000 members with introductory courses making up 40% of content consumed. At the same time, we've hosted more than 40,000 new members in our live workshops. You see member education as a significant opportunity to provide members with tools and resources early in their Cricket journey so that they can create more often and with confidence. We continue to drive engagement through Cricket Access, our subscription service. We ended 2021 with over 2 million paid subscribers, a 56% increase over the prior year. This equates to about 32% of our total user base, a strong attachment that speaks to our continued investment in subscription services. We'll continue to add new features, functionality, and content as we continue to increase the value proposition of Cricut Access. One of the things I want to highlight is our new contributing artist program. Currently in beta, the new marketplace enhances our content library, enabling artists to upload their artwork to Cricut Design Space and get compensated as their artwork is used by Cricut members for their projects. For millions of our users, they can access new, authentic, and diverse content from their favorite designers. This marketplace strategy lays the foundation for more to come as we look for ways to further engage with our community globally and for the community to further engage with each other. Our ability to extend the platform as we introduce new machines, smart materials, tools, and accessories expands use cases and categories to further drive user engagement. Just yesterday, we introduced an exciting new lineup of heat presses. The EasyPress 3 is our newest model that includes Bluetooth technology along with the new Cricut Heat app. It perfectly monitors the heat settings for any project via a connected platform. Our new Cricut Hat Press enables us and our users to create personalized, high-quality hats. We also launched our flagship heat press, the Cricut AutoPress. The Cricut AutoPress is designed for enthusiasts who love making T-shirts and other heat caster projects, as well as for prosumers who are using their Cricut machines for making heat caster products themselves. We also recently launched a Cricut Write 360 floor lamp and a desk lamp. These lamps are designed specifically for every Cricut user and every crafter. The lamps are designed to reveal rich, accurate colors and evenly light up your entire workspace. We're very excited about all of these launches. Our platform enables us to constantly enrich the experience for the entire install base of users and machines as we roll out software updates across desktop and mobile. These software updates allow users to benefit from new features and capabilities when coupled with new content, materials, and tools. This is very unique to our platform and allows us to drive engagement by giving users the ability to make new types of projects and expand on their creativities. Over the holidays, we released the new destination pages on the desktop version of Cricket Design Space. These pages allow us to feature targeted content, projects, and images to support key themes and to engage users in a rich and inspiring way. We also plan to build on this and give our international market to create their own flavor of destination pages for each of their respective markets. The underlying trends that drive our business, like personalization and digitization of tools, are healthy and intact. As we further penetrate our staff, we are excited to see a broadening of demographics among our user base. We see a growing number of beginner crafters joining the platform. We are seeing younger generations of crafters, including more Gen Zs and millennials, as well as a greater percentage of men becoming cricket users. One of our core mantras is Proud But Hungry. and we'll continue to innovate around the platform and create additional value for the user experience within the critical ecosystem. Over the last two years, we've acquired nearly 4 million new users and we've significantly grown the business. As we head into 2022, we are focused on cultivating this larger user base and creating the best experience we can for that. These investments will drive further modernization and profitability ultimately fueling more investment and growth for the long term. Our key focus areas this year include, first, we will continue to enter new markets and expand across retail channels. Second, we want to simplify the onboarding process and drive engagement across our entire install base. This is fundamental to our user acquisition strategy and the marketing flywheel. Third, we want to monetize our user base and this enhanced engagement. We plan to do this with the launch of new materials, accessories, content, and enhance the value our users get by subscribing to quicker access. Our focus on compatibility across the entire ecosystem is key to driving this. Balanced with these shorter-term objectives, we will continue to invest for the medium and long term. We are expanding our platform and investing in new types of connected machines that will serve us well for 2023 and beyond. Before I conclude my remarks, I would like to thank the entire cricket team for their amazing and tireless work. I also want to thank Marty for his countless contributions and leadership that have helped build the company to over a billion dollars in revenue. He's built a tremendous team, and I'm grateful for the dedication and passion for company culture, our mission, and our users. He's been an incredible partner to me over these past 10 years, and I wish him all the best. in his retirement later this year. I'm also thrilled to introduce you to Kimball Shill, who is joining us today on the call for the first time. He served as part of the executive team for the past three years, and his deep operational expertise and proven leadership at Cricket makes him the ideal person for the CFO role. Three years ago, Kimball was tasked with building a team that could reimagine our supply chain for greater scale and flexibility while also serving our growing international market. Kimball and Marty were tightly integrated, and we are lucky to have Kimball expand his leadership role within the company. I'll now turn the call over to Marty.