Cricut, Inc.

Good day and thank you for standing by. Welcome to the Cricut second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Stacey Clements, Investor Relations of the Blue Shirt Group. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on Cricket Quarter 2022 earnings. 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, accompanying slides used on today's call, along with a supplemental data sheet, have been posted to the Investor Relations section of the company's website, InvestorMarket.com. Joining me on the call today are Ashish Aura, Chief Executive Officer, and Kimball Schill, Chief Financial Officer. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, and management may make additional statements, including statements regarding our strategy, business, expenses, and results of operations in response to your questions. These statements do not guarantee future performance or 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 factors section most recently filed Form 10-Q. Actual events or results could differ materially. This call also contains time-sensitive information that is accurate only as of this broadcast, August 9th, 2022. Qlikit assumes no obligation to update any forward-looking projection that may be made in today's release or call. And with that, I will now turn the call over to Ashish.

Thank you, Stacey, and welcome, everyone. The revenue in the second quarter was $183.8 million below our internal expectations. We have three business segments, a connected machine, accessories and materials, and subscriptions. Let me first discuss subscriptions. Given a huge growth in new users, we had a deep focus on converting users to subscribers coming into 2022. This is an area where we have made significant progress and also have a sound strategy going forward. We had feared that the number of subscribers could decline sequentially in Q2 due to the decline in connected machine sales this year. all our subscriptions-related initiatives resulted in us adding nearly 60,000 subscribers in Q2. We have a strong roadmap and strategy that we are executing on. However, we think it is prudent to stay conservative on our subscriptions outlook in the short term. Unaccessing the materials businesses is being challenged by lower engagement, increased competition, and higher channel inventory. Our engagement initiatives, which I will talk about later, will bear fruit in the medium to long term. We believe that the channel inventory will continue to correct itself in the next few months. We are focusing on improving the value proposition and affordability of our materials and undertaking steps to communicate more effectively our compatibility and why consumers should choose Cricut. Let's talk about connected machines. We leveraged the opportunity in 2020 and 2021 to significantly grow our user base. In 2022, we face a very different environment. The channel inventory is still high. Consumers are more cautious and prioritizing their spend on need items and categories they were unable to spend during COVID. Our channel inventory will work itself out in the next few months. We strongly believe that we have millions of new users to acquire and connected machines to sell. We saw evidence of this during Prime Day sales when we promoted Cricket Joy at $99 during the quarter. Our strategy is to be patient and not impact the long-term health of the category by discounting new machines too much. In the meantime, the steps we are taking to invest in the platform, improve engagement, execute on our subscription strategy, and become more competitive in materials will help assure that we fully exploit the opportunity in connected machines in the future. Despite these challenges, we continue to operate a sound business model that positions us well to come out of this tough environment in a position of strength. We delivered our 14th consecutive quarter of profitability with a history of generating cash, which allows us to continue to invest through the down cycle. We also benefit from a significant opportunity to increase modernization from 7.2 million users already on the platform, subscription revenue stream, and a strong balance sheet. As I think about the second half of the year and the continued uncertain environment, these pillars of strength are the things that will sustain our business in the short term and, just as importantly, position us for long-term growth. We have many levers within our control, the primary being that cricket is a platform. This is an important distinction that separates us from many other companies. Because we are a platform, we are able to interact with our users throughout the entire tracking journey, from initial onboarding to various levels of engagement and modernization. We're able to rapidly innovate, bring new content and features to our entire user base, communicate directly with our users through various touchpoints, and leverage consumer behavior and data to drive further innovation. I'm incredibly proud of the team and all they have accomplished over the past several quarters. Operating in this environment has been challenging, but it has also sharpened our focus on the initiative that will be the most impactful to Cricket. Last quarter, I outlined four key areas of investment. Improve user onboarding and drive engagement. Focus on increased modernization to our subscription software service, Cricket Access, and accessories and materials. continued investments in international markets, leveraging our low-cost world of marketing labor, and innovate and expand the platform. We believe this work will position us to exit current macroeconomic conditions exponentially stronger with one-to-one user connections, deeper engagement on the platform, and increased user modernization. Let me walk through each of these in more detail. As a top priority, the team has been intensely focused on improving our user onboarding experience. The faster a user gets up and running, the more they create, engage, and share. To help drive this process, we'll be piloting learning kits later this year that combine content, cricket materials, and software experiences that handhold the user as they embark on their cricket journey. We're also focused on driving user engagement and creating habit-forming experiences using Cricut. While our engagement metric only focuses on when a user sends a cut command to a machine, we think about engagement of the platform in a much broader way. This includes all touch points along the way, discovery and inspiration, bookmarks, user connections, and other aspects of inspiration and sharing in the design space, platform, and community. That, in turn, will drive user stickiness and ultimately increase modernization through content, subscriptions, and accessories and materials. We are working to make the design process even easier, offering more design tools and expanding our content library. We believe these efforts will be able to drive higher levels of engagement over time. In Q2, we added several new features in Design Space, such as community-driven notifications, project sharing, enhancement to text capabilities, localized inspiration experiences, and other design capabilities to the platform. We're excited about the progress we've made so far. Just as important to our business is turning engagement into increased user modernization. We do this through our subscription business and accessories and materials. We've made significant improvements to our subscription product, and our efforts are already paying off. Our subscription business is as strong as it has ever been, including at the height of the pandemic. We had nearly 2.4 million Quicken Access subscribers at the end of Q2, an increase of more than 34% versus Q2 of last year. Also at the end of Q2, we had more trial subscribers than Q2 of last year, despite slower connected machine sales. as we saw more existing users begin trial subscriptions for the first time. We'll continue to invest in this area to improve the experience and bring new and innovative ways to convert trial subscribers to paying subscribers. In addition to increasing our content library, we're adding new premium design tools available only to Cricket Access subscribers. Positive results from our previously launched Monogram Maker and automatic background removal give us confidence in our strategy for cricket access. In addition, we are expanding user touchpoints within cricket design space to improve our merchandising, marketing, and promotional efforts. We have a strong roadmap and are in the early days of executing on that roadmap. Additional monetization opportunities exist within our accessories and materials business, where we continue to innovate in ways that uniquely leverage our platform. In recent months, we have broadened our successful smart materials portfolio to cover new use cases, introduced a new card-making ecosystem, and expanded into new sublimation plans. The platform compatibility benefit derived from the integration of our accessories and materials within our machines, design space software, and digital content resonates very well with our members. Additionally, we are seeing significant competition, especially online, as well as more placement of competitive materials in our retail channels. While our members realize that Cricut materials work seamlessly with our machine and our software, they are more price sensitive than they have ever been. And we are focusing on making our products more affordable for our consumers via cost reductions and promotions. International remains a key priority for us. the key trends that have driven our business since 2014 also hold true internationally. International continues to become a larger percentage of our overall business for relatively small initial investment levels. While our more established international markets like the UK and Australia are experiencing similar headwinds to our North American business, emerging countries are growing quickly, giving us diversity in revenue growth, especially over the long term. As we enter new markets, we employ the same cricket label with a focus of key influential voices, fostering community, partnering with key retailers, and continuing to build our robust platform to support our worldwide community of users. Investments in international markets continue to deliver success, including significant progress on design space localization, as well as new country launches in Thailand and Turkey, with India, Japan, South Korea, and Taiwan coming soon. We will continue to build the platform, localize products, and expand awareness by leveraging our proven go-to-market model and network effects. All these investments ultimately expand our platform. Whether it's adding new software features, content, or personalized experiences, it all enriches the community experience around the world. For example, our Contributing Artists program, which we launched in Q1, expands our platform, drives engagement, and creates opportunities to increase user modernization. All the images from Contributing Artists are available for purchase as standalone images within Design Space, and for subscribers are included in our Cricut Access subscription service. We're in the early days of this program and are excited by initial results. We've also been working on a very important enhancement to our software and images architecture. Today, when an image contains text, that text is treated graphically. It is not an easy task if a user wants to customize their text, as we don't retain the font in the initial graphical image. We're working on a new architecture, along with a new class of images called editable images. Editable images will allow the user to easily modify the text. in the image and customize it in a variety of ways. This new class of editable images, along with the software features, will be available later this year to Cricket Access members as part of their subscription. We have a solid roadmap of feature enhancements for editable images. Our focus on the platform has never been higher than it is today. We are improving every aspect of the platform, including design tools, community features, engagement-related features, data capabilities, search, mobile-specific initiatives, trick-and-access features, and so much more. I could not be more excited about the opportunities ahead. Underscoring our confidence are four key trends that demonstrate resilience in the market and that have driven our business forward since 2014. First, the desire for personalization. Second, the digitization of tools that makes personalization easy and seamless. Third, technology has opened the door to a new generation of entrepreneurs. And fourth, the proliferation of social media that drives community, a significant barrier to entry for others looking to enter the market. Although there's a lot of uncertainty in the current macro environment, we are as confident as ever about a medium and long-term opportunity for growth. I'm very optimistic about the foundation we have laid over the last 10 years. and excited about how laser-focused the team is on the most important things we need to accomplish in the short-term and long-term, optimizing the trade-off between current profitability and investment in our long-term growth opportunities. Notwithstanding the current environment, our foot is squarely on the accelerator pedal towards sustainable long-term growth. Many of our investments are showing signs of success, building confidence that what we are doing today will have lasting impacts for long-term growth. I will now turn the call over to Kimball for more details on the financials.