Cricut, Inc.

Good day and thank you for standing by. Welcome to the Cricut Quarter 3 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 your session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jim Stuba, Senior Vice President of Finance. Jim, please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on Cricut's third quarter 2023 earnings call. Please note that today's call is being webcast and recorded 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, investor.cricket.com. Joining me on the call today are Ashish Arora, Chief Executive Officer, and Kimball Schill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host live Q&A. 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 factors section of Cricut's 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 the date of this broadcast, November 7th, Cricket assumes no obligation to update any forward-looking projection that may be made in today's release or call. I will now turn the call over to Ashish. Thank you, Jim.

Q3 was strong from a profitability perspective with operating income up 36% year-over-year despite a 1% sales decline. As we mentioned before, in 2023, we are focused on profitability and remain disciplined in our investments to generate value over time. We view our business through a long-term lens, and these investments will help us return to meaningful sales growth in the future. We continue to see retailers taking a conservative view with open-to-buy dollars and consumers being careful with discretionary spend, especially on higher ticket items. As the category leader, we are focused on the things that we can control. We continue to innovate and grow interest in the category, which will ultimately drive customer acquisition. We're excited about the future of our platform and the opportunities ahead. Before going into updates on our key priorities, I want to highlight some exciting new product launches in Q3 that demonstrate our commitment to innovation. First, JoyExtra. We launched Cricket JoyExtra in Q3. It was available for purchase starting on September 7th. Targeted primarily at new creative users and broadening our market with a printer-friendly compatible format, Cricut Joy Extra is designed to help makers create the most popular projects, especially full-color stickers as well as custom cards, T-shirts, and much more, yet is compact enough to fit into any space. Second, Cricut Venture. On the last earnings call, I mentioned we launched Cricut Venture, which became available for purchase on July 25th. Cricut Venture is the largest and fastest connected cutting machine on the Cricut platform and represents the fourth all-new architecture of connected machines in our history. The feedback from our users and independent reviewers on both machines has been very positive. Now on to an update on our priorities. Recall that we have four priorities, new user acquisition, user engagement, subscriptions, and accessories and materials. I will briefly review these items and provide some detailed commentary on our new platform innovations. New user acquisition. We ended the quarter with 8.6 million total users approximately in line with our expectations. We continue our focus on new user acquisition to grow our member base, engaging on our platform, which ultimately drives our monetization flywheel. We have previously shared that our funnel is healthy and we see an opportunity in holiday to pull consumers through the funnel who have been pausing in their purchase decisions. We are encouraged by recent Amazon Prime Day results that appear to confirm our research that consumers looking for a deal will act for the right value. As discussed last quarter, we are continuing our plan for deeper, shorter-lived promotions during holiday to convert more of these consumers. As we enter Q4, we continue to focus on driving awareness for cricket and our category by driving excitement by getting people talking about and making with cricket with friends and family and across social media. We know that cricket is a key part of holiday season for makers across the globe. We plan to position cricket as a key buy or gift of the season, from supporting sales promotions to executing holiday marketing campaigns that bridge awareness to revenue. Turning to the international side of our business, we're excited to see a return to sequential and year-over-year revenue growth of 36% year-on-year, with international representing 21.5% of total company revenue in the quarter, compared to 15.6% in Q3 2022. We ended the quarter with 3.64 million engaged users compared to 3.56 million a year ago. As a reminder, we count an engaged user as one who cuts a project at least once a quarter. Engagement embodies the core of our platform where we help users discover, make, and share their projects. Our goal is to expand the breadth of makeable content and help users discover content that inspires them. We then want to make it easy for them to design and make their project and ultimately share on the platform for others to be inspired. Although we're still in the early days of executing on an engagement strategy, we see several positive signs resulting from our efforts to drive engagement throughout our members' journey on our platform. Let me share a few examples of what we are working on. A key onboarding metric we look at is the number of days new members cut within their first 30 days after registering their machines. This metric is a strong leading indicator of the long-term engagement of a member on our platform. Over the past year, we have mentioned initiatives such as quicker learn classes, assisted learning plans, and other improvements in our out-of-box experience. In Q3, we saw an increase in this key onboarding metric compared to a year ago, as well as the share of members who engage in our educational content. Content plays a key role on our platform. We've been focused on delivering the depth and breadth of images. We have now crossed 600,000 images available to our Cricket Access members. The growth of our library over the past year has been possible thanks to the great success of our Contributing Artists program. We're also making strides in the discoverability of our content so members can increasingly find content that is relevant to them. In Q3, we launched personalized content on the Design Space homepage, where each member gets recommendations based on their past activities on our platform. Before, all users in each country saw exactly the same content. We are pleased with the click-through rates of our members with this new personalized content. We will continue to invest in personalization along with growing our cricket library of images. A unique differentiator of our platform is projects. With projects, our members can discover full project ideas that they can then customize or just make them as is. Unlike inspiration found on other platforms, projects in design space are not just a visual inspiration that needs to be recreated from a blank canvas. but actual makeable content. In Q3, we also made improvements to our project search algorithm to provide better visibility to members of community projects, which are projects made and shared on our platform by other members, not created by Cricket. As a result, we saw a significant increase in the number of members deciding to make their project based on a community project. By way of context, we see our library of community projects as a key area of growth for our platform. Community projects will increasingly be a fresh source of inspiration and makeable content for our subscribers, as network effects accelerate the amount of makeable content, which in turn inspires others to discover, make, and share projects. While providing more visibility to the diverse creations from our community, we are also making improvements to facilitate and stimulate project sharing. As we are successful in unlocking this opportunity, community projects will become a massive opportunity for growth and will create a competitive mode that will be hard for others to replicate. As we broaden our library of images and projects, it is important that our users are able to find the content they are looking for. I've already talked about the personalization technologies we are investing in. In addition, we are also focused on improving search. We launched semantic search in early Q3 and are actively testing and optimizing it. Machine learning powers semantic search. We are already seeing significant search conversion gains for multi-word queries and are actively training the machine learning model on Cricut and cutting machine specific terms to further improve the results. The common thread across all of our engagement efforts is to help users discover content that inspires them and matches their skill level and time availability so they can find fulfillment in making and sharing their creations. Paid subscribers were in line with their expectations and increased 261,000 year over year, but decreased 23,000 sequentially in Q3, ending with approximately 2.7 million paid subscribers. Recall, we communicated our expectation that paid subscribers could be flat to down in the second half of the year. While we have a positive outlook on subscriptions, lower new user ads compared to prior years puts pressure on our subscriber growth rate and attach rates throughout the second half of the year. As of today, I'm pleased to say that in the month of October and thus far in November, our paid subscriber count has been positive. To be clear, positive paid subscriber growth is our plan. We have a rich roadmap to continually increase the value proposition for subscribers, including an ever-growing suite of premium design tools, along with content strategies described previously. Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our software and services. As our engagement efforts bear fruit, we expect to see a boost to subscriptions. Accessories and material sales declined 12% year-on-year. As we've highlighted before, we are on a two-year journey to transform this business. Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers. We see that when we are in the price range of our competitors, we get our fair share. We have a strong focus on optimizing our products for lower costs so we can compete better in the market with improved margins while still creating a differentiated offering that works seamlessly with our machines and platform. For example, along with the launch of Cricut Joy Extra, we released several innovative new materials like printable waterproof sticker sheets, iron-on and vinyl that leverage standard inkjet printers and then work seamlessly with our print and cut technology to produce full-color projects in a single cut layer. We are intensely focused on the overall consumer experience, and we are motivated to work with those retailers that help us create a great experience both on the shelf and for actual usage of our ecosystem. I have never felt so encouraged and excited about the Cricket platform. We are in the early days of this transformation while remaining profitable. We are driven to continue to innovate while exhibiting both long-term focus and current discipline. As we look ahead into Q4 and beyond, I'm excited about the future innovations of our platform and products that will continue beyond what I've detailed previously to help users discover, make, and share. With that, I will turn it over to Kimball.