Cricut, Inc.

Good day, and thank you for standing by. Welcome to Cricket Third Quarter 2024 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. To withdraw your question, please press star 11 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 Suva, please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on Cricut's third quarter 2024 earnings column. 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-K, or Form 10-Q that we have filed with the Securities and Exchange Commission. 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 5, 2024. Cricut 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, and welcome, everyone. Total sales in Q3 decreased 4% year-on-year. We are pleased with the increase in paid subscribers in Q3 of 5% year-on-year, which exceeded our expectations. International sales grew 2% year-on-year with some benefit from foreign exchange rates. In Q3, platform revenue increased slightly on paid subscriber growth. Products revenue declined 7% as connected machines revenue declined 11% on higher promotions planned for the Q4 holiday season. Accessories and materials declined 3% on more favorable comps. While paid subscriber growth is indeed a win, we would benefit from a stronger acquisition and engagement. We ended the quarter with just under 5.9 million active users who cut in the past year, down less than 1% from a year ago, and our 90-day engaged users declined 3%. We continue to experience engagement erosion from our large 2020 and 2021 pandemic cohorts and from prior years, who age on their engagement curve and are not offset with as many new users in recent quarters. While we want to improve engagement for all our users, our focus remains to maximize engagement of our most impactful users from a modernization perspective, which are new users onboarding onto the platform, or onboarders, and access subscribers. During Q3, we continued to make solid progress on our initiatives to drive engagement with our new members. we introduced several improvements to make it easier for new members to connect their new machines and successfully design and make their first projects. As evidence of this success, we have seen almost a 50% increase compared to a year ago in new users who successfully connect the machine within the first five minutes of the connection process. As a reminder, Onboarders are a particular focus because the more they interact with our platform early, the more likely they are to interact with our platform over time. We have further integrated education and help resources directly within the onboarding flow and redesigned the homepage for new members to further tailor it with inspiration most appropriate for beginners. We've also automated steps that we know are common pitfalls for new members. At the end of Q3, we also introduced in beta an AI-driven help assistant to a portion of our members. We are pleased with the initial response from beta users and plan to roll it out specifically with onboarders during Q4. Evidence that these efforts are having a positive impact is that this is the second consecutive quarter of a year-on-year increase in the share of members who complete a project during the first day, and who complete multiple projects in their first week. To benefit all members, we continue during the quarter to make improvements to our software platform, specifically in helping them search and find inspiring content on our platform and removing friction in designing their projects in design space. Based on our A-B testing, our filtering and machine learning algorithms have rolled out several improvements to our search capabilities. We have also made content flow simpler by placing images on panels directly adjacent to the canvas, making images a single click away. Measured in terms of time to find and place an image onto the canvas, we have seen an over 20% improvement year to date. A major focus in Q3 has also been our text and font editing capabilities. And we now have a much broader support of characters among our most popular fonts. Recently, our marketing team has made great progress bringing members back to Design Space after their last visit via email, push text notifications, and paid social campaigns in a much more personalized, relevant, and automated manner. Our first engagement marketing campaign utilizing this platform went live at the very end of Q3. We plan to scale this effort during Q4 and Q1. While our overall engaged user metrics have not stabilized as of Q3, we are confident in our efforts to deliver a simplified and more personalized experience using our design space platform and our ability to leverage a much more scalable engagement marketing infrastructure. During Q3, we conducted a market mix analysis for machine sales in the US and Canada. The results show that our investment in top and middle of funnel marketing had a positive impact on machine sales in the first half of 2024. In addition, the analysis shows that the overall spend on these channels has an attractive ROI. Given these results, we are continuing the higher level of marketing spend. Our deeper promotional strategy during key selling times of the year that we started in late 2023 is working. For example, we are pleased with the results from the fall Amazon Prime Day. During 2024, we have worked with retailers to get to more healthy inventory levels. We are pleased with this progress and believe the channel inventory is healthier this year compared to prior years as we head into the important holiday season. Notwithstanding, there remain pockets in the channel where we would like to see more on-hand inventory for holiday. Accessories and materials declined 3% year on year on more favorable comps and compares to declines of 27% and 26% in Q2 and Q1 respectively. Our materials are engineered to work seamlessly with our machines to create the best user experience. Recall in late Q1, we launched the Cricut value line of materials, which we designed to compete in online marketplaces. I'm excited to say that the Cricket Value Line has been well received and we launched additional SKUs in Q3 following the initial launch of a limited number of SKUs in late Q1. We are even more optimistic about this product now that we have a bit of history in the market, but it's still early and a small portion of our portfolio. We have additional innovation products and cost reductions coming in the quarters ahead. We are focused on attracting more new users to buy our connected machines. reversing weakening engagement trends, re-injecting enthusiasm among our users, and being more effective competitors in accessories and materials. We are intensely focused on the overall customer experience, and we are motivated to work with those retailers that help us create a great experience both on shelf and for actual use of our ecosystem. It is our fundamental belief that when we give people more reasons and inspiration to make things that are appealing to them and ensure the customer has access to affordable and quality materials, we will see an improved user experience, which is one of the reasons that we offer bundles with many of our machines in select channels. We are driven to continue to innovate and improve our platform and user experience while exhibiting both longer-term focus and current discipline. I will now turn the call over to Kimball.