Cricut, Inc.

Good day and thank you for standing by. Welcome to the Cricut Q2 2025 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 the 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 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance, Treasurer, and Investor Relations at Cricut. Please go

ahead. Thank you, Operator, and good afternoon,

everyone. Thank you for joining us on Cricut's second quarter 2025 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. .cricut.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, tariffs, capital allocation, 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 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, August 5th, 2025. 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. We posted solid results in Q2. Sales grew 2%, operating income grew 14%, EPS grew 22%, and paid subscribers grew 7% to over 3 million. I'm also pleased with the breadth of our sales growth as both reporting segments, platform and products, posted growth of 4% and 1% respectively. Last quarter, I mentioned that we have spent the last several years moving the majority of our finished goods spent outside of China across all our product categories, but still have exposure to other Southeast Asia tariffs. Perhaps motivated by tariff risks, we saw some demand for accessories and materials in Q2 that we would have ordinarily expected later in the calendar year. This timing shift helped us post positive sales growth sooner in the year than we expected. Kimball will go into those details. While we are proud of our Q2 results, we have more work to do, especially on engagement, international sales, and accessories and materials. As I mentioned last quarter, we are relatively focused on increasing our speed of execution and on accelerating investments that will help drive future revenue growth. We are continuing to lean into these investments, even as we navigate the uncertainty introduced by tariffs and the potential impact on consumer discretionary spending. These accelerated investments include hardware product development, materials, engagement and marketing as we move to the back half of the year. Thus far in 2025, we have launched two new cutting machines, more cricket value materials, and improved engagement experiences. We need to continue growing our top line to satisfy the expectations of our team and our shareholders. We have conviction in what we need to do to return to sustainable growth. We are focused on attracting more new users to buy our connected machines by addressing affordability, ease of use, and increasing marketing and awareness. We must ultimately reverse weakening engagement trends and re-inject enthusiasm among our users by enhancing and simplifying the making process. We are committed to taking back our share in accessories and materials. I will now talk about four priorities, new user acquisition, user engagement, subscriptions, and accessories and materials. We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our monetization flywheel. We are pleased with the recent launch of the next generation of our most popular cutting machines, Cricket Explorer 4 and Cricket Maker 4. These new machines became available in the later part of Q1 and have continued to drive excitement for the brand with users and retailers. With bundles, we continue to focus on improving the overall user experience by providing additional materials out of the box so that users are ready to make projects as soon as they get their machine. This approach also reduces consumer confusion about what else they need to buy to be successful. These bundles include enough materials to complete up to 100 projects depending on the product. We are pleased to see an increase in the purchase of bundles that include extra materials and tools as we see this value proposition resonate with our consumers. As I've highlighted before, we are intensely focused on the overall customer experience, and we are motivated to work with retailers that help us create a great experience, both on shelf and for actual use of our ecosystem. In Q2, we continued with increased marketing spend across our paid channels, exceeding 2x the number of views and engagements we had with our advertising versus prior year. Our annual Mother's Day promotion for machines outperformed versus the same promotion last year. We continued to refine our mid-funnel content strategy, creating new content to better address consumers' biggest purchase barriers. We also shifted a portion of our marketing budget to target these consumers to drive them further down the funnel. While we continue to see engagement erosion, the decline appears to be moderating. In Q2, we ended with just over 5.9 million active users a bar flat compared to Q2 2024. 90 day engaged users who cut during the quarter declined less than 2% compared to down 3% versus a year ago. As mentioned in Q1, we continued our efforts to dramatically simplify the overall user experience by the end of 2025. In July, we launched in beta improved flows for two of our most popular use cases and are on track to meet our commitment for remaining use cases this year. We continue to see improvement in new user engagement levels as measured by the average number of cuts during the first 30 days by new users on new machines joining our platform. This has been facilitated by significant improvements to the machine registration process and day one support for users. Examples include a call to action to start new projects and additional educational tools like introduction videos, contextual help, assembly instructions, and AI assistance across the entire user journey. We believe the uptick in the purchase of machine bundles that include more materials also positively affect new users' propensity to make. We have more work to do to engage new users entering our ecosystem with a used machine. We continue to make improvements to a large language AI model-based search algorithm, making it easier for cricket access subscribers to find the right images and fonts for their projects. In addition, we focus on sourcing content that is specifically designed for the desired use case. We also launched a feature during image uploading that shows similar images in our library that may offer better quality than user uploaded images. We are continuing to see improvement from our efforts to reach users off platform through our engagement marketing platform to bring them back and inspire them to make a project. Examples include lifecycle campaigns, email, SMS, in-app notifications, and paid social ads. In early Q3, we started a rolling beta launch of our new generative AI feature in Design Space that takes personalization to the next level and allows cricket access members to generate AI-based images that are optimized for cutting with cricket cutting machines. This feature complements our ever-growing content library and rapidly improving search capabilities. Despite the continued pressure on our engagement metrics, we are confident in our efforts to simplify our design experience by assisting users based on their project intent, continuing to grow the number of images, fonts, and editorial designs available to users, most notably for cricket access subscribers, and improving our capabilities to bring users back to our platform to start or resume a project. In Q2, the subscriptions business crossed three million paid subscribers. Over the last several years, we have significantly increased the value in our subscription product by expanding our content library to over one million high-quality makeable images, launching subscriber-only design tools, and improving the content merchandising within Design Space. We continued to refine our sign-up offers and promotions through A-B testing and improved our ability to retain subscribers by launching updates to our payment management and our voluntary cancellation flows. All of these incremental improvements are continuing to deliver for our business and show in our continued subscriber growth. Specifically in Q2, we grew our subscribers by 197,000 -on-year, an increase of 7%, and 36,000 -over-quarter to just over three million paid subscribers. We launched several improvements in the quarter that helped deliver this growth. For example, we expanded our promotional sign-up offers to international markets and our mobile platforms. We have a rich roadmap to continually increase the value proposition for subscribers. Our goal is to make it incredibly compelling to become and remain a subscriber to leverage our content and software tools. Accessories and materials sales increased 12% in Q2. As I mentioned earlier, in Q2, earlier shipments of accessories and materials helped us post positive sales growth sooner in the year than we expected, accelerating revenues in Q2 that would have been spread into the second half. Over the last several years, we have lost ground to competition in material types where there are low barriers to entry. We continue to see this competitive pressure increase manifesting in white label brands and retailers, as well as new entrants in online marketplaces and in retail. We have embraced the challenge of providing refreshed and cost-competitive materials and accessories offerings. As these offerings continue to roll out over the coming months, we intend to reclaim market share and by doing so enhance the making experience of our users. We are focused on having the right product configurations in the appropriate channels so cricket materials are the obvious choice when users want to make. We also continue in our relentless focus to drive costs out of this business, including optimizing country of origin by material type. While we have diversified most of our finished goods supply base largely outside of China over the last several years, we continue to manufacture in several countries in Southeast Asia. While tariffs introduce more uncertainty, we believe we have a competitive advantage in the diversity of our supply chain configuration relative to the competition. We remain nimble as we navigate unprecedented tariff uncertainty. Recall in first half 2024, we launched the Cricket Value Line of materials. We continue to accelerate this business, launching additional SKUs and material types. We continue to be optimistic about this product line as we see it perform well, but it is still a small portion of our portfolio. We have additional innovation, products and cost reductions coming in the quarters ahead. Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers with a focus on winning share. In Q2, we launched a national sales promotion on our heat presses that is fully supported with marketing efforts. This promotion was very successful and exceeded expectations. We are intensely focused on the overall customer experience. It's our fundamental belief that when we give people more reasons and inspiration to make things easily and affordably, we will see a lift in materials consumption. We are driven to continue to innovate while exhibiting both long-term focus and current discipline. With that, I'll turn the call over to Kimball.

Thank you, Ashish, and welcome everyone. In the second quarter, we delivered revenue of $172.1 million, a 2% increase compared to the prior year. We generated $24.5 million in net income, or .2% of total sales in Q2. Breaking revenue down further, Q2 2025 revenue from platform was $80.7 million, up 4% -on-year. We ended Q2 with over 3 million paid subscribers, which is up 197,000 or 7% -on-year and up 36,000 or 1% from Q1. Platform revenues were up less than paid subscribers due to more promotions, mix shift more toward annual versus monthly subscriptions, and geographic mix shift more international, all of which are targeted efforts. ARPU increased 2% to $53.84 from $52.61 a year ago. Q2 revenue from products was $91.4 million, up 1% -on-year. Connected machines revenue decreased 10% due to selling fewer machine units. Machine sell-out units were down in Q2 but continued to be positive -to-date. Breaking it down, North America was up in Q2 while international declined. Recall, we don't have perfect coverage for sell-out data in all channels, so treat this as directional. Accessories and materials increased 12%. As Ashish mentioned earlier, in Q2, we had the opportunity to accelerate shipments of accessories and materials, which helped us post positive sales growth sooner than we expected. In terms of geographic breakdown, international revenue for the quarter was $36.3 million, an increase of 8% compared to Q2 2024, and included about 4% of foreign exchange benefit and platform growth while products declined. As a percentage of total revenue, international revenue was 21% for Q2 2025, compared with 20% of total revenue in Q2 2024. We saw strength in our core European markets where we continue to invest both in sales and marketing headcount and additional marketing funds. We continue to experience softness in Australia. We are increasing sales and marketing resources to further fuel momentum in international markets. We ended the quarter with over 3 million paid subscribers, up 7% from Q2 2024, and up sequentially. This continues to be a bright spot for us, and Ashish detailed our efforts that are gaining traction in this area. But I do want to mention, as discussed in earlier calls, there is some natural subscriber attrition. So subscriber growth may be challenging until we increase the pace of machine sales and new user acquisition. Recall, this could result in a seasonal pattern of -in-quarter paid subscriber growth in Q4, but flat to declining -in-quarter subscriber counts in Q3. Moving to gross margin. Total gross margin in Q2 was 59% and increased from .5% in Q2 2024. The improvement reflects a higher amount of subscription revenue as a percentage of total revenue and higher product gross margins. Breaking gross margin down further, gross margin from platform in Q2 was .1% compared to .6% a year ago. The increase in platform gross margin for the quarter was primarily related to lower amortization of software development costs. Gross margin for products was .4% compared to .3% in Q2 a year ago. The increase in gross margin for the quarter was primarily due to capitalized costs associated with higher inventory as we returned to growth, the selling of previously reserved excess and obsolete products, and improved product margins. Total operating expenses for the quarter were $71.4 million and included $9.4 million in stock-based compensation. Total operating expenses increased .7% from $63.4 million in Q2 2024. Recall we increased our marketing efforts during 2024 by $20 million and continued at a similar rate through Q2. We will be data-driven in our future marketing spend and expect to lean in during the second half of the year, even as we navigate the uncertainty from tariffs and potential impact on consumer spending. We will continue to lean into our physical products and platform investments to drive future growth as we continue to manage our business through a long-term lens. Operating income for the quarter was $30.1 million, or .5% of revenue, compared to $26.4 million, or .7% of revenue, in Q2 last year, and was benefited from the mix of higher sales from platform and accessories and materials, which we previously mentioned. The tax rate in Q2 2025 of .6% was lower than the .6% in Q2 2024, primarily due to the difference from a decrease in stock-based compensation attributable to a lower stock price upon investing. For the quarter, net income was $24.5 million, or 11 cents per diluted share, compared to $19.8 million, or 9 cents per diluted share in Q2 2024. Turning out of balance sheet and cash flow, we continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth. In Q2, we generated $36 million in cash from operations, compared to $35 million a year ago. We ended Q2 with cash and cash equivalents of $377 million, and we remained debt-free. During Q2, we used $4.7 million of cash to repurchase 917,000 shares of our stock, resulting in $49.3 million remaining on our $50 million authorized stock repurchase program, which the Board replenished during the quarter on May 6. In July, we paid approximately $181 million in dividends for the special dividend of 75 cents per share, plus a recurring semiannual dividend of 10 cents per share. These capital allocations are possible due to past profitability, right-sizing our inventory post-COVID, which we completed last year, and our confidence in the sustainability of our future profitable operations. We want Cricut to always have ample liquidity to sustain and grow our business, but not to hold excess cash. We do not anticipate the need for any debt or utilization of our credit line in the near term. Now, on to our outlook. Recall we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook. As mentioned earlier, we saw accelerated demand for accessories and materials in Q2 that we would have ordinarily expected later in the calendar year. This timing shift helped us post positive sales growth sooner in the year than we expected. We are assessing the sellout of these products, as well as the dynamics surrounding tariffs and the potential impact to consumer discretionary income in Q3 and beyond to understand how accelerating revenue into Q2 will impact the remainder of 2025. We continue to expect platform sales to increase -on-year on paid subscriber growth. Consistent with my comments from last quarter, given the uncertainty surrounding tariffs, we are no longer providing any color on our operating margin expectations for the year. However, regarding operating margins, recall we benefited from the opportunity to accelerate shipments and accessories and materials in Q2, which we do not expect to recur. We expect to be profitable each quarter and generate significant positive cash flow during 2025. While tariffs are the reality of today's world, our teams continue to be proactive and nimble with how we execute our strategy as we continue our investments to position the company for growth. With that, I'll turn the call over

to the operator for questions. Thank you. At this time, we

will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please send by while we compile the

Q&A roster. Our first question comes

from the line of Eric Woodring from Morgan Stanley. Eric, your line is now open.

Hi, awesome. This is Maya on for Eric. I have two questions for you. The first one is, you know, on some of that, you know, pull forward likely ahead of tariffs on the accessories material side. Is there any way to, you know, kind of quantify that impact on top line as well as bottom line? And, you know, I understand you're still assessing things for the second half of the year, but could that potentially lead to a demand gap in the second half?

Maya, thanks for the question. So I won't give an exact amount, but I will just reiterate, we did have an opportunity for share gain and accessories materials related to the relative strength of our supply chain, especially as retailers were looking at how they were going to maintain supply with potential interruptions. And so that did benefit from a timely shift that helped us post-posit growth sooner than we expected. I will highlight kind of some previous commentary that we gave earlier in the year where we did expect to be down in the first half, but less than the prior year. And so we're continuing to monitor the sellout of these products to understand how much is true shift from second half into first half and how much may just represent incremental demand. And so hard to quantify. In terms of help to the quarter, accessories materials are some of our higher gross margin products. And so accelerating some of those shipments was a benefit in the quarter.

Got it. Thank you. And then I understand Cricut has shifted a lot of its supply chain over the past several years out of China and into Malaysia, for example, which there have been some recent headlines on tariffs there. How should we think about sizing the tariff impact? And what are your mitigation efforts? Are you have you started to raise prices? Are you planning to and any other mitigation efforts you're taking?

So as you call that, we have worked on getting most of our finished goods spent outside of China, but we still manufacture in Southeast Asia. And so specifically we manufacture in South Korea, Malaysia and Thailand, all of which have have new tariffs announced. We are we're still assessing the overall impact of business and how we respond. I would say there's not a single answer, but it's it's looking at a combination of factors. We are incredibly focused on on providing the best value experience for consumers because we know affordability is key to them. We're also watching to see if there's any more general inflation impact discretionary consumer spend. So so at this point, if I think about the timing impact to our business, given the timing of some of these announcements, there's a little pressure because we had the margins as we look to the back half of the year, because we did have where we went. We had the temporary tariffs of 10 percent that have now gone up. But if I look at the velocity of our different products, we'll start to feel more of the tariff impact later in Q4 and more meaningfully in 2026. But at this point, we're assessing the options with the with the focus on how do we maintain as much affordability for consumers, even as we navigate the uncertainty of tariffs and their

impact. Got

it. Thank you very

much. Thank you.

As a reminder, to ask a question, you'll need to press a star one one on your telephone and wait for your name to be announced. Our next question comes from the line of Michael Cadiz from Citigroup. Michael, your line is now open.

Hey, good afternoon, everyone. This is Mike Cadiz for CIMRT in the city. So just one question for me today. It's on capital allocation. Congratulations on the quarter. And we've noticed that it's been multiple years of special dividends given to investors over this time. How should we think about those or consider those recurring as we go forward? Thank

you.

So, so it's your call over the last several years, we've been bringing inventory levels down from from peaks and covid. And that's been generating more cash than than we would ordinarily. And so we're a cash generating business, but we've been kicking off excess cash as we bright side your balance sheet. And as we call down a prepared comments that that we actually kind of coming out of 24, we kind of inventory levels more in line with where we expect them to be. So I wouldn't look for further drawdowns related to that. Let me just kind of reiterate our capital allocation model and how we think about it. We're a growth company. And so first, we're focused on how do we how do we have inventory? Do we have sufficient inventory to drive our business? Second, to make sure that we're investing for future growth in both our physical products as well as our platform. And she should reference in his prepared remarks how we're accelerating investments in both of those areas and continue to do so. We also keep dry powder in case there's a strategic acquisition that would accelerate some of our priorities. But beyond that, we're focused on how do we efficiently return capital to shareholders? And there's three tools that you've seen us use. We have a stock repurchase program that the board replenished on May 6th of this year. And so we continue to be active in repurchasing shares. We have a recurring semiannual dividend of 10 cents. And then, as you just mentioned, the last quarter, we had a special dividend, which is more periodic based on how we do in generating cash beyond normal expectations.

Thank you.

Our next question comes from the line of Adrian Yee from Barclays. Adrian, your line is now open.

Hi, this is Angus Kelleher on for Adrian Yee. I have one for Ashish. You had mentioned plans to enhance design space. Could you provide an update on the rollout of these transformational experiences and share any early user feedback or engagement metrics from the initial implementations? And then I have a follow-up.

Thank you.

Thanks, Paul. So, you know, as I said in my prepared remarks, we continue to see engagement erosion, although that decline appears to be moderating. So when you look at like 12-month active users, we are flat year on year. But when you look at the 90-day engaged users, that's down 2%, whereas the year before it was down 3%. So we're definitely seeing some, you know, some of that erosion moderating. So what are we doing about it? Right. And that's the question you asked. So one of the things that one of our core focus areas is to basically re-architect the entire user experience of design space. And our goal is to uncover project intent when the user comes in and then give them a guided flow to get them to their end project. So if a user comes in trying to make a T-shirt or a birthday card or a sticker, so let's say a T-shirt, you know, we have to surface the right content and the right tools in a guided flow so that we can actually get them to their end result, which is helping them make a T-shirt. Right. We've done a lot of user research testing. We feel really good about this direction and how we can introduce the platform to new users. In addition to that, you know, and again, we talked about this briefly in our prepared remarks, we have made significant changes and improvements to design space to make it easier for our users. And we are seeing some results. Right. So when we look at new users who bought new machines and when they come onto our platform, they are making more projects in the first 30 days, which is, you know, we consider a very, very healthy sign that we are improving the user experience. Now we still have some more work to do for people who are buying secondhand machines and the team is focusing on onboarding. How do we onboard, you know, users who are buying a secondhand machine? You know, in addition to that, we have a significant investment in AI and we are using AI across the board to improve several aspects of the user experience. We are seeing some good results there. And then finally, we've talked about in the past, we have implemented a platform, a marketing platform to bring users back to design space based on their behavior. So for users similar to e-commerce, if a user comes into our into design space, they, you know, start a project, but they don't complete it or they view something, we're able to send them, you know, personalized inspiration to help them get back on design space and make that project. You know, similarly, you know, for users that have not been on the platform for six to nine months, how do we reacquire those customers based on our knowledge and their profiles, sending them personalized inspiration via push notifications, SMS, email, and help them bring, come back to the platform. So, you know, so we have a lot of these initiatives. We have a large team working on this. We are seeing signs of success across not only cohorts, but different aspects of the user experience. We think all of these will come together to help turn the tide and make the engagement numbers go positive. And in the meantime, we're pretty, you know, pretty convinced and committed. And we hope to see this turn some point in the future.

Thank you. My second question. I think in the prepared remarks, you mentioned some pull forward of orders during the quarter. Was that driven by consumers like clearing out retailer in stocks or was it more so retailers stocking up in advance of demand? And I guess just ask another way, how are your retail partners? How do you see your retail partners inventory levels?

So it was really around uncertainty on the retailers part of continuity of supply across other aspects of their of their supply chain and and our relative strength and ability to to meet demand. And so that's why I mentioned also that we're continuing to assess what the sell out of those materials are over time in terms of over time. So overall inventory balance, you know, we think we're in a pretty good balance between sell in and sell out generally.

Okay, thank you.

And I guess your line was not clear. So I might have said Paul, so I apologize. I knew it was you. Sorry. I got.

Yeah, no worries. No worries. Thank you. Please send by while we compile the Q and a roster. One moment, please. Again, as a reminder to ask a question, you'll need to press star one one on your telephone. At this time, I would like to turn it back to Jim Suva for closing remarks.

Thank you, James. And thank you, everyone, for joining us this afternoon. We have a large opportunity over the long term to drive new user growth and increased engagement. The cricket platform continues to not only strengthen but also provide increased value to our users. We will continue to manage the business for sustainable, profitable growth and generate healthy cash flows. I'm excited about the opportunities ahead of us. We will be meeting with investors at the Citibank Global Technology Media and Telecom TMT Conference Thursday, September 4th in New York and the Goldman Sachs Communicopia and Technology Conference Wednesday, September 10th in San Francisco. We hope to see you there. If you have additional questions, please email me at Jsuva at cricket dot com. This now concludes this earnings call and you may disconnect. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.