Cricut, Inc.

Good day and thank you for standing by. Welcome to the Cricut Q2 2026 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 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand it over to your first speaker today, Chris Belfiore, Director of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on Cricket's second quarter 2026 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.cricut.com. Joining me on the call today are Ashish Arora, Chief Executive Officer, and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host a 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 risk 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 4th, 2026. 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, Chris. In Q2, we continue to see benefits from our platform-first strategy aimed at creating a simpler, more compelling user experience. As highlighted last quarter, broadening awareness and relevance among new consumers is a critical driver of new user acquisition. This is the foundation of our new brand anthem, Think It, Make It Cricket. We saw double-digit cutting machine sellout growth in the quarter, positive trends in user engagement, and subscriptions were just over 3.1 million. During Q2, we continued to see strong profitability driven by continued strength in our platform business and some unique items like IWPA tariff refunds. Platform revenue grew just over 5% in the quarter to 85 million. Overall, company sales declined approximately 9% in the quarter. Recall, it was against a difficult year-over-year calm, where we benefited from the pull forward in Q2 2025 related to potential tariff impacts. The foundational work to create a more compelling mass market experience is in place, and we are focused on translating that investment into stronger executions. We remain committed to increasing the pace of innovation by accelerating our development cycles, expanding awareness of our platform, and strengthening our competitive position. As we execute these priorities, we expect to deliver a more compelling experience for our customers while positioning the business for stronger long-term growth. We are increasingly positioned to deliver the right message to the right consumer about the right product at the right price. Today, I will share the progress we've made to strengthen the business, encouraging signs from the first half of 2026, and how this reinforces our confidence in building on this momentum through the second half. Kimball will then cover the financial details and our outlook for the remainder of 2026. We remain focused on acquiring new users and increasing engagement across our platform, which together drive a modernization flywheel of subscriptions and accessories and materials. We believe the investments we are making today position Cricket for a return to sustainable, profitable growth. Let me talk about our priorities. In Q2, we launched our global marketing campaign, Think It, Make It, Cricket. The message is simple. Cricket is for anyone who wants to create. The campaign highlights how our platform, powered by Design Space, helps people easily turn ideas into meaningful, personalized projects. Our aim is to expand our base beyond identified crafters. Early results show a meaningful increase in traffic to Cricket.com compared with prior campaigns, as more consumers engage with the brand and learn about our platform. The campaign will continue rolling out globally and is being integrated across key marketing touchpoints, including our website, user-generated content, and influencer partnerships. Connected machine unit sales were strong in the first half, boosted by the success of the new Joy 2 and Explore 5 bundles, with year-to-date connected machine sales in units up double digits. Connected machine sellout performance is also strong, up double digits, benefiting from an earlier prime day. Sales out is a key measure of consumer demand and our marketing success. Joy 2 and Explore 5 bundles were key drivers of this growth, giving us confidence that our bundle-only strategy is appealing for consumers. We also made important progress and innovation in the first half. Since launch in Q1, our next generation cutting machines, Cricut Joy 2 and Cricut Explore 5 have performed well. Our direct-to-film or DTS service is still in its infancy, but reinforces the opportunity to expand Cricut beyond hardware into value-added services, deepening engagement with our most loyal users. Given that most orders come from existing subscribers, we believe the service is enhancing the value of our ecosystem. While still in its early stages, we are excited about the long-term opportunity and will continue experimenting and investing to expand the platform's capabilities and support the growth of a services business. We continue to make meaningful progress in stabilizing engagement across our platform. Active users grew 1% year over year and remained flat sequentially, marking the first time this KPI has stabilized in a second quarter since 2022. Recall, we have a seasonal business, and engagement tends to be softer in summer months. 90-day engaged users were also stable year over year, another important milestone that reflects the progress we are making. We believe these results are driven in part by the cumulative impact of our efforts to simplify the user experience, improve onboarding, and strengthen new user acquisition. Improving onboarding remains one of our highest priorities. We know the earliest experiences on our platform have an outsized impact on long-term engagement. We are also making design space faster, simpler, and more intuitive for our returning users, reducing friction throughout the creative process so users can spend more time making and less time navigating the platform. AI continues to be an important differentiator for Cricket. During the quarter, we introduced new agentic AI features purpose-built for creating with Cricket. By understanding our machines, materials, and project workflows, our AI helps users create designs that are more likely to translate successfully into physical projects. As we enter the second half of 2026, We are encouraged by the stabilization and improving trajectory across our engagement metrics. While there is still work to do, we believe our continued investments in simplifying the user experience, strengthening onboarding, and embedding AI throughout our platform are building a stronger foundation for sustainable engagement and long-term growth. Our platform business continued to perform well in the second quarter. Paid subscribers increased by 93,000, or more than 3% year-over-year, to just over 3.1 million, contributing to just over 5% growth in platform revenue to $85 million. Sequentially, we added 25,000 paid subscribers during the quarter as we continued to enhance the value of our subscriptions offering through new AI-powered capabilities, clearer communication of subscriber benefits, and targeted promotional offers. We also made meaningful progress expanding our premium subscriptions tier. Following successful initial testing, we saw strong adoption of our premium plan, which starts from $14.99 per month among new subscribers. The offering is now available across both our desktop and mobile applications, and we will continue expanding availability across our purchase channels throughout the year. We also continue to test new plan formats and pricing tiers on an ongoing basis. Enhancing the value of Cricket subscriptions remains a strategic priority. During the quarter, we introduced several AI-powered Cricket Creative Labs experiences that enable subscribers to transform personal photos into personalized projects, including coloring pages and photo art. Early engagement with these new experiences is encouraging and reinforces the opportunity to deliver value across a wide range of creative interests. Looking ahead, we see significant opportunity to further differentiate our subscriptions offering by combining AI innovation with our growing library of curated content. Our accessories and materials business remains a challenge. We continue to work our plan to strengthen our product portfolio and improve our competitive position. While the category remains highly competitive, we continue to gain share in some major categories, including printables and cricket accessories. During the first half of the year, we introduced new SKUs in conjunction with major retailer resets, significantly expanding our assortment with a focus on innovation, value, and better meeting the needs of both new and existing cricket users. We are particularly encouraged by the early consumer response to these new products. Printables are our fastest-growing materials category as consumers increasingly personalize stickers, labels, photos, and GIFs. We also refreshed our hand tools portfolio with new configurations and differentiated designs with additional innovation planned for the second half of the year. These launches and our bundle-only strategy on new machines where users start with our high-quality tools, accessories, and materials reinforce our confidence that product innovation remains a key driver of user engagement. In July, we launched the next generation of our large format heat press, AutoPress, engineered to address a large market with a compelling price point. We will continue to innovate in this market. While the performance of our products business disappointed in Q2, I'm encouraged by the broader progress we are making. We are expanding awareness of the Cricket brand, making our platform easier and more intuitive to use, and continuing to build a stronger foundation for long-term growth. While there is still work ahead, the improvements we are seeing in new user acquisition, engagement, subscriptions, and underlying consumer demand reinforce our confidence that our strategy is gaining traction. We believe this strategy positions Cricket to deliver sustainable, profitable growth and create long-term value for our shareholders. With that, I will turn the call over to Kimball.

Thank you, Ashish, and welcome, everyone. In the second quarter, we delivered revenue of $156.3 million, down approximately 9% compared to the prior year. Year-on-year comparisons reflect the impact of the prior year pull forward, which we highlighted a year ago. We generated $39.1 million in net income, or 25% of total sales in Q2. Breaking revenue down further, Q2 2026 revenue from platform was $85 million, up just over 5% year-over-year. ARPU increased 5% to $56.37 from $53.84 a year ago. Platform revenue was up primarily due to the year-over-year increase in paid subscribers at foreign exchange. Q2 revenue from products was $71.3 million, down 22% year-over-year. Product revenue was down primarily due to lower volumes and promotional pricing. Recall that during Q2 2025, we benefited from revenue pull forward amid tariff-related supply chain uncertainty. As Ashish mentioned, global machine sellout units grew at double-digit rates, with Joy 2 and Explorify bundles as key drivers of this growth, and also benefiting from an earlier prime day. As a reminder, we don't have perfect coverage for sellout data in all channels, so treat this as directional. International sales were $35.9 million, down 1% year-over-year compared to Q2 2025. In Europe, a distribution change in one channel created a temporary sales timing impact as we worked through inventory and represented a headwind in the quarter. That transition is largely complete. International revenue represented 23% of total revenue in Q2 2026, up from 21% in the prior year. Foreign exchange provided a 2.6% benefit to international sales during the quarter. We are beginning to see encouraging results from our focused investments in key emerging markets with significant year-over-year connected machine sellout growth in Asia, Meta, and LATAM. While these markets remain a relatively small portion of our total business, They are contributing positively across several key operating metrics and continue to represent attractive long-term growth opportunities. Looking ahead, we plan to continue investing in international markets with a focus on increasing brand awareness, expanding our reach, and driving member acquisition throughout 2026. As Ashish mentioned, we ended the quarter with just over 3.1 million paid subscribers. Recall, normal seasonality could still see flat to declining quarter-on-quarter subscriber growth rates. We remain focused on driving growth for the full year, supported by new product introductions, improved onboarding, ongoing investments and engagement, and promotional support. Moving to gross margin, total gross margin in Q2 was 74.5%, which was up over 14% year-on-year due to some unique items. During the quarter, we settled an outstanding legal claim related to a royalty dispute that allowed us to release accrued reserves of $6.4 million across platform and products. In addition, there was a $17.9 million benefit to gross margin due to IEPA tariff refunds. Breaking gross margin down further, gross margin from Platform and Q2 was 93%, an increase compared to 89.1% a year ago. This increase was driven by the non-recurring royalty settlement. As we've mentioned previously, we are excited about our AI investments and there may be some gross margin pressure as we continue to ramp AI features. Gross margin from products was 52.4% compared to 32.4% in Q2 a year ago. The increase in gross margin for Q2 was primarily driven by non-recurring IEPA tariff refunds and the royalty settlement. Total operating expenses for the quarter were $69 million and included $5.5 million in stock-based compensation. Total operating expenses decreased by about 3% from $71.4 million in Q2 2025. As Ashish mentioned, we are focused on increasing our speed of execution and are accelerating investments across our business that will help drive future revenue growth. Operating income for the quarter was $47.4 million, or 30.3% of revenue, compared to $30.1 million, or 17.5% of revenue, in Q2 last year. This increase reflects the non-recurring items we just talked about. The effective tax rate was 22.4% for Q2 2026 compared to 27.6% in 2025. The tax rate declined this year primarily due to higher R&D tax credits from increased investments and an increase to foreign-derived deduction-eligible income. For the quarter, net income was $39.1 million, or $0.19 per diluted share, compared to $24.5 million, or $0.11 for diluted share, in Q2 2025. Turning now to balance sheet and cash flow. We continue to generate healthy cash flow on an annual basis, which funds our inventory needs and investments for long-term growth. In Q2 2026, we generated $50.4 million in cash from operations compared to $36.2 million in Q2 2025. We ended Q2 2026 with cash and cash equivalents of $286 million. We remained debt-free. Inventory decreased by $19 million year-over-year to $106 million, reflecting improved inventory management and normalization as we exited end-of-life machines. During Q2, we used $7.5 million of cash to repurchase 1.7 million shares of our stock. As a result, $21.6 million remained in our approved $50 million stock repurchase program. After the quarter, we paid a recurring semiannual dividend of 10 cents per share on July 21, 2026 to shareholders of record as of July 7. Recall we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for the remainder of 2026. We are focused on bringing excitement to our category. We are doing this by accelerating our investments in R&D, new product launches, and marketing, including international markets, and continuing our promotional strategy to drive affordability. Through our new brand anthem, Think It, Make It, Cricket, we are investing to broaden awareness and relevance among new consumers to drive new user acquisition. We remain optimistic about the year overall, despite a disappointing first half, with improving engagement metrics reinforcing our optimism. We expect platform revenue to grow each quarter, while subscriber trends follow their typical seasonal pattern with softness in Q3. With a strong roadmap ahead, We have received IEPA tariff refunds. However, existing tariffs remain a headwind and given ongoing uncertainty, we are not providing any guidance on margin impact. We expect to be profitable each quarter and generate cash flow from operations for full year 2026. Subject to stock price, we also expect to be active with our authorized $50 million stock repurchase program. While tariff uncertainty remains a reality, we are also navigating broader cost pressures, including input costs, supply chain dynamics, and a more cautious consumer environment in certain markets. Our team continues to operate proactively and with discipline, adjusting where needed while maintaining our focus on strategic 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. Our first question comes from the line of Eric Woodring of Morgan Stanley. Your line is now open.

Hi, thank you. This is Maya. I'm for Eric. It was good to see the stabilization and engagement this quarter. Maybe just a question on international demand for me. I understand there was some changes with a distributor you mentioned. If we were to exclude the change in distribution and the benefit from foreign exchange, is there any way you can share kind of how demand or revenue trended internationally? would it have grown year over year if we kind of exclude those two factors? Just any color you can share there and on your strategy in those markets looking forward. Thank you.

Thanks for the question. So there was always a story about a channel shift in Europe with one of the largest retailers, and we changed the way that we supply them. So just the timing of inventory and invoice mechanics meant that we weren't selling in to comp the sellout, which then created an air bubble for the quarter. We've largely worked through that, and so we don't expect that to be a headwind in the revenue as we move through Q3. I think it is fair to call out that we would have grown in Q2 even without the benefit of foreign exchange, but for that air bubble. And then on our new markets, we continue to see strong performance. So I'm talking Meta, LATAM, and Asia. And it's just, you know, they're small enough that they don't overcome the pressure we saw in the larger markets. So it was really a story about that distribution change in Europe.

Am I just adding on to that? Yeah, I think as we kind of commented on in our remarks, sell-through, we are pretty pleased with the sell-through across the board, especially in terms of machines.

Yeah, we were up on sell-out machines, double digits as we said in our prepared remarks, and we actually saw sell-in units of double digits on a global basis.

Got it. Very helpful. Thank you.

Thank you. Our next question comes from the line of Angus Kelleher of Barclays. Your line is now open.

Hi, this is Angus Kelleher on for Adrian Yee. Thanks for taking our question. I think I'll start things off with one for Ashish. Last quarter you highlighted Direct-to-Film as a new monetization lever beyond machines and subscriptions. Any update on adoption since launch and is DTF or any new monetization lever contributing meaningfully to platform ARPU today? And then just more broadly on that point, how should we think about the opportunity to monetize the platform beyond subscriptions? Thank you.

Thanks, Angus, for the question. You know, it's still kind of really early to talk about it because we've just launched DTF in North America recently. and we haven't launched it internationally. We have not fully started marketing it, but we're generally pleased with the launch. We've also added more services under the umbrella of Creative Labs where we offer more AI tools that people can use as part of their subscription. We just actually, I think just yesterday, a couple of days ago announced and Cricket Patterns, which is to go after the varied hobbies of our existing users. So the strategy is to drive engagement, get better value from our subscriptions for people who are subscribing, as well as monetize these services. I would say we are still in the very early days and we are primarily focused on user experience, but we believe that over time that strategy will pay off. But at this point... It's not, you know, it's not meaningful.

Yeah, and I guess I would just add, most of the users we see engaging with directed film are existing subscribers, and many of those are repeat purchasers. So, we see it as adding value to our subscriptions offering today. As we, you know, it's, again, early days, so it's not necessarily bringing in new, broader users, but it's deepening the engagement of existing users and subscribers.

I think in the second half of the year, we'll wrap up our marketing. As I said, we wanted to iron out all the kinks and focus on the user experience, and we're pleased with the people that are coming and the satisfaction they're getting from that. So I will continue to invest in all of those areas.

Gotcha. Great. Thank you. And then I'm going to circle back on something. Yeah. Sorry in advance, Kimball, since I know you covered it, but there's just a big delta between product revenue and the machine sell-in and sell-out. Can you help us understand or quantify how much of the disconnect versus product revenue is retailer dynamics versus pricing versus A&M pressure versus the one-time items, which you're lapping? Just any more color you could provide there would be great. Thank you.

We were down $20 million year-over-year in the quarter, about 22%, and we didn't expect to grow in the first half, as we called out, and that played out much to our expectations. The majority of that was really comping the tariff pull forward in the accessories materials from a year ago that set up that really tough comp. We did continue to see some erosion in the traditional accessories materials business with decreases in volumes and pricing as we were chasing affordability for consumers in that segment that continues to see pressure in the market. And then on the machine side of the business, as Ashish mentioned, we're pleased with the sellout increase we saw and also the sell-in in units. But there's a mix of machines that we launched this year versus machines that we launched last year. you know we were comping with this year we launched Joy 2 and Explorer 5 and a year ago we launched Explorer 4 and Maker 5 so on average a higher price per machine a year ago than what we launched this year and so just the mix created some challenge on the revenue side and we knew that we talked about that in Q1 on our continuing products so on Maker 4 and Joy Extra this year we have More promotionality, comping less promotionality from a year ago. So both of those represented headwind to revenue in the first half. As we move to the back half of the year, we have additional launches coming that we think will reverse this trend. Actually, we're confident we'll reverse this trend. And it's also worth pointing out that platform revenue will grow each quarter. So it's grown each quarter. This year, we expect it to grow in Q3 and in Q4. If you want me to take you through the other reducing the callback, I can talk through the impact of tariff-free funds and what that looks like in margin pressure. We received $20.3 million of IEPA tariff-free funds in the quarter, $17.9 million of that benefited gross margin. while the balance was on the balance sheet and will flow through with inventories as we end up selling that inventory out. We also had a favorable legal settlement related to a royalty dispute that we've been litigating over the last few years. And with the favorable outcome, we were able to release a reserve of $6.4 million. Then that benefit was split between platform and products. Without those one-time items, you know, gross margin for the quarter would have been about 58.9%, so about flat to last quarter. And similar on physical products, gross margins would have been about flat. Operating margin would have been 14.7% as opposed to the 30% that we reported. And then just flowing it through to operating income, It would have been about $23 million instead of $47 million. So still very profitable and solid performance even in declining revenue. But just wanted to highlight the benefit of those one-time items.

That's great, Keller. Thank you so much. Just one quick clarifier. Is that all of the IEPA refunds you expect to receive or is there maybe still some outstanding?

There are still some that were working, but that is the large majority of it. So, again, we received $20.3 million in the quarter. There's still some that are working, and there's about $1.7 million of it still that we received in this quarter that will flow through the P&L as we sell out the inventory that that's tied to.

Gotcha. Okay, great. That makes a lot of sense. Thank you. I'll pass it on.

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