Cricut (CRCT) 5 Nov 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to Cricut Third Quarter 2024 Earnings Conference Call. (Operator Instructions.) 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.

good and operator, you, afternoon, everyone. Thank for Earnings Call. you joining us XXXX Quarter Third Cricut's on Thank Please today's company's the Investor note recorded Relations and that section call is of the website. webcast being on will A replay be following today's also of call. available webcast the

on company's slides supplemental have website, to investor.cricut.com. reference, posted along Relations Investor sheet, call, used your with today's For section been the accompanying a data of the

remarks Executive have on Joining recorded, live Officer. today Officer Chief and call Arora, Financial host Kimball the Ashish me Today's which Ashish prepared been after will and Chief Shill, are Kimball Q&A.

will update call. I the of or projection forward-looking any Factors call we filed could that Ashish. that not the section to like XX-K turn and Cricut Before therefore, current and in date today's we and additional filed begin, recently may or based remind response to inherent over Securities obligation strategies, events are business, our should future Commission. is also This we statements, release undue our These may have upon regarding contains management would prepared to as of do made forward-looking remarks on uncertainties, Exchange your only placed those make guarantee Actual questions. These no time-sensitive in and expenses and statements management this differ with to accurate XXXX. company's XX-Q Form reliance contain and involve operations them. broadcast, that materially. of results of most or the the Cricut's X, including that performance, the statements, be not forward-looking Risk assumes Form everyone results identified statements be including in risks information call November now expectations of statements

X% Thank and everyone. decreased QX year-on-year. welcome, Total you, in sales Jim,

for platform with exchange our with holiday revenue increased which pleased slightly QX, on grew revenue declined QX, Accessories QX from rates. the the and some XX% X% on growth. benefit favorable more foreign X% promotions International subscribers materials in expectations. X% on connected paid year-on-year Products revenue as increase season. exceeded up paid In are in sales subscriber machines planned We year-on-year, comps. X% declined higher declined

we is and stronger users a growth engagement. from quarter indeed down We the subscriber from active cut past X%. a ago, under with XX-day X.X win, less engaged paid in X% would year, ended benefit our and While than acquisition users who a year the million declined just

experience our years, with recent XXXX new XXXX curve We engagement from and engagement continue from prior are their who age large not on erosion users and to cohorts offset quarters. in and pandemic many as

platform to active the users, While we improve on-boarders for onto to our are our maximize impactful new users which subscribers. focus users engagement engagement onboarding from all a our of perspective, monetization want remains and most or

During and and engagement our solid QX, members. our new make their improvements continued new machines new connect to projects. easier we progress members with We make first on initiatives to to for successfully to several it make their design drive introduced

a almost the XX% compared process. successfully ago machine connection new first who As in increase users the success, seen of the minutes this a of within have X to evidence we year connect

platform our platform on-boarders the they with time. interact focus a they are more interact more our reminder, a particular likely As to because with the are over early,

a members. are new an common pitfalls know the our portion redesigned members help help most We've new of appropriate page we and resources also for that members. automated the within QX, At flow AI-driven to for with We directly end beta have also to introduced we further and for home tailor inspiration it further steps in the onboarding assistant beginners. integrated education of

that and the QX. Evidence day who To out are increase continued in it our to of during in specifically improvements our roll from with year-on-year content consecutive our in and complete initial on-boarders second a benefit We and that their the out project filtering of the search we the learning search helping to A/B beta have week. users Based to during in members, the positive plan quarter first machine make space. impact on friction designing find all and having quarter and share efforts testing, multiple pleased platform in specifically capabilities. first platform, these several their to improvements who projects inspiring is this our members algorithms on a is our response rolled them software during a are with projects removing design complete

by We major away. Measured to click over fonts. much popular simpler the image via most time single our a making directly team have adjacent a broader personalized, panels we on more relevant also flows find canvas, in to characters made in of back manner. have A focus a after visit Space progress have made members an of images onto text now last an among we their push place much images year-to-date. our and test and notifications and has campaigns capabilities, support social and XX% editing Recently, the bringing terms great also QX canvas, and placing been Design e-mail, marketing automated font our seen paid has improvement content to in

at to the Our plan marketing We live went effort of this very and platform scale QX. end engagement utilizing QX. first during campaign this QX

more While a our efforts confident QX, more to marketing design and not as to space metrics simplified scalable platform user we experience in using our of engagement overall engaged personalized our our and stabilized are a leverage deliver much infrastructure. have ability

market sales in marketing The machine in Canada. middle and that show analysis top in conducted results for had During of of QX, our XXXX. and machine impact positive half funnel U.S. investment the on mix the first we a a sales

In shows spend an channels addition, the overall ROI. the analysis these has attractive on that

we level marketing Given of results, the these continuing are higher spend.

we started late in is year Our the working. that deeper strategy key during of selling promotional XXXX times

Prime pleased are example, For from fall Amazon the we with results Day. the

with to healthy we to retailers get inventory worked more During have XXXX, levels.

holiday would we are believe with pockets the channel this head into the is We progress as more declined and inventory we compares to see like prior remain year pleased of the and important materials where season. in and QX in compared holiday. for year-on-year Accessories declines comps this XX% Notwithstanding, channel X% healthier QX, there years more XX% on-hand and to favorable to on respectively. and inventory

QX, with designed Value Our to materials which the to user to seamlessly the online create Cricut machines QX additional engineered work late say of line launched line in a to Value of experience. Recall, we are materials, the in best the compete we marketplaces. been and SKUs well launch of number following in initial late Cricut in I'm QX. has received, SKUs limited excited we that our launched

now have that market, a even more bit our but in still and early of the are this history optimistic of We portion product portfolio. a it's we about small

products cost ahead. the in innovation, and additional coming quarters reductions have We

attracting in users on engagement buy and are our effective and accessories users being reversing machines, more focused We new weakening enthusiasm among competitors connected more to materials. our trends, reinjecting

reasons which belief great intensely those materials, focused offer on ensure are the appealing the that on overall experience, retailers improved our channels. a more with ecosystem. It access our give fundamental we things for we are machines shelf work is motivated and of us We user and see experience, customer one our create has actual when many inspiration reasons customer we is use an and to people and with make help will are both to and that of in them to of that that quality select bundles the affordable experience we to

and driven are experience continue longer-term turn focus to We and the user to our improve now platform innovate discipline. I to call over current and will exhibiting Kimball. both while

Thank decline line to prior further, you, with down of XXXX our and expectations. was in $XX.X revenue delivered year In million, revenue slightly from million, we a up Ashish. QX revenue quarter, the X% platform the third Breaking compared year-on-year. $XXX.X

products revenue ARPU platform planned $XX.XX. Accessories to X%, shifted efforts. Platform driven mix up on decreased targeted X% was subscriptions for million, shifted was increased versus Both more from $XX.X Materials QX. Connected increased international. subscribers by XX%, and mix over annual shifts paid more the XXXX. are favorable promotional geographic down less to as X% primarily and activity Machines decreased monthly Revenue comps. QX more While X%

international or to QX X% geographic XXXX. up $XX.X in compared terms revenue million breakdown, was $XX.X In million of

international benefited just by exchange Foreign X%. under sales

total QX XXXX. of in was total XX% percentage revenue, a international QX As in revenue of XX% XXXX with compared

X.X users to of ended year. decline Turning and active decline the just than less engaged year a over X% from XX-day which under ago. engagement. last users, quarter a million users, active the with with QX We X.X quarter from a We ended was X% million

subscribers, We but we up for As have up million encouraged quarter Ashish sequentially. metrics with improvement engagement. ended from indicator mentioned, to more in improve XXXX leading over X.X QX by paid on-boarders, work and to the X% do are overall

natural pace of be earlier growth acquisition. subscriber the some so attrition, machine and new challenging calls, As user discussed sales in there subscriber increase until is we will

offset Moving compared to increased or a to higher in primarily couple from $XX.X $XX.X ago. million XXXX, compared efforts million margins revenue of the operating partially gross income decision gross a We lowered hosting rate was items, were to decrease Total XX.X%, by by the Operating tax XX.X% increased last gross platform in or gross margin $XX.X was benefited XX.X% compared XX.X% XX% quarter The a gross slight primarily due compared year. and in quarter our talked decline margins of XXXX reserves. continue. Gross included quarter have to in XXXX. of had effective higher the year Total down was and to QX XX.X% The for we inventory decrease to the million further, ago, in bad the a margin. products gross some revenue expenses fees net marketing be from ago. costs and in Total sales from of $XX.X XX.X% QX we $XX.X third from decreased from XX% quarters. Recall, expenses Breaking more QX for which QX XX.X% stock-based to about QX. for expect that to million margin software to last margins compensation. related discrete less QX margin platform were million debt driven year operating was promotional, million to development in in which primarily for $X.X X.X% reversal. year

our million $XX.X to in Net diluted per compared share priorities of was to in long-term invest rate QX key value or We XX.X%. income manner $XX.X year continue or net positive $X.XX as creation. to around for expect be $X.XX XXrd our company This XXXX. we quarter and while million the share profitable tax in running diluted per marks income consecutive full a

cash sheet now and Turning balance flow. to

compared operations which on we a basis, ended end to from continue a generated for million. inventory We to inventory million needs and with marketable In a million year million growth. million an cash and equivalents $XX QX, funds cash, to QX of year ago. generate securities investments annual in $XX We decreased $XXX of healthy debt-free. flow at long-term by ago the balance Current cash remain from $XXX XXXX. cash QX We $XXX

million [$XX.X] cash. our cash $X.XX special approximately sustain in dividend on QX, X.X the record We Directors stock, the of (sic) second Board semiannual to ample dividend share are resulting our our of recurring on to authorized of $XX.X onetime for paid XX, plus anticipate of During for $X.XX our future allocations $X.XX profitability and repurchase term. to million debt per utilization of million always In and sustainability Cricut January profitable to hold in shares the past share our remaining any do million our of semiannual our XXXX. our liquidity or stock used repurchase and excess share. confidence authorized business, line dividend the per payable operations. in but of in The want shareholders We grow first of recurring need per dividends have of due XXXX, not we we These credit for $XXX X, $XX [$XX.X] possible million January program. near July, not on capital

offer but we on XXXX, Recall, detailed to guidance, the want give to or our some outlook generally rest do unchanged. our do for outlook. updated quarterly remains color on not Now we which annual of

full first year. the the quarters for the year, X of we sales Given expect will decline

We QX our on segment. expect accordingly, down total sales revenue likely be product And continued will year-on-year. pressure company

to slightly. and to up be subscribers grow we platform QX paid compared revenue expect XXXX, to expect We

As we our marketing. sales stated plan to continue increased and on spend we above,

some incremental margins expect year. Given year-to-date performance, continue we to in for operating improvement full the

remains model unchanged XX%. financial long-term of margin XX% operating with Our targets to

achievable. With drive revenue has billion and call that, line top we margins I'll Our over demonstrated operate proven that model the growth, scale, these we when turn at to are for define which above $X as questions. operator the

first Woodring of question the from Our Erik comes Morgan from line Instructions] Stanley. [Operator

I Just may. X, if

second same I subscribers consecutive was think the declining where year-over-year active and this users first, year-over-year time, sequentially. the But Ashish, paid growing quarter and at sequentially. are are

a So, but smaller you're happening give having just maybe just you paid seems your exactly converting of a bit it a just time what's at bit can you is more on to are because looking us under those which base, tough hood subscribers, cohort a detail at user kind metrics, of users successful the interesting. maintaining

So, you the please. have understand hood? maybe I us then going double-clicking under mind do a and helping And Thanks. follow-up, on what's

Thank you Erik, for the question.

question, is I'll of down talk talk and little I'll me break second and of which then the your about a engagement first, about subscribers. kind the you, let So, bit it for part

this to about we've also pressure a see focus quarters signs. of for the very company. see is now. cohorts So, some be we we we talked engagement XXXX, from see some for XXXX It and healthy And continues continues several but the -- what

So, over in I'm XXXX, engagement users, users XXXX time curve, going as over putting engagement time overall on and lot the to we that's that. on we a some spend pressure these The acquired of and acquired cohorts some graduate numbers. the that

Now as we we'd aren't since many we typically, -- with acquiring and haven't new helping. as like, we that acquire not members we'd that's new offset members as

that So the you numbers. net in overall see the engagement of result what is

basically, of perspective, active focusing are the and on-boarder another are engagement and we leading from From XXXX than them that we -- But cohorts on platform really Now then subscribers. X easy We XXXX. we engaged focus right? right, in entire make an a better of have to on-boarders users, called base we standpoint, one on the and populations, for to lifetime indicators. is kind a their good installed of kind maybe want the to way come in it acquired the that these

to to about talked of first why connecting. It are XX history, over that create tends that And minutes. is know quarter from that little few the that we our bit customer. of Without more some able on-boarders -- also the metrics into then in with that machine better created projects And for about data details, engagement their in connect first because -- existing saw number XX% that row the the of install they all more X base. time from nearly going prior when important nearly a in for was the days. those we users happens, that's the we what we the lifetime is spend to doing in second a projects being we that a lead And the improvement people less also talked entire

back platform content. to Design to improvement time significant people amount of a pretty users implemented some allow seen we've actually for in those So into new search it's to for the taking QX going bring that we've And us would Space.

and are to some things from helping able standpoint, information, get they're people the acquiring subscriber because those back being are find better that those in engagement we success an are we with So customers are rate engaged increasing content, customers. specifically or are seeing those personalized retaining able Erik, -- of a to

that we engaged are especially are So, of that result time. we things pretty the engagement convinced over think working impact see things overall talked indicators that that that in that the I leading net we're given And curves will improvement subscribers. about our the I is on,

executing we're on focused that on going So, stay path. to

Subscriptions.

view on subscription that to evidence very a our it's as actually We we're subscriptions, focus sure right? about and on that value. adding value our we of customers making compelling business, excited Erik, continue So think

be talked last down on we You thought subscribers may in even we quarter, we about recall quarter. might marginally the

would So, our by we that many But we're even to into as we were X%. think adding base subscribers quite like I pleased reach to as our users to currently. talks as not user grow new ability also

my for comments Maybe year-over-year around margin helpful. And included Kimball. you your in really That's prepared or Okay. second follow-up question year. my this remarks incremental operating you, is improvements

of the believe you at maybe over improvement last the this I XXXX. the first operating And was just year, -- over in referenced you're quarter, the roughly operating point background? thinking XX% margin I think it quarters about margins. X through year margin changed should still anything you're to that Is be how relative operating that has of referencing, a we improvement or

Thanks, nothing's changed. Erik. No,

the margin As tend about the a I the products physical for during as highlighted operating have our improvement in general our holiday. we the Remember, into of volumes in sell prepared lower higher physical the expecting holiday, year. full we outlook gross given products. we year-over-year unchanged. We're remains to promotionality margins go still on remarks, and point

So, quarter. -- improvement expect the for that point so will we pressure year-over-year. a But margins on about still

year. the For

year. Yes, full for

question from Adrienne Yih Barclays. next Our of the comes line from

fundamental on did margin are you software margin those sounds follow-up. Angus of in I a near levels drivers gross do the Platform Is there in the have the then quarter? what behave think kind like of that, the is And issue This and clouded term? on it performance? fundamental to back segment? the for XX% And platform performance how path Adrienne. a Because this How about long-term then

the those as I a to think I expect We mean to that you we Also, into and the of amortized both for those margins continue costs that point forward. go we do our our are to quarter. up. trend capitalized we've over lean can platform, seen for continue. and wrote continue and to invest to -- put be continue platform of we those years, fees investments, about on trend margins So, going those hosting in which expect in Both platform get Angus. pressure X

versus a monthly bit talked a ultimately, put being of also little result. annual some revenue, but pressure lower annual But our of with you at as well. about that the that's intended Kimball, mix

-- is only annual Well, on monthly. marginally subscribers cost more we And factors One, That that on comes shift the pressure of subscription margin slightly overall Yes. also as lower the at And over Ashish to of puts but increase trying a continues are And were with on obviously, mix revenue. that number up so are X% on also part. increased to mix on subscribers, is then pressure international, revenue. that our discount. we X intentional puts highlighting then up revenue the that. for really and

Very question inventory are think my products anything about it making your in in carry. but spoke potential it. crafting second is, share that remarks, seems retailers in like helpful. they could then see shifts Got whether environment you levels you I or a restocking And the permanent if the future retailer more levels, you on of

Yes.

healthy So, this we quarter into channel where the in a generally channel. where seen go position. as a talked restocking was as holiday, second partial into to more I see is I season. There ago holiday about like we've year think it the than are we better think we But it's And this inventory. in go we would pockets is overall,

up, our we're holiday deeper at just promotions QX and have We lined the season. doorway of

at point, for show holiday. we're to anxious So, see up how consumers this

on me let that. And I'll -- to Angus, add

our QX, up all manifest itself. doing. marketing that, activity our all So start to our given we've on into traffic site is And that to the promotional based is the expectation will conversion going been

some excited but happy some that nobody in as is shop, still inventory There's on leaves in when will there improvement about comes retailer table year-on-year. are -- to the of and an said, while and consumer pockets, terms hopefully, definitely be money we the So, better, that. Kimball

Citigroup. question Merchant of from from next Asiya comes the Our line

XX% you down in is different it what think year. And inflection your revenue connected flip the X%, kind seen an the an we first Are a If on year. here, you down some side, half seen the of of half on year-on-year can which on a we've we've accessories? basis, bit this double-click from machines bit, of in a like point little at first the improvement accessory little what being was looks than

that can that double-click be seeing on great. both would on the those, So, if you just you're trends

thanks question. the Asiya, for

point a from to on you more of story where And QX. continued First, prepare and story on think and are On comps you if I an really about flat then assumptions at your we look at promotions. look year about we're expect let promotionality prior that's as But a that's point. QX Accessory QX that more easier Materials, materials see really this pressure not do machines, to and for if in at comparisons. instructive deeper we inform it's accessories sequentially QX calling inflection

And we down for in for promotions, But machines sales up gross account quarter. that's provisions really the for on QX driving take the revenue into quarter. the by was so, time machine the XX% marginally actually what's

here just the the obviously like that That's environment And the lined then on how looking going that's to in I helpful. think promotional environment, positive you though, that Generally consumers, you the assuming promotional driver. at relative season. Okay. have you competitive for intensity seems promotional understand speaking, broadly are intensity, crafting this holiday guys given category? up it is How be a promotions to

strategy. to broadly as connected I on price fairly we each for front. confidence continue gives that's partly Accessories we year. that now us the On a of promotion, see throughout on not I will example, that's we're we've the talked we to quarters competition go strategy seeing for we that through In seen on about promotions couple throughout expected, machines, our continue Materials that that baseline have uplift add category. periods positive think weaker on when we've promotional what these year, continued and that we're of promotional segment, increased and informs executing and point, than where seen demand in the

is we kind just at intensified online Cricut.com of few the in other same just affordability still and think And we given waiting the that marketing we and are spending, the see -- over last see affordability -- normal quarters, We've but our traffic is when not demand time, manifest times, the Yes. promoting, we but consumer -- to despite consumer -- itself. is of -- But discretionary And been when just me we add still let that. still the properties. we've do key think one the factors. still to that we that

So, And our this interest some drive awareness, basically, goal there's there's the is around our strategy that QX very of frame. built that is in time in help conversion hypothesis I think much that category. to

Our next from comes from Eric Sachs. question of the line Goldman Sheridan

Maybe And consumer the of around possibly marketing those is in efforts side of or find just stimulate backwards go of a the short one of couple which of question, intensity we this back I'll around overall have of of and growth. go the into intensity sort extent in with to learnings and scale building key and the your company? messages? asserted product in sort investing towards forward, higher to you some queue. then to environment the marketing the If you it to parts that on year yourself the to platform the of the go you marketing that this working those move the been When where goals, have fallen array before down back that some go are versus earlier intensity how what we higher to down feel channels of from respect marketing original you're and level much are either of you marketing receptivity

the for thanks Eric, question.

want we feel we OpEx, about with we year, leaning But talked and we into the where dramatic if to see demand in marketing we've initially I in couple line of We've retailers. consumers point haven't the seeing regenerate and consumer history, the of in on we spending back the into that managing drop-offs part as pulled key like got as both year been we've didn't look enthusiasm a right, metrics. didn't were enthusiasm. back we pulled on improvement we grown as -- likewise, throughout marketing, we years. we're So, came or over-indexed that. on slowly we and top And marketing, our as more And and to at

measure research things enter the regardless decides improvement. in connected Cricut.com, year-on-year both machine, have haven't to consumer But seen ago. line purchasing overall on top what to products ecosystem a we channel a Ashish of journey. traffic. to granted, key is of part that, that by is our basis mentioned Cricut.com seen we because quarter-over-quarter that of for to a a our We one that measure coming we an And Now as improvement know important and moment we traffic a that

where the are that We a impact our spend multimedia us that looking measuring have move multiples optimize enough optimizing And mix we of model are spend around. we at leaning based basis money the by on the keeps that also a model to channel. But see we of and mix that returns frequent on spend. we're and into confident in data

higher So, to marketing be than QX QX. tends in QX, spend

isn't just marketing immediate elevated into XXXX because So, you also term rate for start expect we're in can an at see building the far. happy and seeing and continue with that to QX, also it so for results. results but us long spending We're to continue the going

Suva to call time, turn the back now this Jim would I for like At closing to remarks. over

Gigi, everyone us thank and you joining you, Thank afternoon. this for

term long not a the growth to provide continues increased have to user to increased over engagement. The and strengthen, drive large platform value Cricut also but our opportunity users. new We only

continue will manage to ahead We I'm business cash the the profitable sustainable, us. opportunities growth about generate of healthy excited for flows. and

the Investor you XX. Investor at Deer Utah be in December Thursday, We December meeting New on Valley, ROTH to MKM X, and hope Barclays see in with on Conference there. We York the Thursday, Conference will investors City

have me questions, concludes This please now If earnings e-mail this you at call, disconnect. additional jsuva@cricut.com. and may you

participating. call. This concludes Thank for conference today's you

now disconnect. may You