CRCT - Earnings call transcript Q3 2021

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Cricut Q3 2021 Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Stacie Clements, Investor Relations at the Blue Shirt Group. Thank you. ahead. go Please

Stacie Clements

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

website, and posted investor.cree.com. on today's of also be to For Investor used the your call slides company's reference, the accompanying prepared section the remarks Relations will

the Joining Ashish Chief on are me call Chief Alora, Executive today Petersen, Marty Financial Officer; and Officer.

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

Ashish Arora

Thank you, Stacie, everyone. and welcome,

an just by software, driven developments XX.X% our international Total and lives. third pleased focused same and year-over-year at help grew increased of new categories: product connected machines, EBITDA remain expansion. three in on results We subscriptions time revenue in XX.X% growth with creative lead connected the We across people the while and margin are the accessories mission over delivered quarter. all We investments to subscriptions, materials.

users. Our have of One base Over the million year-over-year. X million viral cohort as over corporate grew projects. of third is the of to users an over thing user quarter, these similarly that means very is share cohort to users love our were fuel X.X of opportunity end I that XX% we XX users months. and users acquired our million last the make up these This engaging our new pre-COVID X to engine marketing at

engagement the provide is within last and Of from users. million drive experience to used quarter new XX job users, continue increase and X.X an superior Our year. same XX% connected last from X.X machines the of the days, million a to existing their

over this success One or with driving pandemic. subscription Access. XX%, of and increased quarter time the number points, We and rate the over ended X.X attach seen are of is The due subscribers a our the an we monetization nearly rates the ARPU investments consistent Cricut percentage indicators user subscribers service, have year last testament in XX our time. accelerated ways attach XXXX, paid success. rate to grown Since the attach of monetize to subscription over many of million our important of engagement with through third

our As market. use cases we expand the addressable platform, expand or our we connected potential base serviceable of user

merchant our retailers user reach Cricut base teachers. more business Joy us expand opportunity last mainstream Target, as enabled Joy to and partnerships a year For an The store. like gave container with owners Walmart to example, the launch specialty small retailers of the mass such like Cricut us and retail

the retailers cases opportunity into electronics such expanded reorganization, users such but and we over as a world. label-making supply off platform expand use verticals also have office of consumer as We new may to their These significant one two our level start for time. around or using engagement

continue over new content the to for aggressively use international new Cricut content of XXX,XXX relevant QX. cases, We We images projects end to markets images more. Access, add and from for added up with now XXX,XXX at genres,

exclusive adding new We Cricut also members. to improve Cricut the continue functionality – members to features experience user and Access

a image. For manually clean we launched to Automatic October, need the eliminating example, called in and feature Remover, uploaded Background

create, a provides users world of effects network us. moat user the These they around new are organic as communities drive Cricut community benefits and nature flywheel. more engagement. more competitive acquisition a for The passionate the serve by Our that from the and

can exceeded Our above we we happen. Birthday community program, Forward we puzzles, X,XXX communities. the is these weeks no organizations Projects for kids Party for with our Through recently, community to XX,XXX joy on their It receive and aligning fostering within great with users Project, stickers Make to their and proud are Most help of spread center at to in to celebrate things By donation great five and I’m projects projects help birthdays. the we continues our we partner kids our do, deliver that included users, over cards, inspire make value donated. bottles, expectations others. everything banners, partnered in made to and coloring pride with say doubt those our take beyond. that water users to underprivileged birthday. and with of to our T-shirts, challenging pages There

amazing so family best. weddings, for This can course, us day them we of projects summer, also our events best to do do for users such saw they their reunions, inspire and, as back-to-school. outdoor events every very baby Our vacations,

growing fourth As we inspirational from seasonally base. holiday quarter, we gifts the already quarter, user seeing on projects strongest our and are head into focused decor our

on powerful engine for organic. We billion of customers followers new acquisition. #Cricut word mouth, user XX% first are views over and hear providing through marketing earlier, on Cricut now million have mentioned I TikTok, media social entirely which cost-effective about and almost new over X.X As a X.X of

We will communities, share to voices amazing and continue their these amplify work. foster their

created In addition, suite ideas classes and tutorial projects use videos to online expanded drive set live inspirational an cases how for – and of guide we’ve help engagement. to

Earlier date, needed classroom For list example, each how-to of comprehensive year, provides our include We to step-by-step for satisfaction And interactive XX,XXX a well than users. we short back-to-school recently, launched materials video high organization in participated a very More with education as our online instructions featuring and live more and of classes. rates. to live project. expert-led beginner-level launched we list classes. October, have users virtual as Learn, a resource this already ideas supplies Cricut

excited approximately and the North this growth I’m users to Hong XXX% help We Revenue in America, about onboard are excited continues drive new to officially Kong year-over-year engagement. from and from growing Middle international tool third very outpace markets. revenue to have markets quarter. East the entered

investments more users strategy, QX, France, the We reach experience and our entered Germany, we the to newer In us our expanding In relationships, partnerships diversify continue footprint. In We in a we South site such U.K., use in to Spain, Ireland, markets. markets and international rolled in also markets Singapore. Nordics, Germany. in Australia retail bringing as expanded Mexico, Africa e-commerce audiences retailer mature and made U.K. significant direct-to-consumer Benelux, new QX, cases out to such branded these France the allowing the and we as

We are really opportunity. excited our international about

delivering others driven are have similar we growth us our in plan Our they will international and since driving to experiences those great America opportunity accelerate to across to that that the date, be that show invest With can proven users growth is large the in increase international observation our tell very investment motivations XXXX. executed to this front momentum The and playbook in to expansion. of behaviors and to North Cricut globe.

heavily platform, We including new to our design in also features our functionality within apps. and invest continue

For of have example, image restore our that accidentally Restore an enables selectively been users new may part feature any removed. Brush to

our on easy screen Coupled to ever-growing and space introduced images book increased on with [park] freshest and also have focused library providing images, to new images. content. access home best the featured are our We the design that ability of a of visibility we highlights ribbon

weeks major Android foundation our for the made with to our to migrate improving our apps experiences. apps mobile will ongoing new design in and new that soon. launched in work iOS with the are have and provide Android beta stacks richer app the both currently with strides all coming public coming We version be They broadly new technology in iOS

accelerate data experiences mobile platform, experience the in drive to continue We best our to software user investments possible. and

chain were way supply product substitutions in rewritten firmware my conclude These want risks. our have to secure the pleased I highlight to component tirelessly worked from their a Cricut work Before and our with help business. Overall, work I’m remarks, to advance necessary. serve very the the delivered momentum customers. teams to values, and mitigate I the incredible accommodate quarter teams of have always who Their and components operations real-time finding to

platform. add continue to We the users onto

in improving us. the opportunities new Cricut and I experience visibility We markets, of products, the retailers growing about couldn't more are and new in thrilled in and users. be worldwide gaining investing user is number the engaged of front

for on We over continue world. the growth, the details call delight I the around will financials. profits and users drive deliver turn to invest, Marty now to more

Marty Petersen

Ashish, you, good Thank afternoon, everyone. and

for last helpful. was performance revenue growth. strong on since of a looking consistent basis off and grew was pandemic, by from over of annual the of health effects continuation driven understand diversified trajectory a we of focus Machines XXXX, stream year. comp a and and fundamentals last quarter's in which last on the year XX.X% normalize the the million, stacked over XX.X% users. a our QX for Our our XXX% of long of financial $XXX.X and business, revenue To third history tough an community is the we powerful year, quarter Connected two-year business, QX performance at a believe Revenue solid trends, performance increase Normalizing QX Revenue seasonality. the in

a Materials. of and purchase our time. tough gross and Materials to from our of over Accessories higher engagement which purchases machine cost. was pandemic our from in grew Strong at As in categories a helped and of Connected the users mostly healthy rates quickly sales last stay-at-home the acquisition revenue platform X% quarter. growth The on ongoing the triggers engagement a Machine orders the reminder, the revenue Accessories flywheel then turn covers drive profit attach from Subscriptions year rising comp drives Subscriptions base customer and and when revenue in margin XX.X% due growing

global a outpace same to the quarter third over of terms America, in increasing XXX.X% our growth breakdown, We’ve opportunity and quarter grow geographic growth foster significant the in North to revenue XXXX. community international investments In continued of made users. in

percentage of a XX% in International As represented quarter, XXXX. the up third X.X% from QX in total revenue,

As Ashish base. rapidly mentioned, user we our grow continued to

users have days on quarter, XXX,XXX, As the users by end third quarter, In the prior million our our of period up on the number XX the engaged users we XX.X% added for over of bringing total XXXX, last year. in platform third to the the X.X million. of platform X.X almost the increased same

from of a total in users, engagement down XX% a COVID-aided XXXX. percentage QX user As however, was XX%,

ARPU services with more we home. trending last million, up monetize than Ending we people user This relatively ARPU than ARPU monetization of in investments to paid the third XXXX within in in some $X.XX, in user from high compares to Subscriptions significantly our relates Accessories normal pace from equates to attach on third XX%, levels Materials higher-than-normal from have an quarter seen up the and the in engagement softer XXXX. I channel of a to Accessories at base. subscribers kept up we result growing September, XXXX, As to Materials slightly from late Since that Subscriptions reflected of pandemic We $XX.XX. XXXX X.X anticipated said on the related engagement. last remained APRU and of over to and to $X.XX measure levels time from dividing both third made our and growth, quarter benefited user up levels up. by those longer is and spend entire Accessories attach was and we’ve catch rates through period. normal QX revenue segments by quarter, and for inventory This engagement QX the than and to XX.X% mentioned. XXXX. rate closely quarter subscription further more just the be engagement platform Materials $XX.XX, up healthy base in as user and user growing QX in out pre-pandemic the which ARPU

the than of number the Accessories project expected, the putting on As in Materials was & downward but activity pressure increased normal, ARPU. some engaged lower general quarter, users

We around engagement especially and sequentially, year-end. improve expect holidays ARPU the to at

XX.X%, promotional margin. margin lower gross of due an Total higher to significantly lower XX.X% third to in XXXX. the onto primarily given returned and levels demand. to activity gross promotional pandemic inventory inventory down the that high Moving third in freight XXXX we healthy reestablish XXXX, The decrease associated in in quarter were normal from In we QX cadence the unusually from quarter with was able a was costs more positions. surge

benefited highest in proportion of margins. commands the high our history, also this quarter revenue We from which subscription

take want typical QX to to the gross which progress expect chain. on activities moment enhance the and we our sequential season. to made about talk have with tremendous I basis, is supply more in due promotional down to We margin come a a holiday

dynamics to the companies affecting world. We over all are same are subject that the

mentioned, teams began of strengthen long Ashish global mitigate and these challenges, key worked investments time the face future making accelerate year hard the have including helped inventory lead to a our As of positions in ago, components, risks. we chips. purchase our Over to

shipping machines also accessories inventory onshore levels materials mitigate and positioned and and in increased We connect to inventory delays.

risks We’re supply in inventory levels discussed we a today, head particularly holiday into position And we improved. the – inventory to that we previously, carry XXXX are comfortable a position continue in higher as into we’ll as strong until are chain season. have strong

in like we inflationary are take continue other increases. pressure price approach margins, costs, to cost To importers. these offset just experiencing proactive will side, including we managing the possible a On

platform year per prior help or increase revenue overall form $X.X sales is in on reflecting were This compensation. of increased to growth. to the more X/X third than when pandemic. million the an expenses in stock-based attributed Total figure was of included low R&D investments drive personnel, Moving as was the a spending as of growth, of a and to total of future March leaned Roughly in spending Most with to relationships. was low of XXth categories our balance foster and Diluted reorganization We comparable the year, expense was the down share income. adding to from just to increase net consecutive quarter investments history in influencer last the the pandemic. IPO. did to talent expansion of positive our a was from into XX.X% $XX the part coming third result which in expenses quarter million Total navigated operating XX.X%. we than the and during the IPO EPS that little the of of earnings expenses. unusually Cricut marketing out I pool, over have stock-based increased XX.X%, compensation, especially operating and R&D. as where we prior was time to This the delivered international QX the of was X/X which catching unusually million income advertising not half the and and a operating including balance About all up mentioned. international build of period were in increased in increase our same the operating of $XX.X $XX.X at Note came across paused the uncertainties XXXX Net percentage in marketing, higher continue our million, quarter due from $X.XX.

to XX.X% from compensation basis, $XX.X XXXX. EBITDA, of expense, XX.X% strong million grown we unusually Turning high, a target our over million EBITDA in the delivered third annual includes to EBITDA stack XXXX EBITDA just margin On margin of or long-term benefiting was XXX% dynamics. of pandemic which shy of XX%. $X.X has two-year quarter QX of stock-based XX% EBITDA

sheet to We million cash quarter the now with the Turning flow. equivalents. cash cash balance $XXX ended and in and

operations and base quarter the with X.X us. of market credit over the have pleased chain With progress payments untapped. we’re we date. opportunity for months risk building we a – $XXX million to in $XXX.X users, million, nine remains help ended supply in of million, reserves Overall, earlier. Our reflecting mitigate September line Cash was front mentioned the of our inventory for used our to large

are We have taken long-term short-term guidance. growth and our to not strategy choosing approach to give a

color However, I and QX into holiday we as would our like season. to typically provide head some strong

year full our approximately XXXX, increasing XXXX. now users, to we from new X are up the X.X users add million For added in expectations million new

We have importantly, the Most growth and already first added acquired patterns of months. machine fuels acquired during purchases from through engagement new of the we’ve users X.X nine similar million in users connected further This the to remains engagement foundation acquired very profitability. pre-COVID. COVID users

across we holidays September. are trough the engagement late platform, in our upcoming the approaching, saw from increased seeing we With up

For – On but year, the we accessories decline QX. of into the from QX. engagement quarter, significantly likely the we and to depleted sell-in channel relatively fourth comp. materials and to number from engaged we percentage engaged users Subscription basis, on in to expect with of season materials With expect related users year-over-year accessories consistent significantly. QX remain will a likely – Last from the benefited will to sequential replenishing holiday ARPU the inventories. a year-over-year however, and basis, from increase strong holidays with engagement higher ARPU the tough increased down be year-over-year, ARPU leading increase

range XXXX. The sound. business to are EBITDA Our full margins fundamentals fall within to the target on of remain XX% our long-term of for pace our XX% EBITDA year

drive to and healthy new continue users We engagement.

business that, our both remain the the turn seven-year with revenue for call to and With model running for track focused a We over long-term. the driving profits now of questions. a business I’ll and durable record have on operator

Operator

line Goldman the Rod from comes Sachs. Hall [Operator Instructions] Your of first question from

open. now is line Your

Unidentified Analyst

Hi, question. for on is thanks taking Bala This my Rod. for

quarter, materially it So, from start to what it – metric it sounds rate engagement engagement September, rate like hear metric? you sounds somewhat that worse like had is our the is then Ashish, good it’s down with this expected. But I than and is to want again engagement it improving.

you’re into holiday I December, how you’re December thoughts a quarter So, November and the understand is about of want got initial of late so to thinking about follow-up. I the extent how on and any you’re probably thinking I season know really December trends. month But just the seeing full quarter. not the

Ashish Alora

Yes.

that’s acquisition, So, with thanks, that let engagement, so first Bala. – just engage. I use because know think was question we start the off pool on I to by of the me start people the

said, added million the to QX through of we to as from users X.X users that X million we’ve up is year, million So, end up said expect X.X previously. we had add and which this

a good starting for that’s engagement. drive more point us to So

we’ve thing, COVID, have sign. XXXX which similar things of to of of year-over-year. focus and means a we is cohort So, very engaged I is an very cohort, that the that that we activity was again, the of second positive up. as right? that how the look number total forward, we at The increasing to high-quality a want One increased things. From And a inside we opportunity pick customer a we highlight looking few engage very pre-XXXX kind acquired number which, number, during is one the is them on are users that levels to engagement as XX%, saw standpoint

come September. continue that though are saw always And our the second platform, XXXX, personalization them them see our believe things, they end down that more go is increasing for of engagement to to people increasing. want said, platforms want to summer wanted more exaggerated do still the the to on is we’ve seen to hadn’t pandemic, if we where the prior projects. very – do engaged the because they an similar already we since to they any, they to when will and what back, job they few, get going them Like drove is people still make projects, cricket are and are people do including trends rise that we get make when Even right, – number And want to there to we the platform starting engagement pandemic substitute The done before intact. they things that that back for to to engaged, to. be them and to having to when the create, they come get that doubled

taking to that think things were really long-term we a place, pandemic we and leading we good users. that have and very are up positive of in a still opportunity So, attract are there’s holistic approach, lots to the in place, the those

Unidentified Analyst

helpful. That’s

up events-related, maybe as there, or et different picking rate, in different cetera? or the Ashish? behavior in such any user color color maybe On in education Any use or cohorts holiday engagement cases this on

Ashish Alora

Yes.

we are So, that somewhat board. unusual. had to that that, And we all of in believe things that of thing run a I great think place see the same holiday we don’t of making the typical remarks. with is as holiday there’s in of similarly that our making are But we mentioned lower projects in behaviors making putting that down, also things. a the we number Another is not said, but across that the couple engagement spirit, cohorts Halloween. up are One in the people gifts, are like engagement anything mentioned the efforts the terms were of we People kinds like I was only was that very engagement, we behaving right? total was engage the

we fact, use of see if number cases broadening. anything, In the

We’re functionality very new apps of created. some excited new we’ve the and about

I want don’t unusual I highlight no, So to think there’s anything that

Marty Petersen

Just one clarification.

engaged them. number total by actually users quarter referring users of engaged or The or about percentage year-over-year down. the of of was actual XX%. Ashish number is that to XXX,XXX he’s up That’s – engages the users said that

make Just that wanted to clarification.

Ashish Alora

that, for Marty. Thanks clarifying

Unidentified Analyst

The access ARPU even I down materials adjusted the is significantly for if may. and engagement lower Got if it, here one And follow-up, Marty. I the rate.

lower. there I how juxtaposing metrics. wanted want still strong. So, just to question to understand juxtapose to subscription better those other metrics? are whereas how my On they’re keep thinking? I those you I subscribed do rate two there is attached is, guess very guess Is are, read hand, people sounds how more you’re do engaging anything the it you like

Marty Petersen

Yes.

ARPU the take and question materials let’s first. So, accessories

touched about that link ARPU So, between important answer, that’s in Materials and an this this business link by to on as we Accessories identify Ashish measured talk we the case and when they and that they make they’re and when is accessories they’re engagement, projects, making accessories are engaging, use and people making materials. and materials, things, And means so it they’re buying need projects.

And in with correlates in ARPU. engagement and so, the fluctuation the generally accessories fluctuation materials

you Now percentage is total where further ARPU – that percent Bala, down correctly to And those comes In little our the that remain identified who down projects. making making who engaged. were XX%, than engaged a bit – engaged is were the those less from is they’re were of the while other engaged users fewer words, active.

And business, we about to that summer we’re this we is that is here talked quarter the point our soft we last entered as summer – season. seasonal a so, what

able do ARPU for this and reflected believe both to opening number that people Accessories we to things as the the that exaggerated so the been engagement engagement lost began Materials and speak. As a entering and hadn’t number, we and for and other pandemic ARPU. up we vacations Accessories the summer up, And year, that and both that they is making softness, explains season saw in we or while, saw

also asked you Now subscriptions. about

are. like that, things metric of And other not is subscriptions two the couple there’s a for a Now the going reason seasonal on.

and then or come during have are then subscribers and come They do some our who are something. subscribe and leave by holiday for nature. seasonal. and back one, So, Valentine’s subscriptions craft just Day We in sticky

in in grows the base the that. especially, we’ve seen fluctuation However, generally user the larger less

pandemic. in seeing rise the strong and proposition were the to The the other note heavily at as pretty while itself. the the beginning of content, we’re quality, focusing emerge pandemic we that that really ARPU beginning began relevance. reason It’s the happening, with the pandemic, of significantly. for on And held We quantity, from coincident adding subscription the to point value that it increasing is, we dramatically is to throughout subscriptions bump experience

us design here you’ve is seen add to recently exclusive well, that to As start functionality subscribers.

emerging seen while homes we as went sort that their that focusing increase haven’t so, that watching this of helped keep that watch into benefited some we for pandemic, we exit has as may and the from normalization to proposition been still other And were on that value pandemic, up. occur, the effort do yet. as we additional really been but have the think some ARPU normalization for people And things. sort But we’ve we we of we

Ashish Arora

I’ll point. subscriptions And to just we flat for staying as people is The the Accessories make to other one think quick the happening are that that holidays. and to thing back they’re are Materials make craft down, that is one preparing are and fact things, going come

are we in see out of of will, happening. cut if And they future subscriptions, come don’t so, probably that we you more and subscriptions much that think engagement, designing because that the to that they’re projects, indicative And want to those projects.

Unidentified Analyst

Very helpful.

Operator

Mark we to Baird. on question, Altschwager Moving next our have from

open. is Your line now

Mark Altschwager

first trying better quarter-to-date or exaggerated moment. I’m give you Thanks had that acceleration the perhaps fall, these just of expect of look ARPU taking what normalization for Great. and couple the QX. you would sticking some the with that of there sense Good Maybe to afternoon. Accessories kind this Understanding I that. a is sense in get like to at of clean hoping seeing you’re a guess, I might months level and us of post see last better and look seasonality COVID we’ve for year, Materials was a could this my question. are

helpful. can color there share more be any would just So you

Marty Petersen

Yes.

talked up I’m on very comp. those tough so basis year talking we a QX about So, about in that of specifically. the just strong, we ARPU expect the in QX prepared in sequential talked the with we so engagement, metrics the fact fact about remarks, that and ARPU very fluctuates – But last well, will were both be

number As people projects in were of making very and a engaging. active

And so, equal we that. that expect we will don’t

In fact, so end from we year. that this we year down be was last significantly QX abnormal as and think QX will

Mark Altschwager

guess, I separate hoping helpful, topic, was Okay. pricing a the, speak could about machine assortment the strategy That’s A the with you Marty. I strategy and portfolio. bit

rolled in prior thus coexisting new guess think older prevalent your this coming And lower year, out models how marketplace? in prices. those far have sell earlier the machines of lot as the maybe what been here upgraded partners you’ve and the a older the as the at you. about models months? site the your I had retail quite we are but gross You Thank through margin should progression models and still both machines the learnings on the

Ashish Arora

Yes.

just I’ll about let let on talk high-level So, bit Marty little a comment strategy. margin, me the but gross

that So, of such overlap between we pretty the supply time, that had new wanted because the do was Part sure to we some a characteristic enough and to was models make things I it something chain it we and of our existing this that flux. was we do models is, every in of think one year. wanted to

machines our I differentiation. do as goal of channel continue to and Our to some other one base carry machines our diversify Of as we still is goal of as most to to out also say, would them an three opportunity we we two use – and have, have, that phase the the channel the is to, models. the that broaden

is had make other product a wanted But we’ve year channel. difference overlap typically than the is right chain different healthy that we can this that thing and to between in the sure supply we the only the So, very we what models. the strategy two comment, a phase-in/phase-out put deployed, makes the right not from

impact. – I gross on from how and let the mix margin Marty I’ll comment it will think

Marty Petersen

Yes.

a of going one that we out. longer just supply things to exactly point into and know our market products little other challenges, went we chain of So, were – didn’t we to just we COVID, retain in because play because elected when some to note how older

chose life not we So, of things we that would to products that have. – end some some normally we

So, you coexisting products have than we have. more normally today would

newer but our from cadence, a discounts of machines carry each has in of terms typically older cycle – and the kind the So MSRP promotional of deeper machines. products life than

of proportion do have before. them, so, mentioned I a today – elected today. in for – have so we those retain reasons market And we greater machines more We older the then to more

be that that retain could pressure there of made election mix of and a margins bit just machines tiny So, older as we some result of those the to a longer. on

Ashish Arora

for I it, a to want of will less, there permutation points of Again, out. your couple was Mark, right, benefit. models, ongoing of more be and one combination or will the them just of recap five phased four So, be

continuing, a right? these the our second electronics that The is, products does to continuing product by connect and software to for enhance ability a years in case, machine and unlike to consumer platforms that to or differentiate disconnected feature extent our not a So, is years, live that’s new very them are we have connected, even not high. them

having of diversify channels. So, worried to our overlap not older as the too continue models we about well as having some as that are continue we

Mark Altschwager

over luck of best holiday. and great, That’s

Marty Petersen

Thank you.

Operator

the Your line next question comes from from Citigroup. of Suva Jim

Your line is open.

Jim Suva

kids' custom so school you Thank out as well know sold neighbors that all supplies But and I making and your on lot a actually teachers website, noticed person, mugs then my much. a investors quite I'm were of I for And stuff. out. mugs were as some I some sold was the and crafty and think you

were I in out XX to and sold are days that's a So, you out, sold bit I demand front are know little to because like sold out, And blanks, mugs lot accessories high Because be T-shirt next to restocking holidays? bit supplies of in or going come to it wanted really of here of management. a supply the otherwise, a the is there chain seems is talk about about them so.

it's can So, L.A. was that kind I chain I order of Francisco and couldn't maybe T-shirts? about more But and supply mugs be you boat simply San to in the about and surprised coming or in just restocked? talk

Ashish Arora

the happy same. that Thanks, be you I'm that mug of really doing But lot to Jim. – of going There holiday. our this you're gifts like you're are for a that you're mug actually as press lot and presents making it about a seems are actually also excited people

presents make market, to focusing redefining were right. expectations. because, again, present has the we gift rate right, we We high The not were the people are for it this mug product, and initially, actually of also when affordable done on focusing are very just mugs. you're So, mugs personalizing well attach gifts. exceeded easy on making to The launching our mugs absolutely

also and the that that and been made So, impacted about we of, inventory allow in. product supply, about mostly and demand. the cetera. feel will is been we of some because Accessories you like mugs, have when bring is you with feel we supply, we and level, of trying I Overall, continue to the pretty situation. our to think demand chain, look we supply have lines has progress. Materials noticed, one I that but to know et to if up pretty portfolio we want by less Marty of for expand something keep we a don't Again, at we of the portfolio good but good more aware at – it are portfolio, I'll some chime and

Martin Petersen

like the to the inventory reason on so otherwise reconfiguring of very were not terms demand I accelerating just and work X,XXX And one are It's good. overall And our hard another we time and and is it's be. it, those one scenarios scenarios substitution pockets phenomenal can products very, or new to Obviously, – we purchases parts, that about stock. as been done has nearly press worst-case when in there's that feel we feel been we our active that's board long Yes. have those. worst-case we mug overall, have We strong SKUs, been rewriting planning that obviously want strong in lead think doesn't have and need it's would a of is firmware situation where for one so terms product, to teams where inventory but But us, in then job everything. pretty for have it. – been operating most a keep as of and of that we good we of so when we need for components that

Jim Suva

pleased the mug I've Great. the press and been with very Yes, outcome.

So, thank situation. you Thank so much and for making our holidays, enjoyable really you. an

Operator

Your next from Paul Kearney from Barclays. the comes of question line

line is Your open. now

Paul Kearney

question. for Hey, guys. my Thanks taking

First, and there's in to increased sales little were R&D. and has I a previously expecting. step-down than like in of We expecting step-up more had we a marketing expected, think bit it were what looks expenses, relative we the

you can users that Just first, give and how adding that the the that on you're talk the about to spend seeing results you up sales and to engagement? confidence and new step driving marketing, how platform you're allocating between

Ashish Arora

question. Yes. That's a really good

Last As about X.X%. quarter was and marketing you pointed it for our XX.X%. out, was this quarter, sales

that quarter. of and last low all up, we inventory, and year pandemic significantly unusually so enough unusually this during was it to and the factors was related have it's it part So, for chain it supply the didn't low was

think I has to approach fundamentally, been marketing changed. our

category. network and We our have flywheel, strong effects benefit marketing in very we a efficient from

our Just to about been on recap since customers creating to cover gross some profits our playbook, word which so, machines cost. members. or for acquisition more the great XX% Cricut we and hear of will numbers, the same we've the leveraging through of less first XXXX, is over experiences And mouth, customer do continue and

they're right? that make buy just because a of it, on makes personal, when it, they often Cricut very leads And people did ask, is feel actually they've people even their word And proud, that very to to accomplished, and when make made T-shirts And my very wife and give to of things, will shared very itself invariably, conversation. it where unique very niece. mouth. you to my make networks they also category for it personal, it lends well, to lot Our a people, gifts they

it Facebook other but like we continue is Facebook a do as Pinterest We out we brands, We each like each on If for share point that paid other Instagram, TV, long-form a to leverage well example, scale, pretty do advertising variety amazing. and our do a social you user feel engagement it's you and we to compare the with understand folks. of do cetera, project. of mechanisms. understanding One sophisticated YouTube like organic network. platforms at we as that advertising don't of very have these to good performance that to thing every et get and and how social tremendous we we look time page, of we And want I as

So again, I marketing hasn't our approach think to changed.

changed marketing One a we significantly. marketing that Our we and of thing of our the as do expansion number point acquisition have want to and couple is investments. to with of cost we out sales key do international add countries, upfront accelerate make that some has professionals as not some and I investment

hasn't last as some is faster, put numbers year. and more will you see, on But pressure changed, may overall, marketing approach low just add So, that the our number. unusually those sales we countries that

Marty Petersen

Just categories. one on broader all comment a thing, expense operating of the

about up. much some is XXXX, that marketing categories there other R&D leaning a we've dollar was Actually, from – up a well the down a been that are in in we took mentioned category talking sales as percentage You year meaningfully of a but And as in both we of was of – All revenue and COVID standpoint and and step-down. also that G&A. catching standpoint, increased that the what spend seeing activities you're pause into investing from these growth. for

so a R&D we investing been bit. have in is but And quite that – area one

Paul Kearney

Okay. Thanks.

Is your partners there? levels can your channel Just a accessories? about talk help and this is, we with levels normal second, just my partners the at you are yet the end follow-up both machines and inventory on – and

Marty Petersen

Yes.

constraints market and we characterize not defensive partners, by given across have So times, supply retail a of the increased some global would what our supply board. few as the we buying lead seen but

we a Just challenges. in have a few, defense of heavier these think, little of bought maybe just some

incremental a gave they they and say some I we've heavy, in couldn't say knew at hard channel believe retailers that fill believe so is inventory shelves some could, bit but others that the because we that it's may been can we that awarded be cases to from One us shelf this we space point. space. little is So, thing

keep we so, that's play out. going it's keep to can't being they our we and doesn't exactly And fallen. want losing is But be of a coin shelves hard on of and on we our that all how to inventory view because shelf to space take shelves side have full, want of – doing the rather perspective, to is from side inventory the the know that than

Ashish Arora

the to I asked inventory, like earlier, also back going – kind not want of Jim's that available the of back just Cricut.com. he I Paul, mugs think And to some question where on were to go it's

partners our One we of prioritize in sure to foremost, make our to and retail goals keep is, stock. them first

So again, and in make to we them available in products get that the the site. to addition buy and we've to come our wanted to taken shelves approach, consumers products as for the sure that

Paul Kearney

Thank you.

Operator

Woodring of line question Morgan comes from the next Erik from Your Stanley.

Your line is now open.

Erik Woodring

say excuse guys. And Maybe on question, inventory channel to what, any, up comment, have there a the then Marty, quantify – good product you a follow-up. in third than fair today is machine last earlier XX it of there's the because connected was greater had if legacy I back just call. to safe follow channel fill to normal to is the Hey quarter? just evening, it mix can that in And me, of over channel just the Thank you taking my for going your products cadence or say then months? Thanks. you've

Marty Petersen

standpoint, So, asking in on products. or our we on first Whether were From QX materials. QX, were of all channel machines I you accessories about. be almost in supply-constrained a it question, and think fill machine your

we late to accessories However, in channel on catch inventory started up on and material QX.

that machines. continue QX catching in accessories up on good so fill light. headway accessories So, then to which that not materials. channel there XXXX in catch up impact And on machines, and we QX, – materials on we some that materials, on But still much we with making were is in saw we were and

of XXXX, I all I is the missed second fill What the characterize question? a second machine channel second wouldn't was question. sorry, factor Erik, And for your least so, really I'm your half, at

Erik Woodring

Yes.

just it that some that product kidding refreshed the today, that today. terms there's had the in Is last you've in say or the over that life safe say long in of to now legacy to prior of mix Just the the you've months? some greater channel given channel fair of three the you've models had of composition of of a products

Ashish Arora

as want comment made Yes. addresses clarify Actually, I to question probably your earlier. that a well. I This

four them not with continued models, two general goal we for have to any going or our were markets we're all, – North models differentiation, So, they of in American of them, though existing even and do use goal new First is to of new they're to an them with to geographies. international a secondly, to anything. three us we connected, launch features that machine, The capabilities of these for platforms functionality Again, have are and we We think differentiate it to for whenever opportunity out channels. phased expand seven are phaseout lasts and – there's somewhat virtually unique, our because And whether right? broad plus a – of that the across we then can you the capabilities. new not to five years. is – continue

we with. at legacy issue dealing as a we're not looking that So, it are

is leverage fact and may on available going form five And be that I models them fifth the the are be helpful? models of Is to vary but are those in fashion. of four broadly in model, to to one available, going is the to stay how that some As also channels. we decide certain said, the going five

Erik Woodring

in an mentioned Yes. you, you maybe uptick at engagement and end of Thank user the Definitely. Ashish September. then

in to uptick how to I you compare normal September? in mean Are past years? engagement similar that curious seeing Just does seasonality? an is that

Marty Petersen

Yes.

seasonality, So, say when engagement we mid-XXXX. in normal we started tracking

because of the an was odd don't And of pandemic. then dynamics all have so, XXXX we – and year the just

to quarter. known So, But seasonality more in any say that standpoint. I like than we active from QX actual people people that it's engagement we've more mean, an bit are active difficult are always looks other – know little a what

we XXXX and XXXX, And so, we go even back saw to when play out. that

be XXXX and again think that below that it this We significantly year. that will expect QX in Now not we're of than higher just in – high, and extraordinarily We – was engagement think that. we'll be QX. was we just QX

Erik Woodring

Okay, Marty. you, super. Thank

Operator

no for I you questions call. further concludes this This all am Thank time. participation. at conference your today's showing

now may disconnect. You

Cricut (CRCT) 11 Nov 212021 Q3 Earnings call transcript