CRCT - Earnings call transcript Q2 2022

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Operator

Good day, and thank you for standing by. Welcome to the Cricut Second Quarter 2022 Earnings 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 Stacie Clements, Investor Relations of The Blueshirt Group. ahead. go Please

Stacie Clements

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

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

Arora, Ashish are Executive today call the on Financial me Kimball and Chief Chief Shill, Joining Officer, Officer.

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

Ashish Arora

welcome our expectations. was and everyone. in Revenue Thank quarter below the internal $XXX.X million, you, second Stacie,

subscriptions. business and materials three machines, accessories have segments, connected We our and

subscriptions. me first Let discuss

and into we This QX us progress nearly due sequentially huge had the have to a have coming of going the converting this that QX. on deep our a new in connected users made strategy in We machine sales is subscribers subscribers area All to significant subscribers the the also we sound year. adding users, feared could focus in XX,XXX where XXXX. number in Given resulted had decline in decline forward. initiatives growth subscriptions-related

We have and are on. we strong executing roadmap that strategy a

is However, in our prudent on subscriptions it stay outlook think the to conservative short-term. we

and impacted increased is accessories business and Our lower channel being engagement, materials inventory. competition by higher

in engagement Our to fruit long-term. will months. I channel later, believe in few next will bear the itself that We initiatives, about continue to will which talk inventory correct the the medium

effectively undertaking why choose on value and communicate to We more compatibility improving steps materials are the our consumers proposition and and focusing of should affordability our Cricut.

Prime Let’s where cautious $XX Covid. will machines the saw during Day acquire work we quarter. environment XXXX talk still We face to inventory Joy we in the In XXXX sales few consumers channel have of are to more in a that during on during on their to and months. We prioritizing items and need inventory very leveraged spend spend user about significantly Channel on and of evidence believe machines. grow connected Cricut is base. our next they to high, strongly users connected opportunity XXXX, promoted the unable we We millions sell. categories and new different when itself were at this out

quarter steps invest in more will We to the of in model strategy too of downcycle. meantime, and through to competitive category this operate the out the continue we strategy challenges, health that opportunity in taking are in strength. much. Our the improve platform, tough position fully become execute on Despite sound with impact which well invest long-term the be a these discounting assure history our future. us and of a is to that profitability, connected the us XXth environment a to to we materials of machines in of patient positions generating help In to continue the our allows consecutive cash, exploit business the machines by engagement, not subscriptions we come delivered new

increase from We platform, subscription on from X.X strong a benefit stream, the significant monetization also opportunity million already balance to revenue robust users sheet. and a

long-term think second and are sustain these I As about and the short-term business us that half of of uncertain just will year importantly, the continued position pillars our strength things in the environment, growth. for the as the

a levels our able throughout We of are control, initial onboarding that important Platform. is have monetization. with various companies. crafting engagement us entire This we to Because their many the that other primary within Cricut interact an are to and is from being many distinction users journey, platform, levers we a separates our from

monetization low-cost stronger mouth investments quarter, Improve platform. service; us our Cricut and and market and user Accessories in connections, on on and marketing accomplished Innovate areas four word able new impactful Continued to investment: environment We innovate, they all various international through features believe data consumer Materials engagement entire current base, drive leveraging proud onboarding our several key this our Last the users platform communicate it bring have be the exponentially expand behavior user and conditions will with quarters. I subscription on are Cricut. drive outlined most deeper been content but to engagement; rapidly and directly focus in exit touchpoints, monetization. Operating the leverage has to We our incredibly this challenging, work and also that Access further innovation. user will with to of and I’m sharpened of increased through and our user focus the has playbook, the and one-to-one past macroeconomic increased position team software of over initiatives the to

more Let me of walk through in these each detail.

the team As and user a the onboarding they a top more up intently software year Cricut gets been combine this journey. user and user share. priority, they and Cricut our kits piloting as learning The their create, focused later improving embark the experience. content, on hold on help drive we that faster materials process, has this running, hand that To will be experiences engage

creating and on forming We’re driving Cricut. using habit experiences engagement also user focused

focuses and and only cut turn, way a in inspiration, through ultimately, we metric bookmarks, touch and a on along platform monetization user platform think stickiness much of discovery includes the the engagement Space and, our the connections aspects a drive and about sharing points user machine, broader when and all sends command in a way. in engagement to other on -- user While subscriptions increased community. content, accessories materials. Design That, inspiration and will This

believe QX, content the levels easier, to even make efforts process to more and library. design be able higher these engagement will working We are offering tools of drive design expanding We our capabilities, as over time. other in we inspiration sharing, In project to to features text Design added capabilities design Space the notifications, and experiences enhancements localized platform. several such new community-driven

We made are we’ve the far. so excited about progress

to We our turning subscription user to paying business increased monetization. engagement and are efforts made off. this accessories as significant and business important is product improvements our into through Just do subscription and already our our materials. We’ve

to more as improve at XX% at for subscriptions height business of subscription had been, QX, versus sales, end new users million strong X.X in continue existing ever QX we subscribers. begin the saw an trial Also increase convert slower we than time. trial more to more this last ways Our last and subscribers than and experience trial machine subscribers We’ll had the area of Access the as of Cricut QX, is first paid nearly as end the QX of bring of innovative the of despite year. invest the connected subscribers has including year, We paying pandemic. it at to to

In Background addition content Removal Positive and for to our strategy we give Access. our library, our to design are launched from Monogram previously only Access us subscribers. confidence Automatic Cricut tools adding new increasing premium available Maker Cricut in results

In promotional user within improve Cricut our addition, efforts. we merchandising, and expanding are Design to Space touchpoints marketing

in We executing the have and are days strong of a roadmap. early that on roadmap

new Additional use Machines, into well Materials Space and our blanks. derived continue digital ecosystem, cases, platform benefit have uniquely our in integration monetization with that business very exist Accessories platform. resonates of content and Smart to The our we new In expanded our Design a and from ways our successful opportunities the months, portfolio Accessories recent to broadened introduced leverage innovate we members. cover software new within Materials and our with making card sublimation compatibility Materials where

especially well more as seeing competitive online, our placement retail as we Additionally, in significant competition, materials of are channels.

And work our overall internationally. more consumers have via While investment and they that percentage XXXX have for a with key reductions to our small Cricut also our focusing affordable relatively ever become trends than of are that on larger us. for our The they seamlessly we machines members promotions. for realize products making International more software, our levels. since business driven materials been. a true priority International price continues remains hold our initial and sensitive our cost business, key are

more established markets countries especially over our and North headwinds long-term. are Australia are the quickly, experiencing While international to revenue giving U.K. growth, growing emerging diversity business, our the American similar in us like

coming platform As markets Cricut launches build Space as Taiwan employ our products a including we We’ll significant in enter effects. continuing country proven as localization, personalized world. India, with to model with expand on users. to enriches localize Investments success, experiences, soon. network platform, and around expand new playbook, voices, to on new community build community South influential in new these key adding to with and robust progress it’s content, and same of go-to-market international partnering our continue by fostering we platform, investments markets, Korea, out ultimately the retailers, the key and our deliver or focus it Thailand continue and support worldwide community, Design well the all whether experience awareness features, software the leveraging our Turkey, Japan, All

for available monetization. For the subscription Cricut Contributing expands from Artists our launched Program, as stand-alone are in purchase user Space images Contributing subscribers, we for Design images drives example, QX, creates for included Access service. opportunities Artists are our increased engagement within and in which our and platform, All

early of are this and are by results. program days in excited We the initial

and working not as It don’t task text, important image customize the wants been a our on also when text, in contains their very to software graphical text font we treated user have Today, to initial retain We is that graphically. if architecture. an the a easy images image. is enhancement an

with new and a Editable new it This images. on class be with customize will to easily members their part along available along of are in the We will of a editable editable to year user the variety subscription. text images working class software called allow features modify of this images Access ways. the architecture image new Cricut as a in images of the later

enhancements images. a have for We solid of editable roadmap feature

has is been than platform never the on higher focus it Our today.

more search, capabilities, Access We aspect of more. specific including design so key market opportunities are excited platform First, initiatives, in not and the community XXXX: about the four data and ahead. Cricut features, improving forward could business have trends much that our our engagement that the are since I confidence be features, mobile desire tools, every driven personalization. for related the features resilience Underscoring demonstrate

makes of easy personalization and that the Second, tools seamless. digitization

opened to enter the has of technology a social barrier generation Third, the to proliferation a for fourth, significant entrepreneurs. market. And drives community the looking to of entry door media new others

a current confidence of to Although and sustainable XX-years is our toward foot accomplish on our long-term still current between am laid there the medium opportunities. short-term of the confident the on lasting the have about the squarely I pedal more the doing macro-environment, Many about we the that as call I’ll investments on the financials. the and growth. team how most for need lot today is over our excited of now and the that laser current last opportunity Notwithstanding as profitability foundation focused optimizing things long-term success, tradeoff important growth. signs in to our uncertainty long-term very for long-term, about building we what investments have showing are will growth we’re the environment, Kimball optimistic growth. and long-term in in is we for ever turn accelerator impacts details are over

Kimball Shill

QX for been that will everyone. us. afternoon, we into good back challenging We and believe of the have was Ashish a half the trends the likely than macro quarter you, Thank year. continue more navigating

what $XX.X prior net QX in compared XXXX. XX% XX% is In managing connected unusually However, QX million quarter, second $XX.X generated difficult to significantly further, comps down a generated tightly we in revenue revenue down of given high year-over-year, revenue Breaking million, control. the our the sell-in was we $XXX.X from machines year we income. decline, had within and against are million,

quarter. positions and we stocked impacted pressures, were that year March, sales end retailers as by consumer through to in replenished entered levels retailers and as last demand QX to our will newly of their on was retailers of machines machines. up Just work held the in anticipate remind inventory QX unusually channel continue everyone, inventory softer connected macroeconomic the inventory high some of down higher-than-normal beginning QX. We launched

on As missed they Ashish their prioritizing mentioned, essential pandemic. on out consumers needs during and spend categories are that also other

behavior context, for quarter, For impact the almost way the user new consumer thought inventory compare down versus is we have year-over-year. adds XX% one which of about channel was to

of user New with XX% demonstration in pressure accomplishment revenue through. sequentially, sell correlated a X% Connected adds over Revenue durability and $XX.X Machines and remarkable was up business our given subscriptions the last machine is year we from model. the million, of saw a

million, Revenue the and similar pressure year $XX.X saw strategy. from success several XX% inventory now, over have reflected levels, QX quarters our invested from channel For Accessories trends, and Cricut Access macro-economic and was validates competition. in down last increased Materials and we we in

international a In year-over-year total XX.X% basis, basis with XX%, XXXX. as softness percentage the by offset XXX%, compared mature geographic two-year somewhat business, year. prior compared most the to QX markets of revenue, of like international of grown about by international terms representing QX to breakdown, a on grew geographies. On markets X.X% in in from Revenues growth our although U.K., total have newer revenues decreased of in a

year-over-year. up nearly million, continued total number second million for XX% is of period users our platform for We June million the ending on flywheel quarter the ended long-term users year. $X.X our monetization During growth. The engaged we year X.X which over XX the XX-day quarter, fuel was to users, with X.X up

XX% macro-economic is from opening, summer seasonality, engagement down multiple As in influencing year. the a Historically, was percentage second the the of and in quarter, prior There including total XX% engagement users, factors the to user when making normalize consumers continue factors. and Platform. that are faster lowest the easier it with and period believe for meantime, there to engagement. us. Cricut trends no In alternative We is want create, real engage to post-pandemic we

million continued see also on nearly than We by ending more The paid the be quarter a continued with year-over-year XX%. at basis, strong, X.X number paid Cricut quarter strong to of the XXX,XXX subscribers subscribers. ending rates Access. to grew momentum with Attach

mid-XXs. in was in in by both down attach This Revenue XXXX purchases also QX in engagement. per which to high this retailers from $X.XX second from inventory reducing ARPU quarter dividing the was due XXXX, As and user significant is were user base. in engagement QX higher ARPU a and trends user We through closely they Materials unusually Materials reminder, of and relates periods, Materials ARPU levels. XXXX. second measure right-size $XX.XX. our a to rates ARPU quarter was the and Accessories COVID increase revenue to $XX.XX, compares during Accessories Accessories monetization as reflects pre-pandemic and from Average those $X.XX, period the for in for segments Subscriptions when the entire Subscriptions user in by our

gross margins. promotional pandemic to in gross impacted the second was machine connected margin improvement XX.X% machines, QX Breaking Connected of points, gross an the quarter in down, of the Total the streams. was year-over-year our which tail activity. margin. XXXX, and to was On QX XXXX, to benefit diverse further which end-of-life gross X.X%. lower compared which sales from from compared margin down by gross margin in machine percentage margin margin quarter basis, XX.X%, in a an elevated machines with X.X benefited quarter connected highlights revenue Moving unusually carry high is machine winds, also less

remaining we sell through gross expect affect end-of-life margin machines through mid-XXXX, We inventory. as to

while Our to is careful pricing, preserve through end-of-life too discount being newer not much, machines to working strategy inventory.

included XXXX QX addition, warehousing, In elevated costs. freight, and handling

increases the margin move anticipate partners retail in Accessories leverage Materials higher impact our prior higher the increased in mitigate excess with our XX.X%, As the handling, In Gross reflecting and escalations. machines, and we cost XX.X%, was we and margin help inventory in quarter second distribution the through primarily driven XX.X% and we by Subscriptions business. materials slightly quarter of and from the commodities out reserves, accessories, rolled XXXX, down sales price year, costs. labor to QX, freight from in connected across to subscription increased from incentives. Gross and recent

benefit $XX.X expect later Total quarter inventory from in actions compensation. million $XX.X QX and in materially decrease larger these they included was the to This were We second once the in and in $XX.X begin retailer stock-based are expenses right-sized placing million orders. operating XXXX. year, levels million from a replenishment

next subscription QX will expand cutting hiring investments me XX on last In context. as entered machine that year slow cautious significantly that materials. products the QX, a will well late XXXX as began primarily OpEx. services category, outlook Let products These to to in reprioritized in new some provide XX We existing we and with on launch categories our to months. new and create focus

in also we prioritized critical and Access. that to are believe software long-term, data, driving International the including growth to in investments platform, the have in investments Cricut including and medium other We

for and of other and flow. sound navigate bringing time the nature these The plans investment without revenue the Cricut invest macro long-term or through -- the in disciplined deteriorate, XX.X% in keep and contributing to trial showing and investments, program. resources environment million, lower promising given fundamentals of and lower business believe compared and adoption trade-offs forecasts driven macro for horizons the place and the greatly of results and look impacts, reprioritize sales in we among XX.X% sacrificing would are variable second we to biggest reductions increased million, these focused current have by remain in Access Operating approach. the subscriptions intend significantly environment or Should investments QX or We the profitability the quarter Some income early $XX artists operating very we of our opportunities. to our increase the despite machine down, of quarter margins, XXXX, revenue, internal to investments. was predominantly $XX.X cost growth revenues cash like

the continue will healthy below to in managing short-term we of on target range be XX% our operating continuing As long-term few even in points. margins, a resources to deliver remain we they the the short-term, likely though by navigate headwinds and to XX% focused

a with $XX.X in $X.XX our income. durable, the Our in year sequentially million, positive business QX was second pre-pandemic. QX quarter from the Net $X.XX to per of QX compared earnings We of delivered prior XXXX. from was profitability profile. consecutive net million remains down healthy quarter XX% $X.XX XXXX, income XXth and and $XX.X up share in Diluted

Turning and to now flow. cash the sheet balance

$XXX and is enables us challenging quarter through our securities balance marketable Our new untapped. the credit navigate in times. and with these line and sheet We million cash ended million $XXX.X strong equivalents, remains cash, macro-economic to

We toward operations long-term Cash disciplined a needs continue annual for is cash $XX.X approach inventory the our and additional and from year-to-date funding investments fosters to million. This to balanced generated generate flows. source generated primary healthy of growth. was Cash allocation. capital

to part Common of This its sacrificing has to attractive in allows program As of to and to approach, organic cash good Class board us flexibility Stock. A repurchase $XX the million balanced up of opportunities. inorganic Cricut’s this use invest without put authorized dollars

what year. ahead the the see rest minutes to we look about spend me a of Let we as few talking

for retailers rest We anticipate QX, year. sales orders the the continue the more holiday. and consumer expect as most of end weighted soft fill for see a QX, a to We lift new that in likely moderate in toward lift and of demand

our of annual recall highlighted second of represents half revenue. we typically QX the the year you As in comments, that XX%

for likely expect XX% our be points Given by to pattern. the long-term targets start slightly over to targets annual the term. softer We We revenue our anticipate to QX to percentage the in improve; committed second than remain half XX% be this below we historical few a operating however, long margins to full-year. margin of we operating XX% will macro current environment,

years Looking the the intact. over have at the remain trends our we last that believe eight long-term, driven business

provides brings are more the to user the millions to millions to in world in engagement of The have confident growth to that significant and last unique that opportunity platform. Cricut the value base two an users drive the over We opportunity to Cricut and years the also our we monetization. further proposition around bring

profitability, improving in questions. including fostering while our innovating levels investing the of materials We and to higher operator drive turn are in focused and on on over and highest with to the our growth impact, I’ll areas With managing onboarding, now engagement, platform business. call the Access accessories for that, our Cricut

Operator

Our first question Instructions] [Operator comes of Baird. line you. from Altschwager Thank Mark the with

open. Your is line

Mark Altschwager

Hi, thank you for taking my question.

average users, down year-to-date. yet materials just out, the I up about year-to-date, revenue XX% of up of number start that think, XX% engaged paid is to XX%. number is So subscribers, about The almost accessories and on

and of So or maybe us there. on unpack you going mix that users I versus in or can accessories pressure revenue this a per I'm there's help fewer consuming bit component maybe think more. a hoping doing less understand a destock on much price channel How projects is project?

So moving pieces. of a lot

trying So what [Technical we start better might see I'm to just normalize? that type to Difficulty] understand,

Ashish Arora

Thanks, Mark.

that factors give broad you know, some So, you of the them. of and you are, but just what view we'll outlined a

was it's put pressure. significant of about a a chunk down, significant clearly, the is, at contributor believe think that. things. macroeconomic talked I two drove the behaviors conditions like, thing combination ARPU think and but the that, that's And first we We of engagement the post-pandemic the we those to So basically and a that

The perky second the to order. in say sequence this got is, I've and by

grown kind important is the for been point last business of always the has least And one. us about competition And months. in. we The think engagement less inventory. but we're contributor, -- on talk in that. are a work to compared to of ARPU And channel we've second the that most but as based we inventory the number we the in world the up the selling, This was not selling not that’s next is obviously Since through second much and as that, competitive. is the few

pretty by portfolio cetera. For portion able a our materials differentiate to IP, et through we software, more as materials, many of is through those -- But that to competition, more products content, with that are providing heat well is of there to approach going specifically transfer effectively prone category. balance cost and reductions. be promote And to our vinyl similar that the our our

the not that from people coming not has think that the contributor in been board, numbers, are down, we to specific across that doing was seasonality other the also a outside mostly So now perspective, just fact and but the given engagement but things.

The second factor was that channel inventory and of the third competitive the factor seen. was pressures some we've

Mark Altschwager

helpful. any the this of you're positions business? of on activities heading we That's last I your -- guess, to Kind switching other how you. then number doors awareness mouth season. and has metrics of marketing to retail year share in topics, with Talk your holiday channel doors drive you're important and very today the the U.S. retail maybe maybe able to know last into And very your powerful plans the year. Thank word as about back-to-school about in for in for enter always internationally. more versus been but I Cricut, time talk relative

Ashish Arora

opening, just a From perspective, of drop a the perspective when our perspective, is right, seasonality right? last as me I which a right? last the of right? level let we things we've ask is retail to alternative platform unlike saw question, want the fact continues similar know just comes compared that there exaggerated QX are strong, And but Difficulty] highlight the we post-pandemic when from very now, -- of that, to QX from in we placement that. seeing of seasonality is engagement drop that to as to lower seasonality -- though kind very is is from one -- to right choice. -- didn't the even about we more of and year, I a The but is very kind the QX that year, the So normalize at things [Technical you because the Yes, before, know consumer be impact of basically back, share categories, which and other talked QX that are that

the to that So they're to come platform is going us.

that because that revenue the we things conditions. But think really our consumer were only we adds mentioned and though by we is of even declined Kimball the lot and down And good is the XX%, sentiment -- Joy feel of we our One about net it's are Day and the effort right? XX%, we macroeconomic uptick. in a our actually put reason familiarity. and during of and say couple awareness our saw And I promoted that driving a awareness, we machines significant user Prime of Cricut

that consumer too willing So demand the pent-up lot of us want has to in we a that there use is jump told too but the is don't price, and lever to at right much. that

a can say, engaged opportunity huge ones the are also, and continue engagement patient. we monetize that to drive get customer customers there's other X it to big and mouth, we to we create have, of you of that the have word they such that. stay we'll kind opportunity So and And to alluded question, actually and million in your

to our lost medium- given not we existing platform, trends, any from the So for the about and installed of in and we leverage placement long-term. as awareness our growth perspective, we given But our drive view an part. have we retail many we to a had doors have most initiatives of as in before, the can really how good base feel investment our

Mark Altschwager

of what Thank that one inventory balance that here? maybe some level then XX one that Any look on Kimball, obsolescence balance it you a sheet the for to remains elevated And like through just for should risk as XX in number you. over normalized normalization as work product? of just And next months? last older sheet you the inventory. quick Just what's

Kimball Shill

the thank are part of so Mark, have several Yes, -- -- your end-of-life. first machines question, we to you, that on

of not through geographies, forward, pockets as across this but And we lead the continued it goes related seen strategy we've be strategy to SKUs would. and we as may held to the unwanted. And board. pandemic, goods And call any so our inventory more going inventory than went year we there as generally that write-offs finished we significantly through specific intentionally just times of the I'll normally haven't out,

we're that very move aren't end we consumer watching make up year, we with next demand As into sure too carefully trend and finished overly on inventory. goods we'll that heavy

Mark Altschwager

Great. again. Thanks

Operator

Thank you.

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

Your line open. is

Erik Woodring

guys, one Maybe for questions. Ashish, Hey, my for thanks first taking you.

just is based about and launch? Korea South India, months. those markets. reason bit you be maybe talked I coming region, imagine ask out in Taiwan, might in obviously you've and competition done of so that those markets for to about more that a the You I'd your prepare entering intense the Japan, in a are And competitors what Can biggest talk

how are first you think have and customers you a to How Thanks. name And getting out you the to as I So foremost follow-up. launch? getting prepare Cricut there? brand are then of

Ashish Arora

quite time. Erik, so for had the We've thanks Yes, Asian question. for presence some

amount Our competitors small very that markets in Head that space. a Head of are of the spent have of competitor major team, some it's in correct that Asia -- even Asia, you're our though though retail really time region, fair of a in our Singapore, but a we I've And those even not specifically. is

mostly a incumbent go-to-market been It's has channel, the So in there extent, the approach different that don't and competitor even dealer and that, operated Japan. market very is through to we the our consumerize, believe from is competitors. in

competitors markets. we of some of today So we much in many a retail too don't as of go for presence see those our

leveraged some same going them. in as a of we we we're that to markets, formula employed quality all have of in been the mouth have involve, which many and those countries, the -- times, we've not to community you is them same Our the of get that then talking right, different drive word -- very team many, it's many been And small really is, we've we've which organically. playbook in formula much and help -- we community, get the put influencers, market recruiting build members

quite working not et were our when the of we've look very up, at waiting adds while on we us these been working of be that have team content, think we on of we of are our similar. members, countries in always together, kind users but been Cricut some but So for and investment you have really each going. and influencers, even get And educated approach our and is have influencers we a cetera, feel eager though been had those but and not actually it typical is in certifications for to all passionate we time, we've own to that feel compliance, them massive, going some number we've that markets I --

Erik Woodring

super. Okay,

if interpreted that is love I thought the, kind XX% machines comment declines your just like users earlier connected of, imply talked That how I know really incremental Ashish, and because mean would to -- that to it down XX% channel if quarter million don't thank phrase channel was at that. guys this you had like Maybe, Kimball, I I in the $XX-ish-million you to I fell excess to I end. think something had or helpful. should you net would now, inventory of but was about where about last quarter for $XX new due headwinds. know of

how square if circle so that helpful. help inventory split materials, and channel then is channel machines Thank and it would me between could where you. inventory where is -- And be today connected and and excess you accessories just that

Kimball Shill

take This that. Erik. Kimball. is thanks, I'll So,

talked ended and channel was we we move about, $XX is thought that heavy as So on trends the about the holding historical million years. retail with was what we as saw year we that pandemic through we inventory, in based

while across even their retailers seen saw positions, positions. others we've last to were went that their we position. worked QX inventory the in through QX, positions actually or work intensify. saw focus is As few their And working weeks, change through the we their building some retailers board in we begin through What through

demand at the expecting retail expectations conversations of extent, of holiday, trends, think then with bit expect some little partners to our we a sell-through consumer their to QX. towards goalpost we channel and levels moved watching target and are levels. inventory today the inventory the on said, overlaying retailers get what is with to the end looking everything their we know So optimal That

place and holiday. into to late large QX position And have replen so more inventory a in we'll be to QX orders for

Ashish Arora

me jump on what said. Let Kimball just in, build just to

to of significant happening machines I The you one amount adds the the that just remind would user data year what's in as launching new more going that we XX% is to thing correlated the channel. has inventory lot XX% market. exaggerated into think last to I that, was say, the were a

well. that, that think I So it in as factor playing

Erik Woodring

given just it's last given of prices Okay, desire But the And has of just response the been? to maybe tough thanks pricing that. maybe for discount, help is, about channel with the pricing demand need juxtapose us backdrop. market increases. side, the I out kind maybe question some to from a -- your the on me realize net you help as rolling What increase talked it And demand issues, of when much. -- you the does equate -- competitive it just think pricing some pricing facing. kind pressures, out the we me. from is strategy you of the Or discount? that so Thank us pressures to Like declines that's just in given factor of some that about you're net today? maybe parse the

Kimball Shill

QX on increases, it. of was we've over so the about the the talked implemented those course already as price quarter Okay, softer and sell-in we for

And from relates that improvement -- well are make sure strategically heat also we other vinyl in being see vinyl. we to as resumes. category, increases, we impact to price to we so and as that the see expect see as it work R&M haven't talked competitors but seen as a against expect then right? to So so And increases we really from especially we do goes promotional from will it about, an sell-in our yet, space, do price especially will competing in Ashish -- to benefit we margins on transfer

Ashish Arora

the we the have price thing to just, the machine use us think going the too average patient. end-of-life are bit of through, think because data that is much we the that for be general, also to in it's some I hide we a price lever we to muddied so working are going not right little fact may the But by that.

but our end-of-life we not of machine most impact that, net a overly we not look newer are that may being like but promotional. have, Now, products, it's these really mostly for driven by

Erik Woodring

Thanks it. much, guys. so Got

Operator

you. Thank

the Sachs. Our next question comes line Goldman with of Hall Rod from

is open. line Your

Rod Hall

you guys. the Yes, me? for thanks hear question, Can

Ashish Arora

Yes.

Rod Hall

about were we trying level figure $XX.X it to looks of out inventory, So these we the of but the here, spent moving kind into outflow check, assets flow I inventory inventory stable line the just wanted like roughly up. see million on and cash remained cash then other to you balance sheet

wasn't the million, on So $XX how of, $XX kind balance materialized million, just sure sheet. that

bit help if I've a better. then a wonder that could understand follow up. And us I you got little So

Kimball Shill

we're at classified Yes, inventory that's other in through so pandemic, lead we XX-week shows as as a some component and up non-current $XX.X went inventory time. the And ordering components that million. assets we

components are how so then those using we seen and will there be some over plays have of And we restoring demand now as out, that time.

that I'll there launched risk all a hence through Now, These of won't months not next hasten components to be them the the are is that our add just we and XX into go it's in machines, and reclass. newly working new that obsolescence.

Rod Hall

I Oh, see.

go the will -- Is because inventory next in why assets into that XX-months, current not inventory. a current into be they're used right? that's that it's they So and other

Kimball Shill

non-current. it'll fully XX-months, be won't they that in and as and why months next It's consumed we the so classify that's beyond, XX their components because

Rod Hall

Got you. Oh, okay.

I discounted I and being to But pricing, online back that when pricing is And seen its we at when guys, think by pricing to intention company big to prices and come just on. wanted you and out of get just makes for raise sense, pricing that you have Joys And know this I sticky kind look risk you've struggles out are all is it to trying control do to I point how this said then got that. right, you ask levels. I wonder discounting, other the a going Okay, then the on and they're channel clearance we've people which your given of But and so to there historically, the of go other -- so move -- how inventory. there, out regain retail do comes and prior that? that it products channel, I got you

Ashish Arora

that policy a floors, so have it. in we we're a Yes, is of couple map -- Rod. diligent we One pretty things, that about

that it's few and little there part, maintain a want but And things there for think true. machines, that machines, around be we Now, I stability. would on price very think the more are a for the fair to newer to end-of-life that we the a of I maker will say most bit amount

to because connected experience that of in the we more the we a given a and so forward, point lot launch point fact of keep we've every one Now, to also don't three done in have right, had things have degrade don't machine going machine, the we point year, we -- that have degrade. two, we feel let price actually price -- and the a years,

going in in the leverage given market, that think that making stability maintain price right. the longevity are increasingly I and the the investments to platform we are the to we platform

that's the been proposition, phase-in, for really again, and think an increase six of phase-out value working we've relative actually that in on just kind content off on the it is we may we which turnover lead subscriptions more last we months, and slowdown, the machine we year-on-year create because so but actually to-date, will to capability machines our basically phase-in, and the So fully opportunity to haven't phase-out much hard, would availed result having price much that basically saw lever think you of that frequently. more so

Rod Hall

is maybe? these And making. you over Okay, think? to wanted into the just things helpful, you reduce R&D you. other and some time you're that you Or do from load Ashish. to thing that's in Thank move R&D do of Does comment machines I away that the one ask follow-up business

Ashish Arora

really good question, So Rod. a that's

a focus I that of is think think the is have all, lot leverage something areas First than more of we platform. to We that our to-date. to main potential in that, invest done one the have we

XX enhanced over We've been continue a the will the the on From working to focus for XX machines. ramp ago on launched up connected will couple those focus and years, connected over next to last few of months. to machines be say six will to an continue nine about years. started R&D that few months would next perspective, So I and we probably

on in we allow that, us more are categories. go to much being much, addition that In machines strategic into focusing new to

less, but ecosystem. the have that beds fewer may bigger So we create we’ll large products to of probably the maybe number do do potential

there'll new road would maps, hardware we and of I can So ecosystems. category more the focus specifically the bed on kind more be say, R&D connected machine in where

Rod Hall

Great.

very you thank that. much. Okay, Appreciate

Operator

Thank you.

Citi. comes Our Jim question with next open. is the Jim, of Suva line from your line

Jim Suva

rightsized. Hi, line. in inventory, think that or How think you my is, you should I mentioned said more should question said more QX first be we you exiting about

into holidays, of Black of call from kind Thanksgiving, end October, far of because Friday, the it, let's holiday isn't season. away that the the we head As kind exiting QX, at

quick seems going point, that and the you there have to is stocked at of timing? for to replenishment holidays? kind a Or are after be ready interesting So that which

Kimball Shill

their -- target QX, thinking So levels. Jim, holiday, that normally the end orders about in we when those crossing coming towards when see we're hitting would to the time retailers actually is mid the we're the trends replenishment of for talking same be and late-September are inventory about

sales coincide uptick the think will we normal so with And in buying. holiday

Jim Suva

iron recently that actually birthday bit Cricut of arms honest, second parties our up and spend flake Okay, is and tried lot of the hours on an off cleaning of this, machine, with off to and details and T-shirts the it off it's family our and I from observation a we and from gummed knock stuff and I item did. things, be And some the knives makes the and the a had came vinyls all sense. then all we

disaster. was So a

you're educate I reason, try and that? it and had so the lower across you opportunity But it at how a because you do was I but experience, to is that person, going waste a are disaster while see it much quality. you result of seems of about bad knowledge, purchaser Now, it something knock the off you gum and customers it to up got tried when cheaper do and a complete for the a how time the get like don't that to blame but price, no in about brands kind smiling, consumers

Ashish Arora

as of you'll Jim, factor. a and or the consumer in what software that is right, then that, lot experience, has work pricing our believe consumers said that accessories experience, seamless of end-to-end some a we key and across go passionate as affordability we and Having -- and experience an client even have the to machines our that, a when strongly Yes, over our our been whole like right? something

people more So to more to are I tempted think and try those then.

where with they to make is website, our consumer mind for license sure be right, But as higher make through the our a both at significantly the much subscription better said our So below initiatives just understands company right I top is think retail that, the more the of job point. in you I product one to and in story we shop, affordable. are to peace and communicating in Design we've a on the -- seamlessness price opportunities think that to and Space, question, the and well that right? us as that doesn't engagement do the -- the the doing be value that this going us give approach get. the is to do that Having the have of a So asked, which we in is better question job

think to premiums I charged. be there some

as we to working important the is right on a both we we make as to will dollar do to Space, They the try then are much is, So going job, focus channels that. business, what retail with within Design what our I affordable. well our our match better and our partners going to proposition within of very platform, products retail don't the win our And to to part have are think sure we that This do in that. both are materials. are are a and to and of be our what value key do we have as differentiator

Jim Suva

I'm into that never before then my the down and we're average at an being it talking of low, And these items talking $XX.XX. that low it never COVID final been user accessories seems and It's is about all-time even reached -- per like levels, used question are is, before.

quarter and then of channel and around quarter more? a replenish, be So level think does of that re-buy worst start mean you the materials accessories the replenishes the $XX? we're think, do kind the at and you of for this kind next current for to and $XX and to of reported may Or people ARPU while

Ashish Arora

where which think we know I to seasonality So compared to engagement, a pieces. about the was is mentioned on of exactly do QX to dropped that we factors because that still X%. there comment moving go I where able similar said, But a last QX we that from be -- again, won't year are like I would two this lot

the conditions a played So engagement big and macroeconomic role.

to as inventory, we is, to sell-in have was the basically heavy number to. already this channel as talked you because liked able competition. saw lastly, would weren't on and we many second materials about we is when And The we sell-in, channel came as materials that calculated highlighted, it

people outlook -- initiatives we that our an materials of on engagement So start typically a we think crafting ahead as think for days started about is as I user also five, user a the really XX connected thinking from the perspective, still involve and that channel itself from more, project. activating XX, and inventory think getting business. there engagement positive optimism the

early that to of educate are is in I materials, opportunity the and days unique think customer a think on et that. the there I cetera, we

continue business and to feel we improve initiatives medium- the taking we we that will about long-term. overall, very positive the are to this hope in So

Jim Suva

much so for Thanks greatly details appreciate It's and the it. additional clarifications.

Operator

Thank you.

of the with Stanley. line from Woodring Our your next question is Morgan Erik, open. line Erik comes

Erik Woodring

taking guys. there Can you that latest to question, the remarks. love adds had at your just know get in topic the quarter of one that Hey, hit last user million mentioned repeat at how to new into seasonality about really and And on back know the to Thank you for third quarter I to quarter. expect just net you users prepared you. as fourth for wanted wasn't there year-end. is move was, what I'd anything expectations? the think kind just update us you come you Thank the I of not might kind X we

Kimball Shill

at we'd last to we of on what that going we and still think that based see on quarter, be we're of end called as be the when we see be So I year we out. playing comes out still shy also. we shy growth to think it in a expect user the which for machine higher do we'll us typically sales. QX, And is That case that to quarter this said, more thought

user to expect the uplift in by but in do year, in mostly the sell-through we see adds weighted driven So new second half QX. of machine some

Ashish Arora

Yes, so let that. me just add to

we really first promotions So where of all that the familiarity all, during in. machines, and an about consumer drive stepped doing of awareness Prime saw we of to things feel Day we and the with the good are evidence that

that So the that lever. price awareness we demand our continue build in to overuse and is to job feel not

at to can while think probably investment think use can The of both look subscriptions, you customer gets the little a subscription there to look bit have question, year sentiment trends second what certain revenues. to there percentage more get top and an ask only where will that an to have do for the we will they about is of while that shared. model if grow have is -- for back, in And that ability I that probably customers mode to be how you the they the they like. creativity is though haven't to and drive invest they that of current a contributes so holiday is -- even and the to to think top monetize -- that's waiting the a able would the customer We because and I half into opportunity monetization. of with believe we I there Again, gave the on. feel matter, there we as we of we So engage, the half mouth, which to been I it's is And point think more the looked right? think opportunity engagement changed, that engage, our number second didn't second question Now, -- we of that is we in just everything funnel know I an an the going the word will also positive that and that you right? user thing awareness feeling mode, One not be economy line that continue there made And we and is else more in be the in and subscriptions, come has more subscriptions. right? I data but have that consumer

what's a just in going map, So stick knitting to strong to we have do pretty and we road control. our our and

Erik Woodring

it. Thank for that guys. Got appreciate color, it. I you

Operator

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

may You now disconnect.

Cricut (CRCT) 13 Aug 222022 Q2 Earnings call transcript