Earnings call transcript Q1 2023

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Operator

Good day, and thank you for standing by. Welcome to the Circuit Q1 Earnings Conference Call [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to turn it over to our speaker today, Jim Suva, Senior Vice President of Finance. Please go ahead, Jim.

Jim Suva

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

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

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

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

the Ashish. turn to now will I over call

Ashish Arora

and welcome, everyone. Jim, Thank you,

XX% accessories year. below for the revenue allows was in to year-over-year than to take as first with results, down of and QX revenue, As the and these and expected Despite and revenue we trends expected These that, profits grew mixed approach materials financial positive quarter, down other mentioned year-on-year flow. to Even continue X% softer to retailers the cash and machines, us XX% year-on-year inventory we continue be softer profile on deliver XX% quarter conservative quarter-to-date. materially Subscription hand, connected last prior sequentially. we a commitments strong strength consumer spend. our

to deliver QX first within continue investments X.X up million user growth way, over engagement user our to us in disciplined over X.X medium users, making Cricut has build will focused a creates or a over that We for platform once fiscally platform. XX% on million increased last operate opportunity the term. year. least The will tremendous now total of cut engagement deeper users' quarter. total the have XX% at users This project a and

to bring into We to inspired. majority higher the relevant, ability that design space believe increase of matches monthly and to serve design improving is a goal engagement our increasing user content and space makeable subscribers. be of interest our to each to lead in visits paid Our users will an

We also such marking engagement as projects. book user and sharing activities to liking, want broaden

mutually these matches growth user, all and platform platform for effects shared reinforcing to our drive projects increasingly users create cater As our would in effectively content in will value community each users.

monetization. last in outlined expansion engagement, order on platform to we acquisition user As and and subscriptions we our our have intensified new quarter, increase drive focus

never where We growth also also are laid out These across has to and leveraged a for in been investments the two materials. opportunity stronger. year reaccelerate markets growth path accessories international

America. the have outside of of milestone In QX, international North fact, crossed over end of a million X.X as with users we

quickly information the simplify and to consumer purchase rolled all several journey. we to streamline consumers channels. bring and Last out across more that tools quarter, continue new assets relevant We creative

example, tables we to decide XX%. a iterate help also and comparison over media month, launched channels. way new pages our tool our have right is on added our with we compare content users machine machines. and website to to continue on which since machine add We them. help these comparison increase of experiences to various growing previously will We of time social machine Last on homepage By the consumers quest for for of a an seen new simple along

leverage success and e-commerce the assets, several we plan positive from these Given feedback consumer including retail broadly and touch across all to destinations. them points,

improved to begun merchandising shopping already in-store have We to experience. the roll consumer retail enhance out

XX% This work branding and on redesign to efforts our a and will optimizing targeting. target new improve Cricut been communicate of example, ecosystem. planogram across We're better the we locations. has redesign that better of also For marketing audience the deployed in-store store value

this, investments as proven digital our increased coverage. across such of As from and we top activities year the funnel channels of part of marketing as over PR well funnel as are bottom-up influencer rebalancing to some

ensure the greater this For the have strategy things and fruit need value are to Cricut more user very have get and as branding will make of bundles effects plans long-term the Day which machine the going We're all example, this more we accessories. course One include than about promotional bundles, and excited are believe being We path also initial PR bear creating they greater users coverage consumers. upfront through lives. engagement. what on can on gift quickly the the year. enhance for Mother's we into for digital towards content, These projects is moms focused do our the way receiving experience them out-of-box our materials lasting in to and during perfect

As putting acquire deal great which I engagement, mentioned on moment focus user. we a are we the user last of quarter, a starts

often weeks their are that shows engagement experience time. few a of data over of indicative the user new Our first

space onboarding our their driving early in process journey. improving includes focus user users current to and Our design

signs machines. cover materials. include photos expanding think of the a We images work, images drives finish and layout and in of over include success of expanding makeable which our design content are to can of engagement. seeing early which project the like both set of initiatives drives list We plans onboarding and and coming inspiration, of terms projects, Content plus broader quarters are lesson instructions

friction while designing and We between users cutting to more creating reducing relevant are ways projects. effective find for further content

visual-based introduced images. similar recently search, we example, lets users which find For

We new CAP significant are all as launched contributing our CAP ago. an year images increasingly of The constantly portion library, our on design represents just X artist program, image to increasing program known space.

makeable of Source fresh and from subscribers. around a need artists projects CAPS for also helps These of will many localized world. in increasingly projects inspiration diverse for around are markets the Community users. designed our community our meet world, content be the by and created content source the

include a list design making of and easier of photos to the be These increasingly other to to and the may to for inspiring the use, content user-generated the and can materials addition in inside And layouts platform also to social media it on shared create. finished others important project becoming content effects. incremental instructions add to value is This using make network to Link, platform. creating way and and other an design drives thus users projects space

of grew relevant on we deliver are experiences we ways our and As platform, find the members most to we also content our inspiring personalized library the to content improving makeable them. curated to our and

this better number a experience. ended We and in to commerce subscription leveraging across increasingly year-over-year. are rates drive We the to improve platforms of engagement. attach technology, quarter significantly benefit and design from our pillar to design beginning important a as are our greater touch journey strong an We We X.X benefit marketing the see with this increase points of million space services. subscribers, communicate XX% paid our projects

tool over highly addition, XX% exclusive made latest features. WARP enables We sought-after with Cricut develop that growth, on our features. continue WARP is on projects given features effects of many to our an platform object. our subscriber Access execute visibility impactful against software our highlighting new launched any text road coincide is valuable, new map contain creative text. of In cases, to we This increased

features subscribers Our use discover functionality to priority continuously them. content to is available and and ensure the

have increase many points awareness and subscribers. which our help user us on and features advertising We attract opportunity will retain off to through platform, touch of and an our

reason are that stop our design don't customers. still days enough in subscriber early the that is subscribing are map. We space Subscribers valuable cost. the they justify very The most of to primary often road use

to priorities their is journey, capture drive improvement related our of quicker and highest Closely subscribers frequently. more one more subscribers other more in onboarding We our So early engagement subscribers. making engage gaining value. is sources to future of

Turning to materials. and accessories

in early of we the business. rebuilding days are I mentioned, this As

at We least on softer We engagement. on less be accessories share in and machine and are more term, therefore, consumer strategies continue to to muted influenced market increased we by spend users but promotional we we when as machines reaccelerate resilient, across to hold we continues on that overall, sound about user compete part and we opportunities. cutting that acknowledge spend. Subscriptions cost and projects increased for time, excited materials diverse and materials connected is the accessories believe over share, and continues put believe our and more will focus which Longer reductions international discretionary discretionary consumer channels are material, price, pure bundles pressure market materials. needing

focused than term. been business for long ever and We steps the taking right the we've are more to our are grow

a uncertainty engagement, subscriptions spend well acquisition, will when user help consumers increase which and purchase the and navigate us the with on to focus position connected and Our current platform of starts us new drive expansion monetization for machine returns.

Kimball to financials. turn now the will for I over the call

Kimball Shill

first connected revenue quarter, decline revenue $XX.X priorities. as in Ashish, Breaking $X.X we in you, XX% welcome, revenue a income to machines our million, XX% net Thank was over continue the down of million XXXX. delivered year. compared from everyone. In million, prior to QX We invest generated further, and key down $XXX.X we

healthier materials XXXX quarter quarter. due Also As machine increase investments for continue $XX segment retailers well and Access XX% in over targeted a improvements quarters strength is as in reflecting but down as XX% rebuilding would inventory discussed however, continue to in and ended the that cautious by made consumer uplift million, conservative impacting we inventory this the with Cricut to and expansive softer expectations. last million, They purchase spend. the last sales. replenish was revenue in and over quarter was above. in we the levels. be accessories lower within call, engagement QX several stance inventory QX channel $XX.X the impacted anticipated below our levels QX from over seasonal to for Revenue said an revenue on retailers' discretionary inventory rebuilding Retailers, from our XXXX was Subscription XXXX,

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

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

Turning growth over ended the X.X million I'm pleased engagement. or over and users QX to total share with quarter users to XX% we XXXX.

and effectively have through we engage Cricut design more the opportunity QX As initiatives This getting paid outlined, over was bring more year. to a up to the Ashish over We them X.X ended quarter onboarding with we increase quickly includes the through users significant space. new engagement experience. users. X.X million on We subscribers, XXXX. QX XX% ended million from engaged last quarter over with This them flat the

at attach rate XX%. subscription matched Our QX XXXX

Moving quarter compares first an in margin. gross year. was QX last We This the to from to -- compared QX machines breaking further. in in XX.X% margin margin margin XX.X%, Gross XXXX. X.X%. gross to down X.X% of Total connected improvement was gross

which across which at expected, Looking continue smaller are margins, our a end-of-life margin and capitalized gross in expense of part volumes margins. machines, of lower down and promotions. on machine partially gross to fixed quarter compared Offsetting costs lower amortized a on for this lower over excess accessories by put operating is amortizing pressure warehousing XX.X%. fixed to volumes XXXX, becoming machine inventory will mix Subscription was was costs as an helping margins. consistent carry margin the XXXX impacted for from materials Gross write-down, the and cadence slightly quarter operations XX.X%,

a First and materials. and of primarily write-down configurations XX.X% to for vial related accessories bulk was $X.X million quarter of Materials smart excess inventory, included gross and on margin iron of

XX% A&M QX margin Excluding the been have XXXX. with compares This this in would quarter. write-down, XX.X% in

to expenses. Turning operating

the current with operate flexibility and business to continue navigate to discipline We trends.

including reductions, QX. coming force, pressure a charge QX, cost in we resulting saw the in $X.X million we X% reduction Given an into implemented in

we and full gross year. is Total savings operating for income was quarter result, from $XX.X $XX.X expect in $XX.X $X.X revenue QX This $XX.X a for As million of lower to of million down XX.X% or revenue $X.X stock-based X% in expenses million produce compensation of million year. write-down. for million the related included the were compared to $X.X an was Operating XXXX. expense. last or QX inventory revenue decrease million The to quarter X.X% million in the and

of quarter excluding to been related $X.XX have would margin tax QX and in XXth net was positive $X.X per our operating or share, diluted delivered and effect or write-down, per XXXX. XX.X%. share diluted inventory share the per inventory the We $X.XX million income. Excluding consecutive $XX.X million write-down income diluted Net $X.XX compared

cash Turning now to the balance flow. sheet and

We and continue to annual an investments basis, which growth. long-term cash funds for healthy inventory on generate flow needs

For operations, million million remain $XXX.X from in ending with balance the $XX.X debt-free. of cash quarter, we generated and a we

During the of we stock. used to $X.X cash our quarter, repurchase of shares XXX,XXX million

We have program. $XX.X million remaining repurchase in the

conservative in in prioritized dividend. to XXXX. ahead to Consistent a prudent QX, $XX.X planning approach and quarter, to million softer and shareholder we inventory to taking we used addition, commentary we commitments thus approach retailers In with pay our consumer continue look special and taking a as last see are spend our a

revenue QX given with demand. But linked and environment. expect performance. a margins current for be retailers be more healthier consumer standpoint, continue down From XXXX channel as noted, entered inventory revenue be year full to to conservative levels We commitments on operating should already the directly in inventory to we slightly the

However, second year-over-year typical we improve the in half expect second seasonality comps half. should and

of connected pressure machine XXXX we than In did still last we in QX, user XXXX further user users softer-than-expected fewer add new we growth. and sales new expect started which growth, with in to year, puts on new terms

subscriber subscriptions, pressure a have new price factor as rates physical higher On will even on continue expense Gross a will worsen. fixed the and we the materials down outlook a XXXX. for year paid warehousing trends be growth flat margin will will pressured. or also a year lower subscribers of to percentage in put While promotional similar revenue and costs current products, may on remain be operations positive be if rate attach throughout Accessories competitive. and at throughout to continue and to continue cadence users

focused gross accessories year areas while XXXX. just managing of in highest similar XXXX's we worsen, impact. will full margins the adjustments we with write-down conditions result, inclusive will continue quarter. to remain of in on expect a materials XX.X%, as our to this profitability be margin As and QX demonstrated the needed, We macro Should make investing as we

margin from continue operating committed cash our We and long-term to remain targets expect generating XX%. XX% to healthy operations of flow to

demonstrated has top we are model when operate drive proven scale Our that achievable. margins growth, at line these and

With that, I'll turn the operator questions. call over to the for

Operator

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

Mark Altschwager

you a connected QX that quick machines say the first just continue sales gets Maybe year-over-year in a continuation a easier you you rate off, referencing clarification. When and because material the trend the are QX versus quite that quarter-to-date, bit QX. in growth in saw comparison

I to there. So what want referencing just be about you're clear

Kimball Shill

called had trends And So will as be than Those we we far. saw so QX the out expectations we are we below move as expected. were out, QX. referring but we even that demand year-over-year, our called that to QX we we're through for softer down

seeing... we're So

Demand Just... than softer to. is expected we

Ashish Arora

And Mark, is This I'll just in. Ashish. jump

right? we exaggerated our It's new acquisition, had that consider. is lot Kimball consolidating are expected. the One a clearly point prepared there conservative what is made for sell-in, approach a on lower user inventory, than exaggerate impact that had which the and the to we an his in retailers more that think took I X. things remarks which Because X we're sell-through a

holidays they of of inventory in we some we seasonality. that So that, as into And out inventory at going the regular will point, terms believe we will order to took reverse channel. more expect have the

Mark Altschwager

regarding curious the and like the of specifically mark sell-through a last you is understandable. the the sense with rates the learnings promotional over I retailer And do what partners? the how the But your mean, on wondering, you strategy accessories, I'm And strategy guess, have look hitting front, hesitation I'm channel pricing new inventory any few I is and and months? materials with have

Kimball Shill

we sell-through conscious share. as competition parity than even consumers tends Ashish or are more we that cadence we out, on current sell-in. be specifically, see be to the pointed So environment. promotional going with to and that in question, and when materials forward price gaining that holding so cost last maintained when your healthier have competitive, cost are promotional to and that And share are so especially we can closer

Mark Altschwager

finally, tactics marketing just and to the funnel. some areas customer upon results? curious where you're of the new about maybe strategies And Any expand or with you the best could respect acquisition if refilling talked you particular seeing

Ashish Arora

that So let talked we've the of in me minutes TAM, kind before, as of beginner this, these you we have cetera. really and a and And speaks right? we et we to is days look early large a and confidence to we category, right? the that COVID, of gives Zs which like spend drove on prior And a attracting of and category, trends believe couple previously, growth Mark. comfort that the to we're are personalization me and this at about thing lot of digital secular trends the that Again, are one kind breadth said especially Gen of crafters, when access tools,

exceeds the terms we pent-up last are the in believe that right? funnel. compare the clearly compare there's the specific a over the term, headwinds shorter -- amount to few inflation what years, we in can the So seeing sentiment. in what the and of other our we've year -- clearly, consumer the shows April, terms impacted economy, some over it what demand over we search know we control And that at interest are XXXX, of you But you job and about how basically of the being of Now what sell-through, shows April we exists it add regular by look think more interest if talked we people at is term if Google like thing look to that that have Trends, think one you funnel? if on I is you it do we Cricut, that

As X for concerned, far believe funnel we we digital that follow works our we are the as perspective, basically, marketing. well all and the tools, media, approaching, of From top network to stages focusing and brand, of speak the very effects, way the is on are funnel. the social I'll media we word-of-mouth

where continuing We in world will think saw At believe funnel normal. to start the off at the it build focusing funnel right? we things, the And been As where some that. those converted have see part as to users' we to it's And funnel, is think we continue funnel, focus of a and meantime, We that best the through our of we the be marketing bottom exist level strategy. on address you'll about end tables, build anything to that been assets this the the returns -- COVID, brand. continue that value, bundles to of going right are the back with And of people a that as product to is offering to the talk was to we do in developing normalcy we that's Instead, pull is like when finally, me the promotional. will for which comparison think what less the barriers. happened infrastructure returns. and there it what the pay purchase us you help -- just of ultimately around terms big and the same us we've day, think that of us when on heard would comes questions quickly, the the we and this thing continue done I the and affordability phenomena which we where is we've is funnel, need

Operator

for turn we Suva over call like that I and to [Operator would all Instructions] All remarks. have right back closing our Jim to today.

Jim Suva

joining us Thank you afternoon. this Thank you, Haley. for all

drive We consumer spend are user over We have position to deploying term long engagement. we for increased initiatives large new opportunity believe well growth the now will us a and the returns. when

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

look Technology in Conference call. the now concludes Services This forward be seeing then. on earnings and to Global at will Baird and June Consumer X New We this everyone York

me e-mail jaysuvaa@cricut.com. you you. additional questions, please have Thank at If

Operator

conclude participation program. our Thank you This in for today's does conference.

You disconnect. may now

Cricut (CRCT) 9 May 232023 Q1 Earnings call transcript