CRCT - Earnings call transcript Q2 2024

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Operator

Welcome to the Cricut Q2 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance and Treasurer.

Jim Suva

Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's second quarter 2024 earnings call. Please note that today's call is being webcast and recorded on the Investor Relations section of the company's website. A replay of the webcast will also be available following today's call.

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

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

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

Ashish Arora

and everyone. Jim, you, welcome Thank

dollars fruit. Connected to revenue in consumers X% while by strategies are the increased more marketing accessories a and presents grew QX. our related drop slightly International consecutive higher platform benefits overall pleased up for sales margin that machines with and acquisition signs We flat in begins of than through year-on-year customers in or items, starting users connected machines as with XX% growth. was $X from QX, million. retailers machine, as and impairment subscribers over active then subscriptions sales. on a despite decline sell-in platform revenue X% from revenues offset the the significantly, grew which slightly Products a and accessories are from QX grew our a and percentage with million, second in declined inventory million retailers decline subscriber flywheel to year-on-year. In profitability quarter consumers quarter were ended revenue sell-out about year quarter early compared paid to revenues We and opportunity strong with the to purchase driven in units growth a increased year, of and XX% to revenue X% bear our ago. a Remember, by and materials. Operating X.X connected to the up past over the grew materials. Paid cut who monetize X.X total

to particular content who progress interact to share We focus onboarding and connect increase library, they with In to Access. day in as and with leading Our engagement. time. indicators key high-quality QX, platform first year-on-year, expanded simpler, KPI. Engagement now their stimulating I with quarter. Onboarders week. Cricut X experience has our we for of likely These guided over improvements to in in because our users. onboarders. We the the complete a project a your more which who early platform. Along our terms they simpler delivering to introduced focus for the it connect steps their all with our well are XX-day projects year-over-year examples this made more are interact to delightful machine more through surpassed a platform engagement our during members some of important as within engaged for the work longer-term in led several with company complete other like of to users X% this improve give during the made out-of-box you effort is and would are makable our both the a on-going first experience, we Starting million improvements, several images to declined a further

We continued our increased investment with in marketing.

focused Week, marketing a story of plays featured of focus of our on Day, where Hudson a themes influencer through digital to CBS support to The broadcast News partnerships. Initial reach on machine. edition an Some campaigns in on central Jennifer include: they to highlights results continued the with throughout quarter, the consumers additional a a evening partnership Show measured and expansion on Teacher segments Mother's promising, the expansion marketing seasonal driving the pulling regardless their role purchase funnel streaming are of traffic by which on television, Cricut.com, Appreciation consumers

as inventory started that a is saw late sell-in retailers, consumers. Our QX, we in XXXX end positive optimal growth and despite levels, well sell-out to trends deeper improving holding This this which missed machines resulted in as retailers promotional strategy in opportunities. to working. indicator, in connected is below healthy, In we is sales

declined deeper Our returning their levels XX% goal on-hand planned the regarding constructive, are retailers promotions year-on-year. total growth. Accessories discussions of sales inventory and and to with with our materials

machines product, seamlessly and in to portfolio. of launched compete this designed of QX, create still Our and the with about best online work a are are late but experience. We portion we materials to we small it's the which our materials early optimistic line Cricut engineered in Value to user our marketplaces,

additional cost buy reverse We need to to We better innovation, and users attract machines. among enthusiasm to ahead. The have users. products more our coming accessories and be competitors new more connected and could re-inject We effective do trends engagement straightforward. need our in reductions we weakening the materials. to need in quarters We areas are where

make to them, are materials of appealing are things inspiration use make our give focused a and fundamental actual consumption. when great people overall our it help intensely ecosystem. It see belief reasons those affordably, we experience we work things to we make shelf that the is and create to lift that We easier more us and experience, customer to that we to on with on retailers will are and motivated for a both

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

Kimball Shill

second as our delivered Ashish. increase slightly $XX.X generated income, In line in $XXX.X further, year revenue We a we up quarter year-over-year net QX net the the and million, in you, our to XXXX platform XX% quarter, of priorities. Breaking continue million, revenue our was XXnd key in positive year-over-year. of compared in invest revenue from we income consecutive down expectations. Thank a decline X% prior to $XX.X million with

compared ARPU XXXX. over a shift, X% increased up to shifted as positive Connected units year subscriptions was higher and Revenue efforts. Platform Both While decreased revenue shifts from increased while increased mix and platform mix more was QX the XX%, to by monthly annual driven subscribers targeted sold $XX.XX. paid down versus accessories X%, shifted products million, geographic machines XX% mix less more international $XX.X and are ago. to XX%. materials the

destocking Some on when retailers levels they started were broadly. QX, in to in restock connected unlike partially inventory XXXX more machines

events, the opportunity shelves sales key capture light inventory to during fully. retailer we on found However,

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

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

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

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

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

some compared year Moving excess XX.X%, inventory the to other second year QX platform gross from percentage amortization The obsolete quarter and year. Total benefits which expenses The in the million in prior was in compared expect revenue to to continue. Gross XX.X% compared positive related in The ago. platform and decline XX.X% operating capitalized was further, was compensation. a a to to costs, of margins platform year. Breaking due excess for margin prior Total of from increase of in recur reserves, impairment was will gross stock-based of decreased in as expenses X% from from by compared $XX.X and margins XXXX. higher $XX.X we XX.X% next versus related QX margin. obsolete QX million some were gross to last improvement gross items improvement operating margin primarily reserves slight the impairment year compared to that in primarily were Total other driven total related gross and impacts to included inventory reflects less QX to products larger XXXX, XX.X% quarter will which be million down the quarter. year, and revenue ago. and and the unwinding timing this items expenses from a margin not gross higher an primarily $XX.X prior software XX.X% margins in

our previously. for the marketing in to revenue higher reasons last income see last XX% sales our in this spend. sales mentioned we operating income million a revenue This of or compared As increase and in XX.X% in the Operating $XX.X decline and of marketing the quarter, year. quarter we or $XX.X for discussed million was plans was XX.X% QX increased despite XXXX, for will you

$X.XX rate tax or in lower million diluted impact income $X.XX or vesting to increased of Our to $XX primarily XX.X% was at the due tax million of QX XXXX. price. year share Net XX.X% stock a ago, compared a $XX.X diluted per from per share

Turning balance now and flow. cash sheet to

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

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

guidance, annual outlook or our to to we give color but we on Now outlook. quarterly on do Recall, for updated our some do not XXXX. want detailed offer

first you remains our Given remaining improvement performance, in generally while half some incremental unchanged. outlook operating can the margins, expect

continued sales materials QX on and We especially year-over-year. accordingly, in accessories down total our may products segment, be pressure company expect revenue and

given in a our full-year We pressure performance, will too consumer generate retailer accessories continue as is point. as revenue. and to we marketing and call see well it inflection excitement. ongoing year-to-date accelerate an even company soon decline to segment for conservatism to Hence, But may materials

We revenues subscriber our user for slightly growth, company larger pattern rates Lower subscriber profits pressure put and year. count may expect following XXXX. a paid become a total to and new grow the similar on sales portion full will to growth and of subscriptions

to subscribers not QX. the QX subscribers paid compared our last grew, in enough modest full-year but see QX change may quarter, in view. to it While paid Like growth was negative year,

expenses we for as increase full expect count subscriber platform We to will continue XXXX, and reinvigorate revenue increase in growth operating year. In our the the our category. spend marketing modestly paid to in excitement

machines the some more we in typically And year increase to and of especially first the margins. improvement XXXX Given in the margins we second incremental in in this pressures QX. half XXXX. Remember, compared performance, machine sales in half expect operating sell naturally

profits operating half which to first second also reserves, will second the not continue the of Hence, of of half the half unwinding in from carry in some year. fully We the the in year. not will half the of year the the first the benefited

paid approximately to expect XXXX. We be in during million profitable quarter We and for cash in QX significant closed. July each generate dividends $XXX after the cash flow

and income our remind cash accordingly. associated should we that be So interest balance you adjusted

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

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

Operator

Erik from Woodring, first Stanley. comes Morgan [Operator Erik question Instructions] with Our

Erik Woodring

patient time of you and I stabilizing long-term quarters know engagement. term. do guess challenged amount to it's the inflection. get investors we is willing engagement spent whether back customer that are a of have a you about Ashish, And near remains question or fair the stabilization as talking in a go vision, reality to be but a to And few I improving point

help believe a you understand you us materialize? but your have begin will drive follow-up. engagement efforts also why, to maybe just can So I when then then And to

Ashish Arora

Thanks Erik for question. the

you now. about Engagement for So we've as big quarters talked us. think out, pointed be priority for I continues this to several a

So and about improving let bit good those that embellish little let really me of a and kind we've earnings of talked the me call, as -- seen some in we signals, but well.

and and XXXX we the large that of users. number a acquired acquired So we XXXX, cohorts in

specifically curves, are engagement, given users to compared graduation a natural As those of time on lesser that's acquiring fact putting they in pressure frames. we the lot that graduate the

Now into of each so I'll we've X them. buckets, this to speak broken

accumulate that getting we've The really out. Related to course engaged because important on couple that's are to and first they weeks. Why come is onboarders XXXX users the is few that, test we weeks, and to first the acquiring time, and lends over we the sure if Bluetooth, platform, So to indicator newer business important for the curve so first that on first days from engaged have business I we of know which that's that when some can them platform time, or make those to continue curve people in few our that think in at make their data bodes just the well they we graduation is that, looking a connected to as of itself their cohorts, improving overall, having think the engagement that in improve we want that over out time. projects cut leading right? few over a flattens metrics as getting to those get that and more to users they a first tend the I stay stay that are seen we these better engage the

it are we comes users some when they a It'd ultimately in with inspiring are to and make curve. time. It's improve to manifest for doing help specific our we sure bringing that look a are is the lot a the we've initiatives them undertaking. in I'm the job if we engaged, making they and getting make as leading they I'll hard I the the we already coupled better our that team installed to ways, that projects at acquisition But people confident in hard flatter think that we it the to on a stay inflection right are that but how projects, do that the things to things, of are sure right, to initiatives set graduate do turn when will easier more indicator, be comment new I making the and and a of we it's better board, a feel if job making them things. again, those those them, once confident base, think but you time on highlight search can that the very on That, Now identified to to point efforts, line, will very the as working we're take going acquisition that that their tide. on platform, sure happen, on back more little bit really platform call

Erik Woodring

the second We maybe base? of margin I quarters within second given commend mix be quarter you realize type versus should the growth, look ramp shift that model. have to guys seemed to question to you to you way this the right does to little consecutive what and to see rationalization for X operating a leverage maybe as Kimball. you cost in operating your bit of positive have the higher did imply Maybe costs the towards the what's will the operating some model a the and platform product. and I this model growth declining And it just of in maybe that's in bit leverage when performance end we move range? even XX% about think we just see of revenue Or me. expect for more forward, between margins amidst return XX% relationship margins your to the half. But

Kimball Shill

impact of right? operating important all, to Today, we're So the acknowledge below it's billion. first $X scale, of

to investment category, consumers expect And as the can of retailers, that and into so in leading among continue. enthusiasm us you you both investments marketing and see reinvigorate to level

As we and to half periodic first the in margin more pressure experienced than we more the machines lean sell some pressure we half QX particularly things in on machines into especially you'll to a of in see revenue and incremental to back in in half. also to comment second $X second see getting of the in be prepared that to improvement second as margins kind of want we percentage let the that through break solid and as of see in half. There don't in second the expect revenue, to successful to naturally in do me everything of our year. occurred the first that with also the are we the expect holidays, billion that are move have down. We the the about more plus than that as revenue. I half about half kind the strategy, talked And promotional moves deeper we margin and a comments first carry we percent not goodness we point half because onetime of

this of reserves. to bad were ago, we quarter for unwind a year those were So debt accruing able and example, reserves we some

quarter impact the about year-over-year $X.X And a million on a was so basis. to that

Operator

The Merchant from next Citigroup. question comes with Asiya

Michael Cadiz

Mike is for Citi. Cadiz Asiya This at

it it decline. only upside forward get gain one it like on going maybe you and asked of my of international. a see initiatives to calibrate broad-based on I country-specific? Congratulations maybe that. to that if a X% So traction. little question more your see I'd because more up or any of want is to couple as to was if was color that to quarters I'm after there's trying bit

Kimball Shill

Mike, We're the we're excited really in to international to thanks that question. return for business. the able growth

couple last talked we of we've over seen where markets pressure. quarters, there's the As have

We in we're to North continue countries. pressure active over similar to America, XX that but see

international, the there Like in headwinds quarter. that talked it enough quarter, markets, think But and we're Western in continue the opportunity like I so Australia, goodness growth. And us. this experience perspective, be of overcame was last we get about U.K. continues back the in some to to newer pleased important huge to a growth a of Europe we very quarter and from for an to overall vector and say, we

Ashish Arora

me model we've working. kind are One we add is and -- Let be the across in that the seems that of talking just that. world, -- efforts acquisition we're that basically, it it about to using to the definitely U.S.,

the And travel America. a see brand, Earlier or the a lot of Cricut I the markets. fascinating QX, our Latin talk I in these for Asia. the for as and I some in get brand. in passion In what's Europe, was early to markets, in users, was passion CEO, of always QX in influencers I we and As me for this for as late get QX, creativity to to in month, the be quarter. these I as markets every Like I'll larger

or than our any at are but markets some for than in markets more What's others. of longer others least -- a some fascinating time And been mature, mature believe markets trends moments, don't we've make same same the so level I of or the the and to consistent the personalization, it's passion, level those trends for is worldwide. things on on family for yourself your wanting of capturing are

talked and world many time. of days parts opportunity the for So we on Kimball really in of all the a about are very, strongly big very the markets these believe that us over we XX company that represent early of

Operator

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

Angus Kelleher-Ferguson

that that How you amount And that Yih. days, still This is could full Angus in the Understood Cricut materials value quarter? to where have the but due offering its speak future, a during on see did of in? going the then Kelleher and the for could eventually Adrienne channels materials early I categories perhaps first follow-up. you touch very it's you see

Kimball Shill

Angus, question. for the thanks

saw have and we As proposition in right online play out remarks, ship I forward. we to point to the able think consumers. And we well we very it's mentioned Even we Cricut as expected. be to designed prepared value as compete And the specifically make in to materials early though, again, direct very marketplaces also optimistic we very we're to effective it price that get where days, to but well. performing value look

Ashish Arora

just a to And to about, materials. part cetera. There's I'll as is going to portfolio. value we've that, et points, Angus, our of I that, of continue set We're talked launched which think kind small proposition, add expand we categories, of a price still

of days but very have we early the as in said, again, Kimball about it. we're, signals excited are the far, so and very that product been So positive, line,

Angus Kelleher-Ferguson

how retail slowly, we do order second is holiday, levels do as being about Sounds you you spoke approach feel book how the that but the shaping to see restocking partners? My surely you underway like question inventory up?

Kimball Shill

the saw more So across generally year, I channel. versus contrast year. quarter last if Last we last destocking can

light This shelves revenue, quarter, inventory to seen to we connected in still machines, we've and related on opportunity. we partially saw the fully saw as restocking machine the capture growth

because So we've half, we opportunities. in saw had those inventory some opportunity there the fully enough larger wasn't first promotions to activate missed

Ashish Arora

registrations, of kind into on that a those traffic don't and trends me we let I marketing, to in report our With of just -- is our but significantly down which that inventory seeing of to that of question the talk our our was were that's are a marketing the retailers shelf We QX, lead our later they QX year-on-year online and see think pretty flat from And kind of improve positive seeing working, were that just generally a some didn't some is QX, sell-through largely script, in because and comments increase improving to on fundamentals, again. and the many despite that made in and either purchase very consumers switched the and then date. while believe or they positive QX. We sell-through, fact we've deferred sign. kind our increase have I right? an enough -- to your in And I'll

think second to ramp going to promotions. -- to we're traffic. to marketing. again, drive going our our see continue in I half, We're you're be We're continue deeper going to to going

to very We've again, our hope they're definitely And missed very enhanced terms productive. of we a retailers with sales. with showing have solid have as working with capture as We of that end make year. partnerships be some sure excited as we they -- they plan like leveraged we to volume those some very that we by we the the missed increased up. Again, working traffic, the and stocked and be marketing, sales are being the in been that talked some saw are half. positive, saw hopefully, able are online will. -- channels, committed said, data -- of these we I some missed think that that we in of but of get retailers for the they category, we the first we to the by they'll said, which we And adequately that think And retailers Kimball are --

Operator

question comes Sheridan Sachs. Instructions] The with Eric Goldman from [Operator next

Unknown Analyst

for ] Eric. [ is on Lane This

been we continued we've up double digits and line, So but decline. look at if the sales marketing revenue it's to see year-over-year, low

looking plan so be and And learning I you hoping us initial just investments of about thinking that how payback an introduced provide currently on and you've could seeing? we the based should was update I you're your returns So far? that with periods just any guess levels marketing the around the ahead,

Kimball Shill

As XX% specifically. and spend marketing our at that of into it's we're revenue the we've leaning in of marketing sales pointed been out, quarters line, you spending last been couple and

views investing traffic the signs. levels. And that positive expect watching reach, at Cricut.com these indicators us are terms we're to you continue as I can especially mentioned, showing click, think in Ashish to of leading and

connected we that traffic of to different and And channel acquisition the point the across journey our shift understand where is Cricut.com them. right the purchases, brand distribute and balance someone so an which important machine is we're for regardless to we website and in as continuing to media. But way they come learn on which to research

so while investment. to the trends just in mentioned Ashish to about to from spend we goodness, down see of that flat starting this of in in continue and our we're going to some increase marketing and level QX attribute us expect sell-out And of to consumers QX,

represent As I mentioned time. business earlier, investment plus element back see there's you'll here smaller a billion getting to this an we're successful and percentage of of growing scale that that revenue, as $X revenue over

Ashish Arora

believe in focused and market a there's And hasn't opportunity, to long we medium I are believe think view of the the leader. term. changed, the we on definitely way strongly point are We category we our approach it, we Lane, is the and that market

some products. that about. all Yes, from like job we're building parts them some make our on funnel. There's to we don't worry is reticence discretionary buying consumer, which the level sure So of the even reticence there's honestly of

marketing of Our parts to those Day ton marketing that school SMTs that traffic media in Cricut.com. We're a whether -- now Mother's of We saw better and or being have the category. in actually going to and what our job to or see And to very excitement social mix. the team understand on build our and back of is television. funnel coverage, in Valentine's to seen where spend category money. channels optimize success or for we all Day And we proud to seeing as the leader how money, we I'm drive we've improvements continued spend holidays,

We a are OTT ads. lot of testing

quarters, we generally what in really team we going of into I doing marketing don't levels our kind maintain going as now, it marketing starting and I and do we've I will that to think XXXX. up. And of what off -- want been what a is couple pay to are past to prepare pause So also and last is which to continue did think QX, but we ramp put XXXX we is we in we in believe heading into that the marketing the the of

Operator

At this Jim it time, Treasurer. of Suva, back and to I'm like turn Vice I showing no would Finance questions. further now President Senior to

Jim Suva

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

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

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

will of investors in at and Conference the and see there. presenting events: the the TMT we Technology and Francisco, September; be Communacopia New the in of Global the week with first you Global York, Conference September; Sachs hope week second to Goldman We following Citigroup San

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

Cricut (CRCT) 6 Aug 242024 Q2 Earnings call transcript