Cricut, Inc. Q3 FY2024 earnings call

• Paid subscribers grew 5% year-on-year, exceeding expectations, but engagement erosion from 2020-2021 pandemic cohorts and prior years is a concern.
• Implemented initiatives to improve new member engagement, including easier machine connection, enhanced onboarding flows, and AI help assistant beta rollout in Q4.
• Made software platform improvements to help users search content and design projects, with positive signs in project completion metrics.
• Continued marketing efforts to bring back members, with a personalized campaign launched in Q3 and plans to scale in Q4.
• Materials business saw positive progress with the Cricut Value line, though it's still a small portion of the portfolio.

In Q3 2024, total revenue was $167.9 million, a 4% decline year-on-year. Revenue from platform was $77.7 million, up slightly year-on-year with paid subscribers up 5%, but platform ARPU increased 3% to $52.86. Revenue from products was $90.2 million, down 7%. Connected machines revenue declined 11% due to higher Q4 holiday promotions. Accessories and materials declined 3% on more favorable comps. International revenue was $38.5 million, up 2% year-on-year, accounting for 23% of total revenue, with foreign exchange benefiting by just under 2%.

• Expect sales to decline for the full year.
• Anticipate paid subscribers to grow in Q4 compared to Q4 2023 and platform revenue to be up slightly.
• Plan to continue increased sales and marketing spend due to year-to-date performance.
• Expect incremental improvement in operating margins for the full year, with long-term operating margin targets of 15% to 19%.

• Engagement erosion from large pandemic cohorts and prior years not offset by new users in recent quarters.
• Competitive pressures in the crafting market affecting sales and margins.
• Consumer discretionary spending impacting demand for products, especially in non-promotional periods.
• Potential challenges in fully executing on marketing and engagement initiatives to drive growth.

Q: How is the decline in active users and growth in paid subscribers related?

A: Ashish Arora explained that engagement from 2020-2021 cohorts is declining, but onboarding initiatives and leading indicators for on-boarders show improvement. Subscriptions are growing as the company focuses on adding value and reaching into the user base even with fewer new users.

Q: What are the drivers of platform gross margin decline?

A: Kimball Shill noted that higher software development costs, hosting fees, and a shift in subscription mix (more annual vs monthly, and international shift) are the main drivers of platform gross margin decline.

Q: Thoughts on retailer inventory levels and future restocking?

A: Kimball Shill said channel inventory is in a healthier position than a year ago, with partial restocking, but there are still pockets needing more inventory. Ashish Arora added traffic to Cricut.com is up, indicating potential conversion in Q4.

Q: Learnings from higher marketing intensity?

A: Kimball Shill mentioned traffic to Cricut.com has improved, and they're using multimedia mix models to optimize marketing spend, seeing positive signs from increased marketing but noting top-line growth hasn't returned yet.