Q2 2021 Cricut Inc Earnings Call

August 12, 2021

[music].

Good day and thank you for standing by welcome to the cricket Q2, 2021 earnings conference call.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session.

I'll ask a question during the session you will need to press star one on your telephone keypad. If you require further assistance. Please press star zero, although lifetime, the called to Stacie Clements Investor Relations. The Blue shirt group. Please go ahead.

Thank you operator, and good afternoon, everyone.

Thank you for joining from cricket second quarter 2021 earnings call. Please note that today's call is being webcast on the Investor Relations section of the company's website a replay of the webcast will also be available following today's call for your reference prepared remarks and accompanying slides used on today's call will also be posted to the investor Relations section of the web.

Site Investor Doc cricket Dot com joining.

Joining me on the call today are <unk>, Chief Executive Officer, and Marty Peterson Chief Financial Officer.

Before we begin I would like to remind everyone that our prepared remarks contain forward looking statements and management may make additional forward looking statements, including statements regarding our strategy business expenses and results of operations in response to your question. These.

These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of cricket. Most recently filed Form 10-Q actual events or results may differ materially.

All non-GAAP numbers referenced in today's call are reconciled in the press release or slide presentation on our Investor Relations website.

This call also contains time sensitive information that is accurate only as of the date of this broadcast August pumps 2021 cricket assumes no obligation to update any forward projections forward looking projection that may be made in today's press release or a call I will now turn the call over to Ashish to begin.

Thank you Stacy and welcome everyone.

We had a solid second quarter with revenue is increasing across all three categories connected machines subscriptions and accessories the materials.

Total revenue for the second quarter was $334.5 million, an increase of 42% over an exceptionally strong Q2 last year.

Strong revenues, coupled with a profitable business model led to a $68.5 million in EBITDA.

39% increase over the second quarter last year.

We also continued to see growth in our user base and healthy engagement and monetization.

We added over 430000 users in the quarter, bringing our total user count to nearly $5.4 million.

We saw continued healthy engagement levels at 59% in the second quarter down modestly from the stay at home engagement levels of the prior four quarters.

As a result of healthy user growth and engagement $3.2 million users very engaged on our platform in Q2.

This is one 1 billion more users engaged in Q2 compared to Q2 of the previous year.

The large influx of use us from 2020 and the first half of 2021.

Provide a powerful flywheel effect to our business with ongoing monetization opportunities as well as fuel momentum through word of mouth referrals.

I continue to be amazed by all of the projects and creativity from our users.

As expected we are seeing many projects centered around events such as weddings parties.

Family reunions and vacations just to name a few.

As users create the inspire other users to create.

And the more they create the more cricket benefits from network effects that ultimately drive new user acquisition and inspire additional engagement.

Yes.

One of the many ways, we are able to monetize the engagement is through a subscription service cricket axis.

We ended the quarter with nearly $1.8 million subscribers to cricket access up to $1.6 billion at the end of Q1.

We continue to focus heavily on increasing the value proposition of our subscription.

We now have over 175000 images and cricket access and increase of over 40% from Q2.2020.

In the coming quarters, we will continue to aggressively add content as well as additional software features that will be available exclusively to cricket access members.

Another important pillar of our growth strategy is international expansion.

Revenue from international markets grew 179% year on year in the second quarter and continues to grow into a greater proportion of total revenue.

Our top markets include Australia, France, Germany, and the UK.

The international markets, especially promising given our observations that the motivations and behaviors that are driving growth internationally.

A very similar to those that have good growth domestically since 2014.

We recently introduced a new direct to consumer E Commerce site in the UK, giving.

Giving our users a complete cricket branded shopping experience.

We anticipate that more direct to consumer sites, we'll be launching additional geographies in the coming quarters.

As we see significant synergies with our Omnichannel strategy.

We also welcomed our first sales team members in Italy, and Mexico in Q2 and continued to expand our retail footprint in markets, such as Germany, France, Spain, South Africa and Southeast Asia.

As we think about future investments in international markets, you will see us continue to increase our sales and marketing efforts.

Including adding key influencer relationships across the globe to help raise awareness and drive conversion.

We will also continue to diversify our content offerings.

First heavily in language and currency localization as well as foster and support international markets with cricket team members in those geographies.

We plan to grow international markets is using the proven cricket playbook.

Invest in delivering great experiences to users.

They will then show and tell to others.

We have some very exciting new product launches during the second quarter.

From the onset we have focused on building, an innovative and expandable platform for our community of users to drive long term growth.

In June we launched the new cricket extraordinary and cricket makeup three machines.

Significant undertakings, which included new physical hardware as well as new software features content and a line of innovative materials.

I'm very pleased with the new products and the improved user experience that they provide.

Designed to cut up to twice as fast users can also cut longer runs of materials.

This is especially useful when creating things like wall decor large size of banners or multiple copies of the same project.

In connection with these machine launches. We also launched a line of smart materials designed to increase creative use cases and improve ease of use.

Smart materials that especially engineered to keep materials perfectly aligned and on track from start to finish without the need for a cutting mat and forecast up to 12 feet in length.

This slide materials create a frictionless experience for our users whether they are cutting a small single image or very long repeated cuts.

We will continue to innovate in this area with quality and seamless integration helps build a moat.

Cost of accessories and materials business.

Now coming on to software.

Our cloud based software enables us to update features and functionality of existing physical and digital products.

This kind of platform extensibility is a clear differentiator in the market.

While also enabling us to rapidly innovate and add features to improve the user experience.

For example, during Q2, we added the long requested kerning feature and design space.

Feature that enhances <unk> usage and encourages engagement by saving time and effort.

Additionally, users can now light projects inside design space and more easily organize their personal library with a newly redesigned bookmark feature.

We also continued our ongoing search optimization among many other things.

We take great pride in listening to feedback from our community constantly enhancing the platform and the overall user experience and you will see us continue to invest heavily in these areas.

As noted earlier I love the passion of our users.

Many of our use of shared a love of our brand products and mission.

In other words, they are the heart and soul of cricket.

Approximately 43% of new customers first few about cricket through word of mouth provides.

Providing a powerful vital in cost effective marketing engine for new user acquisition.

We now have over $5.2 million social media followers.

And $2.4 billion views on <unk> SEC cricket on Tictoc, which are almost entirely organic.

We will continue to foster these communities amplify their voices and sure that amazing work.

Overall, I'm really pleased with the quarter and our progress to date.

The products, we've launched and the lives we impact create a tremendous opportunity for us to continue scaling our user base.

We estimate our serviceable addressable market in the U S and Canada.

Is the roughly 85 million individuals.

Including us down internationally, we believe that opportunity is roughly 130 million individuals when adding just Australia, France, Germany, and the UK markets.

With a user base of nearly $5.4 million, we are penetrated just over 4% of our SaaS.

As we continue to expand our offerings to drive continued user engagement and fuel a viral marketing engine. We believe there's an even greater opportunity for creative everywhere to join the cricket platform.

I will now turn the call over to Marty for more details on the financials.

Thank you Ashish and good afternoon.

Our second quarter's performance was fueled by strong fundamentals in the business and our powerful community of engaged users. Additionally, Q2 benefited from the new product launches that Ashish mentioned earlier.

For those of you who are newer to our story, let me quickly touch on the financial drivers of our model.

Dating back to 2014 cricket has a proven track record of strong revenue growth and profitability.

Our sales are diversified across categories and give us revenue streams that are largely predictable.

The user the user journey generally starts with the purchase of a connected machine. The gross profit from that purchase mostly covers our customer acquisition cost.

The purchase then triggers a flywheel of engagement, which in turn drives ongoing revenue from subscriptions and accessories and materials.

With that as a backdrop I'll now walk through the financial highlights.

We continued to see organic adoption.

Word of mouth marketing drove strong connected machine sales and the increased user acquisition, our new and existing users continue to be highly engaged which drove ongoing monetization through subscriptions and accessories and materials.

Revenue in the quarter was $334.5 million, an increase of 42% over Q2 last year, representing strong growth relative to a tough comp of 149% year over year growth in Q2 of 2020 at the onset of the pandemic.

Strength in the quarter came across our business, including our ability to replenish lower than normal retail inventory levels and the success from our new product launches.

Breaking down revenue in the quarter, even further revenue from connected machines grew 29% over Q2 last year, even while comping extremely strong sales in Q2.2020 at the beginning of the pandemic.

Connected machine revenue was driven in part by the launch of our new of our new maker three and explore three machines during the quarter.

Strong machine sales and new user acquisition as well as healthy engagement of our growing base of existing users for the past five quarters helped drive 111% revenue growth in subscriptions in the quarter and 40% growth in accessories and materials.

In terms of geographic breakdown International revenue continued to outpace growth in North America, increasing 179% in the second quarter over the same quarter in 2020.

As a percentage of total revenue international represented eight 5% in the second quarter up from four 3% in Q2, 2020, and seven 4% in all of 2020.

We anticipate the investments we made in 2020 and ongoing future investments, we will continue to expand consumer reach and brand awareness internationally.

The cricket community of users drives healthy engagement on our platform and is an important variable in building, our long term business with sustainable growth and compelling margins.

In the second quarter, the number of users engaged on our platform for the prior 90 days increased by $1.1 million versus the same quarter last year further demonstrating consistent healthy engagement on our platform.

As a percentage of total users this translates to 59% engagement, which is a slight sequential decline on a percentage basis, given that Q2 is typically a seasonal seasonally softer quarter.

As we move deeper into the summer months, we have also seen pandemic reopening amplifying some of our normal summer seasonality as a result, we could see slight pressure on engagement in Q3.

We continued to rapidly grow our user base in Q2, ending the quarter with nearly $5.4 million total users or 64% year over year growth. Despite a tough comp from the from the spike in user growth at the beginning of the pandemic.

Ending paid subscribers grew nearly $1.8 million up 77% over second quarter 2020.

33% of all users were subscribed at the end of Q2, which is equal to Q1 and up from 30% in Q2.2020.

We continue to invest heavily in our subscription business, including strengthening and expanding the value proposition and leveraging user data and our targeted marketing efforts.

User monetization from subscriptions and accessories and materials remained healthy in Q2, we measure that monetization through <unk> in those segments.

We calculate average revenue per user for subscriptions by dividing total subscription revenue by our entire average user base within that period.

Our <unk> for subscriptions in the second quarter was $9.83.

Up from $7.91 in.

In Q2.2020.

We calculate <unk> from accessories and materials by dividing that portion of revenue by our average user base for the period <unk>.

<unk> from accessories and materials in Q2 was $26.67.

Compared to $32.23 at.

At the beginning of the pandemic in Q2.2020, when we saw a surge in accessories and material sales.

We anticipate the new smart materials launched in the quarter will will support accessories and materials monetization over time.

Moving into gross margin.

Total gross margin in the second quarter was 39% up 31%.

Up from 31% in the second quarter of 2020.

As we primarily benefited from lower tariffs associated with moving the bulk of our connected machine production from China to Malaysia, and a slightly more favorable product mix in the quarter.

Additionally, starting in Q2, we effected a prospective accounting change, where we reclassified approximately $4.8 million of cost of revenue to sales and marketing and.

In Q2, the impact to gross margin from this change with an increase of approximately one percentage point to gross margin with a corresponding increase in operating expense.

Looking to the second half of the year and as we noted last quarter, we may choose to be more promotional in order to optimize user acquisition and product mix as demand and supply normalize, particularly on connected machines.

Before I move further down the P&L I want to talk for a moment about inventory and supply chain.

We and our retail channels are now in a healthy inventory position due to our manufacturing strategies put in place over over the last few years and we feel good about where we stand today.

We continue to aggressively manage what is within our within our control. We do however, see some risk to the supply chain similar to what many others companies are experiencing for example, we are subject to chip shortages and have been securing chip inventory well into the future to help mitigate.

These risks.

We have also seen upward pressure on the cost of commodities, such as resin and sheet metal and shipping related costs. There could also be possible shipping delays due to due to local port challenges and shortages of containers and ships as a precautionary measure we have a long standing strategy.

Holding generous levels of onshore inventory in our accessories and materials skus.

In order to further mitigate supply chain risk we are in the process of building inventories above our customary levels on accessories, and consumables consumables or materials and particularly on connected machines.

And we intend to carry higher inventory levels into the future until we are comfortable to supply chain risks have improved.

These dynamics along with any increased level of promotions in the second half could put some pressure on margins.

Moving on to operating expenses, we continue to take a strategic approach to spending in order to gain efficient business growth long and of our future.

Total operating expenses in the second quarter were $66.1 million an increase over Q2.2020 of $38.6 million.

The increased $8.1 million was related to stock based compensation expense in the quarter.

And $4.8 million, which which I previously mentioned from the re class of cost of revenue to sales and marketing expense and relates to the accounting treatment for payment processing fees and certain point of purchase displays.

Our total operating expenses as a percentage of revenue was 19, 8% higher than the prior year as we have leaned into investments in sales and marketing and R&D to help build out the platform and drive future growth.

We have always focused on building a long term durable business model that delivers solid profitability, while allowing us to grow the top line and invest.

For our future Q2 represents the 10th consecutive quarter of positive net income.

Net income in the second quarter was $49.1 million up 41% from the same period last year and diluted earnings per share was 22.

Note the cricket did not have a comparable EPS history prior to the to the reorganization at the time of the IPO.

Turning to EBITDA, which includes $8.1 million of stock based compensation expense, we delivered EBITDA of $68.5 million or 25% EBITDA margin in the second quarter compared to $49.2 million or 29% margin in the second quarter 'twenty.

In 'twenty.

As a reminder, we have been EBITDA positive since 2014.

Turning now to the balance sheet and cash flow, we ended the quarter with $314 million in cash and cash equivalents.

Our credit line of $150 million remains untapped cash.

Cash used in operations for the second quarter was $50.54 million, reflecting payments for replenishing, our inventory position and building additional inventory reserves to help mitigate mitigate supply chain risk mentioned earlier.

Although we're not providing quantitative guidance at this time I'd like to provide some color.

Q2 outperformed our internal our internal expectations.

Benefiting from two primary factors that I mentioned earlier.

The replenishment of retail channel inventories to more healthy levels.

And the initial channel fill as we launched two new machines and.

Our new portfolio of smart materials.

As a result product sell in during Q2 material exceeded sell through these tailwind will not continue in the second half.

At the same time, we also began moving into our typically softer summer seasonality as we emerge from the pandemic. This seasonality has been amplified as people spend less time at home.

And we believe this dynamic could extend into Q4.

Looking at the year end total we still expect to add at least $1.8 million new users and full year 2021 equivalent to the number of new users added in full year 2020.

We've made tremendous progress with a little over 1 million new users already added in the first half of the year.

Nonetheless in light of the uncertainties, we are ready to.

Are not ready to update this target further at this time.

This foundation of new users fuels future growth and profitability. Our platform provides for increased user monetization through higher margin subscriptions and accessories and materials revenue.

These larger this larger user base will also drive our viral marketing engine, resulting in new user acquisition and engagement.

We will continue to run our business for the long term our singular priority will always be to deliver superior experience to our users throughout their crafting journey.

Due to both uncertainty and logistical difficulties caused by the pandemic in 2020, our spending levels were restrained. Despite our growth. Therefore, we entered 2021 trying to catch up to our user growth and more operational areas and expect our increased spending levels to reflect these efforts.

With a large base of users coming onto the platform. We plan to increase operating investments for the full year and into next year to drive continued growth and the new user in new users and healthy engagement as we lean into channel expansion opportunities product development and international growth.

Nonetheless, we still expect to operate within our long term EBITDA target range for the full year as disclosed previously.

In conclusion, we have aggressively and consistently grown the business for many years with only 4% of our Sam penetrated we are a large runway for growth.

And extensible platform for continued innovation and a compelling financial model that drives growth and profitability.

With that we'll turn it back to the operator for questions.

Thank you presenters at this time.

For participants to ask a question. Please press star one on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

We have our first question from Rod Hall from Goldman Sachs. Your line is open.

Yeah, Hi, guys. Thanks for the question I guess.

What I wanted to dig into a little bit was the engagement number and I mean, it you juxtapose or little bit lower engagement, maybe than we anticipated maybe than you did two im not sure against really good numbers here.

What I'm curious about is whether you think you've learned anything incremental about user behavior that.

Forum's view on how this might play out in the second half of the year I know.

Some of the commentary sounded pretty cautious there, but I'm just curious what you guys feel like you've learned or have you really learned any they are we still kind of waiting to see how consumers behave as we move into the fall and then I have a follow up.

Okay.

Let me take that question this is ashish.

So just to provide context, let me kind of remind people what how we calculate engagement engagement as calculated by the number of people that are cut in the last 90 days divided by the entire user base. So we never churn users out alright.

So in Q2, we had.

As Marty said $3.2 million users that are engaged in the last 90 days that is about $1.1 million more users are engaged this year than they were last year.

So the user growth in terms of engagement was pretty significant however, as you rightly pointed out the engagement percentage number 59 was.

Down from.

Q1.

And the reason was again the most important learning was that I mean, clearly with the extended an amplified seasonality.

We saw people, taking vacations and getting out of their homes now that that influence the types of projects that we're making so we saw.

People, making projects were wedding parties and.

Getting out for trips, but at the same time, the overall engagement, probably because of less out of home improvement and stay at home projects. The net impact of that decline. So I think the biggest learning was clearly user behavior is changing.

We have tried to offset that with a number of.

Ramping up a lot of our engagement activities by segmenting, our users giving them more inspiration.

Trying to get them.

Education programs. So we will see while we will see a continued trend in that decline at least.

Past the summer months.

We think we will be able to offset some of that because of the additional insights and learnings we have and just to give one more comment.

We had a tremendous program.

Lined up for back to school and just in the last week week and a half we've seen a.

<unk> uptick in engagement because of that back to school activities. So.

So I think.

Lots going on in the World out there and we are keeping pretty vigilant in terms of understanding user behavior trends and trying to offset some of that.

As you go into Q3.

Okay. That's great. Thanks, Ashish great color, there and then Marty you talked about margin some expected margin pressure.

Second out due to supplies and freight and so on.

Could you maybe.

Do anything there to quantify for us like what what scale of pressure, we're talking about just to that.

We can all kind of level set what we should be anticipating for margins in the second part of the year.

Yes, I think that what what mainly what I was referring to at that time was leaning into.

<unk> spending on.

Operations investments that we had foregone.

Or should I say didn't keep up with in the early part of 2020, and so we came into 2021 working to catch up.

Two.

With those investments.

So I think that if you look at the year as a whole we continue to expect that our EBITDA margin will remain in the in our long term target model range of 17% to 20%, but the.

The quarters the quarters can obviously fluctuate.

Okay, and so what we should be thinking as kind of gross margins holding.

Maybe roughly steady.

In in the second half, but then opex.

As you say some of those opex investments coming back in and Thats the way the model roughly moves in the second half of the year.

Yes, I think Thats I think Thats, a fair a fair comment it will be more in the Opex side.

Okay, alright, thanks, a lot I appreciate it.

Okay.

We have our next question from <unk> Huberty from Morgan Stanley.

Your line is open.

Yes. Thank you good afternoon, Marty you mentioned the strategic decision to hold more inventory can you just clarify is that on Craig its balance sheet or is it also in the channel.

Or a combination of both of those and then can you help us size the contribution to <unk> revenue from rebuilding.

Retail channel inventory and selling in the new products. Just so that we can understand what was more one time versus reflecting real sell through.

Yes so.

As far as far as inventory goes my comment was primarily.

Focus on our balance sheet.

The we don't really have.

Control over obviously our channel inventories.

But.

As I mentioned earlier, we have.

<unk> had a strategy of keeping a little higher balances of our accessories and materials, but we're extending that to machines.

Especially right now.

Just because of the.

Supply chain challenges that exist today.

That being said.

We do.

We do feel good about the progress that we made in building channel inventories or refilling, Let me say channel inventories from where they were earlier youll recall that over the past.

Year.

We've been we've been light on.

On inventory from.

In terms of being able to meet demand for the channel and we have caught up on that and we did that in Q2.

And so we feel we feel pretty good about our position.

On inventories today, but we continue.

To build that and we'll continue to build it into the future.

As far as Q2 and the impact of.

The channel fill from the product launches.

And the.

And the inventory re plan.

The.

It's obviously, a little challenging to determine exactly what those numbers are because.

With with the channel inventory.

Phil.

You've got phase in and phase outs that are implemented by some of the retailers and it's it's a little bit challenging.

To define it exactly but our estimate is about 8% to 10%.

Attributable to the channel fill for the launch and about 5% to 8% for inventory.

Inventory re plan.

And is are those numbers on total revenue or just for device revenue.

On total revenue total revenue, okay, and the refill with both for accessories of materials and devices are mostly just on the machine side more yes more on more on machines.

We.

We were in a better inventory position earlier on accessories and materials and so in Q2 is really mostly machines.

Just want to add commodities color, which is part of the reason, it's really hard to estimate is that especially going into the quarter. We still had retailers out of out of product. So we had to kind of net out the sales lost because we didn't have enough inventory in the channel so really hard to both from a phase in phase I.

Ill perspective.

Because there is a slowdown in the existing products.

New people are waiting after the announcement for the new products. So again.

We just have to take that with a grain of salt.

Okay. That's really helpful. And then just a follow up.

On the discussion around engagement, you mentioned that quarter to date years, youre seeing a bit of a downturn should we expect that that looks similar to the downtick from from March to June which was about three points and then any view yet on whether you would expect to see the normal sequential.

So uptick in the December quarter, the holiday season.

So I think there are two the two numbers right one is that the.

What other companies are defined as active user growth I mean, we talked about the engagement numbers so the absolute numbers.

It will increase quarter over quarter year on year right, because we have a much larger installed base this year and Thats, what we saw in Q2 now in Q3.

As summer came and even as we've gone in the last few weeks and months, we've clearly seen that engagement.

Some headwinds for engagement, what's interesting is that we haven't seen similar headwinds at least to date on subscription, which we can kind of look at those two data points in tandem.

One of the comments that I was making specifically about.

Sure.

Our efforts on back to school is that.

It is kind of shown that people out there that just kind of coming back from vacations. So we've seen an uptick I would say in the last week on the engagement numbers.

I think when you look at overall Q3, yes, there will be some pressure.

When you look at the engagement percentage number that number will increase year on year, but as we go into the holidays.

Similar to back to school as we see people getting staying more at home getting into the holiday mode, Halloween and Christmas and everything else that goes with it we'll see what uptick in some of those numbers.

That's perfect. Thank you Ashish and Marty.

We have our next question from Mark <unk> from Baird. Your line is open.

Good afternoon, Thanks for taking my question.

First I wanted to ask about the.

The maker and explore three just any further learnings you can provide on.

From the upgrade there I guess I'm curious to what extent, you're seeing existing maker explore owners upgrade their machines versus just kind of continuing to add features to attract new users to the <unk>.

Our system.

Yeah, So mark just to recap again, probably one of my favorite question of our product guidance.

You can talk a lot of our products, but overall I think those two products have been received very well by the market.

We're not breaking out right now in terms of what.

We just don't want to read too much into the initial cycle because it can be very misleading, but we've seen a healthy mix of people upgrading.

But also.

Healthy percentage of new users coming into the market. So our goal of launching these products. In addition to giving more speeds and feeds was to add versatility and new use cases, right. So people again with lawn cutting.

People can actually do more types of projects and wall decor, and home improvement and even using stem cells for painting.

That also has a parallel impact and how we are approaching channels and new user segments. So.

We're actually pleased with all of that we've seen people expanding the way how they use our products we've seen new user types one of the things that I.

Very interesting with our creative teams initially launched <unk> three is the first time, we actually use a fair amount there is a fair a good representation of men and women.

Doing different projects that you had this John in doing a big sign in.

Other outdoor projects. So I think it's definitely accomplish our strategic objective of increasing the versatility of our platform, but also going after new audiences in segments as well as upgrading it.

That's great. Thank you.

Marty I wanted to follow up on your comment on promotions in Q3 I.

I guess just help us understand the strategy behind the increased planned promotion ality, especially against the backdrop of a channel. That's just kind of recently catching up from a supply perspective.

Yes, so from so from a.

I talked about leaning into.

Our are investments that we had had kind of lagged on in the high growth.

Periods here recently the primary the primary things we're leaning into are going to be channel expansion.

Ill call it platform development are enhancing our platform.

Namely software and then international growth those are the three primary thing.

Let me I'll address the promotion as part of your question.

As we go into the holidays in general we see our portfolio mix is more machines.

We haven't.

As we go into the holiday season, so the product mix clearly changes.

In addition to that we have.

Some phase outs of our existing with one of our existing machines that we are planning as well. So we're just using this as an opportunity.

To acquire as many users as possible so that we can generate output.

The goal is to continue to energize and create excitement expand into new channels like Marty Marty talked about as well as expanded international footprint.

That makes sense, thanks for all the detail and best of luck.

Yeah.

We have our next question from Jim Suva from Citigroup.

Your line is open.

Thank you and good results to you and your team.

A question and then I'll follow up after you answer it because it might be completely unrelated to it but on the supply channel inventories are you happy and pleased where they're at now are they equilibrium or do your channel inventories need to come high.

Here or lower I realized during Covid, there was a big rush in back orders and such but now that we're hopefully coming out of Covid I'm. Just wondering about your channel inventories I've noticed the bug press was sold out originally and now its more in stock in stores and so I'm just kind of wondering about your.

Channel inventory levels, how you feel about them.

So.

In conversations with our retailers and viewing their weekly data we feel good about where we are right now obviously, we're not when I make the comment that we're.

We refilled the channel it doesn't mean, it's on every single SKU, but the vast majority of the Skus.

We've replenished to a what I would call a.

A healthy level of good level that we're comfortable with.

Gotcha, and then on the supplies and materials, if I heard correctly.

Last year June quarter was inflated due to like a rush on people.

<unk> cutters and accessories for like mass, making a COVID-19 related things in T shirts, and everyone trying to do.

And at home business is that the way to think about it that last year was overly inflated and in this year is that kind of a.

The stable with $26 rate you kind of see or is that still kind of inflated. The reason why I ask is like our family we switched from mass, making to now birthday Party T shirt, making and stuff like that with our cricket. So just kind of wondering about the <unk> then versus now and kind of your outlook for RPC.

Yes, I think your perception, Jim is correct and we feel good about the $26.67.

ARPA number and let me explain why so if you just ignore 2020 for a moment.

It was.

An odd year for a lot of reasons.

If you look back to 2018.

In 2019.

$26.67 is actually $2.50 higher than what it was in 2018. So the calculation for ARPA remember is accessories and materials revenue divided by our entire user base and so we've actually increased.

That are approved by $2.50, while quadrupling the.

User base over that same time period, and so we feel pretty good about about that $26.67.

That makes sense. Thank you so much for the details and clarification, it's greatly appreciated.

And once again, if you would like to ask a question. Please press star one on your telephone keypad.

Yeah.

We have.

Our next question from <unk> <unk> from Barclays. Your line's open.

Great. Thank you very much and well done on the quarter Ashish.

I wanted to get your view on what Youre seeing happening in sorry, the maker market trends.

You, obviously gave a softer guidance for the third quarter, so are they being supplanted by individual uptake.

And then Marty for you.

How far is your chip supply bought forward. It sounds like you have plenty of inventory. So I'm just wondering how far in advance do you buy the kit are they all fungible, meaning that you can buy them at Ford as you want and they have they are pretty much.

No changes there and then you mentioned briefly the potential for promotional activity to pick up perhaps kind of the later out of the year I'm. Just wondering if that was prompted by anything that youre seeing currently or is that just the eventuality.

Thank you very much.

Yes, So let me let me take the first part of the question anybody you can jump in for the second so.

One thing that we have a very long term focus.

There are some broad macro trends that we think are very well intact and probably will stay intact for the next many many many years.

And these are like personalization.

There is nothing that has happened pre pandemic during pandemic got postponed that make that would lend itself for us to believe that thats changing the second is the proliferation of social media.

So again thats going to continue to inspire people and people are going to be more and more intent driven in terms of what they are trying to do and have the tools necessary. The proliferation of digital tools for people to be able to make things and then finally.

Like you pointed out etsy seller trends right. So while there maybe.

Tiny variation in some of these things in the shorter term, we believe that the long term secular trends that we need to continue to focus on.

What we have seen is clearly, especially during the summer.

Certain types of projects being done lessor and other types of projects being done a lot more off and one of my favorite examples, especially as we.

Continuing to expand our channels use cases on audiences.

As people using our products for labeling and organizing by it so I'm part of many Facebook groups for professional organizers and one of our products that we've talked about in the past the stricker Joy, which is to go off the mass market. So a lot of these organizers and even people at home.

Using cricket Joy to create <unk>.

For labels.

Organize things with us.

Kids bedrooms are even as we go into class into schools and classrooms.

Pleased about that and then I think one of the other trends that.

I think if you look at it from a holistic standpoint.

Rather than from a month by month as international.

But I get bombarded almost every other day by some country by somebody in some countries, saying awareness cricket coming to Xyz. So I think those are things that the.

A few things that have changed in the shorter term debt I think it was really kind of the opening of the economy and the fact that people hadn't gotten out of their homes for a while but as we look at it.

Over the medium to long term I think everything we feel is intact and we are going to continue to execute on going after a broadening our use cases, adding versatility to our platform and expanding our channels to reach those new types of users.

Okay very helpful.

Thank you.

Yes.

So your question about <unk>.

<unk> and components.

Our first of all our supply chain team has done an excellent job.

In helping us mitigate a lot of this risk.

<unk>.

We.

About a year ago.

We began very aggressively.

Working with the manufacturers of these chips and components.

To lock in supply further out in the future and.

And some of those components and chips are as far as 52 weeks out, but we have locked in.

And so.

As we look at our our.

Longer term forecast potential.

We feel feel very good and comfortable with where we where we are at this moment in the.

In the.

Locking in those those.

Chips and components and the same comment can be made.

On shipping and our team's efforts there.

We work very hard to build inventory, especially on machines.

Fast so that we could beat the.

The peak congestion that we're experiencing right now in shipping.

And so we were able to get.

A fair amount of inventory in before.

Before we knew the crunch was coming and so.

From a supply chain standpoint, overall supply chain stand point, we feel pretty good about our position.

<unk>.

And where we stand.

And Marty on the promos.

Alright.

Okay.

Do you mind repeating the question on promotions go yes, yes.

You mentioned the potential for more promotional activity potentially pressuring margin later on and I was wondering if that stemmed from anything that you might be seeing in current day or it was sort of just.

A warning.

For the future. Thank you.

I wouldn't characterize it as a warning.

I don't think again.

The model that we have we are going to stay within that kind of those parameters.

I think what I was pointing out to is that in general in every Q4 as we head into the holiday season, we have a promotional strategy envy.

Based on the year, we have a different cadence towards our promotional strategy.

I think we're going to see this very similar trend as we go from Q2 to Q4 in.

In addition to that we have.

We have.

And many.

And any other categories that have been a part off.

Sometimes when you have a phase in phase out, it's a wonderful opportunity to create some energy and excitement in the market without damaging the price.

Cadence.

Structural over the long term. So that's what I was commenting on which is what youre going to see the seasonality that you typically do.

In addition to that of EMEA opportunistically use some of that to gain new customers and create excitement while keeping.

The new model comes out at a full price.

It comes out in Europe.

Try to be aggressive with it but again I don't think theres anything out of ordinary.

Okay makes total sense. Thank you very much.

There are no further questions at this time.

Okay Stacy is.

Or anything else, we need to we need to cover.

I think the thing that's it so.

Thanks to everyone for joining us on the call today.

And we look forward to speaking with Blue and.

And then it's unclear.

Yeah. So thank you again, everyone for joining our call and appreciate your time and focus on us.

Ladies and gentlemen. This concludes today's presentation. Thank you for participating you may now disconnect.

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Good day and thank you for standing by welcome to the cricket Q2, 2021 earnings conference call.

This time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Good question during the session you will need to.

Press Star one on your telephone keypad.

If you require further assistance. Please press star zero, although lifetime, the culture speech climbing Investor relations the Blue shirt group. Please go ahead.

Thank you operator, and good afternoon, everyone. Thank you for joining us on cricket second quarter 2021 earnings call. Please note that today's call is being webcast on the Investor Relations section of the company's website a replay of the webcast will also be available following today's call for your reference prepared remarks and accompanying slides used on today.

This call will also be posted to the Investor Relations section of the website investor Dot ticket Dot com joining me on the call today are Ashish O'meara, Chief Executive Officer, and Marty Peterson Chief Financial Officer.

These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factor section of cricket. Most recently filed Form 10-Q actual events or results may differ materially.

All non-GAAP numbers referenced in today's call are reconciled in our press release or on the slide presentation on our Investor Relations website.

This call also contains time sensitive information that is accurate only as of the date of this broadcast August pumps, 2021 click and assumes no obligation to update any forward projections forward looking projection that may be made in today's press release or a call I will now turn the call over to Ashish to begin.

Thank you Stacy and welcome everyone.

We had a solid second quarter with revenues increasing across all three categories connected machines subscriptions and accessories and materials.

Total revenue for the second quarter was $334.5 million, an increase of 42% over an exceptionally strong Q2 last year.

Strong revenues, coupled with a profitable business model led to a $68.5 million in EBITDA.

39% increase over the second quarter last year.

We also continued to see growth in our user base and healthy engagement and monetization.

We added over 430000 users in the quarter, bringing our total user count to nearly $5.4 million.

We saw continued healthy engagement levels at 59% in the second quarter down modestly from the stay at home engagement levels of the prior four quarters.

As a result of healthy user growth and engagement $3.2 million users very engaged on our platform in Q2.

This is one 1 billion more users engaged in Q2 compared to Q2 of the previous year.

The large influx of use us from 2020 and the first half of 2021.

Provide a powerful flywheel effect to our business with ongoing modernization opportunities as well as fuel momentum through word of mouth referrals.

I continue to be amazed by all of the projects and creativity from our users.

As expected we are seeing many projects centered around events such as weddings parties.

Family reunions and vacations just to name a few.

As users create the inspire other users to create.

And the more they create the more cricket benefits from network effects that ultimately drive new user acquisition and inspire additional engagement.

Yes.

One of the many ways, we are able to monetize the engagement is through a subscription service cricket axis.

We ended the quarter with nearly $1.8 million subscribers to cricket access up to a $1.6 billion at the end of Q1.

We continue to focus heavily on increasing the value proposition of our subscription.

We now have over 175000 images and cricket access and increase of over 40% from Q2.2020.

In the coming quarters, we will continue to aggressively add content as well as additional software features that will be available exclusively to cricket access members.

Another important pillar of our growth strategy international expansion.

Revenue from international markets grew 179% year on year in the second quarter and continues to grow into a greater proportion of total revenue.

Our top markets include Australia, France, Germany, and the UK.

The international markets, especially promising given our observations that the motivations.

<unk> that are driving growth internationally.

Similar to those that have good growth domestically since 2014.

Sure.

We recently introduced a new direct to consumer E Commerce site in the UK.

Giving our users a complete cricket branded shopping experience.

We anticipate that more direct to consumer sites, we'll be launching additional geographies in the coming quarters.

As we see significant synergies with our Omnichannel strategy.

We also welcomed our first sales team members in Italy, and Mexico in Q2 and continued to expand our retail footprint in markets, such as Germany, France, Spain, South Africa and Southeast Asia.

As we think about future investments in international markets, you will see us continue to increase our sales and marketing efforts.

Including adding key influencer relationships across the globe to help raise awareness and drive conversion.

We will also continue to diversify our content offerings.

First heavily in language and currency localization as well as foster and support international markets with cricket team members in those geographies.

We plan to grow international markets is using the proven cricket playbook.

Invest in delivering great experiences to users.

They will then show and tell to others.

We had some very exciting new product launches during the second quarter.

From the onset we have focused on building, an innovative and expandable platform for <unk>.

Community of users to drive long term growth.

In June we launched the new cricket extraordinary and cricket maker three machines.

Significant undertakings, which included new physical hardware as well as new software features content and a line of innovative materials.

I'm very pleased with the new products and the improved user experience that they provide.

Designed to cut up to twice as fast users can also cut longer runs of materials.

This is especially useful when creating things like wall decor lot size of banners or multiple copies of the same project.

In connection with these machine launches. We also launched a line of smart materials designed to increase creative use cases and improve ease of use.

Smart materials that especially engineered to keep materials perfectly aligned and on track from start to finish without the need for a cutting mat and forecast up to 12 feet in length.

These smart materials create a frictionless experience for our users whether they are cutting a small single image or a very long power repeated cuts.

We will continue to innovate in this area, but quality and seamless integration helps build a moat.

Cost of accessories and materials business.

Now coming on to software.

Ah.

Our cloud based software enables us to update features and functionality of existing physical and digital products.

This kind of platform extensibility is a clear differentiator in the market.

While also enabling us to rapidly innovate and add features to improve the user experience.

For example, during Q2, we added the log requested kerning feature and design space.

That enhances flocks usage and encourages engagement by saving time and effort.

Additionally, users can now light projects inside design space and more easily organize their personal library with a newly redesigned book bought feature.

We also continued our ongoing search optimization among many other things.

We take great pride in listening to feedback from our community.

Constantly enhancing the platform and the overall user experience.

And you will see us continue to invest heavily in these areas.

As noted earlier I love the passion of our users.

Many of our use of shared a love of our brand products and mission.

In other words, they are the heart and soul of cricket.

Approximately 43% of new customers first hear about cricket through word of mouth.

Providing a powerful vital in cost effective marketing engine for new user acquisition.

We now have over $5.2 million social media followers.

And $2.4 billion views on harsh SEC cricket on Tictoc, which are almost entirely organic.

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

Overall, I'm really pleased with the quarter and our progress to date.

The products, we've launched and the lives we impact create a tremendous opportunity for us to continue scaling our user base.

We estimate our serviceable addressable market in the U S and Canada.

Is the roughly 85 million individuals.

Including our Sam internationally, we believe that opportunity is roughly 130 million individuals when adding just Australia, France, Germany, and the UK markets.

With a user base of nearly $5.4 million, we are penetrated just over 4% of our SaaS.

As we continue to expand our offerings drive continued user engagement and fuel a viral marketing engine. We believe there's an even greater opportunity for creative everywhere to join the cricket platform.