Q2 2024 Cricut Inc Earnings Call

Unknown Executive: Again, we 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 strategies, business, expenses, and results of operations in response to your questions. 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 Cricut's most recently filed Form 10-K or Form 10-Q that we have filed with the Securities and Exchange Commission.

I'd like to remind everyone that our prepared remarks contain forward looking statements and management may make additional forward looking statements, including statements regarding our strategies business expenses and results of operations in response to your questions.

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 crickets. Most recently filed Form 10-K or Form 10-Q that we have filed with the securities.

<unk> and Exchange Commission.

Unknown Executive: Actual events or results could differ materially. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, August 6, 2024. Cricut assumes no obligation to update any forward-looking projection that may be made in today's release or call. I will now turn the call over to Ashish.

Actual events or results could differ materially. This call also contains time sensitive information that is accurate only as of the date of this broadcast August six 2024.

Cricket assumes no obligation to update any forward looking projection that may be made in today's release or call I will now turn the call over to Ashish.

Ashish Arora: Thank you, Jim, and welcome, everyone. We are pleased with strong Q2 profitability and early signs that our acquisition and marketing strategies with retailers and consumers are starting to bear fruit. Connected Machines revenue grew for the second consecutive quarter from increased selling to retailers, while sellout to consumers was about flat in the quarter compared to a decline in Q1.

ashish: Thank you Jim and welcome everyone.

Ashish Arora: Remember, our flywheel begins with the purchase of a connected machine, which then presents the opportunity to monetize our customers through subscriptions, accessories, and materials. Operating margin dollars grew significantly, up 37% or $7 million, driven by higher platform revenue as a percentage of total revenue, and benefits from inventory impairment-related items despite a 6% year-on-year drop in overall sales. International sales grew 3% year-on-year. In Q2, platform revenues increased slightly on paid subscriber growth. Products revenues declined 10% as connected machine units and revenue growth were more than offset by a decline in accessories and materials.

Ashish Arora: Paid subscribers grew 3% to over 2.8 million. We ended the quarter with over 5.9 million active users who had cut in the past year, slightly up from a year ago. Our 90-day engaged users declined 3% year-on-year.

Ashish Arora: And I would like to give you some examples of our effort to improve this important KPI. Engagement is a key focus for our company, both in terms of onboarding new users as well as stimulating ongoing engagement for all users. Onboarders are a particular focus because the more they interact with our platform early on, the more likely they are to interact with our platform over time. We made progress in delivering a simpler, more delightful experience to our onboarders. We introduced several improvements during the quarter. Starting with the out-of-box experience, we made it simpler to connect to your machine and work through guided steps to connect to the platform.

Ashish Arora: Along with other improvements, this led to a year-on-year increase in the share of members who complete a project during their first day and who complete several projects in their first week. These are leading indicators for longer-term engagement. In Q2, we further expanded our content library, which has now surpassed 1 million high-quality makeable images within Cricut Access. We continued with our increased investment in the market. Some highlights include a partnership with the Jennifer Hudson Show to support teacher appreciation, a featured story on the evening edition of CBS News, and Mother's Day.

Ashish Arora: Additional broadcast segments focus on seasonal themes throughout the quarter, and we will continue to expand our digital marketing campaigns to reach consumers on streaming television, and a continued focus on the expansion of influencer marketing partners. Initial results are promising, measured by DrivingTrafficToCricut.com, which plays a central role in pulling consumers through the funnel regardless of where they purchase their machines. Our deeper promotional strategy that we started in late 2023 is working. In Q2, we saw growth in connected machines selling to retailers, as well as improving trends in sell-out-to-end consumers. This is a healthy positive indicator.

Ashish Arora: And this is despite retailers holding below optimal inventory levels, which resulted in missed sales opportunities. Our discussions with retailers regarding our planned deeper promotions and their on-hand inventory levels are constructive, with the goal of returning to total sales. Accessories and materials declined 27% year-on-year.

Ashish Arora: Our materials are engineered to work seamlessly with our machines to create the best user experience. We launched the Cricut Value Line of Materials in late Q1, which we designed to compete in online marketplaces. And we are optimistic about this product, but it's still early and a small portion of our portfolio. We have additional innovative products and cost reductions coming in the quarters ahead. The areas where we could do better are straightforward.

ashish: It is still early at a small portion of our portfolio.

ashish: We have additional innovation products and cost reductions coming in the quarters ahead.

Speaker Change: The areas that we could do better are straightforward, we need to attract more new users to buy a connected machines.

Ashish Arora: We need to attract more new users to buy our connected machines. We need to reverse weakening engagement trends and re-inject enthusiasm among our users. We need to be more effective competitors in accessories and materials. We are intensely focused on the overall customer experience, and we are motivated to work with those retailers that help us create a great experience, both on the shelf and in the actual use of our ecosystem. It is our fundamental belief that when we give people more reasons and inspiration to make things that are appealing to them, and we make it easier to make things affordably, we will see a lift in materials consumption. We are driven to continue to innovate while exhibiting both longer-term focus and current discipline. I will now turn the call over to Kimball. Thank you, Ashish.

Speaker Change: Meet the diverse weakening engagement trends and Reinjecting Uzi azzam among our users.

Speaker Change: We need to be more effective competitors and accessories and materials.

Speaker Change: We are intensely focused on the overall customer experience and we are motivated to work with those retailers that help us create a great experience both on shelf.

Speaker Change: And for actual use of our ecosystem.

Speaker Change: It is our fundamental belief that when we give people more reasons and inspiration to make things that are appealing to them.

Speaker Change: And we made it easier to make things affordably, we will see a lift in materials consumption.

Speaker Change: We are driven to continue to innovate while exhibiting both longer term focus and current discipline.

Speaker Change: I will now turn the call over to Kimball.

Kimball Shill: Thank you, Ashish. In the second quarter, we delivered revenue of $167.9 million, a 6% decline compared to the prior year and in line with our expectations. We generated $19.8 million in net income, a 23% year-over-year increase in our 22nd consecutive quarter of positive net income as we continue to invest in our key priorities. Breaking revenue down further, Q2 2024 revenue from the platform was $77.6 million, slightly up year over year, while paid subscribers increased 3%. Platform revenue was up less as the mix shifted more to annual versus monthly subscriptions, and the geographic mix shifted more to international compared to a year ago. Both shifts are targeted efforts.

Kimball: Thank you Ashish and the second quarter, we delivered revenue of $167 9, million% to 6% decline compared to the prior year and in line with our expectations, we generated $19 8 million and net income of 23% year over year increase in our 20 <unk> consecutive quarter of posit.

Speaker Change: Net income as we continued to invest in our key priorities.

Kimball Shill: Platform ARPU increased 5% to $52.61. Revenue from products was $90.3 million, down 10% over Q2 2023. Connected machines increased 18% driven by higher units sold and positive makeshift, while accessories and materials decreased 27%. Some retailers started to restock inventory levels on connected machines partially in Q2, unlike in 2023 when they were destocking more broadly. However, during key sales events, we found retailer shelves light on inventory to capture the opportunity fully.

Kimball Shill: In terms of geographic breakdown, international revenue was $33.5 million, or up 3%, compared to $32.6 million in Q2 2023. As a percentage of total revenue, international revenue was 20% in Q2 2024, compared with 18% of total revenue in Q2 2023, turning to active users and engaged. We ended the quarter with over 5.9 million active users, a slight increase from a year ago. We ended the quarter with over 3.5 million 90-day engaged users, which was a 3% decline from Q2 last year. As Ashish mentioned, we are encouraged by the improvement in leading indicator metrics for onboarders, but we have more work to do to improve engagement.

Kimball Shill: We ended the quarter with over 2.8 million paid subscribers, up 3% from Q2 2023, and Marginally sequential. As discussed in earlier calls, there is some natural subscriber attrition. So subscriber growth will be muted until we increase the pace of machine sales and new user acquisition. Moving on to gross margin. Total gross margin in the second quarter was 53.5%, an improvement compared to the 49.3% in Q2 2023. The improvement reflects higher platform revenue as a percentage of total revenue and benefits from excess and obsolete and other inventory impairment related items compared to the prior year.

Kimball Shill: Breaking gross margin down further, gross margins from platform were 88.6% compared to 89.7% a year ago. The slight decline in platform gross margins was primarily related to higher amortization of capitalized software costs, which we expect to continue. Gross margin from products was 23.3% compared to 18.2% in Q2 a year ago. The increase in gross margins was primarily due to positive impacts from excess and obsolete inventory and other inventory impairment related items compared to the prior year. Total operating expenses for the quarter were $63.4 million, and they included $10.2 million in stock-based compensation.

Kimball Shill: Total operating expenses decreased 7% from $68.4 million in Q2 2023. This was driven primarily by less reserves this year versus last year, the timing of some expenses that will be larger in Q3, and the unwinding of some prior reserves, which will not recur next quarter. As we mentioned last quarter, we increased our marketing plans for 2024, and you will see this in our higher sales and marketing spend. Operating income for the quarter was $26.4 million, or 15.7% of revenue, compared to $19.3 million, or 10.8% of revenue, in Q2 last year.

Kimball Shill: This was a 37% increase in operating income despite the decline in sales for the reasons discussed previously. Our tax rate of 33.6% increased from 30.2% a year ago, primarily due to the tax impact of stock vesting at a lower price.

Kimball Shill: Net income was $19.8 million, or $0.09 per diluted share, compared to $16 million, or $0.07 per diluted share, in Q2 2023. Turning now to the balance sheet and cash flow, we continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth. In Q2, we generated $35 million in cash from operations compared to $64 million a year ago. We ended Q2 with a cash and cash equivalence balance of $299 million.

Kimball Shill: We remained debt-free, and inventory decreased by $102 million from a year ago to $192 million at the end of Q2. During Q2, we used $9.3 million of cash to repurchase 1.5 million shares of our stock, resulting in $41.2 million remaining on our $50 million authorized stock repurchase program. In July, we paid approximately $108 million in dividends for the special one-time dividend of $0.40 per share plus our first recurring semiannual dividend of $0.10 per share.

Kimball Shill: These capital allocations are possible due to past profitability and our confidence in the sustainability of our future profitable operations. We want Cricut to always have ample liquidity to sustain and grow our business, but not to hold excess cash. We do not anticipate the need for any debt or utilization of our credit line in the near term.

Kimball Shill: Now on to our outlook. Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some updated color on our outlook for 2024. Given our first half performance, you can expect some incremental improvement in operating margins, while the remaining outlook remains generally unchanged. We expect continued sales pressure on our product segment, especially in accessories and materials, and accordingly, total company revenue may be down in Q3 year over year.

Kimball Shill: We will continue to accelerate marketing to generate consumer excitement. But given ongoing retail conservatism and pressure in our accessories and materials segment, as well as year-to-date performance, it is too soon to call an inflection point.

Kimball Shill: Hence, we may even see a decline in full year company revenue. We expect paid subscriber count and subscription revenues to grow slightly and may become a larger portion of total company sales and profits for the full year. Lower new user growth rates will put pressure on our subscriber growth, following a similar pattern to 2023. While Q2 paid subscribers grew, it was modest compared to Q1.

Speaker Change: True it was modest compared to Q1 like last year Q3 may see negative growth in paid subscribers in the quarter, but not enough to change our full year view.

Kimball Shill: Like last year, Q3 may see negative growth in paid subscribers in the quarter, but not enough to change our full year view. We continue to expect growth in platform revenue and paid subscriber count for the full year. In 2024, our operating expenses will increase modestly as we increase our marketing spend to reinvigorate excitement in the category. Given first half performance, we expect some incremental improvement in operating margins in 2024 compared to 2023.

Speaker Change: We continue to expect growth in platform revenue and paid subscriber count for the full year.

Speaker Change: In 2024, our operating expenses will increase modestly as we increase our marketing spend to reinvigorate excitement in the category given first half performance, we expect some incremental improvement in operating margins in 2024 compared to 2023.

Kimball Shill: Remember, we typically sell more machines in the second half of the year, and especially in Q4, and this increase in machine sales naturally pressures margins. We also benefited in the first half from the unwinding of some reserves, which will not continue in the second half of the year. Hence, the operating profits in the first half of the year will not fully carry over to the second half of the year. However, we expect to be profitable each quarter and generate significant cash flow during 2024.

Speaker Change: Remember, we typically sell more machines in the second half of the year and especially in Q4 and this increase in machine sales naturally pressures margins.

Speaker Change: We also benefited in the first half from the unwinding of some reserves, which will not continue in the second half of the year, hence the operating profits in the first half of the year will not fully carried to the second half of the year.

Speaker Change: We expect to be profitable each quarter and generate significant cash flow. During 2024, we paid approximately $108 million in cash in July for the dividends. After Q2 closed. So we remind you that our cash balance and associated interest income should be adjusted accordingly.

Kimball Shill: We paid approximately $108 million in cash in July for the dividends after Q2 closed. So we remind you that our cash balance and associated interest income should be adjusted accordingly. Our long-term financial model remains unchanged, with operating margin targets of 15-19%. Our proven model has demonstrated that when we operate at scale, which we define as revenue above $1 billion, and drive top-line growth, these margins are achievable. With that, I'll turn the call over to the operator for questions.

Speaker Change: Our long term financial model remains unchanged with operating margin targets of 15% to 19%. Our proven model has demonstrated that when we operate at scale, which we define as revenue above $1 billion.

Speaker Change: And drive topline growth. These margins are achievable with that I'll turn the call over to the operator for questions.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Erik Woodring. Erik, with Morgan Stanley, your line is open.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please standby.

While we compile the Q&A roster.

Speaker Change: Our first question comes trend.

Speaker Change: The line.

Erik Woodring: Erik Woodring.

Speaker Change: Eric with Morgan Stanley Your line is open.

Operator: Eric, if you're asking a question, we can't hear you. Oh, can you hear me now?

Speaker Change: Eric if youre asking a question we can't hear you.

Eric: Oh can you hear me now.

Operator: I eat that. Yeah. Yeah.

Operator: Sorry about that. Sorry, I was just handling multiple calls. I apologize, guys.

Speaker Change: Yes.

Speaker Change: Sorry about that.

Hannah: Sorry, this is hannah on multiple calls.

ashish: I apologize guys. So ashish.

Ashish Arora: So, Ashish, you know, you spent a fair amount of time, as we go back a few quarters, talking about stabilizing and improving customer engagement. And I know you have a long-term vision, but the reality is, is, you know, engagement remains challenged in the near term. And, you know, I guess it's a question whether investors are willing to be patient to get to that point of stabilization or inflection. So, can you maybe just help us understand why, but then also when, you believe your efforts to drive engagement will begin to materialize? And then I have a follow-up. Thanks so much.

Speaker Change: You spent a fair amount of time as we go back a few quarters talking about stabilizing and improving our customer engagement and I know you do have a long term vision, but the reality uses <unk>.

Speaker Change: Engagement remains challenged in the near term and.

Speaker Change: I guess, it's a question whether investors are willing to be patient.

Speaker Change: To get to that point of stabilization or inflection. So can you maybe just help us understand why but then also when you believe your efforts to drive engagement will begin to materialize and then I have a follow up thanks so much.

Ashish Arora: Well, thanks Eric for the question. So, I think you know, as you pointed out, we've talked about this for several quarters now, engagement continues to be a big priority for us. So let me, and we've seen some really good improving signals, and we talked about that in a little bit of the earnings call, but let me kind of embellish those as well. So the cohorts that we acquired in 2020 and 2021, and you know, we acquired a large number of users.

Speaker Change: Well thanks for the question, so I think that as you pointed out.

ashish: We've talked about this for several quarters now engagement continues to be a big priority for us.

Speaker Change: Let me.

ashish: <unk> seen some really good improving signals and we talked about that in a little bit of the earnings call, but let me kind of embellish those as well so the cohorts that we acquired in 2020 in 2021 and you know we acquired a large number of users as they graduate.

Ashish Arora: As they graduate, you know, in the natural graduation curve. That's putting a lot of pressure on engagement, specifically given the fact that we are requiring fewer users compared to those timeframes. Now, we've broken this into two buckets, so I'll speak to each.

ashish: Natural graduation curves.

ashish: That's putting a lot of pressure on engagements specifically given the fact that we are acquiring lesser users compared to those timeframes.

ashish: Now we've broken this into two buckets, so I'll speak to each of them. The first is just looking at on waters, because we want to make sure that the.

Ashish Arora: The first is, you know, just looking at onboarders because we want to make sure that, you know, the people that we are acquiring in 2024 have a better graduation curve over the course of time, so they continue to stay engaged, you know, and the curve flattens out. Related to that, we've seen some really important and improving metrics that I think bode well for the business overall, which is that we are getting those users connected to the platform on Bluetooth, getting to their first test cut, and having them make a few projects in the first few days or first couple of weeks. Why that's important is that, you know, we know from our data that when users come onto the platform and engage in the first few weeks, they tend to stay more engaged over time. Right?

ashish: People that we are acquiring in 2024 have a better graduation curve over the course of time. So they continue to stay engaged.

ashish: And the curve flattens out.

ashish: Related to that we've seen some really important in improving metrics that I think.

ashish: Bodes well for the business overall.

ashish: Is that we are getting those users connected to the platform on Bluetooth getting to their first test Scott and having them make a few projects in the first.

ashish: In the first few days of first couple of weeks.

ashish: Why that's important is that we know from our data that when users come onto the platform and they engage in the first few weeks they tend to stay more engaged over time right. So I think thats, a leading indicators that as we get these newer cohorts. If we can improve their engagement that lends itself well to <unk>.

ashish: That business as those accumulate over time now.

Ashish Arora: So I think that's a leading indicator that as we get these newer cohorts, if we can improve their engagement, that lends itself well to that business as those accumulate over time. Now, when it comes to the installed base, right, the people that are already on our platform, they're very set in their ways. We have a lot of initiatives and, you know, in making sure that we are doing a better job inspiring them, getting them back to the platform to make some things, and making it easier for them to search for things and ultimately manifest those projects.

ashish: Now when it comes to the installed base right that people that are already on our platform, they're very set in their ways through a lot of initiatives and in making sure that we are doing a better job inspiring them.

ashish: Getting them back to the platform to make some things, making it easier for them to search things ultimately manifest those projects I think those are going to take a little bit more time.

Ashish Arora: I think those are going to take a little bit more time. You know, it's hard to call as to when that inflection point will happen, but I'm really confident in the initiatives that we've identified and the projects that the team is undertaking. But again, once again, I'll highlight that if you look at the leading indicator, it's making sure that if we can do a better job of the new users that we are bringing on board, how do we make sure that they, you know, stay engaged, and they graduate on a flatter curve.

ashish: It's hard to call as to when that inflection point will happen, but I'm really confident in the initiatives that we've identified in the projects that the team is undertaking but again once again I'll highlight that if you look at the leading indicator, it's making sure. If we can do a better job of the new users that we are bringing on board how do we make sure.

Speaker Change: The day.

ashish: Stay engaged they graduate at a more flatter curve that coupled with acquisition and as we improve our acquisition efforts, we think will help turn the tide.

Ashish Arora: That, coupled with acquisition, and as we improve our acquisition efforts, we think will help turn the tide. You know, it'd be hard to comment on a specific timeline, but I feel very confident that we are working on the right things.

ashish: It would be hard to comment on a specific timeline, but I feel very confident that we are working on the right things.

Kimball Shill: Okay, that detail is really helpful. Maybe the second question for Kimball, you know, I have to commend you guys on consecutive quarters within your operating margin model. You know, we did see what seemed to be maybe a little bit of cost rationalization this quarter and a positive makeshift towards platform versus product. I realize you will ramp costs a bit in the second half, but does this type of leverage in the model imply that when you return to growth, we should expect to see even more operating leverage in the model and maybe margins move to the higher end of your 15 to 19% range, or maybe just what's the right way to think about the relationship between growth and operating margins as we look forward, just given some of the performance you have amidst a declining

ashish: Okay.

ashish: Retail is really helpful.

ashish: Maybe the second question for Kimball.

Speaker Change: I have to commend you guys two consecutive quarters within your operating margin operating margin model.

Speaker Change: We did see that seem to be maybe a little bit of cost rationalization this quarter and positive mix shift towards.

ashish: Platform versus product.

Speaker Change: I realize you will ramp costs a bit in the second half, but does this type of leverage in the model imply that when you return to growth.

Speaker Change: We should expect to see even more operating leverage in the model and maybe margins move to the higher end of your 15% to 19% range or maybe just what's the right way to think about the relationship between growth and operating margins as we look forward just given some of the performance you have a it's a declining revenue base and thats. It for me. Thanks, so much.

Kimball Shill: And that's it for me. Thanks so much. Thank you.

Kimball Shill: Okay, Eric, thanks for the question. So first of all, it's important to acknowledge the impact of scale, right? Today, we're operating below a billion dollars, and so you see us leading into marketing investments to reinvigorate enthusiasm in the category, both among consumers and retailers. And you can expect that level of investment to continue. As we are successful in getting back to a billion plus in revenue, you'll see that that percent of revenue, you know, come, you know, take it be a smaller percentage of revenue.

Speaker Change: Okay, Eric Thanks for the question. So first of all it's important to acknowledge the impact of scale right. Today, we're operating below a $1 billion and so you'll see us leaning into marketing investments to reinvigorate enthusiasm in the category, both among consumers and retailers and you can expect that level of investment to continue.

Speaker Change: We are successful and and getting back to the 1 billion plus of revenue, you'll see that that percent of revenue.

Speaker Change: <unk>.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: <unk> be a smaller percentage of revenue.

Kimball Shill: I also kind of want to comment as to the incremental improvement in margins that we talk about in the prepared comments, because we expect to see about a point of goodness as we move through the year. And not everything moves to the second half, and let me kind of break that down. We sell more machines in the second half than we do in the first half, and machines naturally have more margin pressure.

Speaker Change: I also want to comment as to as to the incremental improvement in margins that we've talked about in the prepared comments, because we expect to see about a point of goodness.

Speaker Change: As we move through the year and not everything moves to the second half and let me kind of break that down.

Speaker Change: We sell more machines in the second half than we do in the first half and machines have naturally more.

Kimball Shill: And especially as we lean into our deeper promotional strategy, particularly in Q4 with the holidays, we expect to see more margin pressure in the second half than we experienced in the first half. There are also some one-time and periodic things that happened in the first half that don't carry on in the second half. So for example, a year ago, we were accruing bad debt reserves, and this quarter, we were able to unwind some of those reserves. And so that was about a $7.2 million impact on the quarter on a year-over-year basis.

Speaker Change: Margin pressure and especially as we lean into our deeper promotional strategy, particularly in Q4 with the holidays, we expect to see.

Speaker Change: Margin pressure in the second half than we experienced in the first half there are also some <unk>.

Speaker Change: One time and periodic things that occurred in the first half that don't.

Speaker Change: Carry out in the second half. So for example, a year ago, we were accruing bad debt reserves and.

Speaker Change: This quarter, we were able to unwind some of those reserves and so that was about a $7 $2 million impact to the quarter front a year over year basis.

Operator: All right, Eric, any further questions?

Speaker Change: Any further questions.

Operator: Now that should be it. You have to hop. All right, please stand by for the next caller.

Speaker Change: No that's fine he had to hop alright, please standby for the next caller.

Operator: All right, please stand by for the next caller. The next question comes from Asiya Merchant with Citigroup. Your line is now open.

Speaker Change: Your next question comes from.

<unk>: <unk> with Citigroup. Your line is now open.

Operator: Good afternoon, team. This is Mike Cadiz from Asiya City.

Speaker Change: Good afternoon team. This is Mike Cadiz for US here at city. So my one question is on international Congratulations and it was up 3% after a couple of quarters of decline.

Mike Cadiz: I'd like to get a little bit of more color on that trying to see if it was broad based or maybe country specific I only ask because we went out and calibrate it going forward and to see if maybe there is any upside to that as your initiatives gain more traction.

Operator: So my one question is on international. Congratulations that it was up 3% after a couple of quarters of decline. I'd like to get a little bit of more color on that, trying to see if it was broad-based or maybe country specific. I only ask because we want to calibrate it going forward and see if maybe there's any upside to that as your initiatives gain more traction.

Speaker Change: Mike. Thanks for the question, we're really excited that we were able to return to growth in the international business.

Speaker Change: As we've talked over the last couple of quarters. There is markets, where we have seen pressure we continue to see that pressure similar to North America, but we're active in over 50 countries and so.

Speaker Change: In the quarter, there was enough goodness in some of the newer markets that overcame the headwinds that we continue to experience and in Western Europe and UK in Australia, like we talked about last quarter.

Speaker Change: But.

Speaker Change: From an overall perspective international we think continues to be a huge opportunity and a very important vector of growth for us.

Kimball Shill: Mike, thanks for the question. You know, we're really excited that we were able to return to growth in the international business. You know, as we've talked about over the last couple of quarters, there are markets where we have seen pressure, and we continue to see that pressure, similar to North America, but we're active in over 50 countries. And so in the quarter, there was enough goodness in some of the newer markets that it overcame the headwinds that we continue to experience in Western Europe and the UK and Australia, like we talked about last quarter. But from an overall perspective, international business, we think, continues to be a huge opportunity and a very important vector of growth for us. But, like I say, we're pleased this quarter to get back to growth.

Speaker Change: Like I say, we're pleased this quarter to get back to growth.

Ashish Arora: Mike, let me just kind of add to that. One is that the acquisition efforts that we are talking about in the U.S., basically, we're using that model across the world, and it definitely seems to be working. As a CEO, I get to travel to a lot of these markets every quarter. In Q1, I was in Europe, in some of the larger markets. Earlier this month, I was in Latin America.

Speaker Change: Let me Mike Let me.

Mike Cadiz: It's got to add to that one is that the acquisition efforts that we have.

Mike Cadiz: Talking about in the U S. We've basically we are using that model across the world and it definitely does.

Mike Cadiz: It seems to be working.

Mike Cadiz: I get to travel in a lot of these markets every quarter in Q1 I was in Europe, and some of the larger markets earlier. This month I was in Latin America.

Ashish Arora: In early Q4, late Q3, I'll be in Asia, and what's always fascinating for me as we get to these markets, as I talk to users, as I... see our influencers and the passion for the brand, the passion for creativity and for the Cricut brand. And, you know, some markets are more mature than others, or at least, I don't believe any of our markets are mature, but we've been in some markets for a longer time than others.

Mike Cadiz: In early Q4 late Q3, I'll be in Asia, and what's always fascinating for me as we as we get to these markets as I talk to users as I see.

Mike Cadiz: See our influencers in the passion for the brand.

Mike Cadiz: The passion for creativity and for the cricket brand.

Mike Cadiz: Some markets are more mature than others or at least.

Mike Cadiz: Don't believe any of our markets are mature, but we've been in some markets for a longer time than others. What's fascinating is.

Ashish Arora: What's fascinating is, you know, the same level of passion, the same level of the trends for personalization, the trends for wanting to make things for your family or for yourself and capturing those moments. It's so consistent worldwide. So I, you know, we strongly believe that we are in the very, very early days of the company in all parts of the world, and many of these 50 markets that Kimball talked about represent a really big opportunity for us over time.

Mike Cadiz: The same level of passion at the same level of the trends on personalization the trends on wanting to make things for your family or for yourself and capturing those moments. It's so consistent worldwide. So I.

Mike Cadiz: We strongly believe that.

Mike Cadiz: We are in the very very early days of the company in all parts of the World. Many of these 50 market that Kimball talked about represent a really big opportunity for us over time.

Operator: Great. Thanks, Ashish and Kimball.

Kimball: Great. Thanks, Ashish Kimball.

Speaker Change: Okay.

Operator: Please stand by for the next question. The next question comes from the line of Adrian Yee with Barclays. Your line is now open.

Speaker Change: Please standby for the next question.

Adrienne <unk>: The next question comes from the line of Adrienne <unk> with Barclays. Your line is now open.

Operator: Hi, this is Angus Kelleher on 4H UNI. Thanks for taking our question. How did the Cricut Value Materials offering do during... Where we have to get the right value proposition and price point to make it effective to also be able to ship direct to consumers, and we saw that play out very well, even though it's again very early days, but it's performing as we expected, and we think We're very optimistic as we look forward. Yeah, and I think you know

Angus Kelleher: Hi, This is Angus kelleher on for <unk>, Thanks for taking our question.

Angus Kelleher: How did the cricket volume materials offering during its first full quarter understood. It's still very early days, but perhaps you could speak to where you see that going in the future.

Speaker Change: The amount of materials categories. It can eventually touch and the channels you see that.

Speaker Change: And then I have a follow up thank you. Okay. Thank you. Thanks for the question.

Speaker Change: Yeah as I mentioned in the prepared remarks, we designed cricket value materials, specifically to ticket.

Speaker Change: Well and online marketplaces.

Speaker Change: We have to get the right value proposition and price point to make it effective to also be able to ship.

Speaker Change: Correct to consumers and we saw that.

Speaker Change: Play out very well.

Speaker Change: Even though again very early days, but it's performing as we expected and and.

Speaker Change: We're very optimistic as we look forward and I think that Angus just.

Angus Kelleher: I'll add to that which is that as we've talked about we've got to launch a set of materials. They are still a small part of our portfolio. We're going to continue to expand categories price points value proposition et cetera, We will again in the early days of that product line, but the signals. So far as Kimberly said have been very positive and we are very excited about it.

Speaker Change: Gotcha. Thank you.

Speaker Change: My second question is how do you feel about inventory levels at the retail partners sounds like you spoke to restocking being underway slowly but surely.

Speaker Change: As we approach holiday, how do you see the the <unk>.

Speaker Change: Order books shaping up.

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

Speaker Change: This quarter, we saw partially restocking related to connected machines and <unk>.

Speaker Change: And as we've seen.

Speaker Change: The growth in machine revenue.

Operator: We still saw inventory light on shelves to fully capture the opportunity. So when we had some larger promotions in the first half, we saw missed opportunities because there wasn't enough inventory to fully activate those opportunities.

Speaker Change: We still saw inventory light on shelves to fully capture the opportunity. So we've had some larger promotions in the first half we saw missed opportunity because it wasn't enough inventory to fully activate those opportunities.

Speaker Change: And you know.

Speaker Change: I think you know.

Speaker Change: Let me just kind of talk to some of the fundamentals right. We see the increase and then I'll kind of.

Speaker Change: Lead into your question again.

Operator: With our marketing, and I believe that our marketing is working, we are seeing a positive increase in traffic and seeing those trends improve pretty significantly from Q1 to Q2.

Speaker Change: With our marketing and I believe that our marketing is working well we are seeing a positive increase in traffic and seeing those trends improve pretty significantly from Q1 to Q2.

Speaker Change: We don't generally report on sell through but we've made some comments in the script, which is that our sell through and registrations and.

Speaker Change: While they were down in Q1 were largely flat year on year in Q2, and that was a very positive and improving sign and that's despite the fact that.

Speaker Change: No.

Speaker Change: Many of our retailers didn't have enough inventory on the shelf for the consumers either switch to online or they just kind of deferred that purchase to a later date.

Speaker Change: I think our second half youre going to see again, we're going to continue to ramp up marketing youre going to continue to drive traffic, we're going to be deeper and promotions that have a very solid plan for the end of the year and as we talked as Kimberly said, we are working with those we were working with retailers to make sure that they are adequately stocked up again.

Speaker Change: We saw some of that being some of that missed volume by retailers be leveraged by online channels, but we think that.

Speaker Change: Definitely missed some sales and again our partnerships with retailers are very positive very productive we have been showing the data in terms of the enhanced marketing increased traffic and we hope that they get as excited and committed to the category, which we think they will and hopefully there'll be able to capture some of these myths.

Speaker Change: Sales that they saw in the first half.

Speaker Change: Okay. Thank you.

Speaker Change: As a reminder, if he is like to join the queue and ask a question you will need to press star one one on your telephone and wasting your name to be announced.

Speaker Change: Try your question. Please press star one again standby for the next question.

Speaker Change: The next question comes from Eric Sheridan with Goldman Sachs. Your line is now open.

Lane: Hi, guys. This is lane on for Eric Thanks for taking the question.

Speaker Change: So if we look at the sales and marketing line and up low double digits or Bay area, but we've continued to see revenue decline.

Speaker Change: Hoping you could provide us with an update around your marketing plan that you've introduced.

Speaker Change: And any initial learnings so far and I guess just looking ahead, how are we how should we be thinking about the levels of investment based on low return.

Speaker Change: The payback periods that you are currently thing.

Speaker Change: So and as you pointed out we're spending at 20% of revenue in our sales and marketing line and it's been the last couple of quarters that we've been leaning into marketing spend specifically.

Speaker Change: I think you can expect us to continue investing at these levels and Ashish mentioned.

ashish: The leading indicators that we're watching in terms of reach clicks views and especially traffic to cricket Dot com.

ashish: Going positive signs and so.

ashish: We're continuing to shift the balance as we as we learn.

ashish: Where we distribute that across different media, but traffic to cricket Dot com is an important waypoint in the acquisition journey, regardless of which channel sell in purchases and they come to our website to research and understand the brand and in which connected machine is right for them and so.

ashish: While we're starting to see trends of goodness and Ashish as mentioned the increase in and sell.

ashish: Sell out to consumers going from down in Q1 to about flat in Q2, we attribute that to.

Speaker Change: Some of our marketing spend and expect us to kidney. This continue this level of investment as I mentioned earlier.

ashish: As an element of scale here.

ashish: We're successful growing this business and getting back to $1 billion plus revenue, you'll see that investment represent a smaller percentage of revenue over time.

ashish: And I think the way we approach. It is that we are definitely focused on the medium to long term.

ashish: We strongly believe our point of view on the market Hasnt changed and we believe that the market opportunity and we are the category leader. So our job is to make sure that we're building all parts of the funnel. There is some level of reticence of the consumer which we honestly don't even worry about that yet.

Speaker Change: I'm reticent from.

Speaker Change: <unk> buying discretionary products.

Speaker Change: Job and what the Bean category leader is to build all parts of the funnel drive excitement for the category and we've seen the improvements in traffic on cricket Dot Com, we're seeing IMAX.

Speaker Change: I'm actually very proud of our marketing team as we have continued to optimize our marketing mix, we understand better where to spend that money how to spend that money and we saw a ton of coverage whether it does Valentine's day mother's day are now going into back to school holidays.

ashish: We see success in social media channels.

Speaker Change: Smt's on TV, we are testing a lot of OTT adds so I generally.

Speaker Change: Our marketing team is really starting to ramp up and the what we did in the past is what we don't want to do now which is we kind of put a pause in marketing and what I think we are going to continue to maintain the levels of marketing that we've been doing in the last couple of quarters and we believe that it will pay off going into Q4, but also <unk>.

Speaker Change: As we prepare to heading into 2025 and 2026.

Operator: Okay, great. Thank you.

Speaker Change: Okay. Thank you.

Jim <unk>: At this time I am showing no further questions I would now like to turn it back to Jim <unk> Senior Vice President Finance and Treasurer.

Speaker Change: Thank you Elizabeth and thank you everyone for joining us. This afternoon, we have a large opportunity over the long term to drive new user growth and increased engagement. The cricket platform continues to not only strengthen but also provide increased value to our users. We will continue to manage our business for sustainable profitable.

Speaker Change: <unk> growth and generate healthy cash flows I'm excited about the opportunities ahead of us we will be presenting with investors at the following events. The Citigroup Global TMT Conference in New York. The first week of September and this and the Goldman Sachs Global commuter Copia.

ashish: And technology conference in San Francisco, The second week of September and we hope to see you. There. If you have additional questions. Please email me at Jay Suva at cricket Dot Com. This now concludes this earnings call and you may now disconnect. Thank you.

ashish: Okay.

ashish: [music].

ashish: Okay.

ashish: [music].