Cricut : Q2 2021 Prepared Remarks

Cricut Earnings Call August 12, 2021, 3:00 PM MT

STACIE CLEMENTS, INVESTOR RELATIONS, THE BLUESHIRT GROUP

Thank you, operator, and good afternoon everyone. Thank you for joining us on Cricut's 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 company's website, investor.cricut.com.

Joining me on the call today are Ashish Arora, Chief Executive Officer, and Marty Petersen, Chief Financial Officer.

Before we begin, 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-Q. Actual events or results could differ materially.

All non-GAAP numbers referenced in today's call are reconciled in the press release or 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 12, 2021. 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.

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Cricut Earnings Call August 12, 2021, 3:00 PM MT

ASHISH ARORA, CHIEF EXECUTIVE OFFICER:

Thank you, Stacie, 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 revenue, coupled with our profitable business model, led to $68.5 million in EBITDA, a 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 430 thousand 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 were engaged on the platform in Q2. This is 1.1 million more users engaged in Q2 compared to Q2 of the previous year. The large influx of users 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 the projects and creativity from our users. As expected, we're seeing many projects centered around events such as weddings, parties, family reunions, and vacations just to name a few. As users create, they inspire other users to create. The more they create, the more Cricut benefits from network effects that drive new user acquisition and inspire additional engagement.

One of the many ways we are able to monetize engagement is through our subscription service, Cricut Access. We ended the quarter with nearly 1.8 million subscribers to Cricut Access, up from 1.6 million at the end of Q1.

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Cricut Earnings Call August 12, 2021, 3:00 PM MT

We continue to focus heavily on increasing the value proposition of our subscription. We now have over 175,000 images in Cricut Access, an increase of over 40% from Q2 2020. In the coming quarters, we'll continue to aggressively add content, as well as additional software features that will be available exclusively to Cricut Access members.

Another important pillar of our growth strategy is international expansion. Revenue from international markets grew 179% year over 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 U.K. The international markets are especially promising given our observations that the motivations and behaviors that are driving growth internationally are very similar to those that have driven growth domestically since 2014.

We recently introduced our new direct-to-consumer ecommerce site in the UK, giving our users a complete Cricut-branded shopping experience. We anticipate that more direct-to-consumer sites will be launched in additional geographies in 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 retailer 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'll also continue to diversify our content offerings, invest heavily in language and currency localization, as well as foster and support international markets with Cricut team members in those geographies. We plan to grow international markets using the proven Cricut playbook: invest in delivering great experiences to users that they will 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 our community of users to drive long-term growth.

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Cricut Earnings Call August 12, 2021, 3:00 PM MT

In June, we launched the new Cricut Explore 3 and Cricut Maker 3 machines, significant undertakings which included new physical hardware as well as new software features, content, and a line of innovative materials. I am 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 décor, large signs or 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 are specially engineered to keep materials perfectly aligned and on track from start to finish without the need for a cutting mat and for cuts up to 12 feet in length. These Smart Materials create a frictionless experience for users whether they are cutting a small single image or very long or repeated cuts. We'll continue to innovate in this area, where quality and seamless integration helps build a moat around our accessories and materials business.

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 in Design Space, a feature that enhances font usage and encourages engagement by saving time and effort.

Additionally, users can now "like" projects inside Design Space and more easily organize their personal library with our newly redesigned bookmark feature. We also continued our ongoing search optimization efforts among many other things.

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

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Cricut Earnings Call August 12, 2021, 3:00 PM MT

As noted earlier, I love the passion of our users. Many of our users share a love of our brand, products, and mission. They are the heart and soul of Cricut. Approximately 43% of new customers first hear about Cricut through word of mouth - providing a powerful, viral and cost-effective marketing engine for new user acquisition. We now have over 5.2 million social media followers and 2.4 billion views on #Cricut on TikTok which are almost entirely organic. We'll continue to foster these communities, amplify their voices and share their amazing work.

I'm 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 roughly 85 million individuals. Including our SAM internationally, we believe our opportunity is roughly 130 million individuals when adding just Australia, France, Germany and the U.K markets. With a user base of nearly 5.4 million we have penetrated just over 4% of our SAM.

As we continue to expand our offerings, drive continued user engagement, and fuel our viral marketing engine, we believe there is even greater opportunity for creatives everywhere to join the Cricut platform.

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

MARTY PETERSEN, CHIEF FINANCIAL OFFICER:

Thank you, Ashish and good afternoon, everyone.

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 that are newer to our story, let me quickly touch on the financial drivers of our model.

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