Yeah, I think so. All right, so I think we're gonna go ahead and get started here. Good morning, everyone, and thanks for joining us today. My name is Lane Czura, and I'm part of the U.S. Internet team here at Goldman Sachs. I'm very pleased to be joined here today with the Cricut team. We have the CEO, Ashish Arora, and the CFO, Kimball Shill, and the SVP of Finance, Jim Suva. Before we get started, I think you will go ahead and read the Safe Harbor Act. Yes. Thank you so much, Lane, and welcome everyone to the Cricut Fireside Chat. A few housekeeping items. First, this fireside chat is being live broadcast, and a replay will also be available on the investor relations portion of our website. We encourage you to read our Safe Harbor commentary, which includes risks and our recent 10-Q and 10-K, and other SEC filings. As Lane mentioned, joining us on the stage, first of all, on the far right, is Lane. Next to her is Ashish Arora, our Chief Executive Officer, and Kimball Shill, our Chief Financial Officer, and I'm Jim Suva, SVP of Finance. If you do have any questions, please raise your hand, we'll get a microphone to you as this is being webcast. That way, it is captured. If you have additional questions, please email me at the conclusion of this or at jsuva@cricut.com. Lane, I'll turn it back over to you. Okay, great. So I guess, you know, first, for those in the audience that may be less familiar with the Cricut story, can you just talk about what you're trying to build, and what you're unlocking in terms of an opportunity, and just how you guys are positioned against that over the long term? Sure, sure. So first of all, you know, Lane, we are a, Cricut is a creativity platform, and users use our platform to make handmade goods or personalized everyday items. And they make lots of amazing things like, you know, personalized T-shirts, custom mugs, vinyl decals, cool projects, cards, you know, paper projects, and things that people will always continue to make. We have 8 million users on our platform and about 2.7 million subscribers. And the user journey starts with the purchase of a connected machine, but the relationship with the user over time stays on the platform. And so let me talk a little bit about the platform. The platform... You know, first of all, you know, our users design projects, files, and on our platform using our apps on iOS and other OSes, and they send it to the machine to cut. Our platform also helps people discover all kinds of inspiration and projects that they can actually make. So we help them discover content that they would wanna make or they think they'd wanna make. We help them design and make those projects, and ultimately, we want them to share back on our platform. You know, from a monetization strategy, we have, you know, a few different ways to monetize. Clearly, the connected machine is where the relationship starts. We have accessories and materials, which is a very, very important part of our business. So we basically help users figure out the materials that they'd need to make a project, so that's a big part of our monetization, and then finally, all the content and the subscriptions that come with it. Like I said, we have 2.7 million subscribers. Last comment I'll make is just about the opportunity size. You know, we estimate our SAM to be, you know, massive, because we believe that everybody wants to create. We've actually shared these numbers before. We have about 85 million people in the U.S. and Canada, 129 million people that are in the top six markets, and we believe that these trends that drove Cricut's growth from, you know, from 2014 all till now, those are still intact, and people will continue to make those projects. Okay, great. And then, I mean, looking at your, your revenue segments, you've got a fairly split balance between the connected machines, the accessories and materials, and the subscription. So can you just talk about how those are all interlinked and how they build upon one another? And then just with AI being such a key topic for investors this year, can you just talk about how you guys incorporate and leverage AI into your ecosystem? Sure. So, so let me first talk about the ecosystem and how we, you know, how everything is designed to work with each other. So we just launched a product called Joy Xtra maybe about a couple of weeks ago, right? It's a nine-inch machine, and one of the core value propositions of the machine is to actually allow people to make stickers and print things on their home printer and cut it on the machine, right? So the entire machine, the Cricut Joy Xtra, the software, the apps, the content for people to make stickers, plus we also launched, you know, four or five new types of materials. They were all developed together in unison to ultimately make it very easy for people to make, you know, full-color prints and full-color stickers, right? So that's a good example of where the machine specs, the software specs, the content, you know, we've got lots and lots of content, things that people wanna make, plus all the materials in the ecosystem, were all designed to give that user the best chance of success and to make it really easy for them to make all these types of projects, right? So, a really good example of how the ecosystem is designed because, you know, what happens when people use our materials, they basically just have to select an option saying, "Oh, I'm using Cricut's sticker paper," right? "I'm using Cricut waterproof stickers," and the machine just does the rest. Whereas if they've tried to buy other materials, they have to try out different settings, try out the cut settings, because every machine has to be calibrated to cut that material perfectly, right? So it's a great example of how everything works just seamlessly together. You know, from an AI perspective, we've been, you know, investing in AI for quite some time. We've actually been investing in machine learning, we've invested in predictive AI as well as generative AI. So today, we have a number of features that are actually using predictive AI. For example, we have, when people come search for something, they can often describe it in words, but sometimes they just want to visually say, "I want something that looks similar to that," right? So we have this feature called Similar Images. We have built other features like automatic background removal. Let's say I want to take a picture of a water bottle, and I want to remove the background, so they're able to use some of our AI engines to, you know, clean up the background, et cetera. We're investing very deeply in search. Again, search is, you know. We have so much content on our platform that sometimes for, you know, let's say I want to search for women playing soccer. But, you know, it's really. We leverage AI to find visually similar images based on that. When it comes to generative AI, which people have been talking a lot about, you know, we want people to find content even if it doesn't exist in our library. So we have, even though we haven't launched anything, you know, we want... Somebody might come in and say, "Dolphin jumping over the boat in an ocean." And let's say that particular image was not in our database, we would be able to automatically generate, you know, with an image. Today, we have launched it. We've been, you know, investing in it pretty heavily. The difference between us and what we see in the market is, today, most of generative AI is actually based on graphical images, and, you know, we are basically focused on vector images, which are very, very precise and very hard to design. So our generative AI is built for that. So we think of it as a very, very complementary part of our business and not much competitive. As we execute on it, we do have to be careful in terms of making sure we respect copyright laws, and we are respectful to both the artists, but we believe it's a massive opportunity for us to, you know, not only for our monetization strategy called subscription, but also to really enhance the value proposition of the platform to help make it easy for people to actually create projects. Yeah, that, that makes a lot of sense. And then, I mean, just zooming in a bit, you guys recently launched the, the Cricut Venture in July, adding to your portfolio of connected machines. So can you just talk about what the target audience is that you're after and just how consumer adoption has been trending so far? Yeah. Yeah. So Cricut Venture, we just launched Cricut Venture about a couple of months ago. It is our 24-inch cutting machine. It's the flagship product for us, and it was designed for the creative enthusiasts, right? So, it allows people to take a large machine and place it in their home on even a dinner table, because the machine has a 45-degree angle that basically makes it much more space-optimized for people to use in their home. The machine allows people to cut, you know, 75 feet of repeated images, large images, lots of projects, you know, in batches. It is designed for the creative enthusiasts, who today makes a lot of projects or makes large projects for schools, for organizations, for weddings, for, you know, churches, religious organizations, events, parties, all of the above. It also is being adopted by some users who want to sell. But first and foremost, it's actually designed for people who use multiple machines. They're heavily into the category, they're deep hobbyists, you know, et cetera. This is our first in-person launch event that we did a couple of months ago. We're really, really excited about the launch, and, you know, so far, we're very pleased. It's still early days, but we're very pleased with the results. That's great. So I guess looking at the broader macro environment, there's some consumer softness. Can you just provide investors with an update as to how new user acquisition is tracking as well as engagement? Yeah. Let me kind of rewind a little bit and just give people a little bit of history. So the company is growing about 40%+ from 2014 to 2019. You know, we believe that the trends and the SAM are intact and healthy. Now, in 2020, when COVID happened, you know, to us, it was a massive conversion event. We had a very healthy funnel, and all of a sudden, the funnel converted. We see the reverse happening today, right? Because we have, we believe, we have data that shows that our awareness is healthy, our funnel is very healthy. People come to the funnel, they go through the research process, and then they are waiting for things to become more affordable. The consumer is worried about, you know, inflation, worried about spending, and so we see, because we are a discretionary product and our average prices today, we've been less promotional this year than the last couple of years because we believe it's a long-term, it's the right thing for the category. We have data that leads us to believe that the funnel is healthy, people are coming, they're ready to buy something, but affordability is top of mind. So as we go into Q4, we will generally, you know, tend to be more promotional so that we can actually convert that funnel. But again, you know, when we look at the business, the fundamental trends, we think of the business as very healthy, we think of the funnel being healthy, and we just don't want to commoditize the brand while the consumer is in this mindset. But, you know, we're very excited about the business. Okay. Then looking longer term, how do you guys think about the potential to partner with e-commerce or social media platforms as a potential seller for creators and brands? Yeah, yeah. So, you know, like, I, I think I can take the question in a few different ways, but let me first just talk about from a channel perspective. You know, Cricut is a very researched purchase, and people go on social media platforms. Like, a lot of the you know, awareness originally comes from word of mouth, so friends and family play a huge role. When anytime when somebody publishes a project, either on the Cricut platform or on Facebook, Pinterest, Instagram, it plays a massive role in the- in creating awareness and the, the word of mouth. Whether it's people like: "How did you make this project? Well, I've used the Cricut." So from an awareness perspective, platforms like, you know, the ones that I mentioned, social media platforms, play a massive role in the awareness. From a distribution perspective, you know, back when a couple of years ago, we shared this data that half of our business comes online and half comes from bricks and mortar. So, you know, there's, again, that we see more and more of that happening, where people are going to e-commerce platforms, people are going to websites for our retailers, people are coming to cricut.com. Today it's closer to 60/40, not 50/50 right now. And then, you know, and then last but not the least, within our platform itself, if there's a massive amount of people coming every day, every week, we haven't disclosed those numbers. You know, we've created a marketplace of artists that can actually publish on our platform from across many parts of the world. And so that's an opportunity for them, you know, so they can publish art and content and then get paid for it and monetized. So, you know, I think we look at the platforms in many dimensions, and we think we have opportunities in all of them. Okay. And, now turning to Kimball. In your most recent earnings report, you guys saw a recovery in machine sales of about 5% year-over-year growth, but at the same time, accessories and materials still saw a 20% year-over-year decline. So can you just unpack what the key factors are that are driving that dynamic? Yeah, look, thank you, Lane. Yeah, we're actually very pleased to finally see an uptick in machine sales, as the last few quarters have been challenging for us. You know, a year ago, we actually had, on the accessory materials, some product launches that we didn't have comparable launches this year. And so much of that more difficult comp was actually channel fill for product launches. If you adjust for that, our A&M was still down, but it was only down about 4%. Okay. Then I recognize that you guys don't provide, like, detailed quarterly or annual financial guidance, but I think on the last earnings call, you provided some qualitative color around the back half of the year. So I was just hoping you could provide investors with an update as to what you're expecting for the remainder of the year. Yeah, and this will be consistent with our comments in our... From our last earnings call, is we're a seasonal business, and that means that for us, we typically do 40% of our revenue in the first half and about 60% in the second half. And as we've seen, consumers still be under pressure with discretionary spend, and as we're kind of watching the year unfold, we think that we will still be seasonal, so it'll be better in the second half than the first half, but slightly less than normal seasonality. Okay. And then, I mean, looking longer term, you guys have continued to reiterate the long-term operating margin range of 15%-19%. So can you just frame what the key building blocks are in order to get there? Yeah, we are focused on achieving operating margins 15%-19%. We're not there currently, but in order to get there, we need to be operating at scale and resume growth. We're a growth company, even though we didn't grow last year and we haven't grown this year to date, other than kind of the bright spot of machines in this last quarter. And so I think for us, once we're north of $1 billion and growing again, we think that's when we can achieve those operating margins. Okay. And I guess just within some of the OpEx line items, like where do you see the areas of most leverage over the long term? Most of our operating margin, you know, segments are kind of out of our - are outside of our ranges because we're at lower volumes- Mm-hmm. than we typically do. But I mean, we've talked about, as we went through last year and kind of adjusting to the environment, we cut $50 million out of planned OpEx spend. We went through a restructuring in January of this year to kind of further be careful on how we, you know, invest. We've managed the business through a medium- to long-term lens. Mm-hmm. And so we're always making sure that we are trying to make the right trade-offs between protecting the future, while also protecting our profitability in the short term. And so you'll see us making, you know, continuing to lean into investments that drive ecosystems, and we've talked about this over the last several quarters, and also investing in our platform. And so, you know, we continue to make those investments even as we are careful where we are, I guess, careful with our OpEx to make sure we manage our profitability. Let me just add to that. You know, if you look at our sales and marketing as a percentage of sales, right? Our approach to sales and marketing hasn't changed. We see a lot of efficiencies, but just because we have lower sales- Mm-hmm. Like, we see that ratio gravitating up, but that's – we're continuing to be very vigilant in how we go to market. We are very unique in terms of how we go to market in many of the, you know, countries that we are in. You know, on the R&D front, we've again, you know, we talked about early on in the year that our focus is on building connected machines, our platform. And, and, you know, things that we can differentiate with our platform being the moat of those investments. So I think we're taking a lot more focused approach in how we invest in that category. You know, our G&A is up, but that's mostly to do with warehousing and things that we had to fix expense. But we, as a company, have, you know, been profitable since EBITDA profitable since 2014, and our general ethos is to be incredibly watchful of how we invest. But at the same time, you know, majority of our investments are in connected machines and really building the platform out. We think there's a massive opportunity in leveraging and building the platform. Okay, got it. And then, just turning to capital allocation. I know you guys have paid out two dividends this, this year, one in February and, and one in July. So I was hoping you could just frame what your capital allocation priorities are, and just how should investors be thinking about your philosophy around paying out dividends on a go-forward basis? Thank you for the question, Lane. We don't see ourselves as a special dividend company. We don't see ourselves as a dividend company. We are a business that generates cash. The dividends we paid this year really are more around right-sizing our balance sheet post-COVID. All right? And the story with that is, as we went into COVID and all the uncertainties around supply chain, we had a very deliberate strategy to have inventory on hand that we could continue to supply our customers. And so we carried higher levels of inventory than we normally would have, as part of that strategy. As we've come out of COVID, and for the last several quarters, beginning late last year, we have been and continue to work down those inventory levels, and that is producing a lot more cash than we normally would in a year. And so, that's where you saw the February dividend and again in July, as we've kind of come farther in that strategy and have higher confidence about where we think our inventory levels should line up, that we felt it was time to rightsize that. And we will revisit that from time to time because we produce cash on an annual basis, right? But to our capital allocation strategy, you know, priority one is make sure that we can fully fund all the organic growth that we have for the company. Second is looking at R&D to make sure that we're protecting the long-term opportunities for the business. After that, we then look at, are there acquisition opportunities that we think would be synergistic with the business? And then finally, after we've covered all of those needs, how do we most efficiently return capital to shareholders? We've had a buyback program in place for a year, that's a $50 million buyback, and we still have $27 million outstanding. We're largely limited based on... We trade within Safe Harbor regulations, and so, we're limited on float and how much money we can place with that. When we looked at the capital we needed to return to shareholders, that really wasn't an option for us, and so a special dividend was the most efficient tool for us to use. Okay, got it. Then just pulling Jim into the conversation. You were recently hired as the SVP of Finance, and you have a prior background as a sell-side equity research analyst. So I'm just hoping you could share some of the big learnings that were surprises that you've discovered over the past six months. Thank you, Lane. When I was in your seat, I kind of viewed Cricut more as a connected machine company who had a little bit of a view on a platform. Now that I've been on the inside, all the efforts from the platform has been very invigorating. In fact, when Ashish talks about artificial intelligence and machine learning, and Kimball talks about uses of cash to grow the company organically, it's all coming together. You can see this if you launch your Design Space app, you can see how it has things that are now being pushed to you that are unique to you. Making a birthday card that's unique to you, or certain flowers or anniversary cards that's really unique to you. The platform, Lane, I greatly underappreciated when I was on the sell side. The strength of the platform is in the infancy, very early inning stages, and it's getting stronger and stronger, and these enhancements coming out are really, really powerful. So that's something that I appreciate a lot more now on the inside of the entire strength of the platform, and it's very exciting. Okay, great. I think I'll just take a moment to pause and see if the audience has any questions. Do you have a split between professionals or people? So, I'll... Ash, do you want to repeat the question? Just want to make sure that people are- Oh, sorry. Would you repeat the question about the- Do you have a split between hobbyists who are just doing it for themselves, friends and family, and I'll call them professionals or those who are monetizing the hobby, and just the behavior you've seen between the two different groups, over the last 18-24 months? So, the number that we've shared is... If we look at kind of our core markets, people enter this as a hobby, and what we have shared is about 26% of them graduate to where they sell something. That's not to say they're full-time sellers. There are people who are full-time sellers, but when I share that 26%, it's people who are enthusiasts, they make a lot, and they sell some, right? So maybe with a sports team or something like that. As we go around the world, because we're in over 50 countries, if you look more to the developed world, say, Latin America, we'll see that people enter with the primary intent to create a small business or home business, and then the hobby and crafting grow from that. Yeah, just to kind of add to that, when we look at the SAM, and, you know, I'll just go into the-- I'll double-click on it. We basically ask people saying: Have you made something in the last 12 months that could have been made with a Cricut machine? And that market, we estimate to be about 85 million people in U.S. and Canada, 129 million people when it comes to the top six markets, which includes U.K., Germany, France, and Australia. So we think we're, you know... And then we you know, for ourselves, even though we haven't published these numbers, we basically stress test it saying, "Well, you know, what if you did once a quarter? What if you did once every month, you're doing something?" Those numbers are still pretty gigantic, right? So, you know, when we look at the opportunity, we definitely believe that, you know, segments like small businesses, segments like promotional products, segments like school teachers, education, they are really good opportunities for Cricut. You know, the second thing I just kind of double-click on is, you know, when we look at international markets, we are now in 50 markets, and we have a very organic way. We don't go and spend tons of money in each market. We just, you know, we basically go into a market, hundreds of users come onto the platform, and they start evangelizing. So every place we've gone to, right, we believe that the same things that drove our growth in U.S., and U.K., and Canada, and Australia are pervasive everywhere. It's this human need to create and inspire. So while we believe that, you know, we definitely want to participate in the user's journey to become a prosumer or be a business, we think the opportunity is far bigger when it comes to just making the platform incredibly easy to use. And, you know, given the size of where we are less than we have 5%-6% penetrated today, our core focus is going to be to cross the chasm and really go after tens of millions of users. Many of those users, or some of those users, will sell, and there'll be an aspiration, but we believe if we get the first right, we'll get the second. But we believe that the opportunity is really to cross the chasm and go after a much, much broader audience. Now, if you look at platforms like Etsy and Facebook Marketplace or, you know, other places, Shopify, we have a lot of our users that use our products to sell, but we believe that still it's a smaller segment to compare to the larger opportunity we have. You mentioned something about the uptick in the machine sales last quarter. Can you maybe talk a little bit more about whether you guys have done any analysis on whether that's just a function of the easier comp last year, or any promotional strategy that has been working out in your favor to get more interaction, more traction from the consumers? So, you're talking about the 5% increase in machine sales. It's an easier comp, right? And to kind of replay history, you know, coming out of the pandemic, we weren't quite sure what to expect, and we were planning on a normal seasonal year last year. And as we looked at, as Q1 started to play out, and then you look at kind of. You know, we sell a lot in Q4, and so you looked at kind of where Q4 was relative to Q1, it was looking like normal seasonality. And then Ukraine happened and all the inflation, the economic shocks, and we saw a significant drop in consumer behavior. And so, part of that is we're just lapping where we saw and we've seen that pressure on consumers continue. But, I mean, we're all reading the same news, but we also have our own research where we really understand the pressure on our consumers. And so we're just to the point where we're lapping some of that. And so Q2, the comps were a little bit easier for us, was the primary reason. Yeah. I think there are a couple of puts and takes, right, Kimball? One is, clearly, we're in a better inventory position, so there's, you know, we're feeding into a healthier channel, right? The second is, you know, I think we—which is a—that's a, you know, that's a positive. On the negative, we basically have retailers that have overcorrected their inventory, and we believe that they'll have to basically fill in, you know, stock to, to leverage the holidays. On average, you know, our prices are significantly higher than they were 12, 24 months ago, which again, goes against, you know, where we are, but we believe that's the right way to approach the business. We are being less promotional. As I said, when we look at our funnel and our data, we feel that the funnel is healthy. Now, you will see us being a little bit more promotional as we go into the holidays because users are telling us that they are waiting for a sale, they're waiting to save money, they're waiting for affordability, they're waiting for some of their inflation fears to go away. But we believe that when you look at all of those things, we are managing the business in a much better way, and we believe that there's an opportunity that will manifest itself, but we just need to get through this period, so. All right. If there's no further questions, I just have one more for you, Ashish. You've been the CEO for 11 years, and I was just kinda hoping you could speak to what goals or milestones you're looking towards over the next year. And then, you know, in 12 months from now, what do you think will be, like, the biggest surprises that investors might have missed? Yeah. So, yeah, Lane, you're right. I've been at the company for about 11.5 years, and this is... I'm not just saying it because it's not true. I wake up every morning, and it still feels like day zero on the job. You know, we've accomplished a lot, you know, over the years. We've grown the company pretty significantly since 2014, and I feel like we're just starting out. Things that actually get me excited and going, one is, you know, clearly, as we talk about crossing the chasm, the two things that we are focused on is, one is affordability. We want our products to be affordable. We want it to be in the reach of many users, not only in terms of the initial machine, but also in terms of the overall cost of ownership of the machine and the platform. The second is approachability. We've made massive strides. You know, and you can kind of look at other categories, like the music, like Apple's iPod, right? And what happened and how it graduated over time, both in terms of approachability and affordability. The second is, as I said, is approachability, which is, you know, our platform is incredibly you know, massively easier to use. But we just want to continue to invest and really make it easy for people to discover things. We want to use personalization, AI technologies, to help them find things that they didn't even know they wanted to make, right? So a continued focus on making the platform easier, make it more inspirational, and really helping the user, you know, find things that they'd want to make. So I think we are competing with everything else that's going on in life. So how do we make it easy for them to discover things? How do we help them make it easy to help them to make things? And then ultimately, how do we help them inspire every other community member on the platform, you know, with their creativity? So discover, make, and share are critical aspects of our platform. You know, a couple other things that get me excited are, clearly, like, you know, the world is our canvas, right? Every country, as I said before, that we've been in, the same trends that drove growth, you know, whether you go into South Korea or Taiwan or Japan or Singapore, Malaysia, South Africa, Turkey, Africa, like, all of these places, the same human need exists, and our job is to get our platform in front of them. So you know, I think we have a lot more exciting things to come, a lot of innovation in the works, and, you know, I always tell my team, "These are early days," so. Great. Well, I think that's a great place to end. So please join me in thanking the Cricut team for being here today. Thank you, Lane, for having us. Thank you, Lane.