Cricut Inc (CRCT) 2025 Q3 法說會逐字稿

Good day and thank you for standing by. Welcome to the Cricut Q3 2025 earnings conference call. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance, Treasurer, and Investor relations.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on Cricut's third quarter 2025 earnings call. Please note that today's call is being webcast and recorded 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. Accompanying slides used on today's call, along with a supplemental data sheet have been 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 Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimba will host live Q&A.

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, tariffs, capital allocation, 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 factor section of Cricut's most recently filed Form 10-K or Form 10-Q that we have filed with the Securities and Exchange Commission ("SEC"). 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, November 4, 2025. 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.

Thank you, Jim. We posted solid results in Q3. Sales grew 2%, operating income grew 114%, EPS grew 100% and paid subscribers grew 6% year on year (YoY). While we are proud of our Q3 results which represented our second consecutive quarter of positive year on year sales growth, we have more work to do, especially on Engagement, International sales, and Accessories and Materials.

As I mentioned previously, we are relentlessly focused on increasing our speed of execution and our accelerating investments that will help drive future revenue growth. We are continuing to lean into these investments even as we navigate the uncertainty introduced by tariffs and the potential impact on consumer discretionary spending. These accelerated investments include hardware product development, materials, engagement, and marketing, including increased awareness in our international markets. That's why in 2025, we have launched two new cutting machines, more Cricut value materials, and several improved engagement experiences which also include AI.

We need to continue growing our top-line to satisfy the expectations of our team and our shareholders. We have conviction in what we need to do to return to sustainable growth. We are focused on attracting more new users to buy our connected machines by addressing affordability and ease of use, while also increasing marketing and awareness. We must ultimately reverse weakening engagement trends and reinject enthusiasm among our users by enhancing and simplifying the making process. We are committed to taking back our share in accessories and materials.

I will now talk about four priorities: New user acquisition, User engagement, Subscriptions, and Accessories and Materials.

We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our modernization flywheel.

In Q3, we made two adjustments to our marketing strategy that are yielding good results.

First, Target Expansion. We strategically broaden our target audience to reach users with greater disposable income and time, two of our major purchase barriers. We are seeing a significantly higher engagement rate with our ads from this new expanded group.

Second, Increased Marketing Investment. We directed increased spend into the channels that consistently deliver high engagement and high ROI for the brand. And we are seeing a more than 20% increase in overall marketing engagement year over year. These efforts are leading to an increase in searches for "What is Circuit" con Google, which we have historically watched as a leading indicator. Our sellout-units continue to be encouraging, with sellout-units up in North America and globally in Q3 and year-to-date. Sellout units were also up year over year in the recent October Amazon Prime Day.

Engagement erosion continues to moderate as we held active users about flat for the year. In Q3 we ended with just under 5.9 million active users, about flat compared to Q3 2024. 90-day engage users who cut during the quarter declined 3% year on year (YoY).

We are on track to meet our goal of dramatically simplifying the user experience by the end of 2025 for our most popular project types or "use cases". The use cases we are developing this year cover a large portion of project types cut each year. For each use case, we guide users by first having them choose what they want to make, for example, an iron T-shirt. Our platform uses AI image selection templates and guided step by step flows. The simplified interface exposes only relevant tools and automates complex manual decisions such as image sizing and placement on a youth medium T-shirt.

In July, we launched in beta guided flows for vinyl decals and Iron-on T-shirts, two of our most popular use cases. We have since released them into production during Q3, and their reception has been positive.

At the end of Q3, we launch our next two most popular use cases of folded cards and card stock cut-outs for beta testing.

We continued our AI investments in Q3 by moving the Create AI feature from beta to production for Cricut Access subscribers with positive early results. A major advantage of this feature is that the generated images are ready to cut, which is not necessarily the case with images sourced elsewhere, thus dramatically improving the likelihood of user success.

Finally, we brought in more visitors to design space. We are an engagement, marketing campaign in Q3 than in any prior quarter.

Despite the continued pressure on our engagement metrics, we are confident in our efforts to simplify our design experience by assisting users based on their project intent; continuing to grow the number of images, fonts, and editable templates available to users, most notably for Cricut Access subscribers, and improving our capabilities to bring users back to the platform to start or resume a project.

In Q3, our paid subscribers increased 6% year over year to just over 3 million.

Bait subscribers continue to be a big positive for us and increase 166,000 year on year (YoY) in Q3. We are also seeing positive trends on win backs where our promotional offers are driving increased signups from prior subscribers.

We have a rich road map to continually increase the value proposition for subscribers. As I previously mentioned, we launched Create AI for our Cricut Access subscribers, and we will continue to introduce more AI-driven features. Our goal is to make it incredibly compelling to become and remain a subscriber to leverage our content and software tools.

Accessories and materials sales decrease 17% year on year in Q3.

Over the last several years we have lost ground to competition and material types where there are no barriers to entry. We continue to see this competitive pressure increase, manifesting in white-label brands and retailers, as well as new entrants in online marketplaces and in retail. We have embraced the challenge of providing refreshed and cost competitive materials and accessories offerings. As these offerings continue to roll out over the coming months, we intend to reclaim market share and by doing so enhance the making experience of our users. We are focused on having the right product configurations in the appropriate channels, so Cricut materials are the obvious choice when users want to make.

In Q3 we launched several new project materials including principal temporary tattoos and magnet sheets. In addition to printables, we also added new finishes and types of Iron-on, including Flocked, Color Pop, 3D, and Puff.

We also continue in our relentless focus to drive costs out of this business, including optimizing country of origin by material type. While we have diversified most of our finished goods supply base largely outside of China over the last several years, we continue to manufacture in several countries in Asia. We believe we have a competitive advantage in the diversity of our supply chain configuration relative to the competition. We remain nimble as we navigate unprecedented tariff uncertainty.

Recall in first half 2024 we launched the Cricut of materials. We continue to accelerate this business, launching additional skills and material types. We continue to be optimistic about this product line as we see it perform well, but it is still a small portion of our portfolio. We have additional innovation, products and cost reductions coming in the quarters ahead.

Our teams did a great job executing during the October Amazon Prime Day, where we saw positive year on year growth for accessories and materials.

Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers with a focus on winning share.

We are intensely focused on the overall customer experience. It's our fundamental belief that when we give people more reasons and inspiration to make things easily and affordably, we will see a lift in materials consumption.

We are driven to continue to innovate while exhibiting both long-term focus and current discipline. With that, I will turn the call over to Kimball.

Thank you, Ashish, and welcome everyone. In the third quarter, we delivered revenue of $170.4 million a 2% increase compared to the prior year. We generated $20.5 million in net income, or 12% of total sales in Q3.

Breaking revenue down further, Q3 2025 revenue from platform was $82.8 million up 7% year on year. We ended Q3 with just over 3 million paid subscribers, up 6% year on year. We continued to expect paid subscribers to be up in Q4 and for the full year. Platform revenue growth was primarily driven by higher paid subscribers year on year. ARPU increased 4% to $54.96 from $52.86 a year ago.

Q3 revenue from products was $87.7 million down 3% year on year. Connected machines revenue increased 12% due to both higher machine unit sales and higher average selling prices, helped by our newer machine launches and fewer legacy machines. As Ashish mentioned, machine sellout units in North America and globally were up in Q3 and continued to be positive year-to-date. We don't have perfect coverage for sellout data in all channels, so treat this as directional. Accessories and materials revenue decreased 17% year on year. Recall last quarter we had the opportunity to accelerate shipments of accessories and materials resulting in 12% year on year revenue growth in Q2. If you average these, normalized accessories and materials revenue continued to decline.

In terms of geographic breakdown. International revenue for the quarter was $40.5 million an increase of 5% compared to Q3 2024. And included about 4% of foreign exchange benefit with platform up and products down similar to last quarter. As a percentage of total revenue, international revenue was 24% for Q3 2025 compared with 23% of total revenue in Q3 2024. We see positive momentum in our UK and Western European businesses where we continue to invest in sales and marketing, which sets us up well for peak holiday season. We are also starting to see green shoots in our nascent India and Japan regions with expanding distribution and demand. We are also pleased that Australia is stabilizing in the second half of the year through increased promotions and demand generation. We are increasing sales and marketing resources to further fuel momentum in our international markets.

We ended the quarter with over 3 million paid subscribers, up 6%, or 166,000 from Q3 2024, and down 6,000 or less than 1% sequentially, partially due to seasonality and the introduction of a new pause feature where we don't count paid subscribers in the metric. Recall, we have highlighted previously that Q3 paid subscribers could be flat to down. The Platform continues to be a bright spot for us, and Ashish detailed our efforts that are gaining traction in this area.

Moving to gross margin. Total gross margin in Q3 was 55.2%, an increase from 46.1% in Q3 2024. The improvement reflects higher product gross margins and a higher amount of subscription revenue as a percentage of total revenue with higher platform margins.

Breaking gross margin down further, gross margin from platform in Q3 was 89.2% compared to 87.1% a year ago. The increase in platform gross margin for the quarter was primarily related to lower amortization of software development costs.

Gross margin from products was 23.1% compared to 10.7% in Q3 a year ago. The increase in gross margin for the quarter was primarily due to less reserves compared to last year, the selling of previously reserved excess and obsolete products, and a more favorable mix toward newer products. The uplift from these items more than offset our promotional activities.

Total operating expenses for the quarter were $71.4 million and included $7.1 million in stock-based compensation. Total operating expenses increased 7% from $66.8 million in Q3 2024. Recall, we increased our marketing efforts during 2024 by $20 million and continued at a similar rate through Q3. We will continue to be data driven in our future marketing spend and expect to lean in through the holiday season, even as we navigate the uncertainty from tariffs and potential impact on consumer spending. We will continue our physical products and platform investments to drive future growth as we manage our business through a long-term lens.

Operating income for the quarter was $22.7 million or 13.3% of revenue compared to $10.6 million or 6.3% of revenue in Q3 last year and benefited from the mix of higher sales from platform and higher product margins which we previously mentioned.

The tax rate in Q3 2025 of 20% was slightly higher than the 18.9% in Q3 2024, primarily due to the difference from a decrease in stock based compensation attributable to a lower stock price upon vesting.

For the quarter, net income was $20.5 million or $0.10 per diluted share compared to $11.5 million or $0.05 per diluted share in Q3 2024.

Turning now to 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 Q3, we generated $20 million of cash from operations compared to $70 million a year ago. We ended Q3 with cash and cash equivalents of $207 million and remained debt free.

During Q3 we used $2.3 million of cash to repurchase 441,000 shares of our stock, resulting in $46.9 million remaining on our $50 million authorized stock repurchase program, which the board replenished in May. In July, we paid approximately $181 million in dividends for the special dividend of $0.75 per share plus a recurring semiannual dividend of $0.10 per share.

The board of directors recently authorized a recurring semiannual dividend of $0.10 per share for shareholders of record on January 6th, 2026, and payable on January 20th, 2026.

Now on to our Outlook. Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our Outlook.

We continue to expect platform sales to increase sequentially year on year in Q4 and for the full year on paid subscriber growth.

In Q4, higher tariff costs will have a negative impact on margins, and this headwind will accelerate in 2026. Also, we call Q4 is our most promotional quarter of the year. We expect to be profitable in Q4 and generate significant positive cash flow for the year.

While tariffs are the reality of today's world, our teams continue to be proactive and nimble with how we execute our strategy as we continue our investments to position the company for growth. With that, I'll turn the call over to the operator for questions.

Thank you. (Operator Instructions)

Eric Woodring, Morgan Stanley.

Hey guys, thank you, thank you very much for taking my questions tonight. Ashish, I appreciate all the commentary you provided on the different ways you're trying to improve engagement, re-accelerate software and parts of your business, etc. If you take a step back, what do the kind of spending trends in your business in 3Q tell you about the health of spending. Kind of across the different parts of the category you play in, and how does that inform your view on revenue seasonality for 4Q when we think about historically revenues up about 40% sequentially in 4Q. Are those spending trends, conducive of growth, better than that, worse than that? I'd love if you could just put that all kind of into context and any quantification would be helpful. Thank you.

Thanks Eric, for the question. Let me, I think there are two parts to your question. So let me kind of address the first one. And then I'll let Kimball talk to, some of the other aspects of your question. So I think overall, from an innovation standpoint and across the three across, various categories as we've indicated, we will continue, in fact, we have ramped up innovation in products which includes hardware in existing in some new categories and that we expect that investment to continue as we go through the next 12 to 18 months and even longer for that matter. The second is on materials. So again, we'll see we've, taken, a very proactive stance on that, and you'll see a tremendous amount of innovation, cost reductions and excitement there. And most of all on the platform side which basically is fuels engagement and our subscription offering, we'll see, we've had a higher level of investment, and we see that investment sustained over a period of time.

And the last area I would highlight is, the last two areas are international and marketing. Both of them, basically, we're a big focus this year. They continue to be a focus. All of this is with the lens of; we are a growth company. You are the last couple of years have been tough. We're very excited about the business and we think that there's a tremendous amount of Innovation to be done and to further penetrate our stamps. So, we expect that, with the, as we said, with a longer-term lens as we reposition and drive the company back for growth. Kimball, you may want to add more color to that.

Yeah, so, Eric, thanks for the question. I would point out that our sell out of machines continues to be up in North America and internationally for the quarter and year-to-date. So we look to that as evidence that our marketing efforts are working and engaging consumers. We do acknowledge we still have pressure in our assessors materials business. There was a little bit of noise because we had an opportunity in Q2 to accelerate some demand, but if you average Q2 and Q3, that business remains under pressure. As she mentioned, I think the teams have done a great job of driving cost out of that business and introducing new products. We talked about our value line materials, for example, that compete well specifically in online marketplaces, and I think we have more opportunities there as she mentioned. There is an element of engagement with consumers that we ultimately need to get more consumers in the door, and we need to get them cutting more frequently to also help turn the tide on overall engagement. And as she's talk about some of the things that we're doing in that area, in terms of holiday and how we see consumers showing up, we're pretty encouraged by what we saw with October Prime Day and some parallel channel promotions that we had where we saw pick up in units and in revenue across those promotions. I would add one cautionary note is we do regular consumer surveys and for the first time in our internal surveys we're seeing our consumers express concern about how tariffs may impact their family household spending. So we think we're in a good position for a holiday. We've got great marketing in place. We have a great promotional calendar lined up. We're excited. About it and we think we've got appropriate channel inventory across the board, but we are waiting to see how consumers show up in the in the back half of the quarter.

Let me just kind of add just a slightly macro level picture to that right as we continue to research, we have a strong conviction that our market is significantly more than we penetrated it.

The macros, the secular trends have not changed. Users, people, consumers want to personalize. They want to be creative, and if you look at Google trends and what is Cricut, we see significant interest in the brand year on year, especially with all the efforts of marketing. And finally, we believe that a lot of our investments that we are making both from an innovation perspective and from a platform perspective. We believe that that opportunity is in making the platform and the product incredibly simple and how do we reduce friction. And that's what the team has been actively focused on, and again we're very excited and convinced that we're working the right things.

And then I'll just have one more comment relative to Q4. Recall that there's some seasonality to engagement and Q4 tends to be the highest engagement quarter. We're also, as I mentioned, seeing year-to-date sales out, continue to be up. We think that bodes well for subscriber growth in Q4 and in Q1 as we look forward to that.

Okay perfect thank you. I think I got all of that. Thank you, guys, for all that color and then maybe Kimball, obviously here at the end of your prepared remarks, you alluded to higher tariff costs negatively impacting margins you know that will accelerate for you in 2026. Can you unpack exactly what that means and any financial framework you can help us with? I'm just going back to your comments last quarter where you materially outperformed margins this quarter. So just trying to get a financial framework for how to think about gross margins, is that up or down year over year just anything that can help us kind of narrow the range of where we should be. Thanks so much.

Yeah, thanks Eric. So let me break my answer in two parts. First, I'll talk about some unique helps to margins this year that don't necessarily carry over the next year, and then I'll address your question on on tariffs. So, there's a number of things where this year, for example, there's an absence of reserves on excess inventory that was a big part of the story last year and so that that helps the comparison.

And in conjunction with that, we've also done a good job of monetizing excess inventory this year and some of the easier chunks of that inventory to monetize will be exhausted as we kind of exit Q4 and so that won't necessarily help us to move through next year. And then there has been makeshift towards newer products which has also benefited margins this year. So, there have been some things that have really helped margin. And then as we look to next year, as I've mentioned in my comments, we're seeing some of that impact in Q4. We'll see that accelerate next year and it's still a bit of a dynamic situation if you recall we started seeing incremental terrorists in April, then they picked up in August and they're changing. With the announcement as late as last week, so a bit of a moving target, but in terms of a framework, the way we think about it is a single portion of our revenue and profit comes from platform. Platform is not impacted by by tariffs at all. And then if you look at our trailing 12 months of of cost of goods sold. About a quarter of that is international. That's not impacted by tariffs, but 75% of that is, and we've got exposure to four Asian countries, primarily Malaysia, South Korea, Thailand, and some finished goods still from China. So if you think about an average tariff rate of around 20% and how you apply that across that subset cost goods sold I mentioned. And then think about the timing of inventory returns. So even though we've been importing all along throughout the year, getting ready for holiday and building inventory at this point for next year, we pay those tariffs as it comes in, but it takes time for that, those tariffs to flow through the P&L, which is why we're just seeing really impact starting in Q4 and accelerating through 26'.

Okay, I appreciate all that color, and maybe just one quick clarification, Kimball, on that. The average tariff rate of 20%, that just takes into account the decrease in IEEPA tariffs in China last week. I just want to make sure that that just confirm that.

Yeah, I mean that's our best estimate based on what's changing because South Korea got an announcement next week as well as China. So, we haven't seen any official other than what the press.

Okay, awesome. Thank you, guys, very much for that call. I'll hop back in you. Thanks.

Thank you.

Michael Cadiz, Citi.

Hi, good afternoon team. This is Mike Cadiz for Oseo merchant at Citi. Your Create AI offering is very interesting. Would you mind helping us understand your current AI strategy? And one counterpoint would be, it may be challenging, I think, in gaining paid subscribers because What if those users can then get those AI images for free so if you can help me bridge that gap, that'll be great thanks.

Hey Mike, thanks for the question. So we're actually pretty excited about AI and we believe it's complimentary to our content strategy overall, and I'll give you a couple of examples. And you called out Create AI, which is our generative AI offering that we had in Beta and Q2 and has since moved into production. And it's optimized to produce images that are ready to cut. And so, as you as you call out, consumers can go and generate images elsewhere, which may work well on a printer because they're bitmap, but they're not, we need them in vector form for consumer to be able to cut them and use and make a project effectively. And so, we do think we have an advantage there. We have seen in limited data at this point that it actually is helping us bring in new subscribers, but it's not the only way we're using AI in our platform. We also have it embedded in our search algorithms so that we have our large library of images and we're using that to help serve content users that match their interest, their skill set, and their project type, and we continue to learning it better, leveraging AI on there. We also are using AI to accelerate. Efficiency and speed in our software development, I think it is worth calling out that as we see adoption pick up, especially in the generator AI part of the platform, that over time we could see some pressure on platform margins.

Yeah, so Michael, this is Ashish A. Let me just add a little bit more color and reinforce a couple of points that Kimble's made. So one is, we don't create AI as a user facing feature and as Kimball pointed out, what we specialize in is vector-based images as opposed to raster images for that are that are optimized for cutting, right? So, Create AI is a tool that we offer to consumers that basically allows them to generate specifically those types of images that are optimized for retro-graphics and cutting. The second is, in addition to those tools that are to generate images, we have a lot of complimentary tools like background removal, etc. That do require subscription today. And then on top of that, we are using AI to help users discover content based on the images they put. How do we find them complimentary images. So, AI is being, basically leveraged across many parts of our system, including from search technologies to find similar or complementary images to, how AI is supplementing, how people work with fonts and all of that stuff. So, I think AI is definitely, it's a very rapidly evolving market. We are embracing that, and we think it's ultimately a net positive for us as ultimately, we want to be the platform where people come to exercise their creativity. So, we're really excited about what the team is doing across the board in AI.

Excellent, thank you, Ashish and Kimball. Appreciate it.

Thank you.

Adrian Yee, Barclays.

Hi, this is Angus Tellerhart on for Adrian Yee. I have a couple quick questions regarding retailer partners. So my first question is about channel inventory. Does it feel balanced going into holiday and what steps are you taking to avoid channel stuffing or demand pull forward after Q2 and has that, Q2 pull in then fully absorbed and then I have a quick follow-up. Thank you. Okay.

Angus, thanks for the question. We actually feel like we're in a pretty good position overall for channel inventory of going to holiday. I think there are pockets where we'd love to see more, but in terms of the new normal that has evolved post-COVID, I think we're well positioned.

I would call out relative to the pull in demand we saw in Q2, and that was specifically around accessories and materials, that if you look at and we were down in the quarter in Q3 on that, so if you average Q2 and Q3, that's still down. At the end of the day, I think it varies a little bit by channel, but I think overall we're in a very good position. We see enthusiasm with our retail partners. I've already expressed the one concern we have of seeing how tariffs may impact consumers, but early signs based on prime day and parallel promotion we can in channel we're optimistic about Q4, waiting to see how consumers show up for the rest of the holiday.

Great. Second question, do you think you could share any early thoughts on margins for 2026? It's sort of a follow-up to Eric's question, but anything directional you could share, related to and beyond tariffs and pricing strategy maybe just how you're looking at marketing investment and, how it all comes together to affect operating margins in 2026.

So, I'm going to be careful and forward-looking commentary because with the tariffs, it is a bit of a moving target but let me share kind of how we're thinking about it. We do expect margin pressure next year because of tariffs. And really how we think about dealing with that from a consumer affordability standpoint is we will continue to manage the, to manage the mix of price and promotional strategies so that we can try to do as much as we can to maintain affordability for our consumers. We will continue to drive costs out of the supply chain, including getting participation from our supply partners to help us offset some of these tariff impacts. But at the end of the day, there will be some absorption to gross margins and move through 26' on tariffs.

Got it thank you.

Thank you very much.

I'm showing no further questions at this time, so I'd now like to turn it back to Jim Suva for closing remarks.

Thank you and thank you everyone for joining us this afternoon. We will be meeting with investors at the Barclays Investor Conference on Thursday, December 4 in New York City and the Roth MKM Investor Conference Thursday, December 11 in Deer Valley, Utah. We hope to see you there. If you have additional questions, please email me at jsuva@cricut.com. This now concludes this earnings call, and you may now disconnect. Thank you.