Good day and thank you for standing by. Welcome to the Cricut Q2 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. 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 at Cricut. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's second 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 Kimball 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 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. 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 5, 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 Q2. Sales grew 2%, operating income grew 14%, EPS grew 22% and paid subscribers grew 7% to over 3 million. I'm also pleased with the breadth of our sales growth as both reporting segments, Platform and Products posted growth of 4% and 1%, respectively. Last quarter, I mentioned that we have spent the last several years moving the majority of our finished goods spend outside of China across all our product categories but still have exposure to other Southeast Asia tariffs. Perhaps motivated by tariff risks, we saw some demand for accessories and materials in Q2 that we would have ordinarily expected later in the calendar year. This timing shift helped us post positive sales growth sooner in the year than we expected. Kimball will go into those details. While we are proud of our Q2 results, we have more work to do, especially on engagement, international sales and accessories and materials. As I mentioned last quarter, we are relentlessly focused on increasing our speed of execution and are 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 their potential impact on consumer discretionary spending. These accelerated investments include hardware product development, materials, engagement and marketing as we move to the back half of the year. Thus far in 2025, we have launched 2 new cutting machines, more Cricut value materials and improved engagement experiences. 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, ease of…

Thank you, Ashish, and welcome, everyone. In the second quarter, we delivered revenue of $172.1 million, a 2% increase compared to the prior year. We generated $24.5 million in net income or 14.2% of total sales in Q2. Breaking revenue down further, Q2 2025 revenue from Platform was $80.7 million, up 4% year-on-year. We ended Q2 with over 3 million paid subscribers, which is up 197,000 or 7% year-on-year and up 36,000 or 1% from Q1. Platform revenues were up less than paid subscribers due to more promotions, mix shift more toward annual versus monthly subscriptions and geographic mix shift more international, all of which are targeted efforts. ARPU increased 2% to $53.84 from $52.61 a year ago. Q2 revenue from Products was $91.4 million, up 1% year-on-year. connected machines revenue decreased 10% due to selling fewer machine units. Machine sellout units were down in Q2, but continued to be positive year-to-date. Breaking it down, North America was up in Q2, while international declined. Recall, we don't have perfect coverage for sellout data in all channels, so treat this as directional. Accessories and materials increased 12%. As Ashish mentioned earlier, in Q2, we had the opportunity to accelerate shipments of accessories and materials, which helped us post positive sales growth sooner in the year than we expected. In terms of geographic breakdown, international revenue for the quarter was $36.3 million, an increase of 8% compared to Q2 2024 and included about 4% of foreign exchange benefit and platform growth, while products declined. As a percentage of total revenue, international revenue was 21% for Q2 2025 compared with 20% of total revenue in Q2 2024. We saw strength in our core European markets where we continue to invest both in sales and marketing headcount and additional marketing funds. We continue to…

[Operator Instructions] Our first question comes from the line of Erik Woodring from Morgan Stanley.

This is Maya on for Eric. I have 2 questions for you. The first one is on some of that pull forward likely ahead of tariffs on the accessories materials side, is there any way to kind of quantify that impact on top-line as well as bottom-line? And I understand you're still assessing things for the second half of the year, but could that potentially lead to a demand gap in the second half?

Maya, thanks for the question. So I won't give an exact amount, but I will just reiterate, we did have an opportunity for share gain in accessories materials related to the relative strength of our supply chain, especially as retailers were looking at how they were going to maintain supply with potential interruptions. And so that did benefit from a timing shift that helped us post positive growth sooner than we expected. I will highlight kind of some previous commentary that we gave earlier in the year where we did expect to be down in the first half, but less than the prior year. And so we're continuing to monitor the sellout of these products to understand how much is true shift from second half into first half and how much may just represent incremental demand. So hard to quantify. From -- in terms of help through the quarter, accessories materials are some of our higher gross margin products. And so accelerating some of those shipments was a benefit in the quarter.

Got it. And then I understand Cricut has shifted a lot of its supply chain over the past several years out of China and into Malaysia, for example, which there have been some recent headlines on tariffs there. How should we think about sizing the tariff impact? And what are your mitigation efforts? Are you -- have you started to raise prices? Are you planning to? And any other mitigation efforts you're taking?

So as you called out, we have worked on getting most of our finished goods spend outside of China, but we still manufacture in Southeast Asia. And so specifically, we manufacture in South Korea, Malaysia and Thailand, all of which have new tariffs announced. We're still assessing the overall impact of the business and how we respond. I would say there's not a single answer, but it's looking at a combination of factors. We are incredibly focused on providing the best value experience for our consumers because we know affordability is key to them. We're also watching to see if there's any more general inflation impact to discretionary consumer spend. So at this point, if I think about the timing impact to our business, given the timing of some of these announcements, there's a little pressure because we had the -- on margins as we look to the back half of the year because we did have -- where we had the temporary tariffs of 10% that have now gone up. But if I look at the velocity of our different products, we'll start to feel more of the tariff impact later in Q4 and more meaningfully in 2026. But at this point, we're assessing the options with the focus on how do we maintain as much affordability for consumers even as we navigate the uncertainty of tariffs and their impact.

[Operator Instructions] Our next question comes from the line of Michael Cadiz from Citigroup.

This is Mike Cadiz for Asiya Merchant at Citi. So just one question from me today. It's on capital allocation. Congratulations on the quarter, and we've noticed that it's been multiple years of special dividends given to investors over this time. How should we think about those or consider those recurring as we go forward?

So if you recall, over the last several years, we've been bringing inventory levels down from peaks in COVID, and that's been generating more cash than we would ordinarily. And so we're a cash-generating business, but we've been kicking off excess cash as we've rightsized the balance sheet. And as we called out in our prepared comments that we actually kind of -- by coming out of '24, we kind of inventory levels more in line with where we expect them to be. So I wouldn't look for further drawdowns related to that. But let me just kind of reiterate our capital allocation model and how we think about it. We're a growth company. And so first, we're focused on how do we have inventory or do we have enough sufficient inventory to drive our business. Second, to make sure that we're investing for future growth in both our physical products as well as our platform. And Ashish has referenced in his prepared remarks, how we're accelerating investments in both of those areas and continue to do so. We also keep dry powder in case there is a strategic acquisition that would accelerate some of our priorities. But beyond that, we're focused on how do we efficiently return capital to shareholders. And there's 3 tools that you've seen us use. We have a stock repurchase program that the Board replenished on May 6 of this year. And so we continue to be active in repurchasing shares. We have a recurring semiannual dividend of $0.10. And then as we've just mentioned in the last quarter, we have a special dividend, which is more periodic based on how we do in generating cash beyond normal expectations.

Our next question comes from the line of Adrienne Yih from Barclays.

This is Angus Kelleher on for Adrienne Yih. I have one for Ashish. You had mentioned plans to enhance design space. Could you provide an update on the rollout of these transformational experiences and share any early user feedback or engagement metrics from the initial implementations? And then I have a follow-up.

Thanks, [ Paul ]. So as I said in my prepared remarks, right, we have seen -- we continue to see engagement erosion, although that decline appears to be moderating. So when you look at like 12-month active users, right, we are flat year-on-year. But when you look at the 90-day engaged users, that's down 2%, whereas the year before it was down 3%. So we're definitely seeing some of that erosion moderating. One of the things that we -- so what are we doing about it, right? And that's the question you asked. So one of the things that one of our core focus areas is to basically rearchitect the entire user experience and Design Space. And our goal is to uncover project intent when the user comes in and then give them a guided flow to get them to their end project. So if a user comes in and try to make a T- shirt or a birthday cart or a sticker, so let's say, a T-shirt, we have to surface the right content and the right tools in a guided flow so that we can actually get them to their end result, which is helping them make a T-shirt, right? We've done a lot of user research testing. We feel really good about this direction and how we can introduce the platform to new users. In addition to that, and again, we talked about this briefly in our prepared remarks, we have made significant changes and improvements to Design Space to make it easier for our users, and we are seeing some results, right? So when we look at new users who bought new machines and when they come on to our platform, they are making more projects in the first 30 days, which is we consider…

My second question [ indiscernible ] I think in the prepared remarks, you mentioned some pull forward of orders during the quarter. Was that driven by consumers like clearing out retailer in stocks? Or was it more so retailers stocking up in advance of demand? And I guess just asked another way, how are your retail partners -- how do you see your retail partners' inventory levels trending?

So it was really around uncertainty on the retailers' part of continuity of supply across other aspects of their supply chain and our relative strength and ability to meet demand. And so that's why I mentioned also that we're continuing to assess what the sellout of those materials are over time. In terms of overall inventory balance, we think we're in a pretty good balance between sell-in and sellout generally.

And I guess your line was not clear, so I might have said Paul, I apologize. I knew it was you, sorry.

No worries.

[Operator Instructions] At this time, I would like to turn it back to Jim Suva for closing remarks.

Thank you, James, 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 Cricut platform continues to not only strengthen but also provide increased value to our users. We will continue to manage the business for sustainable, profitable growth and generate healthy cash flows. I'm excited about the opportunities ahead of us. We will be meeting with investors at the Citibank Global Technology, Media and Telecom TMT Conference, Thursday, September 4, in New York. And the Goldman Sachs Communacopia and Technology Conference, Wednesday, September 10 in San Francisco. We hope to see you there. If you have additional questions, please e-mail me at jsuva@cricut.com. This now concludes this earnings call, and you may disconnect. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.