Cricut Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

Key Takeaways

  • Q2 revenue was $177.8 M, down 3% yoy, but Cricket delivered $16 M net income—its 18th consecutive profitable quarter—and generated $159.6 M in year-to-date operating cash flow.
  • Connected machine revenue rose 5% yoy, aided by the July launch of Cricket Venture, a new commercial-speed cutting machine with expanded material widths and enhanced software features.
  • Accessories & materials revenue fell 20% yoy (4% on a like-for-like basis), and related gross margin declined to 24.7% due to promotions, higher operational costs, and an inventory write-down.
  • Subscriptions revenue grew 13% yoy to $76.1 M, with paid subscribers reaching 2.7 M (up 15% yoy), supported by ongoing platform enhancements including AI-driven features like background removal and semantic search.
  • For H2, the company expects slightly softer revenue and margins, plans deeper Q4 promotions to boost machine sales, and maintains long-term operating margin targets of 15–19% despite macro headwinds.
AI Generated. May Contain Errors.
Earnings Conference Call
Cricut Q2 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Cricket Q2 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Call.

Operator

Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Cricket. Please go ahead.

Speaker 1

Thank you, Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricket's Q2 2023 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 at the company's website, investor.

Speaker 1

Cricket.com. Joining me on the call today Ashish Arora, Chief Executive Officer and Kimble Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host live Q and A. Before we begin, we would like to remind everyone 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.

Speaker 1

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 Cricket's most recently filed Form 10 Q. 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 8, 2023, Cricket assumes no obligation to

Speaker 2

I will now turn the call over To Ashish. Thank you, Jim. We finished the quarter in line with our expectations. We continue to manage the business with an eye towards profitability even as we navigate softer consumer spend. I'm proud of the accomplishments the team has made and we launched some important innovations that I will Machine sales were up 5% and operating income was down 4%.

Speaker 2

We are striving to return to growth, but remain disciplined with how we spend. We are also very focused on innovation and strengthening our platform. I'm also excited to share that on July 18, we launched Cricket Venture, the largest and fastest connected cutting machine on the Cricket platform. CricketVenture represents the 4th Cricket Venture cuts a wide variety of materials with precision at commercial speeds as well as the rights, scores and foils. With Cricket Venture, makers can create for occasions that require larger sizes and quantities from bigger Custom wall decals to large batches of custom t shirts or tote bags.

Speaker 2

Quick Adventure is able to cut up to 75 feet of repeated images. It works seamlessly with Design Space and is compatible with all our existing 13 inches Smart Materials as well as our newly introduced 25 inches widths. Powered by Cricket Design Space, our platform helps millions of users discover, make and share their projects, and CricketVenture expands the ability for users to make, thanks to enhanced software features that support this new machine. We focus on makeable content featuring projects and art that lend themselves to large projects, including education, parties, Weddings, sports events and apparel, large batch quantities and much more. We are excited to see how makers will use Cricket Venture to create projects and share them with other community members.

Speaker 2

We launched Quick Adventure on July 18 with our first in person consumer event since 2020. We love the energy these events generate within our community and are planning to do more in person customer events around new products and our Cricket platform. We are pleased with early sales performance. Recall that we have 4 priorities, which are new user acquisition, user engagement, subscriptions and accessories and materials. I will briefly review these items and also provide some detailed commentary on our new platform innovations.

Speaker 2

We added over 200,000 new users in the quarter, approximately in line with our expectations. We continue our focus on new user acquisition and platform expansion to ultimately drive engagement, subscriptions and increased monetization. We have shared previously that our funnel is healthy And we see an opportunity in holiday to pull consumers through the funnel who have been pausing in their purchase decisions. A recent survey among consumers in the cricket cutting machine funnel confirmed that the current financial situations are a key barrier to purchase. About a third of consumers in the Cricket funnel stated that they are struggling to make ends meet on a personal level.

Speaker 2

Consumers at the top of the funnel are most interested in understanding the capabilities of the Cricket machine and how it fits into their lives. As consumers get closer to purchasing Cricket, Affordability becomes a constraint. Among these consumers at the bottom of the funnel, affordability is the number one barrier to purchase. About half of those consumers say that they are saving money to purchase a cricket, while about a third are waiting for a sale or a special deal. We are using these insights to inform our strategy heading into the holiday season.

Speaker 2

We plan to be more promotional in the Q4 With deeper promotions for shorter periods of time combined with a 3 60 degree marketing plan, including adding Over 200 paid influencers to pull more consumers through the funnel. We ended Q2 with nearly 3,700,000 engaged users, which is roughly flat year over year. We are pursuing efforts to drive engagement along our members' journey from onboarding to stimulating discovery and inspiration to assist in making and encouraging sharing. As we have highlighted before, mobile plays an important role in driving mode interactions. We locked an enhanced homepage inside Design Space on mobile platforms in July 2022 and continue to make improvements on an ongoing basis.

Speaker 2

For the first half of twenty twenty three, over half the interactions on Design Space homepage came from mobile devices. We have also greatly simplified navigation on the platform for desktop users. This new navigation also makes learning plans, Heat Guide, Cricket Learn and Shop easily accessible from inside the platform. Increasingly, we will integrate more and more video content, learning aids and instructions inside the platform itself, where users spend the majority of their time. We're always listening to our customers and prioritizing enhancements that alleviate pain points and friction and increase the value of our Cricut Access subscriptions.

Speaker 2

In Q2, we launched enhancements for Print and Cut. Print and cut functionality gives users the ability to print an image on their color printer and then cut the outline of their printed design. This gives them color designs without having to use layers of different materials in different colors. Last quarter, we shared the introduction of Warp, which enables creative effects on text. In the coming months, we will be releasing version 2 of that feature, where users can warp To other users, these mutually reinforcing effects will create value in our platform for all users.

Speaker 2

At the end of Q2, We improved the way members can search within the library of community projects and saw a notable increase in members' engagement with those projects. We ended the quarter with over 2,700,000 paid subscribers, which was essentially flat quarter over quarter and up 15% year over year and was in line with our expectations. AI, machine learning and especially generative AI models are much in the news. I would like to point out some examples of how we are using AI and machine learning to add more valuable benefits to Cricket subscribers. AI is an area of exciting potential for the Cricket platform and is complementary to our strategy.

Speaker 2

We see opportunities for AI to impact the experience throughout the user journey around both search and discovery and design and make within Design Space. We have been working on machine learning and AI for a long time, And we've recently delivered several AI powered capabilities and are in active development on others. I want to give you some insights into these AI and machine learning capabilities. On the design and make side, automatic background remover uses the custom machine learning model and is one of our most popular click and access features across our desktop and mobile apps. On the search and discovery side, Our similar images functionality is powered by a machine learning model that is trained on and tuned for vector images.

Speaker 2

Building on the Similar Images Foundation, we are also developing semantic search, a richer search capability that leverages modern machine learning techniques. We are currently testing semantic search with both internal and external users. We expect to see richer Search capabilities powered by semantic search in the future. AI techniques will also be used to drive the display of personalized content on the Design Space homepage and in our engagement marketing, and we continue to actively refine our personalization algorithms. Generative AI is an area of great interest and excitement in design software and it holds great promise to augment the already rich cricket access content offering.

Speaker 2

We're actively experimenting with generative AI capabilities that allow users to create unique images based on detailed natural language prompts, such as a sailboat with dolphins jumping in the waves nearby. A unique challenge and area of differentiation for Cricket in building generative Our functionality is that we will ensure that generated images are optimized for cutting machines. Our teams are investigating other ways in which AI will add meaningful value to our platform with a focus on facilitating the journey for our members between inspiration and making. We see generative AI as being complementary and will enhance our content strategy in a meaningful and positive way. At the same time, we believe that it does not replace human creativity, but enhances it.

Speaker 2

We are focused on doing this responsibly while ensuring we protect copyright and our artists. We are excited about the new ecosystem of materials we launched alongside Quick Adventure, including 25 inches width materials and all new markers developed to support the scale and speeds that CricketVenture enables. As we've highlighted before, we are on a 2 year journey to transform this business. Consistent with prior comments, We will continue our promotional cadence in this category to remain price competitive for consumers. We see that when we are in the price range of our competitors, we get our fair share.

Speaker 2

We have a strong focus on optimizing our products for lower costs, so we can compete better in the market with improved margins, while still creating a differentiated offering that works seamlessly with our machines and platform. 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 for actual usage of our ecosystem. I've never felt so encouraged and excited about the Cricket platform. We're in the early days of this transformation, while still remaining profitable. We are driven to continue to innovate while exhibiting both long term focus and current discipline.

Speaker 2

With that, I will transition the call over to Kimbal to go into the financial details.

Speaker 3

Thank you, Ashish, and welcome, everyone. In the Q2, we delivered revenue of $177,800,000 a 3% decline compared to prior year. We generated $16,000,000 in net income, our 18th consecutive quarter of positive net income, as we continue to invest in our key priorities. Breaking revenue down further, revenue from connected machines was $37,300,000 up 5% over Q2 2022. As Ashish mentioned, new user acquisition was in line with our expectations in Q2 as we continue to experience the effects of softness in consumer discretionary spending.

Speaker 3

While we are encouraged to see year over year machine revenues turn back to positive growth, We are still far from where we aspire to be. Revenue from accessories and materials for the quarter was $64,400,000 down 20% over Q2 2022. Note that in Q2 2022, we benefited from channel fill for the launch of AutoPress and Hat Press. Excluding this, revenue from accessories and materials would have been down approximately 4% compared to Q2 last year. As Ashish referenced, we have more work to do here.

Speaker 3

Subscriptions revenue for the quarter was $76,100,000 a 13% increase over Q2 2022, reflecting targeted investments in Cricket Access and the expansive improvements made over the last several quarters. In terms of geographic breakdown, International revenue was $32,600,000 up 34% compared to $24,300,000 in Q2 2022. As a percentage of total revenue, international is 18% compared to 13% of total revenue in Q2 2022. Turning to users and engagement. I am pleased to share we ended the quarter with over 8,400,000 total users for 70% growth over Q222.

Speaker 3

We ended the quarter with nearly 3,700,000 engaged users, essentially flat with Q2 last year. We ended the quarter with over 2,700,000 paid subscribers, up 15% from Q2 2022 and flat sequentially. Our subscription attach rate declined to 32% in Q2 2023 from 33% last year. 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 to gross margin.

Speaker 3

Total gross margin in the 2nd quarter was 49.3%, an improvement compared to the 46.5% In Q2 2022, it reflects a higher amount of subscription revenue as a percentage of total revenue. Breaking gross margin down further, Gross margin from Connected Machines was 9.4%. This compares to 1.6% in Q2 of last year. The increase in margin was primarily due to less promotional activity as a percentage of revenue and a favorable product mix compared to Q2 2022, when our end of life maker machine was a greater percentage of machine sales. Subscriptions gross margin for the quarter was 89.6% compared to Q2 2022 of 90.9%.

Speaker 3

2nd quarter gross margin for accessories and materials was 24.7%. This compares to 29.1 percent in Q2 2022. The decline in margin was driven by increased promotional activity and warehouse and operations cost as a percentage of revenue, along with an impairment of unused equipment and components associated with the wind down of manufacturing of certain products. Looking into the second half for both Connected Machines and Accessories and Materials, margin pressures for amortizing fixed costs on warehousing and capitalized operations expenses We'll accelerate through the second half, especially in Q4 as we reduce inventory levels. Also Q4 is typically our lowest gross margin quarter.

Speaker 3

Machine sales are seasonally higher with the holidays, which will naturally pressure margins since machines carry lower gross margins than other products and will represent a higher percentage revenue in that quarter. Total operating expenses for the quarter were $68,400,000 and included $11,200,000 in stock based compensation expense. Total operating expense was up nearly 5% from $65,400,000 in Q2 2022. While research and development and sales and marketing declined year over year, general and administrative expense increased primarily due to an increase for bad debt allowance, increased personnel related expenses and an increase in professional services. Operating income for the quarter was $19,300,000 or 10.8 percent of revenue compared to $20,000,000 or 10.9 percent of revenue in Q2 last year.

Speaker 3

We delivered our 18th consecutive quarter of positive net income. Net income was $60,000,000 or $0.07 per diluted share compared to $13,800,000 or $0.06 per diluted share in Q2 2022. 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. Year to date, we have generated $159,600,000 in cash from operations Compared to $13,000,000 a year ago, ending with a cash and cash equivalents balance of $361,500,000 before paying the dividend in July, and we remain debt free.

Speaker 3

As you recall, as part of our COVID risk mitigation strategies, we intentionally built up Our unhed inventory to ensure we could supply our customers during the pandemic. Starting late last year and continuing for the next few quarters, We began to focus on bringing inventory levels in line with historical norms. As part of the company's ongoing evaluation of capital allocation, we seek to balance multiple Considerations, including ensuring that the company has more than adequate liquidity and financial flexibility, evaluating opportunities to invest in our business to drive long term shareholder returns, whether organically or through potential acquisitions and returning capital to our shareholders. Given this, in Q2, we announced an additional $234,600,000 special shareholder dividend, of which $232,200,000 was distributed in July, with the remainder to be paid upon vesting of restricted shares. This dividend comes as a result of rightsizing our balance sheet post COVID and converting inventory into cash.

Speaker 3

During The quarter we used $1,000,000 of cash to repurchase 104,000 shares of our stock. We were constrained on stock repurchases as we were considering the special dividend as well as the higher stock price. We have $27,300,000 remaining in the repurchase program. Much of our outlook is consistent with what I communicated in our prior earnings call, but I do want to highlight a few additional items. During Q3 and specifically in July, we paid the special dividend, which will result in a lower cash balance and lower interest income in the second half of the year.

Speaker 3

We expect to continue generating healthy cash flow from operations and to Consistent with our commentary last quarter, we continue to see soft consumer spend and retailers taking a conservative approach inventory commitments and thus taking a prudent and prioritized approach in our planning as we look ahead to the second half of twenty twenty three. We expect operating margins to be slightly down for the full year relative to our original expectations given the first half of the year performance. Typical revenue seasonality is 60% in the second half. Given the current macro environment, we expect second half revenue to be slightly softer as a percentage of full year revenues. In terms of new user growth, we still expect to add fewer new users in 2023 than we did last year.

Speaker 3

While we have a positive outlook on subscriptions, lower new users will put pressure on our subscriber growth rate and attach rate throughout the year and paid subscribers maybe flat for the year or even down if current trends worsen. Leveraging our consumer analytics, we plan to execute deeper Q4 promotions for machines combined with comprehensive marketing plans to address consumer concerns about affordability and consumer reluctance to spend. Gross margins will continue to be pressured on physical products, higher fixed costs as a percentage of revenue in warehousing and capitalized operations expense will continue to be a factor throughout 2023 and more pronounced in Q4 as inventory levels decrease. Accessories and materials We'll also have a promotional cadence to remain price competitive. As a result, we expect full year accessories and materials margins will be similar to Q4 2022's gross margin.

Speaker 3

We remain focused on managing our profitability while investing in areas with the highest impact. Should macro conditions worsen, We will continue to make adjustments as needed just as we demonstrated in 2022. We expect to continue generating healthy cash flow from operations and remain committed to our long term operating margin targets of 15% to 19%. Our proven model has demonstrated that when we operate at scale and drive top line 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'll conduct a question and answer session. Your line is now open.

Speaker 4

Awesome. Thank you guys for taking my questions. I have a handful here, a small handful. So Ashish, maybe just to start off, obviously, you launched the Cricket Venture a few weeks ago. Can you maybe just speak a bit to kind of the TAM opportunity with New products, obviously, it's a relatively elevated price point.

Speaker 4

So it seems to be targeted more towards your kind of professionals or your prosumers versus your hobby crafters. But just any color on the TAM opportunity you think for that, how long it takes to ramp and then any kind of early feedback That you've gotten on the product, obviously, I realize it hasn't been super long, but any color you have there would be helpful. And then I have a follow-up. Thank you.

Speaker 2

Thanks, Eric, for the question. I'm probably going to deem this is my favorite question of the call. So first of all, we're really, really excited about the product. We've been working on it for a number of years and it's exciting architecture that we I'll rest it in and it's going to be here for a long time to say. The product is actually geared as you identify the $1,000 price point, It is geared towards creative enthusiasts who want to make a lot more projects at a time And also they want to make larger projects, right?

Speaker 2

They make these projects for schools, for organizations, religious entities. We were just actually on the phone earlier today where actually the operator's wife is the event coordinator for school And she makes these large projects for schools, etcetera. So I think those are the kind of users that we are looking for. So effectively, it's an upgrade of an existing product. Some of those users will also happen to sell, right?

Speaker 2

We launched the product in July 18th, we had an in person customer event, our first customer event in a few years, Super excited, lots of engagement. We then subsequently added on HSN, had a solid sales performance. And so since then, we've been very pleased with the sales. Overall, we are really excited. We don't break out numbers for individual products, but we believe that It's again, we have products at different price points.

Speaker 2

We think it will be a very good upgrade product. And again, we are A little bit careful in terms of how we launched it in terms of inventory. So it's available on cricket.com, on our retailers' website, e commerce partners, etcetera. So consumers will not fight it in store, but that's a phased approach to the launch. And as we continue to understand the market better, we'll actually to drive growth and scale the product.

Speaker 2

So overall, very, very pleased with the early results of this product.

Speaker 4

Okay. That's super helpful. Thank you for that Ashish. And then maybe if we just follow-up on that, because it almost takes into account that last point you made. Obviously, nice to see Connected Machine's revenue get back to growth for the first time in a handful of quarters.

Speaker 4

But if we were to normalize for the launch Of Venture and kind of exclude any of that channel, Phil, what would Connected Machine's kind of growth or declines look like on a year over year basis? And maybe If you could outline any impact to Connected Machine gross margins from the venture impact, that would be helpful as well. Thank you.

Speaker 2

So I think I'll take your question in 2 parts. 1 is I'll just talk about acquisition overall, Right. And again, we can clearly talk about international and then maybe Kimbal, you can jump in and talk about gross margins and overall how our portfolio mix is improving. So let me kind of just talk at a very at a higher level in terms of acquisition. So our user acquisition this quarter was pretty much in line with our expectations.

Speaker 2

We've talked about early on in the year that we expect to acquire fewer new users in 2023 compared to 2022 and that was Somewhat rooted in the fact given inflation, consumer spending, especially on discretionary products, coupled with the fact that as you pointed out, Average prices are higher this year. We're being less promotional, etcetera. So I think, as I said, I expect Our new user acquisition this quarter was very much in line with expectations. Now when we look at our funnel overall, Right. The funnel is pretty healthy, right.

Speaker 2

Our awareness continues to build. And as people are coming through the funnel, you kind of hear a few different things. They stop They kind of defer at the bottom of the funnel, right? They talk about waiting for a sales event. They talk about saving money or they just They'll say, okay, I'll buy it a few months later.

Speaker 2

Now given that, as we are going into Q4 and we talked about this in our prepared remarks, We basically decided that we want to be a little bit more promotional. So we are running deeper promotions in short spots. And we think it's a really exciting opportunity for us to unlock the funnel that we've been building so that we can actually convert some of those users. And one of the ways we actually planning to do that and we're going to basically generate a lot of content is how consumers can actually How we can help consumers save money so that by making things rather than having to buy those things. So we think that that message along with How we are doubling down in marketing is going to really help the acquisition.

Speaker 2

And finally, I'll just say, when we look at our long term trends, Yes, they're all healthy. We look at our SAM and the broad demographic that we are being able to attract, including a significant percentage of our customers are beginners. We think we're in the very early stages of our SAM penetration. Okay, but why don't you talk about the impact on gross margin both from a portfolio perspective?

Speaker 3

Yes. So Eric, as you pointed out, we were up in our machine gross margins and actually machine revenue for the quarter, and we're really excited about that. There's a couple of things going on that venture doesn't influence at all. One is, we talked about we're going to be less promotional overall this year than we were last year, And we're seeing the benefit of that. The other benefit is we've seen the mix of our machines tilt more towards some of our newer products that carry higher gross margins.

Speaker 3

And so even though we don't disclose units, I'll say that we had we sold marginally fewer units in the quarter than we did a year ago, but we got more revenue and Venture was entirely an online launch. And so there's no sell in in Q2 related to the launch of that product. And we chose to do that because it's a big product, it's a heavy product, and it's an expensive product. And so we wanted to be Conservative in how we launch and engage overall consumer demand, I will say we're pleased with what we've seen in the first Several weeks of its launch, and it's for sale on our own B2C channel as well as on all of our retail partners online offerings.

Speaker 2

And I'll just reinforce the point, because I think you kind of highlighted specifically impact of venture. We had limited inventory to begin with And effectively, all of the product or at least most of the sales are all on a sell through basis. So they're not loading up the channel and recognizing Additional sales that drove the connected machines growth, this is the impact is this is only recognizing the revenue on a sell through basis and All the products are being sold through even with most of our retail partners is on a DSV basis.

Speaker 4

That's really helpful. Thank you guys for all that color. Congrats.

Operator

Our next question comes from Adrian of Barclays. Your line is open.

Speaker 5

This is Paul Kearney on for Adrian. Thanks for taking my question. My first one is on the accessories segment. So it looks like the accessories segment margin, while still down year over year, was a little bit better than we had anticipated or we How should we think about that for the remainder of the year? Your promotions, are they more in the connected machines or are you still having to promote in accessories and materials?

Speaker 5

That's one. Thanks.

Speaker 3

Okay. Thanks for the question. It's kind of 2 Questions I want to answer there. One is what happened with A and M for the quarter, because we were down 20% year over year and Yes, that's partly because of a tough comp. So if you look at Q2 a year ago, we had channel filled revenue related to auto press and hat press That represents about $14,000,000 of channel fill.

Speaker 3

And so we don't have we didn't have any comparable products launching in this Q2 that benefited from sell in of Channel Fill. And so if we adjust for that, that segment was down about 4% year over year for the quarter. When we look at A and M overall, there's kind of 4 things going on as we look at what's guiding us and how we think about our gross margins for that First is, Q1, we had an $8,000,000 write down we talked about related to smart material and longer lengths of our smart materials specifically. And that's going to affect full year margins. Secondly, we have capitalized Costs in our inventory related to procuring that inventory.

Speaker 3

And we brought in much of that inventory during peak time peak COVID pricing. And so as we bring our inventory levels down, and this will be more prominent in Q4 as we lower inventory levels, Those capitalized costs flow through the P and L and will pressure margins. And then when Ashish talked about deeper promotions, he's Primarily about machines, but we've talked about how we have a continued promotional cadence on our on accessories materials to make sure that we're being price competitive and to win our fair share. That promotional cadence will continue throughout the year. And then finally, there's The possibility that we may have some reserves based on the velocity of a couple of products either as we look to Q4 or even maybe Q1 of next year.

Speaker 3

And those are kind of the factors that are affecting our A and M outlook for the year.

Speaker 5

Thank you. Second, I wanted to ask about international. It looks like there was Bright spot of growth and understand it's earlier than the mature market. But could you provide any kind of KPIs So that we can help dimensionalize it, maybe number of users, subscribers or maybe engagement metrics that you're seeing in the international markets.

Speaker 3

So, as we commented last time, we shared that we crossed the milestone of 1,100,000 Users internationally, but we wouldn't give an update on that metric every time. But as we kind of hit key milestones, we will. We are excited about the fact that we grew 34% year over year and then international now represents about 18% of our overall business. What we see in international is while Ashish will emphasize that we're not mature in any market. In our larger markets, we continue to see headwinds similar to what we see in the U.

Speaker 3

S. But we're in over 50 countries around the world. And so there are many countries where we're continuing to get additional shelf space and distribution And that's helping drive that growth. The other factor that's influencing international growth is We launched our D and C channel in multiple countries late last year and that's helping propel our growth.

Speaker 2

Yes. So I'd actually just add to a couple of I'll just add some commentary to Kimbal's comments. You talked a little bit, you kind of briefly referred to engagement and subscription. It's actually very compare. I have to look at country by country.

Speaker 2

But overall, we feel like Engagement and subscriptions at a very healthy rate and very comparable across all markets. I'm very proud of the team Across the world, but specifically, I think there's a lot of marketing, a lot of excitement, a lot of consumer Awareness events going on in the international market. That's such a varied group of countries. As Kimball said, with some of the larger markets like UK and Australia, We see some similar headwinds, but even there, we're in the relatively early part of the cycle. But then there are other markets around the world that we are just in such early Stages, but again, I'm actually going to be doing the trip very soon in a few weeks in some of the markets around the world, Especially in Europe, and I think we are again really excited about what we are seeing in international markets.

Speaker 2

And the last comment I'll make is also on the platform. We have significant investments that we're adding content, localizing markets, adding projects, adding influencers and our approach to Driving network effects is so unique and that's particularly playing a great role in our marketing playbook for international.

Speaker 5

Excellent. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from Mark Altschwager of Baird. Your line is open.

Speaker 6

Good afternoon. Thanks for taking my question. I guess, first off, can you talk about the feedback you're getting from channel partners With respect to current inventory levels and sell through rates, curious what the order book looks like for the back half of the year and then your level of confidence that you could sustain Positive inflection in connected machines, based on what you're hearing from your retail partners?

Speaker 3

Mark, thanks for the question. So as we look to the back half of the year, we are Comfortable with our channel inventory levels, at that sorry, let me restart on that one.

Speaker 2

So Actually, let me kind of talk. I think there's a 2 or 3 different perspectives, Mark, that I can provide. One is, I think it's As we look at, I mean clearly retailers have taken a very conservative approach in the first half of the year, and we've seen continued destocking As we've gone through the year, right. Now as we look at the second half of the year, I think it's still early on for the orders in Q3. But one of the things that I am particularly excited about in our team is, is we're really excited about the promotional strategy as we go into Q3 and Q4.

Speaker 2

We are working on a deeper promotion calendar. As I said, we have a pretty good solid funnel that's been building up over time. And we think that there's an opportunity to unlock that funnel as we go into the Q4 with a deeper promotion. The other opportunity I would have is saying, As we create we're actually going to be adding about a couple of 100 influencers to create content and we think that this is a Wonderful opportunity for us and our retailers to work together to basically unlock this funnel that we keep talking about. So

Speaker 6

Yes. And as you look to unlock that funnel, not to get too near term focused, but I'm just curious as we kind of approach the back to School season, is there anything that you're seeing in terms of engagement or sell through rates on some of the machines that would Kind of give you an indication that that funnel might be beginning to convert at a higher rate?

Speaker 2

Yes. I think the I would say to date, what we have is we've done a good job and I'll talk a little bit about the engagement in a second. We Kind of as we look at the funnel overall, basically we've seen people being effective at the top of the funnel, Right. And this is where we've been able to bring a lot of people. We know from our research that there's a lot of people in the top of the funnel.

Speaker 2

The second thing that I've talked But previously is the middle of the fund, which is the question that people asked that we were not doing a good job in helping them understand which machine to buy And what the cost of ownership is? Now the data that I'm actually particularly excited about, which has kind of really influenced our strategy for Q4 When we ask people saying, well, when are you going to convert or what is your conversion intent, right? A significant majority of them basically tell us That they are waiting for a sale, right, which is very telling, right? 2nd is they are saving money to buy the product Or 3rd is they just want to see the economy improve and then ultimately convert that into purchase, right? That's kind of really led to our decision of Going deeper in promotion that we've had for the 1st 6 to 9 months.

Speaker 2

To date, we have not driven some of those events. I will say anecdotally, not to put some numbers on it, we see a tremendous opportunity in schools. We were actually Our sales team and our marketing team's attendance on education events, we see a lot of demand in those channels over time, but again, we are very early on in really kind of structuring programs and marketing around that. I want to talk quickly, Mark, you mentioned the word engagement and I want to talk to you a little bit about engagement as to what we are seeing and there's some good data points I want to share. One is, clearly, we are flat on engagement, 3,700,000 users this quarter and that is flat year on year quarter over quarter.

Speaker 2

Obviously, we like to see that number being a lot higher, right? And that's a huge priority for the company. Now when we ask users why they are not engaged, Over 80% of them and this is the good news, right, which is over 80% of them are people who have not come on to the platform for the last 3, 4, 5 months. They'll say they really like using their cricket. They want to use the platform more often.

Speaker 2

And the reasons they cite are lack of time, Lack of a nudge or a trigger that reminded them to make something or they couldn't find a project. That's what we are focused on in terms of our platform and helping them discover that content, effectively make that content and that share that content with the platform. Now, when we look at engagement, we today look at that as a cutting metric, right? People who have cut in the last 90 days, We have strong conviction that the more people come to our platform more often, even if it was to engage, Maybe they won't cut because they're worried about the cost of materials, but the more behaviors we drive to have them come back to our platform, engage with our platform, Come on to our mobile devices, right, the more likely they will be to cut. Now one data point that again, I'm not going to call it a trend, But in July, we saw more project cuts happened compared to the July last year and that was a reversal that we saw.

Speaker 2

And again, One data point, 1 month's data doesn't point to a huge swing back. But we believe that as some of these economic headwinds go away And as the consumers start to engage more on our platform, it will lend itself to more and more people engaging on the platform and ultimately driving network effects on

Speaker 3

I'd also call out that as we move into the holidays, we there's seasonality to engagement and so that will naturally pick up as we move into the holidays.

Speaker 6

It's really helpful color. Maybe one last one for me, just back to the Cricket Venture for a moment. I think in the past, you've said that around a quarter of your users are creating projects that they're ultimately selling. Is that still a good metric to be thinking of? Or do you have any updates there?

Speaker 6

And then if we think about that sort of subset of your user base, the more, call it pro users. Have you done any surveys or studies that would give you a sense, I guess, what percent of that Segment of our user base would value the capabilities of the venture and would consider the venture even at the $1,000 price point just And trying to sort of size up kind of the opportunity there. Thank you.

Speaker 2

Yes. So while we haven't I mean, we obviously do that research on a periodic basis. We haven't like revised that number, but I would say it will still be in the ballpark Of that, the 25%, 26% of people that are selling was people that have Happened to that have made a sale. That doesn't mean that they are primarily identifying themselves as prosumers, right? The other kind of data that we have looked at is the number of people that have multiple machines, right?

Speaker 2

And they are just so engaged in the category. So again, if I were to summarize again, we have 2 audiences for this product. One is just enthusiasts, Right. There's people who buy multiple machines. There are people who buy every single machine we've ever launched, right.

Speaker 2

So anybody that has 2 or more machines, Anybody that comes on to our platform who is making off what they call off the mat large projects that are making projects for schools or Weddings or decals or religious organizations, that's our primary audience, number 1, Secondly, a set of those also happen to sell, right? They either do badges of 25 T shirts or 50 tumblers All make large projects also a strong audience. I think we're going to take our time to build this market, Right. We have limited inventory. As time goes on, we have more pricing flexibility.

Speaker 2

We've thought that given our inventory, given how we want to phase this product, We are in the early stages, but this is a platform that we are super excited about. It's a platform that I think will lend itself for the next many, many years. And there's a lot of room over time to build that ecosystem. So again, we're taking a very cautious at least we wanted to take a very phased So it's not a like we're not going to go gung ho and put product in every channel, but we are very confident and feel really good about this product and platform.

Operator

Thank you. That completes our Q and A segment. I will now turn this over to Jim Suva for closing remarks. Jim?

Speaker 1

Thank you, Chris, 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. We believe the initiatives we are deploying now We'll position us well for when consumer spend returns and the Cricket platform continues to not only strengthen, but provide 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 at the Goldman Sachs Communicopia and Technology Conference in San Francisco on September 5th and Citigroup's Global Technology Conference in New York on September 7th and look forward to seeing everyone then.

Speaker 1

If you have additional questions, please email me at jsubacricket.com. This concludes our earnings call and you may now disconnect.

Operator

Thank you. That does conclude our program. Feel free to disconnect and thank

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