Good day, and thank you for standing by. Welcome to the Cricut Q3 2022 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Stacie Clements, Investor Relations of The Blueshirt Group. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's third quarter 2022 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, and results of operations, in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Cricut's most-recently filed Form 10-Q. Actual events or results could differ materially. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, November 8, 2022. 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, Stacie, and welcome everyone. As expected, we ended the third quarter with healthier channel inventory. Revenue in the third quarter was $177 million, slightly down from last quarter, as retailers continued to work through their inventory. Underpinning our resilience in this more challenging macro environment is our durable business model and focused investments on high-impact initiatives. We generated net income for the 15th consecutive quarter, once again demonstrating our proven track record of sustainable profitability. I am confident in the fundamentals of the business and encouraged by the positive momentum in some areas while navigating challenges in others. First, we strongly believe that we have millions of new users to acquire domestically and internationally. Our user communities have never been stronger. Our top three Cricut-related hashtags have garnered over 6 billion views on TikTok. Brand familiarity continues to expand with strong search interest on 'What is Cricut'. The success we saw with Amazon Prime Days in July and October indicates that our sales funnel is healthy. These trends give us confidence in our overall market opportunity and point to expanded interest in the category. We will continue to run the business for the long-term, ensuring category and brand health. Our funnel is healthy, and we have a large market opportunity ahead of us. Our qualitative research tells us that interest continues to be strong but customers are taking longer to convert and have a higher threshold before they make a purchase decision, as they prioritize their needs over wants given the current economic environment. Net new users added in the quarter were down 26% compared to last year, while connected machine revenue was down 49%, indicating that inventory moved through the channel. So, consumers continue to purchase our products at a healthier pace than our revenue suggests. Highlighting this point is the 30% year-over-year growth in our user base to nearly 7.5 million, up from 5.7 million the same quarter last year. I'm particularly pleased with the growth we're seeing in our subscription services, as we continue to create a richer, more valuable experience for our Cricut Access subscribers. New subscriber growth has outpaced user growth on a percentage basis for 11 consecutive quarters. We continue to drive high margin revenue and leverage the strength of our platform with attach rates now consistently around 33%, compared to mid-2020's pre-pandemic. Our platform provides an integrated experience that inspires new design ideas, fosters community, and supports both designing and making. Design Space is our software platform through which users create a profile, follow other users and connect with a broader Cricut community. Once users discover something they want to create, they can easily create a design or modify an existing one, using our suite of tools. They can also easily bookmark projects, images, and fonts for later use, providing us with valuable insight into their personal preferences. Because we're a connected platform, all of these interactions, including designs and projects, are stored in Design Space and cannot be transferred to an outside ecosystem, thus making our platform extremely sticky. Our connected platform creates a competitive moat. All users must use Design Space to cut with our machines. This gives us valuable touch points with our entire user base each time they create, as well as giving us insights into their behavior and preferences. Our goal is to create a habit-forming experience, where users come back often. Most recently, we launched a set of robust image manipulation tools, typically only available in high-end software. These tools give users greater flexibility to easily create designs, reducing hours of design time in the process. The more users interact in Design Space, the more value they create and derive from our platform. For example, shared projects can be leveraged within the Cricut community, saving users valuable design and editing time. Cricut Access, our subscription service, fuels our efforts in these areas, and offers more tools and content to help users achieve their creative potential. We have talked before about our Contributing Artist Program that provides a marketplace for artists to publish images and share in revenue streams as subscribers use their images. While the program is still young, subscriber reaction has been very enthusiastic. Contributing Artists are an important source of localized content in many international markets. Also, we recently launched a beta version of Editable Images, a key benefit for Cricut Access subscribers that we highlighted in our last call. This represents one of the most significant advancements in our image architecture and offers our Cricut Access members a tremendous amount of creative flexibility with Editable Images. We continue to invest in the platform to improve discoverability and provide more inspiration, community features, diverse content, and design tools, some of which will be available only to Cricut Access subscribers. We are creating more advertising touchpoints in Design Space to drive increased monetization and subscribers. For example, we have multiple touchpoints related to user onboarding, content searches, and design tools that deliver context-sensitive ads depending on what the user is doing. Early success in these initiatives is driving an increase in trials and subscribers. The chart shows our top 10 touchpoints, but there are many others and we continue to optimize and learn. Aside from general advertising at key touchpoints in the user's journey, significant upsell touchpoints to Cricut Access include content and subscriber-only, premium design tools. As a result of these efforts, we added approximately 89,000 net new subscribers in Q3, which was better than expected in the face of slower machine demand and user growth. We have a solid roadmap of features and data-driven marketing capabilities to further enrich the platform. Just as importantly, we continue to invest in our onboarding initiatives. We know that the faster a user gets up and running, the more they create, engage, and share over their entire lifecycle. Last year, we rolled out an online Learning Center, which was primarily focused around how-to guides for specific projects. Most recently, we integrated a virtual Learning Plan into Design Space that walks users step-by-step through a series of simple and fun lessons. These lessons teach users the basics of Design Space, and how to use their connected machine, Cricut materials, and more. In addition, users can take advantage of our Learning Kits on Cricut.com, which provide materials and tools to complete specific projects that enable our users to build their confidence in their designs and crafting efforts. We have almost half of our total user base cutting on our platform in the past 90 days, with nearly 3.6 million engaged users, up 11% year-over-year. Keep in mind that these engaged users are defined by how many users have actually cut a project. Our current definition of engaged user doesn't take into account the hundreds of thousands of daily users coming into Design Space that aren't cutting but are taking a variety of actions. For example, users have bookmarked over 120 million images and projects, and we see this accelerating with nearly 2 million bookmarks being added each week since the middle of Q3. The majority of these users who come in on any given day end up cutting over the next week. When we ask users who have not cut with their machines in over 90 days, 80% of them are motivated to use their Cricut machines more often and express a strong desire and interest in doing so. We believe that if we can give them compelling reasons to come into Design Space more often to browse and be inspired, and make it easier and faster to find the right idea and make projects, we can get these users to engage. Our mobile apps play a key role in making it easier for users to take some action on our platform and have a frictionless experience for even the briefest moments of engagement, whether it's a spare five minutes for project discovery, checking community notifications, or creative design work. Our data shows that users who use Design Space on more than one device are significantly more likely to cut and are much more likely to subscribe to Cricut Access than those using only one device. The more time users spend in Design Space and use the platform, the more opportunities we have to monetize and ultimately cut. Additional monetization opportunities exist within our Accessories and Materials business where we continue to innovate in ways that uniquely leverage our platform. Last quarter we noted that we are seeing competition, especially online, as well as more placement of competitive materials in our retail channels. While our members realize that Cricut materials work seamlessly with our machines and our software, users are more price-sensitive than they have ever been. During Q3 we began running additional promotions to help improve affordability and help right-size channel inventory. We plan to continue to focus on making our products more affordable through cost reductions and promotions. We will also continue to expand into new use cases. In Q3, we launched a wide range of items for card making, labeling, and personalization. These included Watercolor cards, Markers & Brush sets, Smart Labels, Glow in the dark vinyl, Iron On, and several other consumables. The early results show that these items are driving additional sales of Accessories and Materials and helping people do projects quicker and easier. Finally, we will lean into those retailers that help tell the entire Cricut ecosystem story, showcasing compatibility between machines and Cricut materials. International remains an important priority. The trends that have driven our business since 2014 also hold true internationally and our research shows an almost universal propensity for crafting. In Q3, we executed a new go-to-market model in Australia, deploying a local warehouse facility, which will allow us to improve customer experience. We continue to make strides in continental Europe, especially France and Germany with expanded distribution and awareness. Our platform investments, such as the Contributing Artists Program and Editable Images, will play a key role in our international expansion in existing and new markets. We recently launched into South Korea, Japan, Saudi Arabia, with imminent launches in India and Taiwan. Additionally, we localized versions of Design Space in nine new languages; Swedish, Polish, Danish, Hungarian, Czech, Norwegian, Romanian, Finnish, and Thai. In summary, operating in this macro environment has been challenging, but I believe we are stronger for it, with greater focus and discipline than ever before. As we enter 2023, we believe channel inventory imbalance will be mostly behind us, and we anticipate sell-in and sell-out to be more closely aligned. We have a large serviceable addressable market, with less than 10% penetration, and we will continue to drive new machine sales and user growth over the long-term. We benefit from our Design Space platform, giving us significant opportunity to drive user engagement and monetization. Some of our investments are already showing signs of success, building confidence that what we're doing today will have lasting impacts for long-term growth. I'll now turn the call over to Kimball for more details on the financials.

Thank you, Ashish and good afternoon, everyone. We continue to see the effects on consumer demand of a softer macro environment. Retailers' orders in September were a little softer than historical trends would have indicated as retailers worked through channel inventory positions. In October, we started to see orders for the holiday season, although at lower levels than previous years, as retailers are taking a cautious approach to inventory levels. Given this dynamic, we continue tightly managing what is within our control. In the third quarter, we generated revenue of $177 million, a 32% decline compared to prior year Q3, and we generated $12.4 million in net income. Breaking revenue down further, revenue from connected machines was $52.4 million, down 49% year-over-year, against difficult comps for Q3 2021, related to sell-in of next-generation cutting machines and continued replenishment orders. New user adds, as a proxy for machine sell-through to end consumers, were down only 26% for the same period, indicating that consumers continue spending, albeit at a lower level, as retailers work through inventory. As you'll recall, we entered Q3 with some retailers holding higher-than-normal channel inventory positions, while at the same time, managing to lower inventory targets. Exiting the third quarter, we believe retailer inventory positions are much healthier, with most retailers needing to place new orders to fully capture expected holiday demand. We believe holiday demand remains seasonally strong. We are working closely with our retail partners, as well as leveraging our more flexible direct-to-consumer sales channels, to place inventory where needed to meet demand. We are proud of our subscription performance. Revenue from subscriptions was $68.9 million, up 29% over last year and 2% sequentially. Our continued success highlights the durability of our business model and validates the focus we've placed on Cricut Access and the expansive improvements we've made over the last several quarters as Ashish mentioned. Revenue from Accessories and Materials was $55.7 million, down 47% over last year when we benefited from channel fill of Smart Materials related to the launch of next generation cutting machines, continued replenishment orders, and higher engagement trends. Let me provide some context around Accessories and Materials. Our revenue mostly derives from selling into retailers and is influenced by multiple factors including consumer buying behavior such as pantry loading, promotional activity, competition, and currency. Further, we have been more promotional in this segment and see favorable share gains when our products are closer to price parity with the competition. Accessories and Materials continues to be the segment with the most competition. In terms of geographic breakdown, international revenue was $27.6 million, down 11.5% from prior year Q3, and up 13.8% sequentially. International again grew as a percentage of the total business, representing 15.6% of total revenue, compared to 12% in Q3 of the prior year. Turning to users and engagement. We ended the quarter with nearly 7.5 million total users, up 1.7 million users over last year. The number of users engaged on our platform, meaning those who cut at least once for the 90-day period ending September 30, was nearly 3.6 million, up 11% year-over-year. Engagement as a percent of total users dropped from 51% last quarter to 48% this quarter. Keep in mind that summer is historically the lowest period for engagement and the scale of this seasonal drop is similar to what we saw from Q2 to Q3 last year. As expected, we are seeing engagement pick up as we head into the holidays. As Ashish talked about, we are increasingly looking at engagement on a more holistic level, starting with the number of users that are interacting in Design Space on a daily and weekly basis. We will continue to invest in content, community, and software features with a specific focus on mobile to move users through their journey from inspiration to cutting over time. Paid subscribers grew by more than 600,000 on a year-over-year basis and approximately 89,000 sequentially, ending the quarter with nearly 2.5 million. Attach rate remained high at 33%. We measure user monetization through average revenue per user in both subscriptions and Accessories and Materials by dividing revenue for the period in those segments by our entire user base. ARPU for subscriptions in the third quarter was $9.40, down slightly from $9.60 in Q3 2021. For context, three factors generally explain variability in subscription ARPU from one quarter to the next, when subscribers are growing and attach rates remain high. First, timing of signups during the quarter; second, mix of new vs renewals subscriptions, and third, the increasing mix of international subscriptions. Accessories and Materials ARPU was $7.61, compared to Q3 2021 ARPU of $18.79, due to lower sell-in revenue in the quarter. Moving to gross margin. Total gross margin in the third quarter was 46.2%, an improvement of nearly 7% compared to Q3 2021 and effectively flat on a sequential basis, which highlights the benefit of our diverse revenue streams. Breaking gross margin down further; gross margin from connected machines was 6.1%, up 450 basis points sequentially from Q2, reflecting a benefit in product mix. This compares to 14.5% in Q3 of last year. The year-over-year decline in margin was primarily attributable to an increase in promotions as a percentage of revenue, particularly on older machines moving to end of life. Subscriptions was effectively flat with last year at 90.6%. Gross margin from Accessories and Materials was 29.2%, down from 38.2% in the prior year, reflecting increased promotions, as well as fixed operating costs over lower volumes. Going forward, you will see us offer more promotions in our materials business, with a focus on remaining competitive on price and on market share. Total operating expenses were $64.4 million and included $11.1 million in stock-based compensation. This was essentially flat compared to $64.3 million in Q3 2021, as we continue investing for the long-term. Operating income for the third quarter was $17.4 million, or 9.8% of revenue, compared to $37.7 million, or 14.5% of revenue in Q3 2021. Operating income was impacted by lower revenues in the quarter, while maintaining targeted investments for long-term growth. We delivered our 15th consecutive quarter of positive net income. Net income in the third quarter was $12.4 million, down from $30 million in Q3 of the prior year. Diluted earnings per share was $0.06 compared to $0.06 sequentially and $0.13 in Q3 2021. We continue to manage the business for the long-term, while navigating short-term headwinds. Our profitable business model gives us the flexibility to continue to invest and deliver healthy operating margins as we work toward our long-term target range of 15% to 19%. Turning now to the balance sheet and cash flow. We benefit from a strong balance sheet. We ended the quarter with $198 million in cash, cash equivalents, and marketable securities and our $300 million credit line remains untapped. During the quarter, we repurchased 1.38 million shares of our stock at a cost of $10 million. As a reminder, we generate cash on an annual basis. Cash generated is the primary source of funding toward our annual inventory needs and additional investments for long-term growth. This fosters a balanced and disciplined approach to capital allocation. It is common for us to be cash flow negative in Q2 and Q3 as we build inventories and generate cash in Q4 with the higher seasonal sales. We were cash flow positive from operations year-to-date in Q3. As we look to the fourth quarter, we expect to see sequential growth as demand picks up. We have seen some retailers ordering appropriately to meet holiday demand, while others have taken a conservative inventory approach. Our goal is to have product on shelves throughout the holiday and enter 2023 with healthy channel inventory levels. Downside risks include the timing of the remaining retail orders, and possible retailer reluctance to spend dollars on new inventory of any type. We anticipate operating margins in Q4 to be lower versus Q3, as revenue mix is more weighted to physical products, along with the impact of higher inventory procurement costs flowing through the P&L, and some inventory reserves, tied primarily to Accessories and Materials. As we look ahead to 2023, we are taking a conservative approach in our planning. We anticipate entering 2023 with healthy channel inventory levels and plan to maintain a more linear relationship between sell-in and sell-out going forward. Given the success of our most recent investments in subscriptions and our profitable business model, we are able to invest at consistent levels to drive long-term growth. While we remain committed to our annual operating margin targets of 15-19% over the long-term, we expect small incremental improvements toward that goal toward the end of next year. Looking at the long-term, we believe the trends that have driven our business over the last eight years remain intact. We are confident in the unique value proposition that Cricut brings to millions of users and to the millions more around the world that we have an opportunity to bring to the Cricut platform. The significant growth in our user base over the last two years also provides opportunity to further drive engagement and monetization. We are focused on managing our profitability while investing in areas with the highest impact, including improving onboarding, fostering higher levels of engagement, and innovating on our platform to drive growth in Cricut Access and our Accessories and Materials business. With that, I'll now turn the call over to the operator for questions.

Certainly. And our first question will come from Mark Altschwager of Baird. Your line is open.

Hi. Thanks for taking my question. First related to inventory, are you able to quantify how much the stock you believe has taken place across machines and materials and accessories this year?

Yes. I'm taking a question in terms of channel inventory. And what, if you recall our comments back to one, right we called out that we ended the year with what we thought was $35 million heavy. But what changed as we went throughout the year is that was relative to what had been the historical trend through COVID. And we think retailers have changed their targets over time. And so it was a moving target throughout the year. What we are confident with is the number of weeks we have on hand, in channel by channel. And so the targets are a little different, but we are at a point where most retailers need to be reordering related to holiday. And, we have seen those reorders in most cases coming close to expectations, although, as I called that my in my prepared remarks. In September, we saw a little bit lighter orders than we would have expected but those have picked up in October.

Mark, I'd like to add to Kimball's point by highlighting a few data points that are challenging to quantify. Our machine revenues have decreased by 49%. However, our net new user additions, which serve as an indirect measure of sell-through, dropped only by 26%. We observed a similar trend in materials and accessories, where selling revenues, reflected in the article calculation, were not as favorable. The sell-through for materials and accessories did not match the ARPU number and was still lower than last year, though it was an improvement over sell-in revenues. Both of these factors suggest that we have successfully moved a substantial amount of channel inventory and feel that, after several quarters, our sales are now aligned with our sell-through.

That's helpful color. Thank you. And with the promotions, on materials and accessories that you've been leaning into in recent months, so what have been some of the key takeaways so far? I'm curious what you're seeing in terms of basket size or order frequency from some of your users and the other metrics you can share. Maybe the market share of users using Cricut materials versus I'll turn it in materials? Thank you.

Okay. Appreciate the question. So we're omnichannel. And so there are limitations of our data. But some of the lessons we've learned as we have been more promotional. The closer we get to price parity with competition, we hold our own or pick up share with specific retailers where we have reliable data. And so we also know from our own proprietary consumer research that there's a higher hurdle for consumers department, the dollars right now. And so what you will see from us is being more promotional in that category, both to address affordability to the consumer, but also to continue to capture market share materials.

Great. Thanks for all the detail. I'll jump back in the queue.

Our next question will come from Jim Suva of Citi. Your line is open.

Thank you. My first question is on the accessories and materials $7.61 is lower than last quarter and way lower than a year ago. Is that due mostly to retail destocking? Because I believe you recognize the revenues on the retail sell-through? And does it lead one to believe that we're at the bottom? Or could it go lower? And I just wonder, are people just being more prudent with what they spend or they're doing more outdoor activities? Because in the entire life of your company? I don't know, if we've actually seen it this lower. So any commentary you can give us on the accessories? That would be great.

Yes, thank you for the question. As you mentioned, several factors are influencing the revenue in that segment. Our revenue primarily comes from sales to retailers who then sell to consumers. The issue we've discussed regarding channel inventory and the challenge of destocking has been a significant obstacle throughout the year. However, as mentioned earlier, sell-through is healthier now. While we don't have complete data on sell-through and therefore don't report it, the information we do have indicates that sell-through is considerably better than sell-in. We consider this a more accurate reflection of the category's health. There are three main influences on sell-through that we observe: promotional activity, competition, which is increasing in that area, and engagement, as it indicates how consumers are interacting with our products and their need to repurchase. It's difficult to gauge the precise impact of each factor in any given quarter, but we recognize that they all play a role. Additionally, summer typically has the lowest engagement levels for us, which likely affects sell-through as well.

And then as a follow-up on accessories, are you trying to educate the users or maybe it's just my family who had a terrible experience of using knockoff Cricut brands were, gummed up our cutters and all this. And we've now gone back to the original equipment Cricut branded for the vinyls and such. But is there a way like, educate investors? Are you doing that? Or are you just doing that more from promotional dollars out there? Because saving $0.50 or $1 may seem attractive to people until they realize it will kind of mess up their machines? Or is there a way like to QR code and make it authentic, or I'm just trying to think out loud about ways to educate and keep the lower quality supplies from eroding your company's profitability? Thank you.

So Jim, we actually work really hard to communicate the benefits of our materials. And we think in general, our users understand that they get an optimized experience when they use Cricut materials. That said, as I mentioned, in our research that we've been doing, with our consumers, there's just a higher hurdle rate. There's a lot of price sensitivity. And so that has been driving our promotional strategy to make sure that we're addressing affordability. Even as we continue to tell that story, it makes sure that we're getting the right price value trade-off in the mind of the consumer. So, that we can be competitive in the material space.

Jim, I'll just add to Kimball's answer. I mean, clearly, the points were really well made. And we know you're a very discerning consumer as well. So clearly, we are working with retailers, we are doing that we are providing messaging, providing data to help, better explain the value proposition, and the ease of use and seamless compatibility. The second is we are also increasingly integrating settings and, inside our software so that people can have a hassle-free experience with our materials, because they've all been tested rigorously across, for that individual specific machine. And last, but not the least, which I think is really important, right, which is that we're going to continue to partner and lead and with retailers that are going to showcase the compatibility of the materials and really be focused on giving the customer the best experience, because we ultimately think that that will be good for engagement and the long-term health of the category and really gives the consumer best experience. So we agree with you that anything less than that is frustrating. And ultimately, while we may sell alternative materials, if the customer doesn't have an experience, that project is not being made afterwards.

And then my last question is, are we in equilibrium now for machines? And accessories or are we still working down and if we're still working down, will we hit that point mid-calendar Q4, or what's your forecast for that equilibrium? Thank you.

As mentioned in our prepared remarks, we finished Q3 with what we believe are much healthier channel inventory levels. Most retailers are now in a position where they need to place orders to meet the expected holiday demand. We are monitoring retail orders, which have increased throughout October, even though they were somewhat lighter than anticipated towards the end of September. There may still be some headwinds with retailers who are hesitant to invest in inventory in the current environment, so they remain cautious. Overall, I think we are in a strong position, and our goal is to end the year maintaining healthy inventory levels.

Okay. Thank you so much. I appreciate all the details.

And our next question comes from Erik Woodring of Morgan Stanley. Your line is open.

Hey, guys, good afternoon. Thank you for taking my questions. Maybe the first one is Ashish or Kimball, elaborate with either one of you. And that is, I appreciate there are still a number of macro and micro cost crosscurrents at play today, I realized the holidays are incredibly important. But like, I guess something we're less than 60 days away from the end of the year. And so I'm just curious, what are the kind of most significant factors that kind of limit your visibility into things like your end users or revenue by any of the segments or margins or just your ability to provide any more kind of incremental information about 4Q, and then I have a follow-up? Thanks.

Thank you for the question. Let me share some insights on this. We've noticed that while the interest in our brand, reflected through Google Trends for the terms related to Cricut, remains mostly stable year-on-year and is significantly higher than 2019, the sell-through data does not mirror the 2021 results. We've conducted proprietary research, speaking to individuals who have moved through the stages of awareness, consideration, and research, showing a strong interest in our product. However, there's a higher barrier for them to actually make a purchase. We have observed that promotions, such as those during Prime Days, bring in consumers, illustrating a healthy level of demand and awareness in the category. As we look ahead, we believe that as consumer spending rebounds, shoppers will return to this category. I also want to note that in recent years, we've started our promotional periods earlier due to concerns about delivery times. This year, we haven't fully initiated those promotions by October as we typically do. Overall, examining the fundamentals in our category, alongside brand interest and awareness, both from our internal research and external factors like Google Trends, we see that the marketing funnel is healthy; we just need to facilitate consumer conversions.

And just point of clarification, what Ashish says, we're flat in Google Trends year-over-year. Our interest peaked in 2020, and we're essentially flat. We're matching this year's interest from 2020 and 2021.

Yes. So 2021 is the point of reference that I specifically brought up in September, and we basically have flat year-on-year compared to 2021, and significantly higher compared to 2019. The interest in the brand at the peak of COVID, at the pandemic was higher, but we're comping 2021 in terms of brand interest, for the most part in September.

Thank you for your insights. That was very helpful. I have one more question regarding modeling and another about strategy. Looking at the sequential growth in new users historically, it indicates that you might finish the year close to your initial target of 8 million total users you provided a few quarters back. I understand that this isn't a strict guide now. Could you clarify why that might not happen? Should we anticipate that new user growth will be below the usual seasonal trends, or can you offer any comments to help us understand this better? Thank you.

Yes, thank you, Eric. After our initial guidance, we made some adjustments reflecting the current environment, which makes predictions quite challenging. We believe we are taking the right steps to enhance awareness, especially with the significant impact of the holiday season on sales and the existing pent-up demand. While it's difficult to provide guidance on economic conditions and consumer sentiment, we feel optimistic about our awareness efforts and believe we are set up to encourage customer purchases. A lot will depend on how things unfold in November and December and where customers choose to spend their money, but we feel well-positioned as we approach that time. Additionally, we are pleased that we have been effectively managing our channel inventory, which should lead to a stronger connection between sellers and sell-through next year.

Right. Okay. Okay. Okay. And then my last question Ashish for you is, you made an interesting comment earlier on the call just about the hundreds of thousands of users that aren't necessarily engaging with their machine, but are on the Design Space app. And obviously, you've had really nice performance on the subscriber side, even if there's just a tiny bit of a ARPU pressure there. So I guess my question is just, is there an opportunity that you see on your end to kind of better monetize this kind of non-connected machine engagement? It's just the business that is clearly outperforming. And so obviously, subscriptions are really nice to have. And I'm just wondering if you can monetize some of this engagement that actually isn't on the machine, but instead on the app, even if not in a subscription basis? And that's all for me. Thank you so much.

Thank you for the question. I'm really excited about this topic. To clarify, we measure engagement by the number of users cutting as a percentage of those who have cut in the last 90 days compared to our total user base since 2014. Notably, nearly half of our users, about 48%, are using the machine, and that figure has been growing year over year. We are focused on encouraging users to engage deeply with the platform, whether that's by creating bookmarks to show their intent to return, liking projects, following others, or sharing content. Our data indicates that users who enter Design Space are more likely to cut. Consequently, our aim is to attract more users to Design Space, and we believe that mobile will be a significant factor in this strategy. This could ultimately lead to increased cutting and monetization. One specific example is our enhanced Cricut Access product, which has improved and is now being marketed effectively across various areas of the app. We believe that by continuing to focus on user engagement and facilitating interaction in Design Space, we will create opportunities for monetization, both in traditional cutting and a variety of other ways. We are just beginning this journey, but I am proud of our team as we build a platform where every user's activity is generating and adding value.

Awesome. Thank you so much, Ashish for the detail.

One moment and our next question comes from Paul Kearney of Barclays. Your line is open.

Hi, everyone. Thanks for taking my question. If we manage to exit Q4 with healthier inventory levels in retail, could you help us understand the factors that will influence top-line growth in the first half of FY 2023? Specifically, what channel dynamics should we consider in our model? Thank you.

Yes, so, Paul, thanks for the question. Given all the macro dynamics going on, we're taking a conservative view in our own planning, have had to look at next year, right. Where we had significant headwinds from channel inventory that will be largely behind us, right. There are still some pockets that we'll face next year related to that, especially in our Accessories and Materials segment. What we are confident about is, as Ashish talked about our awareness funnel and what we understand about our consumers, and we're confident that when consumer spending returns that we're well positioned to capture growth. But right now, we're planning that the first half of next year probably looks a lot like the current environment.

Okay, Helpful. And just maybe a longer-term strategic question. Can you just maybe update us on what do you think the long-term user growth trajectory is for this business? And maybe you can start with where your awareness levels are today with the increased promotional activity? Do you think that the consumer is going to continue to need promotions? Or maybe just some metrics on where the user is today and their perception of the brand? Thanks.

Thank you for your question, Paul. I want to highlight that our revenues have decreased by 49%, and our growth in new users is down by 26%. We've previously discussed the interest in our brand within the category, particularly when people search for terms like Cricut or What is Cricut. We continue to employ the same strategies as before, utilizing network effects, social media, word of mouth, and more. While we haven't shared specific details, we conduct a lot of awareness and index studies, rigorously testing our service against the addressable market. Everything we understand about both domestic and international markets suggests that we have a significant market opportunity ahead of us. Our focus remains on fostering passion for the brand and creating awareness. Although our sales and marketing expenses appear elevated as a percentage of sales due to lower sales figures, we believe those marketing dollars effectively drive awareness and guide people through the sales funnel. Our team is working diligently, guided by extensive research, to find ways to draw more users into the funnel and assist them in finding the information they need. We are putting strong fundamentals in place and building on our understanding of the customer, which we believe will enhance conversion rates once consumer spending rebounds. We're optimistic about our initiatives.

Thank you.

Thank you. And ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.