Q1 2024 Cricut Inc Earnings Call

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Welcome to the cricket Q1, 2024 earnings conference call at this time, all participants are in a listen only mode.

Operator: Welcome to the Cricut Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised.

After the Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.

Operator: To withdraw your question, please press star one one again. 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 Services. Please go ahead.

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 services. Please go ahead.

Jim Suva: Thank you operator, and good afternoon, everyone. Thank you for joining us on crickets first quarter 2024 earnings call.

Jim Suva: Thank you, Operator, and good afternoon, everyone. Thank you for joining us for Cricut's first quarter 2024 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 of Cricut, and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host a live Q&A.

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 Doc cricket Dot com.

Joining me on the call today are Ashish Aurora, Chief Executive Officer, and Kimball Shale Chief Financial Officer.

Today's prepared remarks have been recorded after which ashish and Kimball will host live Q&A.

Jim Suva: 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.

Jim Suva: 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. However, 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 uncertainty, 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. However, 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, May 7, 2024.

Business expenses and results of operations in response to your questions.

Jim Suva: 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 crickets. Most recently filed Form 10-K or Form 10-Q that we have filed with the securities and Exchange Commission.

Jim Suva: Actual events or results could differ materially.

Jim Suva: This call also contains time sensitive information that is accurate only as of the date of this broadcast.

May 7th 2024.

Jim Suva: Cricut assumes no obligation to update any forward-looking projections that may be made in today's release or call. I will now turn the call over to Ashish. Thank you, Jim, and welcome, everyone. Q1 played out largely as expected. Operating margin dollars grew significantly by 139% or $15 million, driven by lower inventory write-offs, more paid subscribers, and higher sales of connected machines. Despite an 8% year-on-year drop in overall sales, and given the confidence in the sustainability of our profitable operations, the Board of Directors approved three capital allocation items. A special dividend of $0.40 per share.

Jim Suva: Cricket assumes no obligation to update any forward looking projection that may be made in today's release or call.

Jim Suva: I will now turn the call over to Ashish.

Ashish Arora: Thank you Jim and welcome everyone.

Ashish Arora: A recurring semi-annual dividend of $0.10 per share and another $50 million stock repurchase program. Kimball will go over these three capital allocation items in detail in a few minutes. In Q1, platform revenues increased 3% on paid subscribers, but products revenues declined 15% as the positive growth in connected machines from higher units was more than offset by a decline in accessories and materials.

Ashish Arora: Q1 played out largely as expected.

ashish: Operating margin dollars grew significantly by 139% a $15 million.

ashish: Lower inventory write offs more paid subscribers and higher sales of connected machines.

ashish: Despite an 8% year on year drop in overall sales.

ashish: Given the confidence in the sustainability of our profitable operations. The board of directors approved three capital allocation items.

ashish: Special dividend of <unk> 40 per share.

ashish: Our recurring semi annual dividend of <unk> 10 per share and another $50 million stock repurchase program.

ashish: Kimberly goal with these three capital allocation items in detail in a few minutes.

ashish: In Q1, a platform revenues increased 3% on paid subscriber growth.

ashish: Alex revenues declined 15% as a positive growth in connected machines from higher units was more than offset by a decline in accessories and materials.

Ashish Arora: The areas where we could do better are straightforward. We need to attract more new users to buy our connected machines. We need to reverse weakening engagement trends and re-inject enthusiasm among our users. We need to be more effective competitors in accessories and materials. Remember, we have four priorities.

ashish: The areas, where we could do better are straightforward.

ashish: We need to attract more new users to buy a connected machines.

ashish: Need to reverse weakening engagement trends and re inject enthusiasm among our users.

ashish: We need to be more effective competitors and accessories and materials.

ashish: Remember we have four priorities.

ashish: User acquisition.

Ashish Arora: New user acquisition, user Engagement, subscriptions, and accessories, and materials. I will briefly review these items and provide some detailed commentary on our new platform innovation. As mentioned in our press release, going forward, we will talk about active users who have used their connected machines in the past year, and Kimball will go into more detail on metrics and KPI. We ended the quarter with over 5.95 million active users who cut in the past year, slightly up from 5.94 million a year ago and in line with that expectation.

ashish: User engagement subscriptions and accessories and materials.

ashish: I will briefly review these items and provide some detailed commentary on our new platform innovations.

ashish: As mentioned in our press release going forward, we will talk about active users who have used their connected machines in the past year.

ashish: And Kimberly will go into more details on metrics and Kpis.

ashish: We ended the quarter with over 595 million active users who cut in the past year slightly up from $5 $94 million, a year ago and in line with our expectations.

Ashish Arora: We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our modernization flyway. During Q1, we accelerated our investment in marketing spend and doubled down on our PR via live broadcast, gift guides, product reviews, and lifestyle coverage. As we move people down the funnel, our research shows consumers consider the cost of the machine, plus the ongoing cost of using it, plus how much they will use it.

ashish: We continue to focus and new user acquisition and engagement growth on our platform, which ultimately drive our monetization flywheel.

ashish: During Q1, we accelerated our investment in marketing spend and double down on our PR via live broadcast gift guides product reviews and lifestyle coverage.

ashish: As he move people down the funnel our research shows consumers consider the cost of the machine plus the ongoing cost of using it and how much they will use it.

Ashish Arora: To address these concerns, we wanted to show them that they could save money while experiencing the joy of creating and personalizing. Recognizing this appeal, we recently launched a campaign called Make Vs. Buy, which highlights specific examples of savings of making projects versus buying similar finished products. For example, personalized doormats cost only $10 to make, compared to up to $150.

ashish: To address these concerns we wanted to show them that they could save money, while experiencing the joy of creating and personalizing things.

ashish: Recognizing the appeal, we recently launched a campaign called make versus buy.

ashish: Highlights specific examples of savings are making projects versus buying similar finished products.

ashish: For example.

ashish: Firstly is the old mats costs, only $10 to make compared to up to $150 to buy.

Ashish Arora: Another example is the fashionable personalized tote bags, which cost only $3.08 to make compared to $30.00. You can see these and many more examples on our website. During Q1, we leaned into programs that showed our target consumers different making occasions. We executed integrated programs for key seasonal moments, including Valentine's Day, National Craft Month, Women's History Month, and Easter Week. We saw a trend towards personalizing apparel and party decor for the NFL playoffs, including a broadcast hit on Fox News talk show, Fox News Live.

ashish: Another example is fashionable personalized talk bags, which cost only $3 eight to make compared to $30 to buy it.

ashish: You can see these and many more examples on our website.

ashish: During Q1, we lean into programs that show, our tire consumers different making occasions, the executed integrated programs for key seasonal moments, including Valentine's day National craft month women's history month and Easter.

ashish: We saw a trend towards personalizing apparel and party Nicole for the NFL playoffs.

ashish: Putting a broadcast hit on Fox News talk show Fox and friends.

Ashish Arora: Each of these programs is supported by an integrated marketing plan leveraging vehicles, including digital marketing, Influencer Posts, Organic Social, Social Brand Partnerships, and Live Broadcasting. We were highlighted recently in USA Today, which stated, and I... Cricut's newest cutting machine is the perfect size for casual crafting. The Cricut Joy Extra is an ideal choice for hobby crafters who want all the cutting power of a full-size computer, without having to sigh over a bulky machine.

ashish: Each of these programs are supported by an integrated marketing plan leveraging vehicles, including digital marketing.

ashish: Influencer posts organic social social brand partnerships and live broadcast.

ashish: Fuel highlighted recently in USA today with stated and I quote crickets newest cutting machine is a perfect size for casual crafters.

ashish: The cricket Joy extra as an ideal choice for hobby crafters, who want all the cutting power of a full size cricket.

ashish: Without having to saw a bulky machine.

ashish: As a follow up to the cricket make their day Valentines event.

Ashish Arora: As a follow-up to the Cricut Make Their Day Valentine's event, we launched our Make Mom's Day sales event on April 28. The two-week sales event is supported by retailer programs and content marketing strategies. Incorporating Influencers, Social, Editorial, and Deals, we ended the quarter with over 5.95 million active users who have cut in the past year. And we have 3.5 million 90-day engaged users who have cut during the quarter, down from 3.7 million in Q1 2020.

ashish: Launched our MIT Moms day sales event on April 28.

ashish: The two week sales event is supported by retailer programs and content marketing strategies, incorporating influencers, social editorial and dealer coverage.

ashish: We ended the quarter with over 595 million active users who cut in the past year.

ashish: And we had $3 5 million 90 day engage users who cut during the quarter down from $3 7 million in Q1 2023.

ashish: We continue to experience engagement erosion from our large user cohorts from 2020 and 21.

Ashish Arora: We continue to experience engagement erosion from our large user cohorts from 2020 and 21, and from prior years who are aging on their engagement curve and are not offset by as many new users in recent years. Our focus remains to maximize engagement of our most impactful cohort, which are new users onboarding onto the platform or onboarding, and paid subscribers. Recently, we developed more data instrumentation that increased our understanding of the challenges on-boarders can run into during their initial journey within our platform.

ashish: And from prior year's who age on the engagement curve and are not offset with as many new users in recent quarters.

ashish: Our focus remains to maximize engagement of our most impactful cohorts, which are new users onboarding onto the platform or on borders and paid subscribers.

ashish: Recently, we develop more data instrumentation that increases our understanding of the challenges on borders can run into during their initial journey within our platform.

Ashish Arora: This has helped us focus our efforts to improve this experience. In Q1, we saw an improvement in the percentage of new users who successfully start and complete their out-of-box training. Our efforts will continue across the journey for new users, from Teske and First Project through the first week and first month on our platform. In the first quarter, we adjusted how we presented our educational video content, which we now show directly in design. In addition to a larger content library, we have also made improvements to our search and personalization algorithm. We now provide personalized recommendations for images and projects on the Inspire page of Design Space mobile app.

ashish: This has helped us focus our efforts to improve this experience.

ashish: In Q1, we saw an improvement in the percentage of new users, who successfully start and complete their out of box experience.

ashish: Our efforts will continue across the journey for new users from tests cut and first project through first week and first month on our platform.

ashish: In the first quarter, we adjusted how we present, our education of video content, which we now show directly and design space.

ashish: In addition to a larger content library, we have also made improvements to our search and personalization algorithm.

ashish: We now provide personalized recommendations for images and projects on the inspire page and design space mobile apps.

Ashish Arora: We will continue to make progress on search personalization over time. We have also enhanced our machine learning personalization model to consider additional inputs from user behavior on our platform. We are also prioritizing projects and images that have a higher chance of being liked. In Q1, our team improved the project recommendation system and created an in-house system that is more flexible, adaptable, and designed to capture different aspects of user preferences. For example, we use AI deep learning to suggest projects that users might like based on user behavior to recommend similar projects and help find popular projects that are time-sensitive.

ashish: We will continue to make progress in search personalization overtime.

ashish: We have also enhanced our machine learning personalization models to consider additional inputs from user behavior on our platform.

ashish: We are also prioritizing projects and images that have a higher chance of success.

ashish: In Q1, our team improve the project's recommendation system and created an in house system that is more flexible adaptable and designed to capture different aspects of user preferences.

ashish: For example, we use AI deep learning to suggest projects that users might like based on user behavior to recommend similar projects in health plan popular projects that are time sensitive.

Ashish Arora: We tested this new system, and it did better than our old models and increased the number of customized projects made on our platform. We also applied AI to examine and label images to suggest suitable tags for images uploaded to our database. This helps produce better search results for our users. We also intend to use this algorithm to refine existing tags in our database, which should improve search retrieval. We have several more improvements planned for search enhancements in the future.

ashish: We tested this new system at a dead better than our old models and increase the number of customized projects made on our platform.

ashish: We also applied AI to examine and label images to suggest suitable tax for images uploaded to our database and help produce better search results for our users.

ashish: We also intend to use this algorithm to refine existing tags in our database.

ashish: Which should improve search retrieval.

ashish: We have several more improvements planned for search enhancements in future quarters.

Ashish Arora: Paid subscribers were in line with our expectations and increased 82,000 year-on-year and increased 27,000 sequentially in Q1, ending with just over 2.8 million paid subscribers. Our subscription efforts continue to bear fruit in terms of converting purchasers of new machines into subscribers. On the other end, our subscription attrition curves have remained steady despite declines in engagement.

ashish: Paid subscribers, but in line with our expectations and increased 82000 year on year and increased 27000 sequentially in Q1 ending.

ashish: Ending with just over $2 8 million paid subscribers.

ashish: Our subscriptions efforts continue to bear fruit in terms of converting purchasers of new machines into subscribers.

ashish: At the other end our subscription attrition curves have remained steady despite declines in engagement.

Ashish Arora: Lower new user ads compared to prior years puts pressure on our subscriber growth and created some quarterly fluctuations in 2023 that will likely repeat in 2021. We have a rich roadmap to continually increase the value proposition for subscribers, including an ever-growing suite of premium design, along with the content strategies described above. In January, we launched Create Sticker, which dramatically simplifies the process of turning a raw image into a Fenne sticker in a few weeks.

ashish: Lower new user adds compared to prior years puts pressure on our subscriber growth rates and created some quarterly fluctuations in 2023 that will likely repeat in 2024.

ashish: We have a rich roadmap to continually increase the value proposition for subscribers, including at ever growing suite of premium design tools, along with the content strategy as described above.

ashish: In January we launched create sticker, which dramatically simplifies the process of turning a raw image into a finished sticker and a few easy steps.

Ashish Arora: We've also made significant improvements to the background removal tool, which is one of the most used subscription features by our members, by leveraging and testing multiple variants of machine learning and AI-based models to increase the accuracy of removing backgrounds from images uploaded by our users. Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our software and services. As our engagement efforts bear fruit, we expect to see a boost. However, accessories and materials sales declined 26% year-on-year in Q1.

ashish: We've also made significant improvements to the background removal tool, which is one of the most used subscription features by our members by leveraging and testing multiple variants of machine learning and AI based models to increase the accuracy of removing backgrounds from images uploaded by our users our goal is to make it incredibly.

ashish: Compelling to sign up as a subscriber to leverage our software and services.

ashish: As an engagement efforts bear fruit, we expect to see a boost to subscriptions.

ashish: Accessories and materials sales declined 26% year on year in Q1, clearly, we still have a long way to go to establish our expected competitive position here, we recognize the role affordability plays in our materials business and are working on several solutions there.

Ashish Arora: Clearly, we still have a long way to go to establish our expected competitive position here. We recognize the role affordability plays in our materials business and are working on several solutions. The aim is to stimulate purchasing activity and boost engagement. In addition, we face the stiffest competition in this part of the business, with lower barriers to entry than cutting machines that are digital platforms.

ashish: The aim is to accumulate purchasing activity and boost engagement.

ashish: In addition, we faced the stiffest competition in this part of the business with lower barriers to entry than cutting machines at our digital platform.

Ashish Arora: I'm excited to give you a tangible update on some positive progress in this area. Toward the end of Q1, we launched the Cricut Value materials online, designed to deliver maximum performance at a great price. This new offering is aimed to compete effectively with online marketplaces, which are more price competitive and require hitting the right price points with shipping economics to compete more effectively. This is accomplished through re-engineered products, re-engineered packaging, and improving supply chain efficiency.

ashish: I'm excited to give you a tangible update on some positive progress in this area.

ashish: Towards the end of Q1, we launched the cricket value materials online.

ashish: Designed to deliver maximum performance at a great price. This new offering was aimed to compete effectively with online marketplaces, which are more price competitive and acquire hitting the right price points with shipping economics to compete more effectively.

ashish: This is accomplished through re engineered product re engineered packaging and improving supply chain efficiencies.

Ashish Arora: It will take us some time to work through current inventory as we roll new products in, but we expect to achieve margin improvements in this business over time, while still creating a differentiated office that works seamlessly with our machines and platforms. Feedback thus far has been encouraging, and I look forward to sharing more with you in the quarters ahead. Growth in this segment should emerge as we are successful in driving new customer acquisition at a higher rate, and our engagement efforts begin to bear fruit.

ashish: It will take us some time to work through current inventory as we roll new products and but we expect to achieve margin improvements in this business over time.

ashish: While still creating a differentiated offering that work seamlessly with our machines in platform.

ashish: Feedback, thus far has been encouraging and I look forward to sharing more with you in the quarters ahead.

ashish: Growth in this segment should emerge as we are successful in driving new customer acquisition at a higher rate and our engagement efforts begin to bear fruit.

Ashish Arora: Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers, with a focus on wedding sharing. We see that when we are in the price range of our competitors, we get our fair share. 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 the actual use of our equipment.

ashish: Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers.

ashish: With a focus on winning share.

ashish: We see that when we are in the price range of our competitors, we get our fair share.

ashish: 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 shelf and for actual use of our ecosystem.

Ashish Arora: It's our fundamental belief that when we give people more reasons and inspiration to make things that are appealing to them, and we make it easier to make things affordably, we will see a lift in materials consumption. We are driven to continue to innovate while exhibiting both long-term focus and current discipline. I will now turn the call over to Ashish. Thank you.

ashish: It's a fundamental belief that when we gave people Moody's and inspiration to make things that are appealing to them.

ashish: And they make it easier to make things affordably, we will see a lift in materials consumption.

ashish: We are driven to continue to innovate while exhibiting both long term focus and current discipline.

ashish: I will now turn the call over to Kimball.

Kimball Shill: Thank you Ashish.

Kimball Shill: I would like to provide more details on the capital allocation. The Board of Directors approved a special one-time dividend of $0.40 per share and a recurring semi-annual dividend of $0.10 per share. Both dividends are payable on July 19th to shareholders of record on July 2nd.

Kimball: I would like to provide more details on the capital allocation items. The board of directors approved a special one time dividend of <unk> 40 per share and a recurring semiannual dividend of 10 cents per share both dividends are payable on July 19th for shareholders of record on July 2nd.

Kimball Shill: The recurring semiannual dividend of 10 cents is anticipated again in about six months, which would be in the January timeframe, but is subject to board approval. The Board of Directors also approved a new $50 million stock repurchase program. As mentioned in our last earnings call, we effectively completed our previously authorized stock repurchase program announced in August 2022. The Board of Directors views this level of capital allocation, both stock repurchases and dividends, as appropriate given the company's operating and financial plans and will continue to evaluate capital allocation on a regular basis.

Kimball Shill: The recurring semiannual dividend of <unk> 10, as anticipated again in about six months, which would be in the January timeframe, but is subject to board approval.

Kimball Shill: The board of Directors also approved a new $50 million stock repurchase program as mentioned in our last earnings call. We effectively completed our previously authorized stock repurchase program announced in August 2022.

Kimball Shill: The board of directors use this level of capital allocation, both stock repurchases and dividends as appropriate given the company's operating and financial plans and we will continue to evaluate capital allocation on a regular basis. These capital allocation decisions are possible due to past profitability and our confidence in the sustainability of our profitable operations.

Kimball Shill: These capital allocation decisions are possible due to past profitability and our confidence in the sustainability of our profitable operation. We want Cricut to always have ample liquidity to sustain and grow our business, but not hold excess cash for no reason.

Kimball Shill: We want cricket to always have ample liquidity to sustain and grow our business, but not hold excess cash for no reason.

Kimball Shill: We do not anticipate the need for any debt or utilization of our credit line in the near. Now on to the financials of Q1 and our Last quarter, I mentioned that we would adjust our reporting segments in KPI. We call Cricut to the benefit of the public company for approximately three years. During 2020, in preparing to go public, we developed a package of quarterly information to provide meaningful transparency for investors, including our reporting segments and KPIs.

ashish: We do not anticipate the need for any debt or utilization of our credit line in the near term.

Speaker Change: Now onto financials of Q1 and our outlook.

ashish: Last quarter, I mentioned that we would adjust our reporting segments and kpis.

ashish: Recall cricket has been a public company for approximately three years.

ashish: During 2020 and preparing to go public we developed a package of quarterly information to provide meaningful transparency for investors, including our reporting segments and kpis.

Kimball Shill: After three years of business evolution, we have redesigned some aspects of our quarterly re-information package. We increasingly view Cricut as a platform business with physical products. My commentary will be consistent with our new segments of platform and product. We have also updated our public KPIs to focus on the most meaningful indicators for our current and future operations. You will notice we now provide active users rather than total users, which more accurately reflects our business for definitional purposes. An active user is a unique user who has used their connected machine to make a project in the last 12 months.

ashish: After three years of business evolution, we have redesigned some aspects of our quarterly re information package, we increasingly view cricket as a platform business with physical products my.

ashish: My commentary will be consistent with our new segments of platform and products.

ashish: We also updated our public kpis to focus on the most meaningful indicators for our current and future operations. You will notice we now provide active users rather than total users, which more accurately reflects our business for.

ashish: For definitional purposes, and active user is a unique user who has used their connected machine to make a project in the last 12 months.

Kimball Shill: We will also continue to share our shorter-term engagement metric of 90-day engaged users, which represents a unique user who has used their connected machine to make a project in the last 90 days. On our investor relations website, we have provided historical information on our new segments and KPIs. In the first quarter, we delivered revenue of $167.4 million, an 8% decline compared to the prior year and in line with our expectations.

ashish: We will also continue to share our shorter term engagement metric of 90 day engaged users, which represent a unique user who has used their connected machine to make a project in the last 90 days.

ashish: On our Investor Relations website, we have provided historical information on our new segments in Kpis.

ashish: In the first quarter, we delivered revenue of 167 $4 million, an 8% decline compared to the prior year and in line with our expectations, we generated $19 $6 million and net income a 116% year over year increase in our 20 <unk> consecutive quarter of positive net income.

Kimball Shill: We generated $19.6 million in net income, a 116% year-over-year increase, and our 21st consecutive quarter of positive net income, as we continue to invest in our key priorities, breaking revenue down further. G1 2024 revenue from the platform was $78 million, up 3% year over year. Revenue from products was $89 million, down 15% over Q1 2023. Connected Machines increased 8%.

ashish: As we continued to invest in our key priorities.

ashish: Revenue down further Q1 2020 for revenue from platform was $78 million up 3% year over year.

ashish: Revenue from products was $89 million down 15% over Q1 2023.

ashish: <unk> machines increased 8% driven by higher unit sold while accessories and materials decreased 26%.

Kimball Shill: Driven by higher units sold, while accessories and materials decreased by 26%. Some retailers started to restock inventory levels partially in Q1, unlike in 2023 when they were destocked. However, during key sales events, we found retailer shelves light on inventory to fully capture the opportunity. In terms of geographic breakdown, international revenue was $32.6 million, down 3% compared to $33.5 million in Q1 2023. The year-over-year decline in Q1 was primarily driven by the UK and EU central regions.

ashish: Some retailers started to restock inventory levels, partially in Q1. Unlike in 2023, when they were destocking.

ashish: However, during key sales events, we found retailers shelves light on inventory to fully capture the opportunity.

ashish: In terms of geographic breakdown international revenue was $32 6 million or.

ashish: We're down 3% compared to $33 5 million in Q1 2023.

ashish: The year over year decline in Q1 was primarily driven by U K and EU central regions as a percentage of total revenue International was 19% in Q1 2024, compared with 18% of total revenue in Q1 2023.

Kimball Shill: As a percentage of total revenue, International was 19% in Q1 2024, compared with 18% of total revenue in Q1 2023. Turning to active users and engagement, we ended the quarter with over 5.95 million active users, a slight increase from $5.94 million a year ago. We ended the quarter with over 3.5 million 90 day engaged users, which was a 5% decline from Q1 last year. As Ashish mentioned, we have more work to do to improve engagement. We ended the quarter with nearly 2.8 million paid subscribers, up 3% from Q1 2023 and up 27,000, as discussed in earlier calls. However, there is some natural subscriber attrition.

ashish: Turning to active users and engagement we ended the quarter with over 595 million active users a slight increase from $5 $94 million a year ago.

ashish: We ended the quarter with over $3 5 million 90 day engaged users, which was a 5% decline from Q1 last year.

ashish: As Ashish mentioned, we have more work to do to improve engagement.

ashish: We ended the quarter with nearly $2 8 million paid subscribers up 3% from Q1 2023.

ashish: And up 27000 sequentially.

ashish: As discussed in earlier calls there is some natural subscriber attrition.

Kimball Shill: So subscriber growth will be muted until we increase the pace of machine sales and new user acquisition. Moving to gross margin, total gross margin in the first quarter was 54.7%, an improvement compared to 42.3% in Q1 2023.

ashish: Subscriber growth will be muted until we increase the pace of machine sales and new user acquisition.

ashish: Moving to gross margin total gross margin in the first quarter was 54, 7% an improvement compared to the 42, 3% in Q1 2023.

Kimball Shill: The improvement reflects a higher amount of platform revenue as a percentage of total revenue and less impairments than last year. Breaking gross margin down further, gross margins from platform products were 88.8% compared to 89.8% a year ago. Flight Decline and Platform Gross Margins were primarily related to higher amortization of capitalized software, which we expect to continue. Gross Margin for Products was 24.8%, compared to 7.8% in Q1 a year ago. The increase in gross margins was primarily due to lower impairments in materials than a year ago. Total operating expenses for the quarter were $66.4 million and included $10.3 million in stock-based compensation.

ashish: The improvement reflects a higher amount of platform revenue as a percentage of total revenue and less impairment than last year.

ashish: Breaking gross margin down further gross margins for platform, where 88, 8% compared to 89, 8% a year ago. The slight decline in platform gross margins was primarily related to higher amortization of capitalized software costs, which we expect to continue.

ashish: Gross margin for products was 24, 8% compared to seven 8% in Q1, a year ago. The increase in gross margins was primarily due to less impairments and materials that a year ago.

ashish: Total operating expenses for the quarter was $66 4 million and included $10 3 million in stock based compensation.

Kimball Shill: Total operating expenses were up less than 1% from $66.1 million in Q1 2023. As we mentioned last quarter, we increased our 2024 plans for increased marketing, which drove the sales and marketing costs up $3.4 million or up $12.5 million. But this was largely offset by a $2.9 million decrease in R&D. Operating income for the quarter was $25.2 million, or 15.1% of revenue, compared to $10.5 million, or 5.8% of revenue, in Q1 last year.

ashish: Operating expenses were up less than 1% from $66 1 million in Q1 2023.

ashish: As we mentioned last quarter, we increased our 2024 plans for increased marketing, which drove the sales and marketing costs up $3 $4 million were up 12%, but this was largely offset by a $2 $9 million decrease in R&D.

ashish: Operating income for the quarter was $25 2 million.

ashish: Or 15, 1% of revenue compared to $10 5 million or five 8% of revenue in Q1 last year.

Kimball Shill: This was a 139% increase in operating income, which we are encouraged by despite the decline in sales. The increase in operating income is primarily due to higher paid subscriptions coupled with less impairments in our materials business. Our tax rate of 30.6% increased from 29.2% a year ago, primarily due to the tax impact of stock vesting at a lower price.

ashish: This was a 139% increase in operating income, which we are encouraged with despite the decline in sales. The increase in operating income is primarily due to higher paid subscriptions, coupled with less impairments in our materials business.

ashish: Our tax rate of 36% increased from 29, 2% a year ago, primarily due to the tax impact of stock vesting at a lower price we.

Kimball Shill: We delivered our 21st consecutive quarter of positive net income. Net income was $19.6 million, or $0.09 per diluted share, compared to $9.1 million, or $0.04 per diluted share, in Q1 2023. Turning now to the balance sheet and cash. We continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth. In Q1, we generated $57 million in cash from operations, compared to $95 million a year ago. We ended Q1 with a cash and cash equivalence balance of $282 million. We remain debt-free.

ashish: We delivered our 20 <unk> consecutive quarter of positive net income.

ashish: Net income was $19 6 million or nine cents per diluted share compared to $9 1 million or <unk> <unk> per diluted share in Q1, 2023, turning now to balance sheet and cash flow.

Kimball Shill: Inventory decreased by $68 million from a year ago to $225 million at the end of Q1. During Q1, we used $10.8 million of cash to repurchase 1.7 million shares of our stock, which effectively completed our $50 million stock repurchase program that was authorized in August 2022. As discussed previously, the Board of Directors authorized a new $50 million stock buyback program, which will commence in Q2. Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2024.

ashish: We continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long term growth.

ashish: In Q1, we generated $57 million in cash from operations compared to $95 million a year ago.

ashish: We ended Q1 with a cash and cash equivalents balance of $282 million.

ashish: We remain debt free inventory decreased by $68 million from a year ago to $225 million at the end of Q1 2024.

ashish: During Q1, we used $10 $8 million of cash to repurchase one 7 million shares of our stock, which effectively completed our $50 million stock repurchase program that was authorized in August 2022.

ashish: As discussed previously the board of directors authorized a new $50 million stock buyback program, which will commence in Q2.

ashish: Recall, we did not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2024, we.

Kimball Shill: We are focused on bringing excitement to our customers. We are doing this through an increased focus on marketing and continuing our strategy of deeper promotions on cutting machines and a continued cadence on accessories and materials to drive affordability. We expect continued sales pressure on our product segment, especially in accessories and materials. And accordingly, we do not expect positive Q2 revenue growth year over year. We will continue to accelerate marketing to generate consumer excitement, but given ongoing retail conservatism and only two major sales events under our belt, it is too soon to call it an inflection. Hence, we may even see a decline for the full year.

ashish: We are focused on bringing excitement to our category. We are doing this through an increased focus on marketing and continuing our strategy of deeper promotions on cutting machines and a continued cadence on accessories and materials to drive affordability.

ashish: We expect continued sales pressure on our product segment, especially in accessories and materials and accordingly, we do not expect positive Q2 revenue growth year over year.

ashish: We will continue to accelerate marketing to generate consumer excitement.

ashish: But given ongoing retailer conservatism and only two major sales events under our belt. It is too soon to call an inflection point.

ashish: We may even see a decline for the full year.

Kimball Shill: We expect paid subscriber count and subscription revenue to grow slightly and become a larger portion of total company sales and profits for the full year. However, lower new user growth rates will put pressure on our subscriber base, following a similar pattern to 2023. It could result in a seasonal pattern of paid subscriber growth in Q1 and Q4, but flat to declining in Q2 and Q3. Typically, revenue seasonality is 40% in the first half and 60% in the second half of the year.

ashish: We expect paid subscriber count as subscriptions revenue to grow slightly and become a larger portion of total company sales and profits for the full year.

ashish: Lower new user growth rates will put pressure on our subscriber growth. Following a similar pattern to 2023 and could result in a seasonal pattern of paid subscriber growth in Q1, and Q4, but flat to declining in Q2 and Q3.

ashish: Typical revenue seasonality as 40% in the first half and 60% in the second half of the year.

Kimball Shill: However, we anticipate 2024 seasonality will look a lot like 2023, where revenues were distributed 47% of the first and 53% in the second. In 2024, our operating expenses will increase modestly as we increase our marketing spend to reinvigorate excitement in the category. We expect total year operating margins to be about flat year over year. We expect to be profitable each quarter and generate a significant positive cash flow during 2024. Our long-term financial model remains unchanged, with operating margin targets of 15 to 19%.

ashish: However, we anticipate 2020 for seasonality will look a lot like 2023.

ashish: Our revenues were distributed 47% in the first half and 53% in the second half.

ashish: In 2024, our operating expenses will increase modestly as we increase our marketing spend to reinvigorate excitement in the category. We expect total year operating margins to be about flat year over year we.

ashish: We expect to be profitable each quarter and generate significant positive cash flow during 2024.

ashish: Our long term financial model remains unchanged with operating margin targets of 15% to 19%.

Operator: Our proven model has demonstrated that when we operate at scale, which we define as revenue above a billion dollars, and DriveToplineGrowth, these margins are achievable. With that, I'll turn the call over to the operator for questions. Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

ashish: Our proven model has demonstrated that when we operated scale, which we define as revenue above a $1 billion.

ashish: And drive top line growth these margins are achievable.

Speaker Change: With that I'll turn the call over to the operator for questions.

Operator: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Erik Woodring of Morgan Stanley. Your line is now open.

Speaker Change: Thank you at this time, we will conduct a question answer session.

Speaker Change: <unk> to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from Erik Woodring of Morgan Stanley. Your line is now open.

Operator: Hi, awesome. Thank you. This is Maya on behalf of Eric.

ashish: Awesome. Thank you this is Mike on for Eric.

Mike: The total number of engaged users followed both sequentially and year over year can you, maybe just give us a little bit of details on colors on some of the initiatives you've talked about in prior quarters to increase engagement.

Operator: The total number of engaged users fell both sequentially and year over. Can you maybe just give us a little bit of details and color on some of the initiatives you've talked about in prior quarters to increase engagement? And kind of, when do you expect to see that materialize? And when do you think?

Speaker Change: And kind of is that when do you expect to see that materialize and when do you think.

Ashish Arora: Bottoms up, and then I have a follow-up. Thank you. Thanks, Maya. This is Ashish.

ashish: Engagement bottoms, and then I have a follow up thank you.

Speaker Change: Thanks, Mike.

ashish: Ashish.

Ashish Arora: So, thanks for the question. So, you know, as we've kind of mentioned before, engagement is a really important initiative for the company, and we have a team that's focused on it. As you pointed out, engagement did decrease year on year, so let me give you one of the main reasons for that. When you look at the 2020 and 2021 cohorts, which are roughly, we acquired about 4 million users, as they, you know, go through the graduation curve, there's a natural attrition that happens, and that's what's putting a lot of pressure on the company. It creates a headwind for the company

ashish: So thanks for the question. So you know as we've kind of mentioned before engagement is a really important initiative for the company and we have a team that's focused on it.

ashish: As you pointed out engagement did decrease year on year. So let me give you.

ashish: One of the main reasons for that was when you look at the 2020 in 2021 cohorts, which is roughly we acquired about 4 million users as they go through graduation.

ashish: Natural attrition that happens and that's what's putting a lot of pressure and creating a headwind for the company.

Ashish Arora: Now, that would typically be offset by newly acquired users that are more engaged, and we obviously are not acquiring enough of them to offset the 2020 and 2021 headwinds. In terms of initiatives, we have a number of initiatives that we are focusing on driving engagement. One of the main focus areas is, you know, as we look at onboarding users, we want to make sure that they have a great positive out-of-box experience and not only that, but they actually do enough projects in the first seven to 30 days.

ashish: Now that would typically be offset by new acquired newly acquired users.

ashish: More engaged and we obviously would.

ashish: On articulating enough of them to offset the 2020 in 2021 headwind.

ashish: In terms of initiatives, we have a number of initiatives that we have that our focus on driving engagement one of the main.

ashish: Focus areas is as we look at Onboarding users, we want to make sure that they have a great positive out of box experience and not only that they would actually make enough projects in the first 7% to 30 days. So we have seen some positive results as we talked about in our.

Ashish Arora: So we've seen some positive results, as we talked about in our prepared remarks. In addition to that, we have, you know, initiatives around education, helping people find inspiration so they can actually find the project and ultimately support it. So I think there are a number of initiatives.

ashish: In our prepared remarks in addition to that we have.

ashish: Initiatives about education.

ashish: Helping people find inspiration so they can actually find the project and ultimately cut it.

ashish: So I think there's a number of initiatives, we have a pretty strong conviction that.

Ashish Arora: We have a pretty strong conviction that some of these initiatives will pay off. One other initiative that I want to kind of highlight is search and personalization. And again, like I said, we believe that, ultimately, this trend will reverse itself, and we just need to stay focused and continue to execute on it. And then, as you guys mentioned, international revenue declined. Executive, Corridor, and you called it out specifically. UK and the EU.

ashish: Some of these initiatives will pay off one other initiative that I want to kind of highlight as search and personalization.

ashish: Again like I said, we believe that.

ashish: Ultimately this trend will reverse itself and we just need to stay focused and continue to execute on it.

Speaker Change: Awesome. Thank you and then.

Speaker Change: As you guys mentioned international revenue decline for the second consecutive quarter.

Speaker Change: And you called out specifically like U K and the email could you maybe speak to a little bit about some of the underlying whether it's macro trends there and how that compares to North America and then its engagement differs by region as well. Thank you.

Kimball Shill: Can you maybe speak a little bit about some of the underlying, whether it's macro trends there and how that compares to North America, and then if engagement differs by region as well? Maya, thanks for the question. This is Kimball.

Kimball Shill: So, as you pointed out, two regions really kind of overwhelm some of the goodness that's happening in many of the other countries where we are in our international business. Largely, we're seeing the same kind of consumer pressure there from the kind of macroeconomic headwinds that we see in North America and even more pronounced in the UK, which weighs on the business. I would hasten to add that we continue to see international as a huge vector of growth for us in the future, and we're barely, we think we've barely tapped the opportunity there, but the headwinds today kind of overwhelmed some of the goodness we have in some of the many countries we're in. We're in over 50 countries around the world. And just one other sub-question you asked, Maya, was about engagement. It's hard to kind of generalize because there are so many different countries and different stages of their maturity.

Speaker Change: Alright. Thanks for the question this is Kevin so as.

Kevin: As you pointed out.

Kevin: Two regions really kind of overwhelmed some of the goodness that's happening in many of the other countries, where we are in our international.

Kevin: Business, largely we're seeing the same kind of consumer pressure there.

Kevin: Kind of macroeconomic headwinds that we see in North America, and even more pronounced in the U K.

Kevin: Which weighs on the business.

Kevin: Just to add that we continue to see international as a huge vector of growth for us.

Kevin: Future and we're barely.

Kevin: We think we've barely tapped the opportunity there, but but the headwinds today.

Kimball Shill: Overwhelmed some of the goodness that we have in some of the many countries. We're in over 50 countries around the world.

Kevin: And just one other.

Kimball Shill: Sub question you asked about engagement.

ashish: Todd to kind of generalize because there's so many different countries in different stages of.

ashish: Their maturity.

Kimball Shill: So I think, but more or less, I would say if I were to aggregate an answer, the engagement is similar to what we see in the US. And given, again, you know, I just want to qualify that if we are in a country where we see early adopters, so the engagement could be higher, whereas in some of the more mature countries, they're going through a similar graduation curve, and we're getting, you know, additional users that may not be as engaged.

Kimball Shill: So.

Speaker Change: I think but more or less I would say if I was to aggregate and answer the engagement is.

Speaker Change: Similar to what we see in the U S.

Speaker Change: And given again.

Kimball Shill: I just want to qualify that if you're in a country. We see early adopters. So the engagement could be higher beta than some of the more mature countries thats going through a similar graduation cover make getting.

Kimball Shill: Additional users that may not be as engaged but I would say overall the trends that we see over time that would be.

Kimball Shill: But I would say overall, the trends that we see over time, that we see in the U.S., are similar to what we are seeing in different parts of the world, just so happens to be where they are in terms of their launch processes. Thank you very much.

Kimball Shill: So on the U S are similar to what we are seeing.

Speaker Change: Seeing in <unk>.

Kimball Shill: <unk> parts of the World just so happens to be where they are in terms of their launch process.

Speaker Change: Great. Thank you very much.

Operator: Thank you and one moment for our next question. Our next question comes from Adrienne Yee of Barclays. Your line is now open. Hi, this is her on.

Speaker Change: Thank you and one moment for our next question.

Speaker Change: Our next question comes from Adrienne <unk> of Barclays. Your line is now open.

Operator: Hi, This is Angus kelleher on for Adrian Yang.

Operator: So there's been a lot of noise in the hard goods product segment on gross margins with the stockouts last quarter and connected machines, Clearance Reserves last year in A&M, and now with the reporting style shift. Share some thoughts on what type of margin profile you see out of that segment going forward over both the short term and the long term. Okay, Angus. Thanks for the question.

Adrienne Yee: So there's been a lot of noise in the hard goods product segment on gross margins with the stock outs last quarter and connected machines.

Angus Kelleher: Clearance reserves last year, and an M and now with the reporting style shift.

Angus Kelleher: Do you think you could share some thoughts on what type of margin profile you see out of that segment going forward over both the short term and the long term and then I have a follow up.

Kimball Shill: First, I'd call out that in our prepared remarks, we talked about expectations for full-year operating margins being similar to last year. And then if you look at our platform margins, they are very stable over time and consistent. We are at 88.8% for the quarter, down slightly from last quarter as we have more amortized software costs that flow through COGS for a platform margin. And so if you take those two points, that should help you set expectations for what product margins will be for the year going forward. Okay.

Speaker Change: Okay I guess, thanks for the question first.

Kimball Shill: I'd call out.

Speaker Change: Prepared remarks, we talked about expectations for full year operating margins being similar to last year.

Speaker Change: And then if you look at our our.

Speaker Change: Platform margins.

Kimball Shill: They're very stable over time and consistent we were at 88, 8% for the quarter down down slightly from last quarter as we have more advertise software costs that flow through.

Kimball Shill: Cogs for our platform margin and so if you take those two points that should help you set expectations for what.

Kimball Shill: Product margins will be for the year going forward.

Speaker Change: Okay. Thank you.

Kimball Shill: My second question: Talk about some of the retailer trends around sell-in and sell-out. Has there been any restocking efforts? And if so, how have they been?

Speaker Change: My second question is could you talk about some of the retailer trends around sell in and sell out specifically has there been any restocking efforts and.

Kimball Shill: And if so how has the consumer response been at the retailers once they receive that are fresh.

Kimball Shill: Response has been at the retailer. So thanks for the follow-up. So at a macro level, this quarter, sell-out continued to outpace sell-in, but at a much lower rate than we saw last year. And if you noticed, we called out that machine sales were actually up 8% year-over-year, as some retailers partially restocked. In general, we still saw Channel lighter than we would like to see it, and we did see that affect some of the opportunity during the promotions in the quarter.

Speaker Change: Fresh product.

Kimball Shill: So thanks for the thanks for the follow up so at a macro level this quarter sellout continue to outpace sell in but at a much.

Kimball Shill: More reduced rate.

Kimball Shill: That we saw last year and if you've noticed.

Kimball Shill: Called out that machine sales were actually up 8% year over year as some retailers partially restart in general we still saw.

Kimball Shill: Channel lighter than we would like to see it and we did see that affect sort.

Kimball Shill: So the opportunity in during the promotions in the quarter.

Kimball Shill: So let me just kind of reinforce some things Kimball already said, right, which is that we see sell-through higher than sell-in, right, Kimball? Yes. Then sell-out, right? So we see sell-in to retailers greater than sell-out. Oh, sorry.

Speaker Change: So let me let me just kind of reinforce some things <unk> already said right, which is we see sell through higher than sell in but cable just so we can sell.

Speaker Change: So as we see sell into retail as greater than sell out I'm, sorry, we see.

Speaker Change: Sell out to get that.

Speaker Change: But it is greater than sell in to retailers.

Ashish Arora: We see sell-out to consumers greater than sell-in to retailers. The second is, you know, as we've gone through a few sales events, we see that some of the retailers have largely or somewhat missed the opportunity because halfway through the sale event, they were out of stock. Now, they have started stocking some more than what they had done previously, but we still think of it as a huge opportunity, you know, as we really drive and accelerate marketing.

Kimball Shill: The second is as we've gone through a few sales events, we see that some of the retailers have largely or somewhat missed the opportunity because halfway through the sale event. They are out of stock now they have started stocking some more than what they had done previously, but we still think of it as a huge opportunity.

Ashish Arora: We really drive an accelerated marketing so we think that.

Ashish Arora: So, we think that, you know, our team's doing a good job creating the funnel. Now, with a promotional strategy, you know, executing, and converting the funnel, we just need to make sure that our channels are well stocked and leverage the opportunity to, you know, basically sell more machines to consumers. Thank you, and please wait one moment for our next question. Our next question comes from Asiya Merchant of Citi. Your line is now open. Great, thank you for taking my question. One for, you know, Kimball, and one for Ashish here.

Asiya Merchant: Our team is doing a good job, creating the funnel now with our promotional strategy.

Asiya Merchant: Executing and converting the funnel, we just need to make sure that our channels are well stocked and leverage the opportunity too.

Asiya Merchant: To basically sell more machines to consumers.

Asiya Merchant: Okay. Thank you.

Asiya Merchant: Thank you and one moment for our next question.

Asiya Merchant: Our next question comes from Seattle Merchant of Citi. Your line is now open.

Asiya Merchant: Great. Thank you for taking my question.

Operator: Accessories and materials, you know, they continue to be fairly weak. I know you mentioned there was a lot of competitive intensity there. Maybe you can help us understand, you know, how we should think about the trajectory of this business. Should we continue to expect the declines to be at this level going forward, or is there something you know that could change the trajectory of this? Of the one that I had to Kimball, it was on the operating margin plan.

Asiya Merchant: One quick.

Asiya Merchant: Kimball one for sure.

Operator: Accessories and material.

Operator: Continuing to be fairly weak I know you mentioned there was a lot of competitive intensity there.

Operator: Maybe you can help us understand how we should think about the trajectory of this business.

Operator: Should we continue to expect the declines to be at this level going forward or is there something that could change the trajectory of this business.

Kimball Shill: I think you reiterated, unless I'm mistaken, about 9% operating margins, kind of flattish, for 2023. You guys obviously just posted very strong operating margins. Why such a big decline for the remainder of the year? Thank you. Asiya, this is Kimball.

Operator: The one that I have to kimble with an operating margin plan I think you reiterated unless I'm mistaken about 9% operating margin kind of flattish.

Asiya: Set for 2023, you guys, obviously, just posted very strong operating margin.

Kimball Shill: Why why such a big decline, but the remainder of the year. Thank you.

Kimball Shill: I'll answer both of those questions, and Ashish can add commentary afterward. So I'll answer your last question first. So on the operating margins, first, I'd call out that Q1 was in line with our expectations. So while we're very pleased with the increase of $15 million in profitability and up 139 percent, that was still in line with what we expected for the quarter. And as we look to the rest of the year, and we continue to lean into our increased sales and marketing spend, which was 20 percent of revenue for the quarter, which is a high watermark for us, and we continue our promotions, deeper promotions on machines, and our promotional cadence on accessories and materials, that, you know, that will affect margins as we move through the year. And so we still expect full-year margins to be around flattish As to your question on excessive materials, this is a segment where we continue to see pressure.

Kimball Shill: Kimball.

Asiya: I'll answer both of those questions Ashish can can add commentary after so I'll answer your last question first so on the operating margins at first I would call out that Q1 was in line with our expectations. So we're very pleased with the increase of $50 million in profitability and up 139% that was.

Kimball Shill: Still in line with what we expected for the quarter and as we look to the rest of the year and we continue to lean into our increased sales and marketing spend which was 20% of revenue for the quarter, which is a high watermark for us and we continue our promotional.

Kimball Shill: Deeper promotions on machines in our promotional cadence on accessories to materials.

Kimball Shill: That.

Kimball Shill: That will affect margins as we move through the year and so we still expect full year margins to be around flattish compared to last year, which was nine 1%.

Kimball Shill: As to your question on accessories materials. It is a segment, where we continue to see pressure.

Kimball Shill: Part of it is lower engagement, as Ashish highlighted in some of his comments. And so when people are cutting fewer projects, they're consuming less materials, and that clearly affects us. We do continue to see competition, both from white-labeled retailer brands for our brick and mortar retailers, as well as, you know, more entrance into the LA marketplaces. So we do continue to see competition in that space. I would like to call out that, you know, we're very proud to launch our Cricut Value Vinyl in the quarter. And we're still in the very early days of that, but it's an example of things we're doing to reinvent that business, where it's re-engineered product, re-engineered packaging, and configurations designed specifically to compete well in online marketplaces. And so that's one example that we've had in the works for a while.

Kimball Shill: Part of it is lower engagement as is.

Kimball Shill: <unk> highlighted in some of his comments.

Kimball Shill: So when we when people are cutting fewer projects, considering less materials and that clearly affects us.

Kimball Shill: We do continue to see competition.

Kimball Shill: Both from White label.

Kimball Shill: Retailer brands for our brick and mortar.

Kimball Shill: We had our retailers as well as <unk>.

Kimball Shill: As more entrants into the online marketplaces. So we do continue to see competition in that space.

Kimball Shill: I'd like to call out.

Kimball Shill: We are very proud to launch our cricket value vinyl.

Kimball Shill: In the quarter and then we're still in the very early days of that but it's an example of things we're doing to reinvent that business, where it's re engineered product re engineered packaging and configurations designed specifically to compete well.

Kimball Shill: Online marketplaces and so.

Kimball Shill: There are others that will come in future quarters, but we're taking steps to help us address this business. But, in part, we'll need to see our engagement efforts start to bear fruit to help turn that business around. And I'll just add one other comment about accessories and materials.

Kimball Shill: One example that we've had in the works for a while there's others that will come in the future quarters.

Kimball Shill: But we're taking steps to help us address this business, but in part.

Kimball Shill: We'll need to see our engagement efforts start to bear fruit.

Kimball Shill: To help.

Kimball Shill: Turn that business around.

Kimball Shill: I'll just add one other comment to the accessory the materials, we've talked about in the past we didn't necessarily address at this time.

Ashish Arora: We've talked about it in the past; we didn't necessarily address it this time. You know, we continue to be, you know, equally competitive; we know that when we are within a certain range of competition, we hold our share really well. And so, you know, increasingly, we have not only reduced the cost of materials, but we will be making sure that we win our fair share and provide a great customer experience. So that's something we'll see us execute on more. Great

Ashish Arora: We continue to be.

Ashish Arora: Equally we know that when we are within a certain range of competition before a lot of share really well and so increasingly we've not only reduce the cost of materials, but we will be making sure that we win our fair share and provide a great customer experience.

Ashish Arora: That's something that you'll see us execute on mode.

Kimball Shill: And if I may, you know, another one you guys have, you know, obviously, amazing free cash flow generation here. You're announcing some big shareholder return program. Why not use that cash? And you know, whether it's even more marketing or any other inorganic growth that could maybe reverse the declines. So Asiya, this is Kimball.

Speaker Change: Great and if I may another one you guys have obviously.

Kimball Shill: Amazing free cash flow generation here, you are announcing some tag shareholder return program.

Asiya: Why not use that cash and whether it.

Asiya: Even more marketing or any other inorganic growth.

Asiya: That could maybe reverse the reverse the declines in that business. Thank you.

Kimball Shill: You know, thanks for the question. We have a strong conviction that we're a growth company, and we have a huge opportunity in front of us. We also have a core ethos to grow profitably. And so, you know, as we look at our investment in marketing today, as we have already highlighted, it was 20% of revenue in sales and marketing. And that is, that is a high watermark for us.

Kimball Shill: Yes.

Kevin: This is Kevin.

Speaker Change: Yes. Thanks for the question, we have a strong conviction that we're a growth company and we have a huge opportunity in front of us.

Kimball Shill: We also.

Kimball Shill: Have a core ethos.

Kimball Shill: To grow profitably and so as we as we look at our investment in marketing today.

Kimball Shill: Have highlighted.

Kimball Shill: It was 20%.

Kimball Shill: Revenue in sales and marketing and that is that as a high watermark for us.

Kimball Shill: We haven't seen it translate into year-over-year POS yet, but we're encouraged by the leading indicators that we're tracking in terms of reach, clicks, views, and increased traffic to Cricut.com. We are confident that we're spending on the right things, and we're comfortable that we're spending at the right levels. And as we get more data and, you know, learn, we will lean into that spend, but we want to make sure that we are doing it responsibly and in a way that helps us manage our business for the long term with a view to profitability. Great, thank you.

Kimball Shill: We haven't seen it translate into year over year, Pos yet, but we're encouraged by the leading indicators that we're tracking in terms of reach and clicks and views.

Kimball Shill: And increased traffic to cricket Dot com.

Kimball Shill: We are confident that we are spending on the right things and we're comfortable that we're spending at the right levels and as we get more data and and.

Kimball Shill: Learn we will lean into that spend but we want to make sure that we are doing it responsibly and in a way that.

Kimball Shill: Helps us manage our business for long term with a view on profitability.

Speaker Change: Great. Thank you.

Jim Suva: Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Jim Suva for closing remarks. Thank you, Brianna.

Kimball Shill: Thank you I'm showing no further questions at this time I would now like to turn the call back over to Jim Suva for closing remarks.

Jim Suva: And thank you, everyone, for joining us this afternoon. We have a great 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 continue to manage the business for sustainable, profitable growth and generate healthy cash flows. I'm excited about the opportunities ahead of us. If you have additional questions, please email me at jsuva at Cricut.com. This now concludes this earnings call, and you may disconnect. Thank you. Thank you for your participation in today's conference. You may now disconnect. Thank you for watching!

Jim Suva: Thank you Breanna 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 cricket platform continues to not only strengthen but also provide increased value to our users. We continue to manage the business for sustainable.

Jim Suva: Profitable growth and generate healthy cash flows I'm excited about the opportunities ahead of us.

Jim Suva: If you have additional questions. Please email me at <unk> Suva at cricket Dot Com. This now concludes this earnings call and you may disconnect. Thank you.

Jim Suva: Thank you for your participation in today's conference you may now disconnect.

Operator: Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask questions during the session. You will need to press Star 1 1 on your telephone.

Jim Suva: Yes.

Operator: You will then hear an automated message advising your hand is right. To withdraw your question, please press star 11 again. 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 Services. Please go ahead.

Jim Suva: [music].

Jim Suva: Thank you, Operator, and good afternoon, everyone. Thank you for joining us for Cricut's first quarter 2024 earnings. 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 dot Cricut. .com

Jim Suva: Joining me on the call today are Ashish Arora, Chief Executive Officer of Cricut, and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host a 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. However, these statements do not guarantee future performance, and therefore undue reliance should not be placed upon them.

Jim Suva: 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, May 7, 2024.

Operator: Hum.

Jim Suva: Cricut assumes no obligation to update any forward-looking projections that may be made in today's release or call. I will now turn the call over to Ashish. Thank you, Jim, and welcome, everyone. Q1 played out largely as expected. Operating margin dollars grew significantly by 139% or $15 million, driven by lower inventory write-offs, more paid subscribers, and higher sales of connected machines. Despite an 8% year-on-year drop in overall sales, and given the confidence in the sustainability of our profitable operations, the Board of Directors approved three capital allocation items. A special dividend of $0.40 per share.

Ashish Arora: A recurring semi-annual dividend of $0.10 per share and another $50 million stock repurchase program. Kimball will go over these three capital allocation items in detail in a few minutes. In Q1, platform revenues increased 3% on paid subscribers, but products revenues declined 15% as the positive growth in connected machines from higher units was more than offset by a decline in accessories and materials.

Ashish Arora: The areas where we could do better are straightforward. We need to attract more new users to buy our connected machines. We need to reverse weakening engagement trends and re-inject enthusiasm among our users. We need to be more effective competitors in accessories and materials. Remember, we have four priorities.

Jim Suva: Okay.

Ashish Arora: User Engagement, Subscriptions, and Accessories, and Materials. I will briefly review these items and provide some detailed commentary on our new platform innovation. As mentioned in our press release, going forward, we will talk about active users who have used their connected machines in the past year, and Kimball will go into more detail on the metrics and KPI. We ended the quarter with over 5.95 million active users who cut in the past year, slightly up from 5.94 million a year ago and in line with that expectation.

Ashish Arora: We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our modernization flyway. During Q1, we accelerated our investment in marketing spend and doubled down on our PR via live broadcasts, gift guides, product reviews, and lifestyle coverage. As we move people down the funnel, our research shows consumers consider the cost of the machine, plus the ongoing cost of using it, plus how much they will use it.

Ashish Arora: Yes.

Ashish Arora: To address these concerns, we wanted to show them that they could save money while experiencing the joy of creating and personalizing. Recognizing this appeal, we recently launched a campaign called Make Vs. Buy, which highlights specific examples of savings from making projects versus buying similar finished products. For example... Personalized doormats cost only $10 to make, compared to up to $150. Another example is fashionable personalized tote bags, which cost only $3.08 to make compared to $30.00.

Ashish Arora: You can see these and many more examples on our website. During Q1, we leaned into programs that showed our tired consumers different making occasions. We executed integrated programs for key seasonal moments, including Valentine's Day, National Craft Month, Women's History Month, and Easter Week. We saw a trend toward personalizing apparel and party decor for the NFL playoffs, including a broadcast hit on Fox News talk show, Fox and Friends.

Ashish Arora: [music].

Ashish Arora: Each of these programs is supported by an integrated marketing plan leveraging vehicles, including digital marketing, Influencer Posts, Organic Social, Social Brand Partnerships, and Live Broadcasting. We were highlighted recently in USA Today, which stated that Cricut's newest cutting machine is the perfect size for casual crafting. The Cricut Joy Extra is an ideal choice for hobby crafters who want all the cutting power of a full-size computer without having to splurge on a bulky machine.

Ashish Arora: As a follow-up to the Cricut Make Their Day Valentine's event, we launched our Make Mom's Day sales event on April 28. The two-week sales event is supported by retailer programs and content marketing strategies. Incorporating Influencers, Social, Editorial, and Deals, we ended the quarter with over 5.95 million active users who had cut in the past year. And we had 3.5 million 90-day engage users who cut during the quarter, down from 3.7 million in Q1 2021.

Ashish Arora: We continue to experience engagement erosion from our large user cohorts from 2020 and 21, and from prior years who age on their engagement curve and are not offset by as many new users in recent years. Our focus remains to maximize engagement of our most impactful cohort, which are new users onboarding onto the platform or onboarding, and Pete Subscriber. Recently, we developed more data instrumentation that increased our understanding of the challenges onboarders can run into during their initial journey within our platform.

Ashish Arora: This has helped us focus our efforts to improve this experience. In Q1, we saw an improvement in the percentage of new users who successfully start and complete their out-of-box training. Our efforts will continue across the journey for new users, from Teske and First Project through the first week and first month on our platform. In the first quarter, we adjusted how we presented our educational video content, which we now show directly in design. In addition to a larger content library, we have also made improvements to our search and personalization architecture. We now provide personalized recommendations for images and projects on the Inspire page of Design Space mobile app.

Ashish Arora: We will continue to make progress on search personalization over time. We have also enhanced our machine learning personalization model to consider additional inputs from user behavior on our platform. We are also prioritizing projects and images that have a higher chance of being... In Q1, our team improved the project recommendation system and created an in-house system that is more flexible, adaptable, and designed to capture different aspects of user preference. For example, we use AI deep learning to suggest projects that users might like based on user behavior, to recommend similar projects, and to help find popular projects that are time-centric.

Ashish Arora: We tested this new system, and it did better than our old models and increased the number of customized projects made on our platform. We also applied AI to examine and label images to suggest suitable tags for images uploaded to our database. This helps produce better search results for our users. We also intend to use this algorithm to refine existing tags in our database, which should improve search retrieval. We have several more improvements planned for search enhancements in the future.

Ashish Arora: Yes.

Ashish Arora: Paid subscribers were in line with our expectations and increased 82,000 year-on-year and increased 27,000 sequentially in Q1, ending with just over 2.8 million paid subscribers. Our subscription efforts continue to bear fruit in terms of converting purchasers of new machines into subscribers. On the other end, our subscription attrition curves have remained steady despite declines in engagement.

Ashish Arora: Okay.

Ashish Arora: Lower new user ads compared to prior years puts pressure on our subscriber growth and created some quarterly fluctuations in 2023 that will likely repeat in 2021. We have a rich roadmap to continually increase the value proposition for subscribers, including an ever-growing suite of premium design, along with the content strategies described above. In January, we launched Create Sticker, which dramatically simplifies the process of turning a raw image into a 3D image and into a Fennec sticker in a few weeks.

Ashish Arora: We've also made significant improvements to the background removal tool, which is one of the most used subscription features by a member, by leveraging and testing multiple variants of machine learning and AI-based models to increase the accuracy of removing backgrounds from images uploaded by our users. Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our software and services. As our engagement efforts bear fruit, we expect to see a boost. However, accessories and materials sales declined 26% year-on-year in Q1.

Ashish Arora: Okay.

Ashish Arora: Clearly, we still have a long way to go to establish our expected competitive position here. We recognize the role affordability plays in our materials business and are working on several solutions. The aim is to stimulate purchasing activity and boost engagement. In addition, we face the stiffest competition in this part of the business, with lower barriers to entry than cutting machines that are digital platforms.

Ashish Arora: I'm excited to give you a tangible update on some positive progress in this area. Toward the end of Q1, we launched the Cricut Value materials online, designed to deliver maximum performance at a great price. This new offering is aimed to compete effectively with online marketplaces, which are more price competitive and require hitting the right price points with shipping economics to compete more effectively. This is accomplished through re-engineered products, re-engineered packaging, and improving supply chain efficiency.

Ashish Arora: [music].

Ashish Arora: It will take us some time to work through current inventory as we roll new products in, but we expect to achieve margin improvements in this business over time, while still creating a differentiated office that works seamlessly with our machines and platforms. Feedback thus far has been encouraging, and I look forward to sharing more with you in the coming quarters. Growth in this segment should emerge as we are successful in driving new customer acquisition at a higher rate, and our engagement efforts begin to bear fruit.

Ashish Arora: Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers, with a focus on wedding sharing. We see that when we are in the price range of our competitors, we get our fair share. 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 through actual use of our e-commerce platform.

Ashish Arora: Yes.

Ashish Arora: [music].

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Ashish Arora: [music].

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Ashish Arora: Okay.

Ashish Arora: It's our fundamental belief that when we give people more reasons and inspiration to make things that are appealing to them, and we make it easier to make things affordably, we will see a lift in materials consumption. We are driven to continue to innovate while exhibiting both long-term focus and current decisions. I will now turn the call over to Ashish. Thank you.

Ashish Arora: [music].

Ashish Arora: [music].

Ashish Arora: [music].

Kimball Shill: I would like to provide more details on the capital allocation. The Board of Directors approved a special one-time dividend of $0.40 per share and a recurring semiannual dividend of $0.10 per share. Both dividends are payable on July 19th to shareholders of record on July 2nd.

Ashish Arora: Welcome to the cricket Q1, 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

Ashish Arora: After the Speakers' presentation, there'll be a question and answer session.

Ashish Arora: I ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again 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.

Kimball Shill: The recurring semiannual dividend of 10 cents is anticipated again in about six months, which would be in the January timeframe, but is subject to board approval. The Board of Directors also approved a new $50 million stock repurchase program. As mentioned in our last earnings call, we effectively completed our previously authorized stock repurchase program announced in August 2022. The Board of Directors views this level of capital allocation, both stock repurchases and dividends, as appropriate given the company's operating and financial plans and will continue to evaluate capital allocation on a regular basis.

Speaker Change: Senior Vice President of Finance Treasurer, and Investor Relations surfaces. Please go ahead.

Kimball Shill: These capital allocation decisions are possible due to past profitability and our confidence in the sustainability of our profitable operations. We want Cricut to always have ample liquidity to sustain and grow our business, but not hold excess cash for no reason. We do not anticipate the need for any debt or utilization of our credit line in the near future. Now, on to the financials of Q1 and our Last quarter, I mentioned that we would adjust our reporting segments in KPI. Recall, Cricut has been a public company for approximately three years.

Speaker Change: Thank you operator, and good afternoon, everyone. Thank you for joining us on crickets first quarter 2024 earnings call.

Kimball Shill: During 2020, in preparing to go public, we developed a package of quarterly information to provide meaningful transparency for investors, including our reporting segments and KPI. After three years of business evolution, we have redesigned some aspects of our quarterly re-information package. We increasingly view Cricut as a platform business with physical products.

Kimball Shill: My commentary will be consistent with our new segments of platform and product. We also updated our public KPIs to focus on the most meaningful indicators for our current and future operations. You will notice we now provide active users rather than total users, which more accurately reflects our business for definitional purposes. An active user is a unique user who has used their connected machine to make a project in the last 12 months.

Kimball Shill: Please note that today's call is being webcast and recorded on the Investor Relations section of the company's website.

Kimball Shill: A replay of the webcast will also be available following today's call.

Kimball Shill: For your reference accompanying slides used on today's call along with the supplemental data sheet have been posted to the Investor Relations section of the company's website investor Doc cricket Dot com.

Speaker Change: Joining me on the call today are Ashish Aurora, Chief Executive Officer, and Kimball Shell Chief Financial Officer.

Kimball Shill: Today's prepared remarks have been recorded after which ashish and Kimball will host live Q&A.

Kimball Shill: We will also continue to share our shorter-term engagement metric of 90-day engaged users, which represents a unique user who has used their connected machine to make a project in the last 90 days. On our investor relations website, we have provided historical information on our new segments and KPI. In the first quarter, we delivered revenue of $167.4 million, an 8% decline compared to the prior year and in line with our expectations.

Kimball Shill: 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.

Kimball Shill: <unk> expenses and results of operations in response to your questions.

Kimball Shill: These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

Kimball Shill: These statements are based on current expectations of the company's management and involve inherent risks and uncertainties.

Kimball Shill: Including those identified in the risk factors section of crickets. Most recently filed Form 10-K or Form 10-Q that we have filed with the securities and Exchange Commission.

Kimball Shill: Actual events or results could differ materially.

Kimball Shill: This call also contains time sensitive information that is accurate only as of the date of this broadcast may 7th 2024.

Kimball Shill: Cricket assumes no obligation to update any forward looking projection that may be made in today's release or call.

Kimball Shill: We generated $19.6 million in net income, a 116% year-over-year increase, and our 21st consecutive quarter of positive net income, as we continued to invest in our key priorities, breaking revenue down further. G1 2024 revenue from platform was $78 million, up 3% year over year. Revenue from products was $89 million, down 15% over Q1 2023. Connected Machines revenue increased 8%, driven by higher units sold, while accessories and materials decreased to 26%.

Kimball Shill: I will now turn the call over to Ashish.

Speaker Change: Thank you Jim and welcome everyone.

Kimball Shill: Some retailers started to restock inventory levels partially in Q1, unlike in 2023 when they were destocked. However, during key sales events, we found retailer shelves light on inventory to fully capture the opportunity. In terms of geographic breakdown, international revenue was $32.6 million, down 3% compared to $33.5 million in Q1 2023. The year-over-year decline in Q1 was primarily driven by UK and EU central regions.

Kimball Shill: Q1 played out largely as expected.

Kimball Shill: Operating margin dollars grew significantly by 139% a $15 million driven by lower inventory write offs more paid subscribers and higher sales of connected machines.

Kimball Shill: Despite an 8% year on year drop in overall sales.

Kimball Shill: Given the confidence in the sustainability of our profitable operations. The board of directors approved three capital allocation items.

Kimball Shill: Especially the dividend of <unk> 40 per share.

Kimball Shill: Our recurring semi annual dividend of <unk> 10 per share and another $50 million stock repurchase program.

Kimball Shill: Kimberly will go with these three capital allocation items in detail in a few minutes.

Kimball Shill: In Q1 platform revenues increased 3% on paid subscriber growth products revenues declined 15%.

Kimball Shill: Positive growth in connected machines from high units was more than offset by a decline in accessories and materials.

Kimball Shill: The areas, where we could do better are straightforward.

Kimball Shill: We need to attract more new users to buy a connected machines.

Kimball Shill: We need to have us weakening engagement trends and re inject enthusiasm among our users.

Kimball Shill: We need to be more effective competitors and accessories and materials.

Kimball Shill: Remember we have four priorities.

Kimball Shill: New user acquisition.

Kimball Shill: User engagement subscriptions and accessories and materials.

Kimball Shill: I will briefly review these items and provide some detailed commentary on our new platform innovations.

Kimball Shill: As a percentage of total revenue, International was 19% in Q1 2024, compared with 18% of total revenue in Q1 2023. Turning to active users and engagement, we ended the quarter with over 5.95 million active users, a slight increase from $5.94 million a year ago. We ended the quarter with over 3.5 million 90-day engaged users, which was a 5% decline from Q1 last year. As Ashish mentioned, we have more work to do to improve engagement.

Kimball Shill: As mentioned in our press release going forward, we would talk about active users who have used their connected machines in the past year.

Kimball Shill: And Kimberly will go into more details on metrics and Kpis.

Kimball Shill: We ended the quarter with nearly 2.8 million paid subscribers, up 3% from Q1 2023, and up 27,000 sequencers. 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 on to gross margin. Total gross margin in the first quarter was 54.7%, an improvement compared to 42.3% in Q1 2023. The improvement reflects a higher amount of platform revenue as a percentage of total revenue and less impairments than last year.

Kimball Shill: We ended the quarter with over 595 million active users who cut in the past year slightly up from $5 94 million a year ago and in line with that expectation.

Kimball Shill: Breaking gross margin down further, gross margins from platform were 88.8% compared to 89.8% a year ago. Flight Decline and Platform Gross Margin are primarily related to higher amortization of capitalized software, which we expect to continue. Gross Margin for Products was $24.8%, compared to 7.8% in Q1 a year ago. The increase in gross margins was primarily due to less impairments in materials than a year ago. Total operating expenses for the quarter were $66.4 million, and they included $10.3 million in stock-based compensation.

Kimball Shill: We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drive our monetization flywheel.

Kimball Shill: Total operating expenses were up less than 1% from $66.1 million in Q1 2023. As we mentioned last quarter, we increased our 2024 plans for increased marketing, which drove the sales and marketing costs up $3.4 million, or up 12%. But this was largely offset by a $2.9 million decrease. NRD.

Kimball Shill: During Q1, we accelerated our investment in marketing spend and double down on that PR via live broadcast gift guides product reviews and lifestyle coverage.

Kimball Shill: As he move people down the funnel our research shows consumers consider the cost of the machine.

Kimball Shill: The ongoing cost of using it and how much they will use it.

Kimball Shill: To address these concerns we wanted to show them that they could save money, while experiencing the joy of creating and personalizing things.

Kimball Shill: Recognizing the appeal, we recently launched a campaign called make versus buy which highlights specific example, the savings are making projects versus buying similar finished products.

Kimball Shill: For example.

Kimball Shill: Besides the old mats costs, only $10 to make compared to up $250 to buy.

Kimball Shill: Another example is fashionable personalized talk bags, which cost only $3.08 to make compared to $30 to buy it.

Kimball Shill: You can see these and many more examples on our website.

Kimball Shill: Operating income for the quarter was $25.2 million, or 15.1% of revenue, compared to $10.5 million, or 5.8% of revenue, in Q1 last year. This was a 139% increase in operating income, which we are encouraged by despite the decline in sales. The increase in operating income is primarily due to higher paid subscriptions coupled with less impairments in our materials business. Our tax rate of 30.6% increased from 29.2% a year ago, primarily due to the tax impact of stock vesting at a lower price.

Kimball Shill: During Q1, we lean into pro grabs I sure tire consumers different making occasions, the executed integrated programs for key seasonal moments, including Valentine's day National craft month women's history month and Easter.

Kimball Shill: We delivered our 21st consecutive quarter of positive net income. Net income was $19.6 million, or $0.09 for diluted shares, compared to $9.1 million, or $0.04 for diluted shares, in Q1 2022. Turning now to the balance sheet and cash, we continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth. In Q1, we generated $57 million in cash from operations, compared to $95 million a year ago.

Kimball Shill: We saw a trend towards personalizing apparel and party that called for the NFL playoffs.

Kimball Shill: Including a broadcast hit on Fox News talk show Fox and friends.

Kimball Shill: Each of these programs are supported by an integrated marketing plan leveraging vehicles, including digital marketing.

Kimball Shill: Influencer posts organic social social brand partnerships and live broadcast.

Kimball Shill: If you have highlighted recently in USA today with stated and I quote crickets newest cutting machine is the perfect size for casual crafters.

Kimball Shill: The cricket Joy extra as an ideal choice for hobby crafters, who want all the cutting power of a full size cricket.

Kimball Shill: I was having to saw a bulky machine.

Kimball Shill: As a follow up to the cricket make their day Valentines event.

Kimball Shill: Watch meet bombs day sales event on April 28.

Kimball Shill: The two week sales event is supported by retailer programs and content marketing strategies, incorporating influencers, social editorial and deals coverage.

Kimball Shill: We ended Q1 with a cash and cash equivalence balance of $282 million. We remain debt free. Inventory decreased by $68 million from a year ago to $225 million at the end of Q1. During Q1, we used $10.8 million of cash to repurchase 1.7 million shares of our stock, which effectively completed our $50 million stock repurchase program that was authorized in August 2022. As discussed previously, the Board of Directors authorized a new $50 million stock buyback program, which will commence in Q2.

Kimball Shill: We ended the quarter with over 595 billion active users who cut in the past year.

Kimball Shill: Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2024. We are focused on bringing excitement to our We are doing this through an increased focus on marketing and continuing our strategy of deeper promotions on cutting machines and a continued cadence on accessories and materials to drive affordability. We expect continued sales pressure on our product segment, especially in accessories and materials. And accordingly, we do not expect positive Q2 revenue growth year over year.

Kimball Shill: We will continue to accelerate marketing to generate consumer excitement, but given ongoing retail conservatism and only two major sales events under our belt, it is too soon to call an inflection. Hence, we may even see a decline for the full year. We expect paid subscriber count and subscription revenue to grow slightly and become a larger portion of total company sales and profits for the full year. However, lower new user growth rates will put pressure on our subscriber base, following a similar pattern to 2023.

Kimball Shill: It could result in a seasonal pattern of paid subscriber growth in Q1 and Q4, but flat to declining in Q2 and Q3. Typically, revenue seasonality is 40% in the first half and 60% in the second half of the year.

Kimball Shill: However, we anticipate 2024 seasonality will look a lot like 2023, where revenues were distributed 47% of the first and 53% in the second. In 2024, our operating expenses will increase modestly as we increase our marketing spend to reinvigorate excitement in the category. We expect total year operating margins to be about flat year over year. We expect to be profitable each quarter and generate a significant positive cash flow during 2024. Our long-term financial model remains unchanged, with operating margin targets at 15 to 19 percent.

Operator: Our proven model has demonstrated that when we operate at scale, which we define as revenue above a billion dollars, and drive top-line growth, these margins are achievable. With that, I'll turn the call over to the operator for questions. Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Kimball Shill: We had $3 5 million 90 day engage users who cut during the quarter.

Operator: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Erik Woodring of Morgan Stanley. Your line is now open.

Erik William Richard Woodring: <unk> from $3 7 million in Q1 2023.

Operator: Hi, awesome. Thank you. This is Maya on behalf of Eric.

Operator: We continue to experience engagement erosion from our large user cohorts from 2020, and 21 and from prior year's who age on the engagement curve and or not offset but as many new users in recent quarters.

Operator: Our focus remains to maximize engagement of our most impactful cohorts, which are new users onboarding onto the platform or onboard OS and paid subscribers.

Operator: The total number of engaged users fell both sequentially and year over. Can you maybe just give us a little bit of details and color on some of the initiatives you've talked about in prior quarters to increase engagement? And kind of, when do you expect to see that materialize? And when do you think?

Operator: Recently, we developed more data instrumentation that increases our understanding of the challenges on borders can run into during their initial journey within our platform.

Ashish Arora: Bottoms, and then I have a follow-up thing. Thanks, Maya. This is Ashish.

Ashish Arora: So, you know, as we've kind of mentioned before, engagement is a really important initiative for the company, and we have a team that's focused on it. As you pointed out, engagement did decrease year on year, so let me give you one of the main reasons for that. When you look at the 2020 and 2021 cohorts, which are roughly, we acquired about 4 million users, as they go through the graduation curve, there's a natural attrition that happens, and that's what's putting a lot of pressure on and creating a headwind for the company.

Ashish Arora: This has helped us focus our efforts to improve this experience in.

Ashish Arora: Now, that would typically be offset by newly acquired users that are more engaged, and we obviously are not acquiring enough of them to offset the 2020 and 2021 headwinds. In terms of initiatives, we have a number of initiatives that we are focusing on driving engagement. One of the main focus areas is, you know, as we look at onboarding users, we want to make sure that they have a great positive out-of-box experience and not only that, but they actually do enough projects in the first seven to 30 days.

Ashish Arora: In Q1, we saw an improvement in the percentage of new users, who successfully start and complete their out of box experience.

Ashish Arora: Our efforts will continue across the journey for new users from tests cut and first project through first week and first month on our platform.

Ashish Arora: So, we've seen some positive results, as we talked about in our prepared remarks. In addition to that, we have, you know, initiatives around education, helping people find inspiration so they can actually find the project and ultimately support it. So I think there are a number of initiatives. We have a pretty strong conviction that some of these initiatives will pay off. One other initiative that I want to kind of highlight is search and personalization. And again, like I said, we believe that, ultimately, this trend will reverse itself, and we just need to stay focused and continue to execute on it. It was awesome.

Ashish Arora: In the first quarter, we adjusted how we present, our education of video content, which we now show a directory and design space.

Kimball Shill: Thank you. And then, As you guys mentioned, international revenue declined for the second consecutive quarter, and you called out specifically K and the EEO.

Kimball Shill: Can you maybe speak a little bit about some of the underlying, whether it's macro trends there and how that compares to North America, and then if engagement differs by region as well? Maya, thanks for the question. This is Kimball.

Kimball Shill: So, as you pointed out, two regions really kind of overwhelm some of the goodness that's happening in many of the other countries where we are in our international business. Largely, we're seeing the same kind of consumer pressure there from the kind of macroeconomic headwinds that we see in North America and even more pronounced in the UK, which weighs on the business. I would hasten to add that we continue to see international as a huge vector of growth for us in the future, and we're barely, we think we've barely tapped the opportunity there, but the headwinds today kind of overwhelmed some of the goodness we have in some of the many countries we're in. We're in over 50 countries around the world. And just one other sub-question you asked, Maya, was about engagement. It's hard to kind of generalize because there are so many different countries and different stages of their maturity.

Kimball Shill: In addition to a larger content library, we have also made improvements to our search and personalization algorithm.

Kimball Shill: We now provide personalized recommendations by images and projects on the inspire page and design space mobile apps.

Kimball Shill: We will continue to make progress in search personalization overtime.

Kimball Shill: We have also enhanced our machine learning personalization models to consider additional inputs from user behavior on our platform.

Kimball Shill: We are also prioritizing projects and images that have a higher chance of <unk> success.

Kimball Shill: In Q1, our team improve the project's recommendation system and created an in house system that is more flexible adaptable and designed to capture different aspects of user preferences.

Kimball Shill: For example, they use AI deep learning to suggest projects that use those might like based on user behavior.

Kimball Shill: Recommend similar projects in health plan popular projects that are time sensitive.

Kimball Shill: We tested this new system and it did better than our old models and increase the number of customized projects made on our platform.

Kimball Shill: We also applied AI to examine and label images to suggest suitable taxpayer images uploaded to our database and help produce better such as outside users.

Kimball Shill: We also intend to use this algorithm to refine existing tags, and a database, which should improve search retrieval.

Kimball Shill: Several more improvements planned for search enhancements in future quarters.

Kimball Shill: Paid subscribers, but in line with expectations and increased 82000 year on year and increased 27000 sequentially in Q1.

Kimball Shill: Ending with just over $2 8 million paid subscribers.

Kimball Shill: Our subscriptions efforts continue to bear fruit in terms of converting purchasers of new machines into subscribers.

Kimball Shill: At the other end subscription nutrition clubs have remained steady despite declines in engagement.

Kimball Shill: Newer new user adds compared to prior years puts pressure on our subscriber growth rates and created some quarterly fluctuations in 2023 that were likely to repeat in 2024.

Kimball Shill: We have a rich roadmap to continually increase the value proposition for subscribers, including an ever growing suite of premium design tools, along with the content strategy as described above.

Kimball Shill: In January we launched create sticker, which dramatically simplifies the process of turning a raw image into a finished sticker and a few easy steps.

Kimball Shill: We've also made significant improvements to the background removal tool, which is one of the most used subscription features by our members by leveraging and testing multiple variants of machine learning and AI based models to increase the accuracy of removing backgrounds from images uploaded by our users our goal is to make it incredibly.

Kimball Shill: Compelling to sign up as a subscriber to leverage our software and services.

Kimball Shill: And that engagement efforts bear fruit, we expect to see a boost to subscriptions.

Kimball Shill: Accessories and material sales declined 26% year on year in Q1, clearly we still have a long way to go to establish our expected competitive position here, we recognize the role affordability plays in our materials business and are working on several solutions there.

Kimball Shill: The aim is to accumulate purchasing activity and boost engagement.

Kimball Shill: In addition, we faced the stiffest competition in this part of the business with lower barriers to entry than cutting machines at our digital platform.

Kimball Shill: I'm excited to give you a tangible update on some positive progress in this area.

Kimball Shill: Towards the end of Q1, we launched the cricket value materials online.

Kimball Shill: Designed to deliver maximum performance at a great price. This new offering was aimed to compete effectively with online marketplaces, which are more price competitive and acquire hitting the right price points with shipping economics to compete more effectively.

Kimball Shill: This is accomplished through re engineered product re engineered packaging and improving supply chain efficiencies.

Kimball Shill: It will take us some time to work through current inventory as we roll new products and but we expect to achieve margin improvements in this business over time.

Kimball Shill: I'll still creating a differentiated offering that work seamlessly without machines and platform.

Kimball Shill: Feedback, thus far has been encouraging and I look forward to sharing more with you in the quarters ahead.

Kimball Shill: Girlfriend and segment should emerge as we are successful in driving new customer acquisition at a higher rate and our engagement efforts begin to bear fruit.

Kimball Shill: Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers.

Kimball Shill: With a focus on winning share.

Kimball Shill: We see that when we are in the pricing of our competitors, we get our fair share.

Kimball Shill: 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 shelf and for actual use of our ecosystem.

Kimball Shill: It's a fundamental belief that when we give people Moody's and inspiration to make things that are appealing to them.

Kimball Shill: And they make it easier to make things affordably, we will see a lift in materials consumption.

Kimball Shill: We are driven to continue to innovate while exhibiting both long term focus and current discipline.

Operator: So I think that, more or less, I would say, if I were to aggregate an answer, the engagement is similar to what we see in the US. And given, again, you know, I just want to qualify that if we are in a country where we see early adopters, so the engagement could be higher, whereas in some of the more mature countries, they're going through a similar graduation curve, and we're getting, you know, additional users that may not be as engaged. But I would say overall, the trends that we see over time, that we saw in the U.S. are similar Thank you very much. Thank you, and one moment for our next question. Our next question comes from Adrian Yee of Barclays. Your line is now open. Hi, this is her on.

Kimball Shill: I will now turn the call over to Kimball.

Operator: So there's been a lot of noise in the hard goods product segment on gross margins with the stock outs last quarter and connected machines, Clearance Reserves last year in A&M, and now with the reporting style shift. Share some thoughts on what type of margin profile you see out of that segment going forward over both the short term and the long term. Okay. Thanks for the question.

Adrian Yee: Thank you Ashish I.

Adrian Yee: I would like to provide more details on the capital allocation items. The board of directors approved a special one time dividend of <unk> 40 per share and a recurring semiannual dividend of <unk> 10 per share both dividends are payable on July 19th for shareholders of record on July 2nd.

Operator: The recurring semiannual dividend of 10 cents as anticipated again in about six months, which would be in the January timeframe, but it is subject to board approval.

Operator: The board of Directors also approved a new $50 million stock repurchase program as mentioned in our last earnings call. We effectively completed our previously authorized stock repurchase program announced in August 2022.

Operator: The board of directors use this level of capital allocation, both stock repurchases and dividends as appropriate given the company's operating and financial plans and we will continue to evaluate capital allocation on a regular basis. These capital allocation decisions are possible due to past profitability and our confidence in the sustainability of our profitable operations.

Operator: We want cricket to always have ample liquidity to sustain and grow our business, but not hold excess cash for no reason.

Operator: We do not anticipate the need for any debt or utilization of our credit line in the near term.

Kimball Shill: First, I'd call out that in our prepared remarks, we talked about expectations for full-year operating margins being similar to last year. And then if you look at our platform margins, they are very stable over time and consistent. We are at 88.8% for the quarter, down slightly from last quarter as we have more amortized software costs that flow through COGS for a platform margin. And so if you take those two points, that should help you set expectations for what product margins will be for the year going forward. Okay.

Speaker Change: Now onto financials of Q1 and our outlook.

Kimball Shill: My second question: Talk about some of the retailer trends around sell-in and sell-out. Has there been any restocking efforts? And if so, how have they been?

Kimball Shill: Last quarter, I mentioned that we would adjust our reporting segments and kpis.

Kimball Shill: Response has been at the retailers. So thanks for the follow-up. So at a macro level, this quarter, sell-out continued to outpace sell-in, but at a much lower rate than we saw last year. And if you noticed, you know, we called out that machine sales were actually up 8% year-over-year, as some retailers partially restocked. In general, we still saw Channel lighter than we would like to see it, and we did see that affect some of the opportunity during the promotions in the quarter. So let me just kind of reinforce some things Kimball already said, right, which is that we see sell-through higher than sell-in, right? Yes, then sell-out, right?

Kimball Shill: Cricket has been a public company for approximately three years.

Kimball Shill: During 2020 and preparing to go public we developed a package of quarterly information to provide meaningful transparency for investors, including our reporting segments and kpis.

Kimball Shill: After three years of business evolution, we have redesigned some aspects of our quarterly re information package, we increasingly view cricket as a platform business with physical products by.

Kimball Shill: My commentary will be consistent with our new segments of platform and products we have.

Kimball Shill: Also updated our public kpis to focus on the most meaningful indicators for our current and future operations. You will notice we now provide active users rather than total users, which more accurately reflects our business for definitional purposes and active user is a unique user who has used their connected machine to make a project in the last two.

Kimball Shill: Months.

Kimball Shill: We will also continue to share our shorter term engagement metric of 90 day engaged users, which represent a unique user who has used their connected machine to make a project in the last 90 days.

Kimball Shill: On our Investor Relations website, we have provided historical information on our new segments in Kpis.

Ashish Arora: So we see sell-in to retailers greater than sell-out. Sorry, we see sell-out to consumers greater than sell-in to retailers. The second is, you know, as we've gone through a few sales events, we see that some of the retailers have largely or somewhat missed the opportunity because halfway through the sale event, they were out of stock.

Kimball Shill: In the first quarter, we delivered revenue of $167 4 million.

Ashish Arora: An 8% decline compared to the prior year and in line with our expectations, we generated $19 6 million and net income a 116% year over year increase in our 20 <unk> consecutive quarter of positive net income as we continued to invest in our key priorities.

Ashish Arora: Breaking revenue down further Q1 2020 for revenue from platform was $78 million up 3% year over year.

Ashish Arora: Revenue from products was $89 million down 15% over Q1 2023.

Ashish Arora: Connected machines increased 8% driven by higher unit sold while accessories and materials decreased 26%.

Operator: Now, they have started stocking some more than what they had done previously, but we still think of it as a huge opportunity, you know, as we really drive and accelerate marketing. So, we think that, you know, our team is doing a good job, you know, creating the funnel. Now, with a promotional strategy, you know, executing and converting the funnel, we just need to make sure that our channels are well stocked and leverage the opportunity to, you know, basically sell more machines to consumers. Thank you, and one moment for our next question. Our next question comes from Asiya Merchant of Citi. Your line is now open.

Ashish Arora: Some retailers started to restock inventory levels, partially in Q1.

Kimball Shill: Great, thank you for taking my question. One for, you know, Kimball, and one for Ashish here. Accessories and materials, you know, they continue to be fairly weak. I know you mentioned there was a lot of competitive intensity there. Maybe you can help us understand, you know, how we should think about the trajectory of this business. Should we continue to expect the declines to be at this level going forward, or is there something that could change the trajectory of this?

Asiya Merchant: In 2023, when they were destocking.

Kimball Shill: of the one that I had for Kimball was on the operating margin plan. I think you reiterated, unless I'm mistaken, about 9% operating margins, kind of flattish, for 2023. You guys obviously just posted very strong operating margins. Why such a big decline for the remainder of the year? Thank you. Asiya, this is Kimball. I'll answer both of those questions, and Ashish can add commentary after

Kimball Shill: However, during key sales events, we found retailers shelves light on inventory to fully capture the opportunity.

Asiya: In terms of geographic breakdown international revenue was $32 6 million or <unk>.

Asiya: <unk>, 3% compared to $33 5 billion in Q1 2023.

Asiya: The year over year decline in Q1 was primarily driven by U K and EU central regions.

Asiya: As a percentage of total revenue international was 19% in Q1 2024, compared with 18% of total revenue in Q1 2023.

Kimball Shill: So I'll answer your last question first. So on the operating margins, first I'd call out that Q1 was in line with our expectations. So while we're very pleased with the increase of $15 million in profitability and a 139 percent increase, that was still in line with what we expected for the quarter. And as we look to the rest of the year and we continue to lean into our increased sales and marketing spend, which was 20 percent of revenue for the quarter, which is a high watermark for us, and we continue our promotions, deeper promotions on machines, and our promotional cadence on accessories and materials, that will affect margins as we move through the year.

Kimball Shill: Turning to active users and engagement, we ended the quarter with over 595 million active users.

Kimball Shill: The increase from $5 $94 million a year ago.

Kimball Shill: We ended the quarter with over $3 5 million 90 day engaged users, which was a 5% decline from Q1 last year.

Kimball Shill: As Ashish mentioned, we have more work to do to improve engagement.

Kimball Shill: We ended the quarter with nearly $2 8 million paid subscribers up 3% from Q1 2023.

Kimball Shill: 27000 sequentially.

Kimball Shill: And so we still expect full-year margins to be around flattish compared to last year, which was 9.1 percent. As to your question on excessive materials, it is a segment where we continue to see pressure. Part of it is lower engagement, as Ashish highlighted in some of his comments.

Kimball Shill: As discussed in earlier calls there is some natural subscriber attrition.

Kimball Shill: And so when people are cutting fewer projects, they're consuming less materials, and that clearly affects us. We do continue to see competition, both from white-labeled Retailer Brands for our brick and mortar retailers, as well as, you know, more entrance into the LA marketplaces. So, we do continue to see competition in that space. I would like to call out, you know, we're very proud to launch our Cricut Value Vinyl in the quarter. And we're still in the very early days of that, but it's an example of things we're doing to reinvent that business, where it's re-engineered product, re-engineered packaging, and configurations designed specifically to compete well in online marketplaces. And so, that's one example that we've had in the works for a while.

Kimball Shill: There are others that will come in future quarters, but we're taking steps to help us address this business. But, in part, we'll need to see our engagement efforts start to bear fruit to help turn that business around. And I just add one other comment: the accessories and materials we've talked about in the past, we didn't necessarily address them this time.

Ashish Arora: You know, we continue to be, you know, equally competitive. We know that when we are within a certain range of competition, we hold our share really well. And so, you know, increasingly, we have not only reduced the cost of materials, but we will be making sure that we win our fair share and provide a great customer experience. So we're, that's something that you'll see us execute on more. Great.

Kimball Shill: Subscriber growth will be muted until we increase the pace of machine sales and new user acquisition.

Ashish Arora: Moving to gross margin total gross margin in the first quarter was 54, 7% an improvement compared to the 42, 3% in Q1 2023.

Ashish Arora: The improvement reflects a higher amount of platform revenue as a percentage of total revenue and less impairment than last year.

Ashish Arora: Breaking gross margin down further gross margins from platform were 88, 8% compared to 89, 8% a year ago.

Ashish Arora: The decline in platform gross margins was primarily related to higher amortization of capitalized software costs, which we expect to continue.

Ashish Arora: Gross margin for products was 24, 8% compared to seven 8% in Q1, a year ago. The increase in gross margins was primarily due to less impairments and materials that a year ago.

Ashish Arora: Total operating expenses for the quarter was $66 4 million and included $10 3 million in stock based compensation.

Ashish Arora: Total operating expenses were up less than 1% from $66 1 million in Q1 2023.

Ashish Arora: As we mentioned last quarter, we increased our 2024 plans for increased marketing, which drove the sales and marketing costs up $3 $4 million were up 12%.

Ashish Arora: But this was largely offset by a $2 $9 million decrease in R&D.

Ashish Arora: Operating income for the quarter was $25 2 million or 15, 1% of revenue compared to $10 5 million or five 8% of revenue in Q1 last year.

Ashish Arora: This was a 139% increase in operating income, which we are encouraged with despite the decline in sales. The increase in operating income is primarily due to higher paid subscriptions, coupled with less impairments in our materials business.

Ashish Arora: Our tax rate of 36% increased from 29, 2% a year ago, primarily due to the tax impact of stock vesting at a lower price with.

Ashish Arora: We delivered our 20 <unk> consecutive quarter of positive net income.

Ashish Arora: Net income was $19 6 million or <unk> <unk> per diluted share compared to $9 1 million or four cents per diluted share in Q1, 2023, turning now to balance sheet and cash flow.

Kimball Shill: And if I may, you know, another one you guys have, you know, obviously, amazing free cash flow generation here. You're announcing some big shareholder return program. Why not use that cash?

Ashish Arora: We continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long term growth.

Kimball Shill: And you know, whether it's even more marketing or any other inorganic growth that could maybe reverse the, you know, reverse the declines. So Asiya, this is Kimball. You know, thanks for the question. We have a strong conviction that we're a growth company, and we have a huge opportunity in front of us. We also have a core ethos to grow profitably. And so, you know, as we look at our investment in marketing today, as we have already highlighted, it was 20% of revenue in sales marketing. And that is that it is a high watermark for us.

Kimball Shill: In Q1, we generated $57 million in cash from operations compared to $95 million a year ago.

Kimball Shill: We haven't seen it translate into year-over-year POS yet, but we're encouraged by the leading indicators that we're tracking in terms of reach, clicks, views, and increased traffic to Cricut.com. We are confident that we're spending on the right things, and we're comfortable that we're spending at the right levels. And as we get more data and... You know, learn, you know, we will lean into that spend, but we want to make sure that we are doing it responsibly in a way that helps us manage our business for the long term with a view to profitability.

Kimball Shill: We ended Q1 with cash and cash equivalents balance of $282 million.

Kimball Shill: We remain debt free inventory decreased by $68 million from a year ago to $225 million at the end of Q1 2024.

Kimball Shill: During Q1, we used $10 $8 million of cash to repurchase one 7 million shares of our stock, which effectively completed our $50 million stock repurchase program that was authorized in August 2022.

Kimball Shill: As discussed previously the board of directors authorized a new $50 million stock buyback program, which will commence in Q2.

Kimball Shill: Recall, we did not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2024, we.

Kimball Shill: We are focused on bringing excitement to our category. We are doing this through an increased focus on marketing and continuing our strategy of deeper promotions on cutting machines and a continued cadence on accessories and materials to drive affordability.

Kimball Shill: We expect continued sales pressure on our product segment, especially in accessories materials and accordingly, we do not expect positive Q2 revenue growth year over year.

Kimball Shill: We will continue to accelerate marketing to generate consumer excitement.

Kimball Shill: But given ongoing retailer conservatism and only two major sales events under our belt. It is too soon to call an inflection point here.

Kimball Shill: We may even see a decline for the full year.

Kimball Shill: We expect paid subscriber count as subscriptions revenue to grow slightly and become a larger portion of total company sales and profits for the full year.

Kimball Shill: Lower new user growth rates will put pressure on our subscriber growth. Following a similar pattern to 2023 and could result in a seasonal pattern of paid subscriber growth in Q1, and Q4 that flat to declining in Q2 and Q3.

Kimball Shill: Typical revenue seasonality as 40% in the first half and 60% in the second half of the year.

Kimball Shill: However, we anticipate 2020 for seasonality will look a lot like 2023, where revenues were distributed 47% in the first half and 53% in the second half.

Kimball Shill: In 2024, our operating expenses will increase modestly as we increase our marketing spend to reinvigorate excitement in the category. We expect total year operating margins to be about flat year over year.

Kimball Shill: We expect to be profitable each quarter and generate significant positive cash flow during 2024.

Kimball Shill: Our long term financial model remains unchanged with operating margin targets of 15% to 19%.

Kimball Shill: Our proven model has demonstrated that when we operated scale, which we define as revenue above a $1 billion.

Kimball Shill: And drive topline growth these margins are achievable.

Jim Suva: Great, thank you. Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Jim Suva for closing remarks. Thank you, Brianna.

Speaker Change: With that I will turn the call over to the operator for questions.

Jim Suva: And thank you, everyone, for joining us this afternoon. We have a great 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 continue to manage the business for sustainable, profitable growth and generate healthy cash flows. I'm excited about the opportunities ahead of us. If you have additional questions, please email me at jsuva at Cricut.com. This now concludes this earnings call, and you may disconnect. Thank you. Thank you for your participation in today's conference. You may now disconnect.

Speaker Change: Thank you at this time, we will conduct a question answer session.

Jim Suva: As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Jim Suva: Please standby will be compile the Q&A roster.

Jim Suva: Our first question comes from Erik Woodring of Morgan Stanley. Your line is now open.

Jim Suva: Awesome. Thank you this is Mike on for Eric.

Jim Suva: The total number of engaged users followed both sequentially and year over year can you, maybe just give us a little bit of details and color on some of the initiatives you've talked about in prior quarters to increase engagement.

Jim Suva: And kind of is that when do you expect to see that materialize and when do you think I'm.

Jim Suva: Engagement bottoms, and then I have a follow up thank you.

Speaker Change: Thanks, Mike.

Jim Suva: Ashish.

Jim Suva: So thanks for the question. So he does you've kind of mentioned before engagement is a really important initiative for the company and we have a team that's focused on it.

Jim Suva: As you pointed out engagement did decrease year on year. So let me give you.

Jim Suva: One of the main reasons for that was when you look at the 2020 on 2021 cohorts, which are lumpy, we applied about 4 million users as they go through graduation.

Jim Suva: Natural attrition that happens and that's what's putting a lot of pressure and creating a headwind for the company.

Jim Suva: Now that would typically be offset by newer newly acquired users that.

Jim Suva: More engaged and we obviously would.

Jim Suva: Not acquiring enough of them to offset the 2020 in 2021 headwind.

Jim Suva: In terms of initiatives, we have a number of initiatives that we have set our focus on driving engagement one of the main.

Jim Suva: Focus areas is.

Jim Suva: As we look at Onboarding users, we want to make sure that they have a great positive out of the box experience and not only that they would actually make enough projects in the first 7% to 30 days. So we have seen some positive results as we talked about.

Jim Suva: In our prepared remarks in addition to that we have.

Jim Suva: Initiatives about education.

Jim Suva: People find inspiration so they can actually find the project and ultimately cut it.

Jim Suva: So I think there's a number of initiatives, we have a pretty strong conviction that.

Jim Suva: Some of these initiatives will pay off one other initiative that I want to kind of highlight as search and personalization and again like I said, we believe that.

Jim Suva: Ultimately this trend will reverse itself and we just need to stay focused and continue to execute on it.

Jim Suva: Awesome. Thank you.

Jim Suva: And.

Jim Suva: As you guys mentioned international revenue decline for the second consecutive quarter.

Jim Suva: And you called out specifically like UK and the EU could you maybe speak to a little bit about some of the underlying whether it's macro trends there and how that compares to North America.

Jim Suva: Engagement differs by region as well thank you.

Jim Suva: Alright. Thanks for the question this is Kevin so.

Jim Suva: As you pointed out.

Jim Suva: Two regions is really kind of overwhelmed some of the goodness that's happening in <unk>.

Jim Suva: Many of the other countries, where we are and our international.

Jim Suva: Business, largely we're seeing the same kind of consumer pressure there from kind of macroeconomic headwinds that we see in North America, and even more pronounced in the U K.

Jim Suva: Which weighs on the business.

Jim Suva: I would hasten to add that we continue to see international as a huge vector of growth for us.

Jim Suva: The future and we're barely.

Jim Suva: We think we are barely tapped the opportunity there, but but the headwinds today.

Jim Suva: Overwhelmed some of the goodness that we have in some of the many countries. We're in over 50 countries around the world.

Jim Suva: And just one.

Jim Suva: Sub question you asked about engagement.

Jim Suva: It's hard to generalize because there's so many different countries in different stages of.

Jim Suva: Debt maturity.

Jim Suva: So.

Jim Suva: I think but more or less I would say if I was to aggregate enhance the engagement is.

Jim Suva: Similar to what we see in the U S.

Jim Suva: And given again.

Jim Suva: I just want to qualify that.

Jim Suva: In our country, we see early adopters, so the engagement could be higher than some of the most mature countries.

Jim Suva: Going to assimilate graduation cover make getting.

Jim Suva: Additional users that may not be as engaged but I would say overall the trends that we see over time.

Jim Suva: That we saw in the U S are similar to what we are seeing in.

Jim Suva: Different parts of the world just so happens to be where they are in terms of their launch process.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you and one moment for our next question.

Jim Suva: Our next question comes from Adrienne <unk> of Barclays. Your line is now open.

Jim Suva: Hi, This is Angus kelleher on for Adrian Yang.

Jim Suva: There's been a lot of noise in the hard goods products segment on gross margins with the stock outs last quarter and connected machines.

Jim Suva: Some clearance reserves last year, and an M and now with the reporting style shift.

Speaker Change: Do you think you could share some thoughts on what type of margin profile you see out of that segment going forward over both the short term and the long term and then I have a follow up.

Jim Suva: Okay I guess, thanks for the question first.

Jim Suva: I'd call out.

Jim Suva: Repaired remarks, we talked about expectations for full year operating margins being similar to last year.

Jim Suva: And then if you look at R. R.

Jim Suva: Platform margins.

Jim Suva: They're very stable over time and consistent for 88, 8% for the quarter down down slightly from last quarter as we have more advertisers.

Jim Suva: Software costs that flow through.

Jim Suva: Cogs for our platform margin and so if you take those two points that should help you set expectations for what.

Jim Suva: Product margins will be for the year going forward.

Speaker Change: Okay. Thank you.

Jim Suva: My second question is could you talk about some of the retailer trends around sell in and sell out specifically has there been any restocking efforts.

Jim Suva: And if so how has the consumer response been at the retailers once they receive that fresh.

Jim Suva: Fresh product.

Jim Suva: So thanks for the thanks for the follow up so at a macro level. This quarter sellout continues to outpace sell in but at a much more reduced rate.

Jim Suva: That we saw last year and if you've noticed.

Jim Suva: Called out that machine sales were actually up 8% year over year as some retailers partially restart in general we still saw.

Jim Suva: Channel lighter than we would like to see it and we did see that affect sort.

Jim Suva: So the opportunity in during the promotions in the quarter.

Jim Suva: So let me let me just kind of reinforce some things of its akimbo already said right, which is we see sell through higher than sell in cable.

Jim Suva: So we set out right. So we see sell into retail as greater than sell out.

Jim Suva: So I'll have to get that Greg was greater than sell in to retailers.

Jim Suva: Second as you know as we've gone through a few sales events.

Jim Suva: See that some of the retailers have largely or somewhat missed the opportunity because halfway through the sale event. They were out of stock now they have started stocking some more than what they had done previously, but we still think of it as a huge opportunity.

Jim Suva: <unk> really drive an accelerated marketing so we think that.

Jim Suva: Our team is doing a good job, creating the funnel not with our promotional strategy.

Jim Suva: Executing and converting the funnel.

Jim Suva: Just need to make sure that our channels are well stock and leverage the opportunity too.

Jim Suva: To basically sell more machines to consumers.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you and one moment for our next question.

Jim Suva: Our next question comes from Seattle Merchant of Citi. Your line is now open.

Jim Suva: Great. Thank you for taking my question.

Jim Suva: One quick.

Jim Suva: Kimberly one for sure.

Jim Suva: Accessories and material.

Jim Suva: Continuing to be fairly weak I know you mentioned there was a lot of competitive intensity there.

Jim Suva: Maybe you can help us understand how we should think about the trajectory of this business.

Jim Suva: Should we continue to expect the declines to be at this level going forward or is there something that could change the trajectory of this business.

Jim Suva: The one that I have the kimbo with an operating margin plan I think you reiterated unless I'm mistaken about 9% operating margin kind of flattish.

Jim Suva: For 2023, you guys, obviously, just posted very strong operating margin.

Jim Suva: Why why such a big decline, but the remainder of the year. Thank you.

Kim: Yes. This is Kim.

Jim Suva: It's both of those questions Ashish can can add commentary after so I'll answer your last question first so on the operating margins that first I would call out that Q1 was in line with our expectations. So we're very pleased with the increase of $50 million in profitability and up 139% that was.

Jim Suva: Still in line with what we expected for the quarter and as we look to the rest of the year and we continue to lean into our increased sales and marketing spend which was 20% of revenue for the quarter, which is a high watermark for us and we continue our promotional.

Jim Suva: Deeper promotions on machines in our promotional cadence on accessories materials.

Jim Suva: That.

Jim Suva: That will affect margins as we move through the year and so we still expect full year margins to be around flattish compared to last year, which was nine 1%.

Jim Suva: As to your question on accessories materials. It is a segment, where we continue to see pressure.

Jim Suva: Part of it is lower engagement as is.

Jim Suva: <unk> highlighted in some of his comments.

Jim Suva: So when we when people are cutting fewer projects, considering glass materials and that clearly affects us.

Jim Suva: We do continue to see competition.

Jim Suva: Both from White label.

Jim Suva: Retailer brands for our brick and mortar.

Jim Suva: We had our retailers as well as <unk>.

Jim Suva: As more entrants into the online marketplaces. So we do continue to see competition in that space.

Jim Suva: I'd like to call out.

Jim Suva: We are very proud to launch our cricket value vinyl.

Jim Suva: In the quarter and then we're still in the very early days of that but it's an example of things we're doing to reinvent that business, where it's re engineered product re engineered packaging and configurations designed specifically to compete well.

Jim Suva: Online marketplaces and so.

Jim Suva: One example that we've had in the works for a while there's others that will come in the future quarters.

Jim Suva: But we're taking steps to help us address this business, but in part.

Jim Suva: We'll need to see our engagement efforts start to bear fruit.

Jim Suva: To help.

Jim Suva: Turn that business around.

Jim Suva: I'll just add one other comment to the accessory the materials, we've talked about in the past we didn't necessarily address at this time.

Jim Suva: We continue to be.

Jim Suva: Equally we know that when we are within a certain range of competition behold share really well.

Jim Suva: So increasingly we've not only reduce the cost of materials, but we will be making sure that we win our fair share.

Jim Suva: A great customer experience so.

Jim Suva: That's something that you'll see us execute on motive.

Jim Suva: Great and if I may another one you guys have obviously.

Jim Suva: Amazing free cash flow generation here.

Jim Suva: Thanks, and take a shareholder return program.

Jim Suva: Why not use that cash.

Jim Suva: And whether it.

Jim Suva: Even more marketing or any other inorganic growth.

Jim Suva: That could maybe reverse the reimbursement declines in that business. Thank you.

Jim Suva: Okay.

Kevin: This is Kevin.

Jim Suva: Thanks for the question, we have a strong conviction that we're a growth company and we have a huge opportunity in front of us.

Jim Suva: We also.

Jim Suva: Have a core ethos to grow profitably.

Jim Suva: So as we as we look at our investment in marketing today.

Jim Suva: Highlighted.

Jim Suva: It was 20%.

Jim Suva: Revenue and sales and marketing and that is that as a high watermark for us.

Jim Suva: We haven't seen it translate into year over year, Pos yet, but we're encouraged by the leading indicators that we're tracking in terms of reach and clicks and views.

Jim Suva: And increased traffic to cricket Dot com.

Jim Suva: We are confident that we are spending on the right things and we're comfortable that we're spending at the right levels and as we get more data and and.

Jim Suva: Learn we will lean into that spend but we want to make.

Jim Suva: Sure that we are doing it responsibly and in a way that.

Jim Suva: Helps us manage our business for the long term with a view on our profitability.

Speaker Change: Great. Thank you.

Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn the call back over to Jim Suva for closing remarks.

Speaker Change: Thank you Breanna 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 cricket platform continues to not only strengthen but also provide increased value to our users. We continue to manage the business for sustainable.

Jim Suva: Profitable growth and generate healthy cash flows I'm excited about the opportunities ahead of us.

Jim Suva: If you have additional questions. Please email me at Jay Suva at cricket Dot Com. This now concludes this earnings call and you may disconnect. Thank you.

Jim Suva: Thank you for your participation in today's conference you may now disconnect.