Q4 2024 Cricut Inc Earnings Call
Okay.
Speaker Change: Good day, and thank you for standing by and welcome to the cricket Forecourt fourth quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question, especially the answers.
Speaker Change: To ask a question during the session you will need to press star one on your telephone.
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Speaker Change: He used to be advised that today's conference is being recorded I would now like to turn the call over to your speaker today, Mr. Jim Suva. Please go ahead.
Jim Suva: Thank you operator, and good afternoon, everyone. Thank you for joining us on crickets fourth quarter 2024 earnings call.
Jim Suva: Please note that today's call is being webcast and recorded on the Investor Relations section of the company's website.
Jim Suva: A replay of the webcast will also be available following today's call.
Jim Suva: For your reference accompanying slides used on today's call along with the supplemental data sheets have been posted to the Investor Relations section of the company's website.
Jim Suva: Bester Doc crickets Dot com.
Speaker Change: Joining me on the call today are Ashish Aurora, Chief Executive Officer, and Kimball Shell Chief Financial Officer.
Speaker Change: Days prepared remarks have been recorded after which ashish and Kimball will host live Q&A.
Speaker Change: Before we begin we would.
Speaker Change: 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.
Speaker Change: These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
Speaker Change: These statements are based on current expectations of the <unk>.
Speaker Change: 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 filed with the Securities and Exchange Commission.
Speaker Change: 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 March 4th 2025.
Speaker Change: Cricket assumes no obligation to update any forward looking projection that may be made in today's release or call I will now turn the call over to Ashish.
Ashish Aurora: Thank you Jim.
Ashish Aurora: We have a strong conviction in our category and the overall market potential.
Ashish Aurora: While our opportunity is sizable even in the shorter term, we are disappointed with our inability to execute and capitalize on it.
Ashish Aurora: While we are pleased with our growth in operating income we are working with tremendous urgency and focus to drive to an inflection point for growth.
Ashish Aurora: We can achieve this potential by driving a bass bucket experience accelerating our development cycle than competing better.
Kimball Shell: I would like to look back on 2024 on what went well and what we could do better and our priorities for 2025 Kimball.
Kimball Shell: Kimball will go through much of the quarterly details and how we look at 2025.
Kimball Shell: 2024 was the eighth consecutive year of positive net income as we generated $62 8 million of net income, which increased 17% or $9 2 billion compared to 2023.
Speaker Change: It translates to a five cent increase in diluted EPS for the full year.
Speaker Change: We are pleased with our increase in profitability at a 7% increase in paid subscribers in 2024.
Speaker Change: However, we are disappointed with the 7% decline in total company sales.
Speaker Change: With the engagement metrics that continue to show softness.
Speaker Change: In 2025, we are relentlessly focused on increasing our speed of execution.
And our accelerating investments that will help drive future revenue growth.
Speaker Change: These accelerated investments are in hardware product development materials and engagement.
Speaker Change: We also recently initiated additional litigation to appropriately protect our intellectual property.
Speaker Change: Finally, we are continuing increased marketing and promotional spending that we initiated in 2024.
Speaker Change: Some of the hardware and engagement investments, we are making will only benefit future years and as a result, we expect operating income to decline year on year in 2025, and Kimball will go into these details.
Speaker Change: We need to reignite, our topline to satisfy the expectations of our team and our shareholders.
Speaker Change: We have conviction in what we need to do to return to growth.
Speaker Change: Need to attract more new users to buy our connected machines as we focus on addressing affordability and increasing marketing and awareness.
Speaker Change: We need to reverse weakening engagement trends and re inject enthusiasm among our users by simplifying to making process.
Speaker Change: You need to defend our share and accessories and materials.
Speaker Change: This plant is what went into four priorities new user acquisition.
Speaker Change: User engagement subscriptions and accessories and materials.
Speaker Change: We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our monetization flywheel.
Speaker Change: I'm excited that last week, we launched the next generation of our most popular cutting machines cricket explore for and cricket maker for these.
Speaker Change: These new machines up to <unk> faster than previous models.
Speaker Change: They are available and to fresh and modern Carlos Agency shop.
Speaker Change: We've added greater value to each machine by including tools and materials to help make us get started right out of the box.
Speaker Change: They're not material to make up to 10 projects.
Speaker Change: The cricket extra four and cricket maker for machine Msrp's at 249 at.
Speaker Change: At $399 respectively.
Speaker Change: But only an additional $50. They users can upgrade to the essential bundle that adds more value added up materials to make up to 100 projects.
Speaker Change: While these machines are just like last week, we are pleased with the initial feedback.
Speaker Change: It is positive for both retailers and end users.
Speaker Change: After several years of reductions in marketing spend.
Speaker Change: Started to carefully increase our marketing spend in 2024 to drive full funnel excitement augmenting marketing spend by $20 million.
Speaker Change: We are seeing a positive uplift from these efforts.
Speaker Change: Market mix analysis shows that our investment in top of funnel marketing had a positive impact on machine sales.
Speaker Change: In 2025, we expect to continue spending at a similar level as we reaccelerate consumer excitement for the brand and category.
Speaker Change: Given the positive uplift from our deeper promotions, which we started in 2024, we plan to be even more promotional in 2025.
Speaker Change: We ended Q4 2024 with 5.89 billion active users down 7% year on year.
Speaker Change: We had $3 eight 1 billion 90 day engage users who cut during the quarter down three 1% year on year.
Speaker Change: Over the last few years, we added fewer new users that the COVID-19 cohorts of 'twenty 2020 one.
Speaker Change: And the new users that we are attracting more recently tend to get fewer projects that new users during the pandemic.
Speaker Change: Both of these dynamics combined pressure our engagement metrics, our focus remains to maximize the engagement of our user base.
Speaker Change: As a reminder, odd borders at a particular focus because the more they interact with our platform early the more likely they are to engage with our platform over time.
Speaker Change: Which we expect to lead to a more engaged user base.
Speaker Change: During Q4, we continued to make progress on our initiatives to drive engagement with our new members by streamlining their out of box experience.
Speaker Change: In 2020 for the vast majority of our platform efforts were focused on the experience when users came organically to design space.
Speaker Change: In 2025, this will continue to be a major focus coupled with proactive efforts to bring users back to design space by sending them relevant personalized inspiration and other triggers.
Speaker Change: In Q4, we launched our first retention marketing campaigns, using our new customer engagement platform.
Speaker Change: In 2025 year old scale, this platform and activate lifecycle campaigns that will span across marketing channels, reaching our members outside our application through push notifications email SMS and social media.
Speaker Change: In 2025, we continued to simplify design space focusing on specific use cases.
Speaker Change: Streamlining the entire customer journey for each of those use cases.
Speaker Change: Both from a design and assembly perspective.
Speaker Change: Despite the pressure on our engagement metrics in Q4 2024, we are confident in our efforts to simplify our design experience by assisting users based on their project and Ted.
Speaker Change: Design space will meet users, where they are and guide them from inspiration through creation.
Speaker Change: For our paid subscribers increased 7% to $2 $96 million.
Speaker Change: Paid subscribers continued to be a big positive for us and increased 189000 year on year and increased 121000 sequentially in Q4.
Speaker Change: We are doing a more effective job at getting higher initial subscription rates from on borders.
Speaker Change: We are also seeing positive trends are win backs bad I promotional offers are driving increased sign ups from our bio subscribers.
Speaker Change: In the second half of the year, we focused promotional efforts on reducing cancellations and are seeing an incremental drop in our voluntary cancellation rate base or a promotional offers.
Speaker Change: We have a rich roadmap to continually increase the value proposition for subscribers.
Speaker Change: Including over 1 million high quality vehicle images and a suite of premium design tools, along with the content strategy as described above.
Speaker Change: Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our content and software tools.
Speaker Change: As that engagement efforts bear fruit, we expect to see further boost the subscriptions.
Speaker Change: Accessories are material sales declined 20% for the full year.
Speaker Change: Affordability plays a key role in materials.
Speaker Change: We have lost significant share in retail to private label brands.
We are now focused on being more cost competitive at retail and online.
Speaker Change: There is additional pressure because of lower engagement.
Speaker Change: We continue with our relentless focus on driving costs out of this business along with having the right product configurations and the appropriate channels.
Speaker Change: So quick and materials are the obvious choice when users want to make.
Speaker Change: Recall in first half 'twenty 'twenty four we.
Speaker Change: We launched the cricket value lineup materials with a limited number of Skus and given the success we saw.
Speaker Change: We launched additional skus in second half.
Speaker Change: We are even more optimistic about this product now that'd be has a history in the market, but it's still early and only a small portion of our portfolio.
Speaker Change: We have additional innovation products and cost reductions coming in the quarters ahead.
Speaker Change: Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers with a focus on winning share.
Speaker Change: For some accessories, we recently focused on being more price competitive.
Speaker Change: This may create some margin pressure near term, but as our accelerated hardware strategy best food, we should see an increase in profitability over time.
Speaker Change: As I mentioned previously we recently initiated litigation to protect our intellectual property or accessories and materials.
Speaker Change: 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 put actual use of our ecosystem.
Speaker Change: It is our fundamental belief that when we give people Moody's and an inspiration to make things that are appealing to them and we make it easier to make things affordably.
Speaker Change: You will see a lift to materials consumption.
Speaker Change: We are driven to continue to innovate while exhibiting both long term focus and current disciplined.
Speaker Change: After serving as a member of our board of Directors. Since 2013 led Blackwell has made the decision to not stand for reelection at the upcoming annual shareholder meeting.
Speaker Change: We thank Glenn for his contribution during the past 12 years and wish him the best in his future endeavors.
With that I.
Campbell: I'll turn the call over to Campbell.
Speaker Change: Thank you Ashish and welcome everyone in the fourth quarter, we delivered revenue of $209 $3 million, a 9% decline compared to the prior year full year 2020 for revenue was $712 5 million a.
Campbell: A 7% decline over 2023, we.
Campbell: We generated $11 9 million and net income of five 7% of total sales in Q4, and $62 8 million or eight 8% of total sales for the year.
Campbell: This marks our 24th consecutive quarter and our eighth consecutive year of positive net income.
Campbell: Breaking revenue down further Q4, 'twenty 'twenty four revenue from platform was $79 4 million up 2% year on year.
Campbell: We ended the year with $2 96 million paid subscribers, which is up 189000 or 7% year on year and up 121000 or 4% from Q3.
For the full year platform revenue was up slightly over 1% and ARPA increased 2% to $53 12 for.
Campbell: <unk> from $52 seven a year ago.
Campbell: As we were more promotional mix shifted more toward annual versus monthly subscriptions and geographic mix shifted more international all of which are targeted efforts.
Campbell: Q4 revenue from products was $129 $9 million down 15% year on year.
Campbell: Connected machines revenue decreased 13% driven primarily by fewer units sold combined with more promotional activity.
Campbell: Accessories and materials decreased 18% for.
Campbell: For the full year revenue from products decreased 12% driven mostly by the 20% decrease in accessories and materials as connected machines revenue decreased only 3%.
Campbell: Yeah.
Campbell: In terms of geographic breakdown international revenue for the quarter was $52 9 million, an increase of 3% compared to Q4 2023.
Campbell: As a percentage of total revenue international was 25% in Q4 2024, compared with 22% of total revenue in Q4 2023 for.
Campbell: For the full year 2024 international sales increased 1% and represents 22% of total company revenues compared to 20% in 2023.
Campbell: Foreign exchange benefited international sales by less than 1% for both Q4 and full year 2024, we saw strength in France meta in Latin America throughout the year and improvement in the U K in Q4.
Campbell: We are experiencing continued softness in Australia following more of the trend we see in the U S.
Campbell: We continue to make strong progress in increasing brand awareness in international markets, which we expect to have a positive impact on member acquisition in 2025.
We ended the quarter with $2 96 million paid subscribers up 7% from Q4 2023 and up sequentially.
Ashish Aurora: This continues to be a bright spot for us and ashish detail their efforts that are gaining traction in this area.
Ashish Aurora: But I do want to mention as discussed in earlier calls there is some natural subscriber attrition. So subscriber growth may be challenging until we increase the pace of machine sales and new user acquisition.
Ashish Aurora: Recall this could result in a seasonal pattern of quarter on quarter paid subscriber growth in quarter, one and quarter four.
Ashish Aurora: Flat to declining quarter on quarter subscriber growth rates in quarter, two and quarter three.
Ashish Aurora: Moving to gross margin total gross margin in Q4. It was 44, 9% an increase from 42% in Q4 2023 for.
Ashish Aurora: For the full year 2024 total gross margin was 49, 5% also an increase compared to 44, 9% for 2023.
Ashish Aurora: The improvement reflects a higher amount of subscription revenue as a percentage of total revenue and higher product gross margins breaking.
Ashish Aurora: Breaking gross margin down further gross margin from platform in Q4 was 87, 9% compared to 88, 8% a year ago.
Ashish Aurora: For the full year of 2020 for gross margin from platform was 88, 1%, which decreased from 89, 4% in 2023.
Ashish Aurora: The decline in platform gross margin for the quarter and full year was primarily related to the higher software development costs and higher hosting fees compared to a year ago, which we expect to continue.
Ashish Aurora: Gross margin from products was 18, 7% compared to 18, 2% in Q4 a year ago.
Ashish Aurora: For the full year product gross margin was 19, 3% in 2024, which increased from 14, 7% in 2023.
Ashish Aurora: The increase in gross margin for both the quarter and the full year was primarily due to a reduction in inventory impairments and selling previously reserved inventory.
Ashish Aurora: Partially by higher promotional activity.
Ashish Aurora: Total operating expenses for the quarter were $80 1 million and included $11 3 million in stock based compensation.
Ashish Aurora: Total operating expenses decreased less than 1% from $85 million in Q4 2023.
Ashish Aurora: For the full year total operating expenses in 2020 for $276 $7 million increased just over 1% from 2023.
Ashish Aurora: As Ashish mentioned, we increased our marketing efforts during 2024 by $20 million.
Ashish Aurora: Operating income for the quarter was $13 9 million or six 6% of revenue compared to $65 million or seven 1% of revenue in Q4 last year for.
Ashish Aurora: For the full year 2020 for.
Ashish Aurora: Operating income increased to $76 1 million up.
Ashish Aurora: At 9% compared to $70 million in 2023.
Ashish Aurora: As a percentage of sales full year operating income was 10, 7% in 2024 compared to nine 1% in 2023.
Ashish Aurora: Our tax rate in Q4 2024, it was 28, 3%, bringing the full year tax rate to 29, 3% in line with our expectations.
For the quarter net income was $11 $9 million or <unk> <unk> per diluted share compared to $11 3 million or five cents per diluted share in Q4 2023.
Ashish Aurora: For the full year, we generated $62 $8 million of net income and diluted earnings per share of 29 cents up from $53 6 million and net income at 24 cents diluted earnings per share in 2023.
Ashish Aurora: Turning now to balance sheet and cash flow will continue to.
Ashish Aurora: To generate healthy cash flow on an annual basis, which funds inventory needs and investments for long term growth.
Ashish Aurora: In 2024, we generated $265 million in cash from operations compared to $288 million. In 2023, we ended 2024 with cash and cash equivalents of $337 million, we remain debt free recall, we generated higher levels of cash as we work to.
Ashish Aurora: Bring inventory more in line with pre pandemic norms occur.
Ashish Aurora: Accordingly inventory decreased by $129 million from a year ago to one here.
Ashish Aurora: $15 million at the end of the year.
Ashish Aurora: During Q4, we used $8 million of cash to repurchase one 3 million shares of our stock.
Ashish Aurora: As a result, $22 $9 million remains in our approved $50 million stock repurchase program.
Ashish Aurora: After the close of Q4, we paid approximately $21 million for the declared 10 cent per share semiannual dividend on January 21 2025.
Ashish Aurora: Now onto our outlook for 2025.
Ashish Aurora: Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2025.
Speaker Change: Sheesh mentioned, we are focused on bringing assigned mature category. We are doing this by investing in our core markets through accelerating our investments in R&D, new product launches increased focus on marketing and continuing our strategy of deeper promotions on our products to drive affordability.
Speaker Change: We launched two updated connected machines last week, which we're very excited about but they have only been available for a few days.
Speaker Change: We expect total company sales to decline year on year in the first half of 2025 compared to the first half of 2024 due to continued pressure in accessories and materials.
Speaker Change: We expect the rate of the sales decline should be less than the rates. We posted in the first half of 2024, we have reason to be optimistic that we will reach an inflection point during the second half of the year.
Speaker Change: We expect platform sales to increase year on year on paid subscriber growth cover lowered their user growth rates will put pressure on our subscriber growth rates. This could result in the seasonal pattern of quarter on quarter paid subscriber growth in quarter, one and quarter four that flat to declining quarter on quarter subscriber growth rates in Q2 and Q.
Speaker Change: Three give.
Speaker Change: Given that we are continuing the efforts we began in 2024 to increase marketing and promotions, we expect to see benefits from this in 2025 and beyond. In addition, we are adding incremental investment in R&D to accelerate new products and platform enhancements that will benefit future sustainable long term growth.
Speaker Change: We are also aggressively prosecuting IP protection actions that will impact G&A. This year. Therefore, we expect operating income dollars and operating income margin percentage to be lower in 2025 compared to 2024.
Speaker Change: This will result in lower operating margins in 2025 by approximately 2% to three percentage points as we increase operating expenses, we expect incremental improvement in operating margins in subsequent years.
Speaker Change: We expect to be profitable each quarter and generate significant positive cash flow during 2025.
Speaker Change: We also expect to continue to be active with our authorized $50 million stock repurchase program, which has $22 $9 million remaining.
Speaker Change: Our long term financial model remains unchanged with operating margin targets of 15% to 19%. Our proven model has demonstrated that when we operate at scale, which we define as revenue of about $1 billion and drive top line growth. These margins are achievable.
Speaker Change: With that I'll turn the call over to the operator for questions.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one one of your telephone. We also ask that you're wasting your name and company to be announced before you proceed with your question one moment, while we support the Q&A roster.
Speaker Change: And our first question for today will be coming from Erik Woodring.
Erik Woodring: Of Morgan Stanley Your line is open.
Speaker Change: Actually Dillon for Eric or Greg.
Speaker Change: So my question is.
Speaker Change: <unk> been focusing on the engagement for many quarters, which had been declining although you did.
Speaker Change: Focusing on it.
Speaker Change: Paired remarks.
Speaker Change: But can you give us some details and more color on engagement as it looks like it continues to be challenged and actually going lower and you have spoken about this in the past and lots of efforts, but the data keeps getting worse. So this is a concern and I have been focused on this for a while and the trends have not been improving so could you.
Speaker Change: Please help us understand why Youre engagement efforts will start to show improvements and I will have a follow up.
Speaker Change: Thanks, John.
Speaker Change: So I think youre right, we've talked about engagement for a number of quarters.
Speaker Change: It's been under pressure. So let me first talk about where the pressure's coming from ill just repeat some of the comments we made in the script and then I'll talk about what we are doing differently to address it. So the two things that create creating pressure on engagement is <unk>.
Speaker Change: Quite a lot of users in 2020 in 'twenty, one and as they go through the typical engagement graduation, they based that puts a lot of that's putting a lot of pressure on engagement.
Speaker Change: Second as we are finding new users they tend to cut last week put some additional pressure.
Speaker Change: As you pointed out we've talked about the strategy for a while we actually believe that we are working on the right things we have lots of signals in our AB tests et cetera.
Speaker Change: Things that are working however, what we need to do is to execute faster. So if you noted kimball's comments about we had accelerating software development. We are putting further effort. So that we can actually make sure that we can get to finish some of the work.
Speaker Change: <unk> been executing on for a while so I think the strategy is right, we need to improve and accelerate our execution.
Speaker Change: One of the things that we are focusing on one is.
Speaker Change: On borders right, we basically think that onboard I should have a better engagement journey in the first few days, if they engage better engage more over time.
Speaker Change: The second is we have these user workflows that we're trying to implement within our platform.
Speaker Change: Our commitment basically is to execute and deliver on many of these use cases before the end of the year and finally, we've basically we've implemented a marketing platform that we are just starting to ramp up which is.
Speaker Change: Secondly, our ability it gives us the ability to send personalized information and triggers to get users back to design space. So even though they may not be thinking about making a project. Our goal is to generate ideas based on their past behavior based on some of the actions they have taken to actually get them to come back to the platform and engage.
Speaker Change: So absolutely right the point is well taken.
Speaker Change: We have focused on this we have talked about this for the past many quarters.
Speaker Change: We believe we are working on the right things, we just need to focus streamline and accelerate significantly.
Speaker Change: Execution cycles, so that's what they're working on.
Speaker Change: Got it. Thank you and you didn't mention of an inflection point in the second half.
Speaker Change: Is that for full year or quarter over quarter or what did you mean by that and also what gives you the confidence in that because.
Speaker Change: You are now in the year four of a decline.
Speaker Change: John Thanks for the question and we're not calling for full year growth, but our optimism really is rooted in our execution and all the things that we're working on as Ashish mentioned and so let me kind of take you through the different aspects of our business first and platform. That's the healthiest part of our business. We're confident in our subscription business that we expect.
Speaker Change: To grow platform revenue year on year, and we did grow in 2024 and machines, we were down 3% for the full year, but we've been spending a lot of money on marketing, we're continuing with that spend.
Speaker Change: The intermediate data that we're tracking tells us that that spend is having an impact and we believe that that.
Speaker Change: Continues to generate enthusiasm for our machines. We just launched two updated machines that are being well received.
And then and then we're pleased with the sell out trends that we're seeing quarter to date. So we believe we are gaining momentum in our machines versus and finally, a necessity to materials, while that was down 20% for the year and we know that that's where we have to really.
Speaker Change: Pick up our game, we're launching a bunch of new products in that space.
Speaker Change: We have over 100, new skus coming in many of those in the first half that will help.
Speaker Change: Build that part of the business, especially related to our value line and materials and then in Q4, we started being more promotional on some of our hardware accessories and we're very pleased with the uplift that we saw from that and we're continuing that so we think that will help us build revenue in that segment and so all of these things combined really underpinned our confidence that we will.
Speaker Change: To growth at some point in the second half of the year.
Speaker Change: Thank you one moment for the next question.
Speaker Change: Okay.
Speaker Change: And our next question will be coming from the line of.
Speaker Change: Sure.
Speaker Change: <unk> of Citi. Your line is open.
Speaker Change: Great. Thank you for taking my call.
Speaker Change: On the positive side International was up I know you highlighted a few countries that did well maybe you can just tell us about what's going on there.
Speaker Change: If this is something that you expect if you expect total revenues to be down again next year with an inflection in the second half how we should be thinking about the international trajectory.
Speaker Change: Thanks, Alex Yes, we are excited that we have grown for a third quarter in a row and our international business.
Speaker Change: And we look forward to when we were able to deliver even more growth part of the dynamic is.
Speaker Change: We're in over 50 countries and there are different levels of penetration in those markets and some of the markets where you have been in the longest are experiencing headwind similar to what we've experienced in the U S. And so for example, we highlighted a number of quarters last year, where you gave us really challenged and we saw the U K really turned the corner in Q4.
Speaker Change: France in our Metro region in particular performed well for us last year.
Speaker Change: But other markets like Australia continued to be extremely challenged and so we see shoots of growth.
Speaker Change: But but not enough to fully overcome some of the headwinds that we're seeing in some of the other markets.
Speaker Change: One of the things that we are working on this year International is is how we do.
Speaker Change: We do a better job of getting more awareness about cricket and some of our marketing spend that we're continuing to add.
Speaker Change: And our continued higher level of spend will be focused on.
Speaker Change: Building awareness and in key international markets.
Speaker Change: Okay, and if I may on a little bit on the connected machines.
Speaker Change: It seems like the rate of decline here is accelerating for connected machine.
Speaker Change:
Ashish Aurora: And I think Ashish talk about generating positive RLI from deeper promotions. So just.
Ashish Aurora: Just help me bridge that gap like what gives you the confidence is it.
Ashish Aurora: That.
Ashish Aurora: Selling these machines is the right, let's turn around and generate positive ROI, what's driving that confidence and generating positive ROI. Thank you.
Ashish Aurora: Thanks.
Ashish Aurora: Revenue played out much as we expected for the year and it really goes to the.
Ashish Aurora: Confidence in our marketing spend and when we're talking about marketing spend that's not just the deeper promotions, which is an important part of the strategy that we are continuing to 'twenty five but its also the awareness marketing and how we pull people through the funnel.
Ashish Aurora: And Thats, where our model show us that we are gaining ground.
Ashish Aurora: With our consumers that combined with the new machine launches this year and our efforts to continue addressing affordability is what gives us confidence.
Ashish Aurora: That business, where.
Yes, we can.
Ashish Aurora: Q4 was down 14%, but we were down 2% for the full year and we expect to be able to turn the tide on that business as we continue to build momentum.
Ashish Aurora: Thank you one moment for the next question.
Speaker Change: And our next question will be coming from the line of Andrea Yeah.
Speaker Change: Of Barclays. Your line is open.
Speaker Change: Hi, This is Angus kelleher on for Adrian.
Speaker Change: Quick question, and then kind of a longer winded follow up.
Speaker Change: Sure.
Speaker Change: Our wholesale partner of yours within the specialty retail category.
Speaker Change: Recently filed for bankruptcy curious if you could quantify the impact from that in Q4 and if that is included in your guidance.
Speaker Change: So.
Speaker Change: Yes, the bankruptcy, you're referring to is reflected in our in our in our Q4 numbers and it's not material to our financials.
Speaker Change: We've been actively managing that risk over the last 24 months.
Speaker Change: Got it nice to hear.
My second.
Speaker Change: Question is.
Speaker Change: Can you help US bridge, the op margin guidance, calling for two to three points of decline.
Speaker Change: What are the bigger drivers of that how much of an impact is the IP protection actions and just anything you could share on the timing of those expense headwinds.
Speaker Change: I guess.
Speaker Change: Kind of curious if it will have a similar shaping to your sales guidance, whereby youll see two extra recovery. Thank you.
Speaker Change: Thanks.
Speaker Change: So really there is four things I would highlight in terms of our.
Speaker Change: Higher Opex spend this year one is we're continuing to spend marketing at a higher level that we initiated last year.
Ashish Aurora: So that's an important part of our investment secondly, as Ashish mentioned in his comments.
Ashish Aurora: That that R&D in our for accelerating R&D and our physical products to bring more products that are compelling to consumers.
Ashish Aurora: Sooner, we're also investing heavily in platform to accelerate some of those things so that by the end of the year, we expect to have a meaningfully simpler experience for key use cases for our consumers and so those are the primary areas of spend we highlighted the IP protection because earlier this year, we initiated last year, rather we initiated both on ITC.
Ashish Aurora: The district court action to enforce our intellectual property and while we have an ongoing IP protection program, we're spending a little bit more with both of those actions, which is why we highlighted.
Ashish Aurora: Some of these investments will begin to bear fruit this year like the software platform by the end of the year. Some will benefit next year and future years and so that's that's why ultimately where we are.
Ashish Aurora: We're calling for an impact of two to three percentage points on operating margin, let me just reinforce that.
Ashish Aurora: Kim has already set a couple of things but.
Ashish Aurora: Part of it is also rooted in our conviction we believe in the very early days I know we've had a tough couple of years last few years in the last few years, but at the end of the day. We believe we are in the very early stages of a market. We are commendable market potential. So we work internally as a team and with our board. So the areas of investment has continued marketing.
Ashish Aurora: You'll see us accelerate and innovate.
Ashish Aurora: Product launches machines accessories et cetera.
Ashish Aurora: Materials as well so across the board.
Ashish Aurora: Basically investing.
Ashish Aurora: This opex and accelerating some of the development lifecycle and some of the innovation lifecycle and then finally <unk>.
Ashish Aurora: Basically if you think about the main objections as to what it takes to get to a mass market experience, it's affordability and ease of use so unwished machine that ecosystem. That's what we're working towards on the ease of use we are working on a platform to make it significantly easier to use which ultimately it also benefit engagement.
Ashish Aurora: So I think those are the three areas sustained marketing.
Speaker Change: Drive innovation to make our products easier better faster more affordable and then finally to make a very addictive engaging platform. So thats why we believe this is the right opportunity for the company to continue to build towards the mass market experience.
Ashish Aurora: Got it. Thank you best of luck in the year ahead.
Ashish Aurora: Thank you one moment for the next question.
Speaker Change: And our next question will be coming from the line of Eric Sheridan.
Speaker Change: Goldman Sachs. Your line is open.
Eric Sheridan: Thank you so much for taking the questions two if I could.
Eric Sheridan: A couple of quarters ago, we talked about alternative pathways to market things like partnering with commerce platforms.
Eric Sheridan: Players of the creator economy, how do you think about beyond just what Youre planning now marketing intensity standpoint in terms of exploring different alternative ways to put your products in the hands of.
Eric Sheridan: The broader commerce landscape, and possibly creating some virality around that away from paid.
Eric Sheridan: Marketing dynamics, where promotion dynamics that would be number one and no.
Eric Sheridan: The balance sheet has an increasing amount of cash on it.
Eric Sheridan: As to return capital to shareholders, while we're in this period, where the market was again high in the turnaround is deeper into 2025, how do you think about your priorities for capital allocation. During this time period. Thank you.
Speaker Change: Yes, Thanks, Eric.
Speaker Change: Kim will answer the second part of the question, but let me first talk about the first probably kind of take a couple of different angles right. One is we have data and we see it broadening demographics right. So we believe that.
Speaker Change: And our platform have a lot of appeal in the current manifestation right. So as we continue to enhance content as we continue to make good.
Speaker Change: Experience simpler as more of.
Speaker Change: Guided experience, we believe that there is a significant opportunity to expand to a different demographics different use cases.
Speaker Change: Right now we've talked about this in the past that you know a.
Speaker Change: A huge part of our marketing comes in the word of mouth and people get to know about the product because a friend has made a project just.
Speaker Change: Just as an example, I was in the gym, the other day and I have one of the ladies who works right.
Speaker Change: That is a CPA and she was telling me, saying Hey, Fred made a project for me and I asked.
Speaker Change: I didn't know you that crafty.
Speaker Change: The story went onto telling her about cricket rights. So we believe that as people get more engaged with the platform. There is an opportunity to create the virality that you've talked about the.
Speaker Change: Last but not the least right as we are building the platform. In addition to broadening the demographics of our current product.
Speaker Change: We're always thinking about how what are the other ways to monetize this platform how do we get to other.
Speaker Change: Forms of fulfillment other forms of what you call the creator economy. So again, our investment in the platform is not only to.
Speaker Change: Market, our current products and our current solutions to a wide range of demographics. It's also with a view to create new business models and new ways of helping people make six so I'll just leave it at that for now.
Kimball Shell: Kimball answer the second question about capital structure, Yes, Eric So I would call out that we brought inventory level down by $129 million and ended the year with $114 million of inventory and a lot of the excess cash that we've been generating over the last several years has been as we've been bringing inventory levels down from pandemic highs.
Kimball Shell: I wouldn't I wouldn't expect us to be kicking off the same level of cash going forward as we as we were able to produce this year.
Kimball Shell: Our capital allocation framework really is to make sure that we have enough inventory to run our business that we are investing for the medium and long term and that we keep some dry powder in case, there's a strategic acquisition that makes sense for us but beyond that.
Kimball Shell: Yes.
Kimball Shell: How do we return capital efficiently to shareholders and the tools, we've used historically or we have an active buyback program we have.
Kimball Shell: A recurring dividend, where we just paid our second installment in January on our semiannual dividend and then we offer we do special dividends from time to time at the board's discretion.
Kimball Shell: Great. Thank you.
Speaker Change: Thank you. This does conclude our Q&A session for today and I would like to go ahead and turn the call back over to Jim Silver for closing remarks. Please go ahead.
Thank you Lisa and thank you everyone for joining us. This afternoon, we have a large opportunity over the long term to drive new user growth and increase engagement. The cricket platform continues to not only strengthen but also provide increased value to our users. We will continue to manage the business for sustainable profitable growth.
Speaker Change: <unk> and generate healthy cash flows I am excited about the opportunities ahead for us we will be meeting with investors at the Morgan Stanley Technology Media and Telecom Conference Tomorrow Wednesday March five 2025 in San Francisco, California, and we hope to see you.
Jim Suva: Are there if you have additional questions. Please email me at Jay Suva at cricket Dot Com.
Jim Suva: Now concludes this earnings call and you may now disconnect. Thank you.
Jim Suva: Thank you all for participating in today's conference call. You May now disconnect have a good evening.
Jim Suva: Okay.
Jim Suva: [music].
Jim Suva: Okay.