Q1 2025 Cricut Inc Earnings Call
James Suva, James Suva, Eric Sheridan, Ashish Arora
James Suva, Eric Sheridan, Ashish Arora,
Speaker Change: Good day and thank you for standing by. Welcome to Cricut's first quarter 2025 earnings call. At this time, all participants are in the Listen Only mode.
Speaker Change: After this speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you'll need to press Star 1-1 on your telephone. You'll then hear an automated message advising your hands is raised. To withdraw your question, please press Star 1-1 again.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance.
Speaker Change: Thank you operator and good afternoon everyone. Thank you for joining us on Cricut's first quarter 2025 earnings call
Speaker Change: A replay of the webcast will also be available following today's call.
Speaker Change: For your reference, a company slide 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.cricket.com
Speaker Change: Joining me on the call today are Ashish Arora, Chief Executive Officer, and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded after which Ashish and Kimball will host live Q&A.
Speaker Change: 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
Speaker Change: Business, Expenses, Terriffs, Capital Allocation, 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 company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of Cricut's most recently filed form 10K or form 10Q that we have 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, May 6, 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.
Speaker Change: We acknowledge that tariffs have introduced uncertainty into our markets and into our financial plans.
Ashish Arora: That said, we have spent the last several years moving the majority of our Finnish good spend outside of China across all of our product categories.
Ashish Arora: So while we have exposure to Southeast Asia tariffs in general,
Ashish Arora: We feel we have a competitive advantage in our current supply chain configuration relative to competition.
Ashish Arora: We will discuss the potential impact of tariffs later on this call.
Total sales in Q1 decreased 3% year and year.
Ashish Arora: We are pleased with the increase in paid subscribers in Q1 up over 6% year-to-year, the continuation of positive international sales growth which increased 8% year-to-year and strong profitability with operating income up 16% year-to-year.
Ashish Arora: Given the confidence in the sustainability of our profitable operations and right-sizing our balance sheet post-COVID, the Board of Directors approved three capital allocation
Ashish Arora: A special dividend of 75 cents per share, approval of our recurring semi-annual dividend of 10 cents per share, payable in July , and replenishing our stock repurchase program
Ashish Arora: Kimball will provide more details on these three capital allocation items in a few minutes.
Ashish Arora: In Q1, platform revenue increased 2% on paid subscriber growth. Products revenue declined 7% as connected machines revenue growth of 4% was more than offset by the 15% decline in accessories and materials.
Ashish Arora: We are pleased with the progress in connected machines as a higher investment in marketing and promotions over the past few quarters appears to be making a difference.
Ashish Arora: Both selling units to retailers and sell out units to end consumers were up for the quarter.
Ashish Arora: We are dissatisfied with our results in access to the materials which would have declined further but for the benefit of one-time items.
Ashish Arora: While paid subscriber growth is indeed a win, we would benefit from stronger acquisition and engagement.
Ashish Arora: We ended the quarter with just over 5.9 million active users who cut in the past year, down less than 1% from a year ago, while our 90 day engage users declined 4%.
Ashish Arora: As I mentioned last quarter in 2025, we are relentlessly focused on increasing our speed of execution and our accelerating investments that will help drive future revenue growth.
Ashish Arora: We are continuing to lean into these investments as we navigate the uncertainty introduced by tariffs.
Ashish Arora: These accelerated investments are in hardware product development, materials, and engagement.
Ashish Arora: In Q1 we enlarge two new cutting machines and also more cricket value materials and we are pleased with the new launches.
Ashish Arora: We need to reignite our top line to satisfy the expectations of our team and our shareholders.
Ashish Arora: We have convection in what we need to do to return to growth.
Ashish Arora: We need to attract more new users to buy our connected machines as we focus on addressing affordability, ease of use, and increasing marketing and awareness.
Ashish Arora: We need to reverse weakening engagement trends and re-inject enthusiasm among our users by enhancing and simplifying the making process.
Ashish Arora: We need to take back our share in accessories and materials.
Ashish Arora: I will now talk about four priorities, new user acquisition, user engagement, subscriptions and accessories and materials.
Ashish Arora: We continue to focus a new user acquisition and engagement growth on our platform, which ultimately drives a monetization fry wave. I'm excited about the recent launch of the next generation of our most popular cutting machines, click and explore for and click and make a four.
Ashish Arora: These new machines became available at the end of February in the US and Canada and other locations in March.
Ashish Arora: While these machines were just launched in late Q1, we are pleased with the initial feedback which is positive from both retailers and users.
Ashish Arora: Furthermore, we are seeing an increased uptake with our bundles, where we add increased value to users and make the out-of-box experience easier.
Ashish Arora: In Q1, we focus heavily on tailoring our paid social content across Meta, Pinterest, and TikTok to drive users further down the funnel.
This platform's specific approach helps strengthen mid-frontal efforts across platforms.
Ashish Arora: At the same time, we continue to see strong results from our streaming TV ads and have expanded our strategy to incorporate sales messaging further supporting our full funnel marketing approach.
Ashish Arora: Recall, last quarter we mentioned that we expected to continue marketing spend for 2025 at a similar level to 2024.
As we re-accelerate consumer excitement for the brand and category.
Ashish Arora: Given the uncertainty created by tariffs and the potential ripple impacts on household discretionary spending, we will be data driven in our future marketing investments.
Ashish Arora: We continue to experience expected engagement erosion from our large user cohorts from 2020 and 2021 and from subsequent years, who age on their engagement curve and are not being replenished with as many new users.
Ashish Arora: Also our more recent new users tend to create fewer projects and use fewer material types in these projects and crafters and past years.
Ashish Arora: Are initiatives to improve our experience for new users joining our platform or on-boarders
Ashish Arora: We are also increasing our investments to enhance the overall user journey by helping them go smoothly from a project idea to a physical project in their hands.
Ashish Arora: Our great content library of images in France, along with our continued improvements in AI and machine learning search algorithms, continued to be strong valued drivers on our platform, especially for our cricket-access subscribers.
Ashish Arora: Judith Siegel, Broad and diverse selection of high quality makeable content which often fall short when using external sources.
Ashish Arora: We continue to see a favorable trend in the share of projects cut using our library versus external content.
This trend helps retention of our cricket-access subscribers.
Ashish Arora: We continue to simplify the Autobot experience and guide first time users step-by-step to the most popular project types.
Ashish Arora: This includes new personalized first-cut experiences, visualization of digital designs as a physical product preview, adding guided touchpoint and leveraging AI assistance all the way through successfully making their creations.
Ashish Arora: In 2025, we will continue to enhance and simplify design space.
Ashish Arora: focusing on specific use cases and streamlining the entire customer journey for each of those use cases, both from a design and assembly perspective.
Ashish Arora: Q1 was also the first full quarter of offering a new engagement marketing platform with personalized push notifications in the US and Canada. Our goal is to bring more users back to the platform to drive inspiration and reasons
Ashish Arora: We are pleased with the increase in returning traffic we are generating.
Ashish Arora: A portion of users came back for the first time in the quarter thanks to these efforts. We are continuing to expand the capabilities of our platform to enable more omnichannel campaigns.
Ashish Arora: At the end of Q1, we also started deploying a new engagement marketing campaigns to countries outside the US.
Ashish Arora: Despite the continued pressure on an engagement matrix, we are confident in our efforts to simplify the design experience.
Ashish Arora: continue to grow the number of images, fonts, and editable designs, and improve our capabilities to bring users back to our platform to make a project.
Ashish Arora: Chris is a platform company and design space is a core platform.
Ashish Arora: Nothing is more important to us than providing our users with a deeply rewarding creative experience every time they come to a design space.
Ashish Arora: We are not there today, but we believe that the focus and resources we are bringing to bear will result in significant improvements over the next 12 months.
Ashish Arora: In Q1, a paid subscribers increase over 6% to just over 2.97 million.
Ashish Arora: Bay subscribers continue to be a big positive for us, and increase 177,000 year-on-year, and increase 15,000 sequentially in Q1.
Ashish Arora: We are doing a more effective job of capturing a higher percentage of on-boarders as subscribers.
Ashish Arora: We are also seeing positive trends and windbacks, where our promotional offers are driving increased signups from prior subscribers.
Ashish Arora: Recall, in the second half of 2024, pre-focus promotion efforts on reducing cancellations and BSC improvements in our ability to mitigate cancellations with these promo offers and improved explanation of subscriber benefits.
These efforts continued in Q-1.
Ashish Arora: We have a rich roadmap to continually increase the value proposition for subscribers.
Ashish Arora: including over 1 million high-quality makeable images at a suite of premium design tools along with the content strategies described above.
Ashish Arora: Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our content and software tools.
Ashish Arora: As our engagement efforts bear fruit, we expect to see a further boost to our subscriptions.
Ashish Arora: Accessories and material sales are declined 15% in Q1, which includes about 5% of points of health from one-time items.
Ashish Arora: In our efforts to return cricket to growth, we know we have to return accessories and materials to growth.
Ashish Arora: We also continue in our relentless focus to drive costs out of this business, including diversifying our finished good supply base largely out of China over the past several years.
Ashish Arora: We are also focused on having the right product configurations in the appropriate channels, so Cricut materials are the obvious choice when users want to make.
Ashish Arora: Over the last several years, we have lost ground to competition in material types.
where there are no barriers to entry.
Ashish Arora: This is manifested in white label brands and retailers as well as new entrants in online marketplaces.
Ashish Arora: We have embraced the challenge to provide refreshed and cost-competitive materials and accessory offerings.
Ashish Arora: As these offerings continue to roll out over the coming 12 months, we intend to reclaim market share and by doing so and have the making experience of our users.
Ashish Arora: Recall, in first half 2024, we launched the Cricut Value Line of Materials with over 30
Ashish Arora: Given the success we saw, we are accelerating this business as we launched over a hundred schools in late March and early April this year.
Ashish Arora: We have expanded the cricket value line beyond the initial assortment of iron on vinyl and cardstock to include glitter iron on and there is more to come.
Ashish Arora: Consumers love the value proposition of Cricut value line of materials with its quality and ease of use We continue to be optimistic about this product now that we have some history in the market
Ashish Arora: But it is still a small portion of her portfolio. We have additional innovation, products, and cost reductions coming in the quarter of the head.
Ashish Arora: We also launch e-commerce specific configurations of our main line of materials which are performing well.
Ashish Arora: Consistent with prior comments, we will continue our promotional candidates in this category to remain price-competitive for consumers with a focus on winning share.
Ashish Arora: We continue to explore opportunities to increase Cricut's market share within our omnichannel retail partners.
Ashish Arora: Also, we believe our more diversified manufacturing footprint gives us an advantage relative to competitors as tariffs are rolled out, giving us an opportunity to potentially capture more open to buy dollars from our retail partners.
For some accessories, we recently focused on being more price-comparative.
Ashish Arora: This may create some near-term margin pressure for these products, but as our accelerated hardware strategy
Ashish Arora: We are intensely focused on the overall customer experience and we are motivated to work with those retailers that help us create a great experience both on the shelf and for actual use of our ecosystem.
Ashish Arora: It's our fundamental belief that when we give people more reasons and inspiration to make things easily and affordably, we will see a lift to materials consumption.
Ashish Arora: We are driven to continue to innovate while exhibiting both bottom focus and current discipline.
With that, I'll turn the call over to Kimball.
Kimball Shill: Thank you Ashish, and welcome everyone. In the first quarter we delivered revenue of $162.6 million, a 3% decline compared to the prior year. We generated $23.9 million in that income, or 14.7% of total sales in Q1.
Kimball Shill: Breaking revenue down further, Q1 2025 revenue from platform was $80 million, up 2% year-on-year.
Kimball Shill: We ended Q1 with just over 2.97 million paid subscribers, which is up 177,000 or 6% year-on-year, [inaudible]
from Q4.
Kimball Shill: Platform revenues were up less than paid subscribers due to more promotions, makeshift more toward annual versus monthly subscriptions and geographic makeshift more international, all of which are targeted efforts.
ARPU increased 2% to $53.10 from $52.26 a year ago.
Q1 revenue from products was $82.6 million, down 7% year on year.
Kimball Shill: Connected Machines Revenue increased 4%, driven primarily by more units sold combined with fewer legacy machine sales.
Kimball Shill: Selling units to retailers and sell out units to end consumers were both up for the quarter. Accessories of materials decreased 15% and included about 5 percentage points of help from one-time items.
Kimball Shill: In terms of geographic breakdown, international revenue for the quarter was $35.1 million, an increase of 8% compared to Q1 2024, and included about 2% of foreign exchange headwind.
Kimball Shill: As a percentage of total revenue, international was 22% in Q1 2025.
compared with 19% of total revenue in Q1 2024.
Kimball Shill: We saw strength in our U.K., Germany, Mehta, and Latin America markets.
Kimball Shill: We are experiencing continuous softness in Australia. We are increasing sales and marketing resources to further fuel momentum in international markets.
Kimball Shill: We ended the quarter with just over 2.97 million paid subscribers, up over 6% from Q1 2024 and up sequentially.
Kimball Shill: This continues to be a bright spot for us, and Ashish detailed our efforts that are gaining traction in this area, but I do want to mention, as discussed in earlier calls, there are some natural subscriber attrition, so subscriber growth may be challenging until we increase the pace of machine sales and new user acquisition.
Kimball Shill: Recall this could result in a seasonal pattern of quarter-on-quarter paid subscriber growth in Q1 and Q4, but flat to declining quarter-on-quarter subscriber counts in Q2 and Q3.
Kimball Shill: Moving to Gross Margin, Total Gross Margin in Q1 was 60.5% and increased from 54.7% in Q1 2024. The improvement reflects a higher amount of subscription revenue as a percentage of total revenue and higher product gross margins.
Kimball Shill: Breaking Gross Margin down further, Gross Margin from Platform in Q1 lists 89.2% compared to 88.8% a year ago.
Kimball Shill: The increase in platform gross margin for the quarter was primarily related to lower amortization of software development costs.
Kimball Shill: Gross Margin from Products with 32.7% compared to 24.8% in Q1 a year ago.
Kimball Shill: The increasing growth margin for the quarter was primarily due to selling previously-reserved inventory and a more favorable product mix as we launched new products.
Kimball Shill: The uplift from these items, more of an offset, are increased from emotional activities. Total operating expenses for the quarter were $69 million and included $10.2 million in stock-based compensation.
Kimball Shill: Total Operating Expenses increased 4% from $66.4 million in Q1 2024.
Kimball Shill: Recall, we increased our marketing efforts during 2024 by $20 million.
Ashish Arora: and continued at a similar rate through Q1. As Ashish mentioned, we will be data driven in our future marketing spend as we navigate the uncertainty from terrorists and potential impact on consumer spending.
Ashish Arora: We will continue to lean into our physical products and platform investments to drive future growth as we continue to manage our business through a long-term lens.
Ashish Arora: Operating income for the quarter was $29.3 million or 18% of revenue compared to $25.2 million or 15.1% of revenue in Q1 last year and was benefited from the one-time items by almost 4 percentage points.
Ashish Arora: The tax rate in Q1 2025 of 26.7% was lower than the 30.6% in Q1 2024, primarily due to fully vested RSAs in 2024, which increased the prior year tax rate, combined with higher RRD credits in 2025.
Ashish Arora: For the quarter, net income was 23.9 million dollars, or 11 cents for diluted chair. Compared to 19.6 million dollars, or 9 cents for diluted chair in Q1 2024.
Turning it out to balance sheet and cash flow.
Ashish Arora: We continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth.
Ashish Arora: In Q1, we generated $61.2 million in cash from operations, compared to $56.7 million a year ago. We ended Q1 with cash and cash equivalence of $357 million. We remained debt-free.
Ashish Arora: During Q1, we paid approximately $21 million for the declared 10-cent per share semi-annual dividend on January 21st, 2025.
Ashish Arora: We used $12 million in cash to repurchase 2.1 million shares of our stock.
Ashish Arora: As a result, $10.9 million remained in our previously approved $50 million stock repurchase program as of the end of March.
Ashish Arora: As Ashish mentioned, given the confidence in the sustainability of our profitable operations and right-sizing our balance sheet post-COVID, the Board of Directors approved three capital allocation items.
Ashish Arora: First, a special dividend of 75 cents per share, which is primarily driven by the inventory reductions which we do not expect to continue. Second, approval of our recurring semi-annual dividend of tens cents per share, which is primarily driven by our profitable operations.
Ashish Arora: Both the special dividend and the recurring semiannual dividend will be payable on July 21st, 2025 to share holders of record on July 7th, 2025.
Ashish Arora: Third, the replenishing of our stock repurchase program up to $50 million, which incorporates the unused portion from the prior approvals.
Now, on to our outlook.
Ashish Arora: Recall we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook. We are focused on controlling what we can control, and we are managing our business through a long-term lens.
Ashish Arora: As Ashish mentioned, we are keenly aware of the uncertainty created by changing tariffs and we are proactively assessing and adjusting as needed.
Ashish Arora: We may take a more measured approach for marketing investment based on potential, consumer spending changes in reaction to terror policies, and will be data-driven under decisions to rebalance both investments and consumer pricing.
Ashish Arora: We continue to 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.
Ashish Arora: We also continue to expect the rate of sales decline should be less than the rates we posted in the first half of 2024.
Ashish Arora: While we are working with tremendous urgency to get to an inflection point this year, we are aware that the dynamics surrounding tariffs and associated consumer discretionary income impact may put that at risk.
Ashish Arora: We continue to expect platforms else to increase year-and-year on paid subscriber growth.
Ashish Arora: However, lower new user growth rates will put pressure on our subscriber growth rates.
Ashish Arora: This could result in a seasonal pattern of quarter-on-quarter paid subscriber growth in Q1 and Q4, but flat to declining quarter-on-quarter subscriber counts in Q2 and Q3.
Ashish Arora: Given the uncertainties surrounding carous, our prior guidance for operating margins can no longer be relied upon, and we are no longer providing any color on our operating margin expectations for the year.
Ashish Arora: We expect to be profitable each quarter and generate significant positive cash flow during 2025. While tariffs are the reality of today's world, our teams continue to be proactive and nimble with how we execute our strategy as we continue our investments to position the company for growth. With that, I'll turn the call over to the operator for questions.
[inaudible]
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star one one again. Please stand by, while we compile the Q&A roster.
Speaker Change: Our first question today comes from Tara Wilson with Morgan Stanley . Your line is open.
Maya: Hi, this is Maya, I'm for Eric Woodring. Two questions from me.
Speaker Change: Maybe the first, you know, you just talked about tariff. So, you know, what are some of the levers that you have to mitigate any tariff-related headwinds? I understand you diversified your supply chain footprint a lot over the past few years, which is great.
Speaker Change: But are you raising prices to offset tariff costs? Are you absorbing some of them? And have you seen any pull forward ahead of price increases?
Speaker Change: Maya, thanks for the questions. So, I'll terracely break it down to three parts. First, our supply chain configuration, as you called out, because we actually do think it is a help to us at this point relative to some of the competition. Then I'll talk about potential margin impacts of the business and then impact the customer pricing.
Speaker Change: So over the last several years we've been moving our fish could spend outside of China.
Speaker Change: and so we think that position does well in the current environment. So, for example, all of our hardware products, our cutting machines, our heat presses, and other extensions,
and those types of accessories are all manufactured in Malaysia.
Speaker Change: and many of our consumables are produced in South Korea, Thailand, and some still come out of China.
Speaker Change: But overall, the vast majority of the fish goods spend comes from countries other than China. And so especially for some of our partners that have more China exposure, we think that represents an opportunity for us.
Speaker Change: From a margin impact, it's a dynamic situation and still a little too early to call as one of the reasons why we have removed any color or outlook on operating margins for the year. But that said, I want to emphasize that we expect to be profitable each quarter and to generate significant cash flow.
Speaker Change: What it comes to consumer pricing, we're still evaluating...
Exactly how that plays out.
Speaker Change: But we do expect the average consumer price to go up and we'll achieve that through a combination of less deep promotions and some target of price increases but we'll be very deliberate on how we exercise pricing strategy. So again recapping supply chain, we think of the help margin.
Speaker Change: Two soon to tell, and so we're removing guidance, but expecting the profilage quarter and produce significant cash flow, and then we do expect some impact on consumers.
Speaker Change: On the second part of your question, are we seeing any pull-forward of orders? In Q1, we didn't see any, but recall, Liberation Day came after the end of the quarter.
Speaker Change: and since the quarter close, we've had multiple conversations with some of our U.S. channel partners that have slowed or discontinued receipts from China. And so, where we have an opportunity to help stock shelves and support revenues of our partners, and we have an opportunity
Speaker Change: to gain share in a proper way. We have agreed to incremental inventory shipments.
Speaker Change: We're also seeing an incremental consideration for in-store placement and marketing from our retail partners.
Speaker Change: That largely relates to our consumables business and accessories of materials. On machines where we have a more constrained supply chain with long lead times, we'll continue to support the normal run rate to keep channels in balance.
Yeah.
Ashish Arora: Maya, let me just jump in, just to reinforce a couple of things that Kimball said in the first part of the question about tariffs.
Ashish Arora: You know, on the pricing and promotions front, we're going to be, you know, very deliberate on, you know, very measured pricing actions, if and when we think it's necessary.
Ashish Arora: and also I think we'll be very disciplined on our promotional cadence.
Ashish Arora: to the extent that we will probably not go as deep and as broad, but overall we think that, again,
Ashish Arora: Even from Malaysia and some of the other countries the tap situation may change, but at this point given the information we have, we think we are relatively well positioned in this environment.
Great, thank you. And then one last.
Speaker Change: One for me. It was good to see, you know, connected machines revenue returned to growth in one queue. And the front performance and platform as well. But can you maybe give us some more details and color on engagement trends that looked like.
Speaker Change: You know, engaged users, declined year-ever year, and sequentially active users, you know, out with slightly lower year-ever year.
Speaker Change: and I know you've spoken extensively about the initialism efforts in place to drive engagement higher, so can you help us understand why and when we should start to see these engagement efforts bear for it? Thank you, and that's it for me.
Speaker Change: Thanks Maya for the question. So first what I want to acknowledge, right? We've been talking about this for several quarters now and engagement continues to be a challenge.
Speaker Change: So, I won't go into too much detail because on the reasons why it continues to be a challenge, but let me just kind of quickly recap.
Speaker Change: The two main reasons are the large cohorts that we acquired in 2020 and 2021, which as they engage with the graduates over time, that puts a lot of pressure, especially if one acquisition is improving, we are still not acquiring enough to offset that.
Speaker Change: The second is, as we position the platform and the category for mainstream users as we get to a broader audience on many cases in a bandage, but those new users are cutting less.
Speaker Change: You know, they come on to the platform, they fall in love with the platform, they're able to use it very easily and the learning curve very low so that they come back more often from the get go, right? To me, that is probably the single most important thing that we should be focusing on.
Speaker Change: We have implemented a marketing platform and we are seeing really good results from it, which is how do we bring users, not only do we have to improve?
Speaker Change: The making experience, the designing experience, how do you give people more reasons to come back? You know, and we are doing that through...
Speaker Change: Personalized Notifications and sending them information or inspiration that encourages them to come back and make a project.
Speaker Change: and we've seen some really good results for that, so we're going to scale that, we've so far implemented that in US and Canada, and we're going to scale that internationally as well as amplify those marketing efforts, so that's the second thing we are doing. And it's probably the most important one.
Speaker Change: and the way we are doing that is through these very specific use cases. So in addition to making changes to the platform, our goal is that when a user comes in, how do we uncover that intent? Well, they're here to make a t-shirt, they're here to make a vinyl decal or a card.
Speaker Change: You know, on another project, how do we make it easy for them to make that in three or four easy steps?
Speaker Change: So, I think we will actually be delivering those use cases throughout the year. We think that it will not only improve the experience for onboarders, but it will also give us the reason to bring back many of the past users that are not coming onto the platform as often.
Speaker Change: So I know we've been talking about this for a while but we have a tremendous amount of conviction and confidence that we are working on the right things and as some of these things converge we expect to see those engagement numbers go up.
James Suva, James Suva, Eric Sheridan, Michael Cadiz,
Prick question.
Speaker Change: Our next question is from Mike Cadiz, from City Group. Your line is open.
Speaker Change: Hi there. Good afternoon. Thanks for the message. This is my Cadiz for Asiya Merchant. It's Citi. I have a couple questions myself. The first is...
Speaker Change: It's good to see that you continue to mention an inflection point or aspire to an inflection point.
Speaker Change: this year. So my question is, what gives you the confidence that such an inflection point can be reached this year? That's number one, and the second is...
Speaker Change: How's the profitability was much stronger than expected? How should we think about that going forward? And that's it for me. Thank you, folks.
Speaker Change: Hey Mike, thanks for the questions. So first on the deflection point, as we called on the preparing marks, given the uncertainty of tariffs, that may put that at risk, but let me...
Speaker Change: Share some of the breadcrumbs that we see in our business. First of all, our machine business is improving.
Speaker Change: We were up selling revenue on machines, we were up selling units for the quarter, and we were up sell out units for the quarter.
Speaker Change: That's only the second time that's happened since 2021 and so we think it's it's signs that our our marketing efforts are starting to bear fruit and we're and we're re accelerating with consumers.
Our platform business continues to grow, paid subscriptions is up.
Speaker Change: and while assessor's interiors is still challenged and was headwind of the quarter, we continue to see our value line doing well. And again, a small part of the portfolio, last year we launched about 30 SKUs over the course of the year as a test. We saw it perform well.
Speaker Change: In late Q1 and April , we launched over a hundred news queues and value line that we think will have an impact on the year.
as we focus on gaining shared materials.
Speaker Change: And then, the final point is, you know, we do believe our supply chain configuration helps us
Speaker Change: as we lean in with our retail partners and with the opportunity to potentially gain share there in the short term. So that really goes to, you know, the signs of positivity within the business.
in terms of the profitability.
Speaker Change: Yeah, there were about four points of help in the quarter that we called out, four percentage points of help in the operating margins that we called out, and let me kind of break that down in pieces. There's kind of stuff above the line and then one below the line. So our gross margins for the quarter were 60.5%.
and, you know, in our product segment.
Speaker Change: We had some new product launches that carry higher gross margins.
Speaker Change: We had some excess inventory that we were able to monetize during the quarter and if you I'll call out footnote 5 in the queue, it'll show you that we worked here about $5 million of our
Access and Obesleep Balance there.
Speaker Change: and then we also had the benefit of some duty drawback as the one-time item that was the help of the quarter.
Speaker Change: and then on the other side of Gross Margin platform continues to be a significant portion of our revenue and that carries about 89% gross margins and so that really explains kind of the higher gross margins for the quarter and then below the line in GNA we had some bad debt related to the Joanne's bankruptcy that we were able to unwind based on a favorable court ruling.
Actually, thank you.
Speaker Change: Thank you for your question. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone.
Adrian Yee: Our next question comes from Adrian Yee with Barfleet. Your line is open.
Adrian Yee: Hi, this is Angus on Prajuni. Thanks for taking my question.
Adrian Yee: I have two questions on product. My first is, could you talk about the uptake of the new fourth-gen machines, both from a customer feedback and usage standpoint, and then also from a retailer standpoint in terms of timeline to get fully ramped and fully in stock with your key partners?
Adrian Yee: given the uncertain ordering backdrop that you cited when answering Maya.
So, so, Angus, it takes the question.
Adrian Yee: So we launched in kind of late Q1, the next generation machines, Maker 4, which is our flagship and Explorer 4.
Adrian Yee: I'm not prepared to split out exactly how those machines did, but I will say they've been well received with retailers and consumers. And we are not short on stock of machines, right? And what I was talking about really is...
Adrian Yee: We will continue to ship machines on a run-rate basis according to forecast and that's really driven by sell-out and so there's not really an opportunity to do a lot of pull-in of machines but we also have sufficient to meet the demand that we see and that we expect.
where we do have more flexibility is on our… [inaudible]
Adrian Yee: Consumable Business. So in the accessories and material side of the business, where we have more flexibility and shorter lead times and where we have retail partners that have exposure because of of
Adrian Yee: Chipmins that they be the slower pause from China, we do have the ability to step in and do more without putting other retail partners at risk.
Speaker Change: I got it, that's great. You can touch on a little bit but my second question is also on hard good segments.
Speaker Change: How is the Value Line of Materials performing in terms of-
Speaker Change: You know, regaining market share from private label brands and just taking a step back anything you could share in terms of how far along that product line is in its journey and where you see it going in terms of percent of your partner doors and websites that it will ultimately be sold in.
Thank you.
Thank you.
Speaker Change: Yes, so our value line materials is engineered to compete well in online marketplaces specifically, right? It's the right product configuration so that it's profitable for Cricut and it's profitable for our partners as we compete online.
Speaker Change: Again, mentioned that last year was only a 30-stuse, this year has been over a hundred. We have more coming, but it's still a small part of the overall portfolio. But we see that growing over time, and we see it as an opportunity where we can gain share particularly online in the materials business.
Yep.
Speaker Change: I'll just add to that, we are going to see an enhanced push for the value line of materials we have.
Speaker Change: You know, we have a hundred skills coming, we have more skills in the work in the second half of the year and going into next year.
Speaker Change: We are basically focusing on a lot of configurations that make the product affordable to our consumers and we ultimately think that it will become a meaningful portion of our portfolio, but it's going to be a journey to get there.
Speaker Change: Angus, I'd also like to emphasize that we're continuing to write costs out of all of our materials, so while value line is about how do we gain and win online, we're continuing to be more competitive and how we compete across all of our channels with the materials business.
Great, thanks. Good luck.
Thank you.
Speaker Change: Again, if you would like to ask a question, press star 1-1 on your telephone.
One moment please.
Jim Suva: I'm showing no other questions at this time, so I would like to turn it back to Jim for closing remarks.
Jim Suva: Thank you, Theresa, and thank you for everyone for joining us this afternoon. We have a large opportunity over the long term to drive new user growth.
Jim Suva: and increased engagement. The Cricut platform continues to not only strengthen but also provide increased value to our users.
Jim Suva: We will continue to manage the business for sustainable, profitable growth, and generic healthy cash flows. I'm excited about the opportunities ahead of us.
Jim Suva: If you have additional questions, please email me at jsuvaatcricut.com. This now concludes this earnings call and you may disconnect.